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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended June 30, 2004

or

For the transition period from                 to

Commission file number 0-02287

SYMMETRICOM, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (408) 433-0910

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 Par Value

Series A Participating Preferred Stock Purchase Rights

(Title of Class)

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 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, computed by reference to the closing price at which the Common Stock was sold on December 31, 2003, as reported on the Nasdaq National Market was approximately $316,784,308. This calculation does not reflect a determination that such persons are affiliates of the Registrant for any other purpose.

As of August 31, 2004, there were approximately 45,062,853 shares of Registrant’s Common Stock outstanding.

Portions of the Proxy Statement for the Registrant’s 2004 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

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SYMMETRICOM, INC.

FORM 10-K

For the Fiscal Year Ended June 30, 2004

INDEX

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PART I

FORWARD-LOOKING INFORMATION

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 we acquire, and the risks set forth below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Results.”

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.

In the sections of this report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Results,” 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.

TimeSource, SMARTCLOCK, BesTime, GoLong, GoWide, TimeHub, TimePictra, TimeCesium, TimeProvider and TimeScan are our trademarks. We also refer to trademarks of other corporations and organizations in this document.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors That May Impact Future Operating Results” for risk factors that may adversely affect Symmetricom.

Overview

Symmetricom is a leading supplier of synchronization and timing products to industry, government, utilities, 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, frequency generation and distribution, testing, verification and/or the measurement of a time and frequency-based signal. We design and 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.

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Integration of TrueTime, Inc. and Datum Inc.

In October 2002, we completed the acquisitions of TrueTime, Inc. (“TrueTime”) and Datum Inc. (“Datum”). The acquisition of TrueTime added global positioning system (GPS)-based technology and products and gave us an opportunity to expand our customer base, add new distribution channels and strengthen our competitive position in both the government and commercial markets. The acquisition of Datum added technical expertise in atomic clock technologies, provided additional vertical manufacturing capabilities, and expanded our suite of products while also providing a larger, more diverse customer base. We spent considerable time and resources during fiscal 2003 and the first half of fiscal 2004 to integrate the operations of TrueTime and Datum, and began to realize synergies from these acquisitions in the second half of fiscal 2004. The financial results of these synergies are explained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Reportable Segments

Subsequent to our acquisitions of TrueTime and Datum, we reorganized our structure and now have a total of five reportable segments. There are four reportable segments within the Telecom Solutions Division: Wireline Products, OEM (original equipment manufacturer) Products, Global Services and Specialty Manufacturing/Other. The fifth reportable segment is our Timing, Test and Measurement Division. Information as to net revenue and gross profit margin attributable to each of our reportable segments for each year in the three-year period ended June 30, 2004, is contained in Note N of our notes to the consolidated financial statements.

Telecom Solutions Division

Our network solutions synchronize the flow of information (such as voice, video and data) in telecommunications networks. As an innovator in the development of synchronization equipment, we continue to pioneer the development of cesium, rubidium and hydrogen masers. We hold significant patent portfolios in advanced control algorithms and algorithms using the Global Positioning System (GPS) and Code Division Multiple Access (CDMA). Our technology improves the performance and operability of the telecommunication infrastructure. In fiscal 2004, we actively participated in the modernization of several synchronization networks with certain service providers, and helped others to develop future plans for such efforts. The carriers and operators are being driven by network economics and competitive forces to evolve their network infrastructure toward integrated transmission and switching functions and packet-based technologies. We believe this evolutionary trend, in turn, demands a more intelligent and reliable synchronization infrastructure. The introduction of TimeProvider in fiscal 2004 has complemented our portfolio of synchronization solutions and addresses the growing synchronization requirements of the access layer of the network.

The Symmetricom Global Services (SGS) segment provides services for all our product lines and continued growing its business during this fiscal year by expanding its product offerings for the Telecom Solutions Division with innovative new services such as Sync Office Audits and Spares Support. In addition, SGS rolled out new support services for Broadband products and expanded existing services to the enterprise and government customer base in the Timing, Test and Measurement Division. SGS continues to add new customers globally and to work closely with existing customers to deliver service products customized to meet their needs.

Timing, Test and Measurement Division

Our Timing, Test and Measurement Division provides precision time and frequency instruments and reference standards for a wide variety of applications to the aerospace, defense, enterprise, test and measurement marketplaces. Products include synchronized clocks, network time servers, network displays, time code generators, computer plug-in cards and primary reference standards such as Cesium Frequency Standards and Active Hydrogen Masers. Customer applications include frequency synchronization, synchronizing computer networks and calibration of lab equipment. To support both a diverse customer and product base, the division has built strong application engineering capabilities that allow us to tailor our standard product platforms to our customers’ unique system requirements.

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During the past fiscal year, the division completed the integration of the Datum and TrueTime product portfolios. New products include key new capabilities for our XLi flagship platform, which is a revamp of our government communications distribution platform, as well as the 56000, and an important software application for enterprise computer time synchronization. We also began the process of building brand loyalty from our legacy companies to Symmetricom through extensive eMarketing campaigns and trade show presence. Customer demand was characterized by strong government communications business with several government agencies placing large orders with the division. Demand for Network Time Servers sold primarily into enterprise IT applications remained steady. Key customers included Lockheed Martin, Raytheon, Northrop Grumman, SI International, and various military procurement and service agencies.

General Information

Symmetricom was incorporated in California in 1956 and reincorporated in Delaware in 2002. Our principal executive offices are located at 2300 Orchard Parkway, San Jose, California 95131-1017, and our telephone number is (408) 433-0910.

We maintain a website located at www.symmetricom.com. We make available, free of charge on or through our website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as practical after we electronically file such material, or furnish it, to the SEC. Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Form 10-K.

Industry Background

The markets served by Symmetricom include: wireline infrastructure and OEM telecommunications synchronization, broadband access and timing, test and measurement instrumentation for aerospace, defense, enterprise and power utilities.

The past three fiscal years have posed a tremendous challenge to the telecommunications industry. Carriers and service providers have struggled with rapid changes in their customer base, high customer turn over, competition, evolving business models, continuing changes in the regulatory environment and changing service demands. Carriers and service providers continue to scrutinize their capital expenditures closely and continue to focus on leveraging their investments. In this environment, efficient use of the existing infrastructure becomes critical to the service provider’s success.

The time and frequency industry may be divided into the following markets: wireline infrastructure (systems), OEM Products, specialty manufacturing/other and timing, test and measurement.

Wireline Infrastructure (Systems) Market

The wireline infrastructure market includes local, long distance, and international telecommunications service providers and carriers. Customers in this market include worldwide public network providers, incumbent local exchange carriers (ILECs), public telephone and telegraph companies (PTTs), competitive local exchange carriers (CLECs), and other telephone companies and cable companies. Demand from most of this sector has declined over the past three fiscal years as network service providers continue to decrease their capital spending. In the United States, there is continued uncertainty regarding telecommunication de-regulation policies, and we believe this uncertain environment has contributed to the reduced spending by service providers. We believe that the need to make networks efficient, the need for greater reliability, and the demand for better quality of service in the infrastructure may enhance the need for synchronization over the long-term. Further, new wireless technologies may require higher quality synchronization in the network infrastructure and as these new technologies are deployed we can expect to see increasing demand for synchronization. However, the adoption of such new technologies may occur slowly.

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OEM Products Market

A major portion of our OEM Products market is the wireless communications market. Wireless telecommunications networks consist of numerous cells located throughout a service area. In a wireless network, calls are segmented, transmitted over the air, and reassembled by a receiver within the network. In certain wireless technologies, lack of proper synchronization may result in signal degradation and dropped calls and loss of data, thereby decreasing network efficiency and capacity. Furthermore, certain engineering requirements demand a high level of synchronization to support a greater number of callers simultaneously. Currently the next generation wireless base stations supporting 3G is the target market for our OEM technology and products. In addition, historically our wireless business has generated lower margins than our wireline business.

Broadband access is another part of our OEM Products segment. Broadband access continues to be a major growth area for carriers worldwide. The demand for bandwidth from businesses continues to grow steadily, and broadband service providers have focused on meeting the increased demand by more efficiently utilizing their existing infrastructure. Symmetricom’s GoWide family of broadband access products allow carriers to offer enhanced high-speed data services to their business customers through their existing DSL infrastructure. Currently, our G.shdsl products are an emerging market primarily deployed in Europe.

Specialty Manufacturing Market

Our production facility in Puerto Rico is outfitted to provide specialty (contract) manufacturing to select clients. Customers in this market are mainly from the semiconductor industry. This was a growth market in fiscal 2004.

Timing, Test and Measurement Market

Time and frequency instruments are important for expanding government and commercial communications systems of wireline, wireless, satellite and computer network technologies, as well as for synchronizing critical infrastructures such as U.S. power generation and the distribution grid. The increase in demand for precision timing is due in part to the growth in communications and computer network systems worldwide. Growth in data, voice and video transmissions on these networks is anticipated to lead to an increased demand for substantial bandwidth compared to traditional voice traffic. We believe that the current trend of integrating wireline, wireless, satellite and computer network systems and the wide-spread growth of the Internet and e-commerce will lead to increased demand for precision time and frequency products as more data crosses these networks and as demand for these services grows and the financial health of the service providers remains strong. In addition, we believe the network centric activities within private and public businesses that are installing, growing or maintaining Internet Protocol networks of computer servers and clients may also drive growth in the demand for time and frequency products. Information control in the network, as well as applications support requiring synchronized time-of-day on a secure IP infrastructure, are driving the implementation of accurate network time appliances on the network. We believe these trends will continue and will drive future growth in the demand for network based time and frequency products and services.

Products

We provide infrastructure solutions for the global communications market. We are a leading provider of synchronization, timing, and frequency solutions. The following discussion includes products from each of our five reportable segments: wireline products, OEM products, global services, specialty manufacturing/other and timing, test and measurement products.

Wireline Products

The telecommunications network consists of a series of interconnected switching equipment and other components that route information (i.e. voice, video, data etc.) throughout the network. For these networks to function efficiently, it is essential that each network be synchronized and individual nodes within the network

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operate within very precise tolerances. Precision synchronization equipment throughout these networks provides a frequency reference to enable digital switching and transmission systems to operate at a common, or synchronized, clock rate, therefore minimizing signal degradation and reducing errors in the transmission of data throughout a network.

Our core wireline (systems) products are built on atomic clock technologies (such as cesium and rubidium) and GPS. The products belong to one of three classes:

In addition to these classes, we introduced TimeProvider, the industry’s first node clock (hybrid SASE & PRS), which is planned to bring synchronization to the edge of the telecommunications network.

OEM Products

The primary use of our wireless products is within wireless base stations. Base stations are the infrastructure equipment used in all cellular and personal communication services worldwide. Many of the wireless technologies used today require very high precision frequency and timing information to operate their services.

Our component and sub-system (module) products deliver stable timing to wireless base stations using a combination of GPS receivers for timing distribution, high precision quartz oscillators and rubidium atomic oscillators. Their use depends on the specific cellular technology such as CDMA2000 or Wideband CDMA and the governing standards that apply. For example, in CDMA, most manufacturers require GPS for every base station with either a high performance quartz or rubidium oscillator. In addition, enhanced “911” (E911) services, which include wireless location technology helping emergency services personnel locate and provide assistance to wireless “911” callers much more quickly, and similar location based services require technology that utilizes accurate timing (typically derived from GPS) for the location measurement unit (LMU) products.

These solutions are also available to other communication applications requiring very high precision frequency and timing information, such as digital television transmission, high definition television, and instrumentation.

Specific products we provide are:

Another product family within OEM products is our broadband access products. Incumbent carriers are moving transport of traditional data services away from legacy equipment to new infrastructure equipment in order to lower their operational costs. Alternate carriers are moving to deliver cost effective competitive services over their ATM based Digital Subscriber Line Access Multiplexers (DSLAMs).

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Our GoWide 2.3, 4.6, 9.2 and 18.4 Symmetrical High-speed Digital Subscriber Line (SHDSL) modems portfolio offers higher data rates, greater reach and enhanced spectral compatibility when compared to legacy transport technologies. These products deliver high speeds by bundling multiple DSL links, and focus on circuit emulation applications. In addition, our GoWide network termination units provide private line and frame relay services over SHDSL utilizing the carrier’s ATM network.

Carriers choosing SHDSL to deploy services delivering higher symmetrical-speeds, enhanced routing, and security capabilities are all potential users of GoWide. These products deliver high value features demanded by small to medium sized businesses requiring increased data bandwidth. Currently, deployment of our broadband products has been primarily in Europe and acceptance of G.shdsl has been slow in the U.S.

Symmetricom Global Services

Our Global Services provides lifecycle services for all Symmetricom product lines. Services products fall into five main categories:

Specialty Manufacturing/Other Products

Our services and products can vary according to client specifications. We normally manufacture semiconductor equipment. Also included in this segment are any products that are not specifically allocable to another division.

Timing, Test and Measurement Products

We offer a wide variety of precision time and frequency products. These products can generally be divided into the following broad categories:

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Quartz-based clocks are subject to numerous physical factors that affect the overall clock accuracy and stability, including temperature changes and aging. We rely upon GPS as a timing reference for continuously disciplining our oscillators, the fundamental component that determines the accuracy of our time and frequency products. GPS provides 24-hour worldwide coverage that is not affected by weather conditions. Coverage by 24 satellites in six near-polar orbits together with numerous ground monitoring/verifying stations produces a readily available and highly accurate timing reference. However, GPS navigation receivers tend to deliver compromised results when used as a time and frequency receiver. To overcome this shortcoming in a standard GPS receiver, we have developed proprietary receiver technology optimizing time and frequency that utilizes commercially available GPS electronics. For our older products utilizing a standard GPS receiver, we employ proprietary algorithms and firmware to extract optimal accuracy and stability from the clock measurements provided by the GPS core receiver. We believe our products contain superior oscillator disciplining technology that enables us to offer extremely accurate quartz oscillator timing products.

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Sales and Marketing

We sell our products directly to customers and through domestic and international distributors and systems integrators. In the United States, our wireline, wireless and broadband access products are primarily sold through our own sales force to ILECs, PTTs, CLECs, other telephone companies, wireless service providers, cable television operators, internet service providers (ISPs) and OEMs. Our instrumentation products are primarily sold through manufacturer sales representatives, and our enterprise products are sold through an internal telesales channel.

Internationally, we market and sell our products through our sales force, independent sales representatives, distributors and system integrators. As of June 30, 2004, we employed a sales and marketing force of 117 people including 83 employees in domestic sales, 13 employees in international sales, and 21 employees in marketing.

Licenses, Patents, Trademarks and Copyrights

We use a combination of trademark rights, copyrights and patent rights, as well as associated registrations, contractual restrictions and internal security to establish and protect our proprietary rights. As of June 30, 2004, we have 40 United States patents, of which 35 are active, 22 international patents and 32 pending patent applications covering certain technology used by our operations. The 40 United States patents issued expire between August 2004 and August 2022. All of our issued international patents will expire between July 2015 and April 2020. In addition, we use technology licensed from others. We believe that our patents have value, but we rely primarily on innovation, technological expertise and marketing competence to maintain our competitive advantage. The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We intend to continue our efforts to obtain patents whenever possible, but there can be no assurance that patents will be issued or that any existing patents or patents that are obtained will not be challenged, invalidated or circumvented, or that the rights granted will provide any commercial benefit to us. Additionally, if any of our processes or designs are identified as infringing upon patents held by others, there can be no assurances that a license will be available or that the terms of obtaining any such license will be acceptable to us. In addition, the laws of certain countries in which our products may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States.

We generally enter into confidentiality agreements with our employees and consultants and with third parties in connection with our technology license agreements. These confidentiality agreements generally seek to control access to, and distribution of, our technology, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to obtain and use our proprietary information without authorization or to develop similar technology independently.

In addition, we use trademarks to help identify and market our products and services. We have a number of trademark registrations and pending applications both in the United States and around the world. We rely on these trademark registrations and applications as one tool to protect our rights in our trademarks and brands. We also rely on our common law trademark rights in those countries that recognize such rights, such as the United States. We can provide no assurance, however, that any of our trademark applications will be successful, or that our existing registrations will not be challenged or invalidated. Likewise, we can provide no assurance that our registrations, applications or common law rights will enable us to stop others from infringing upon our

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trademarks, or enable us to successfully defend against claims of trademark infringement. Furthermore, effective trademark protection may not be available in every country in which our products and services are distributed.

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

Manufacturing

Our manufacturing process for standard products consists primarily of in-house electrical assembly and test performed by our manufacturing sites in Aguadilla, Puerto Rico; Beverly, Massachusetts; Tuscaloosa, Alabama and Hofolding, Germany. In addition, custom and semi-custom instrumentation products are developed, assembled and tested in Santa Rosa, California. All of our manufacturing facilities are certified and registered to the ISO 9001:2000 quality system standard. During fiscal 2004 our Puerto Rico facility was upgraded to meet the higher TL 9000 quality system standard (a standard for manufacturing and engineering) and we plan to upgrade our Beverly, Massachusetts facility to this standard in fiscal 2005. Our San Jose, California facility was also upgraded to meet the TL 9000 quality system standard for its engineering process (it is not a manufacturing site). We currently do not plan to upgrade our Santa Rosa, California; Tuscaloosa, Alabama and Hofolding, Germany facilities.

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. Our total backlog amounted to $41.8 million as of June 30, 2004, compared to $33.4 million as of June 30, 2003. Our backlog which is shippable within the next six months was $27.9 million as of June 30, 2004, compared to $24.0 million as of June 30, 2003. 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 may also be affected by the cancellation or delay of customer orders, the overall condition of the telecommunications industry, overall worldwide economic conditions and the cyclical nature of customer demand in each of our markets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors that May Affect Results.”

Key Customers and Export Sales

No single customer accounted for more than 10% of our net revenue during fiscal 2004 and 2003. In fiscal 2002, two customers each accounted for 11% of our net revenue. Our export sales, which were primarily to Western Europe, Latin America, the Far East and Canada, accounted for 32%, 33% and 35% of our net revenue in fiscal years 2004, 2003 and 2002, respectively. We have products operating in 92 countries.

Gains and losses on the conversion to United States dollars of accounts receivable and accounts payable arising from international operations may in the future contribute to fluctuations in our business and operating results. Sales and purchase obligations denominated in foreign currencies have not been significant. We do not currently engage in currency hedging activities or derivative arrangements but may do so in the future to the extent that foreign currency transactions become more significant.

Competition

Competition in the telecommunications industry is intense. Many of our competitors or potential competitors are well established and have significant financial, manufacturing, technical and marketing resources. Competitors of our synchronization products include Frequency Electronics, Inc., Huawei Technologies Co. Ltd., MicroTel International Inc. and Oscilloquartz SA. Competitors of our OEM products

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include Frequency Electronics, Inc. and Trimble Navigation, Ltd. Competitors of our broadband access products include Adtran, Inc., Cisco Systems, Inc., Efficient Networks, Inc. and Thomson Multimedia S.A. In the enterprise network timing market, we compete primarily with Meinberg and EndRun Technologies. In the cesium standards market, we compete primarily with Agilent Technologies, Inc. In the rubidium oscillators market, we compete primarily with Frequency Electronics, Inc. and Temex. In addition, certain companies, such as Perkin Elmer, Inc., that currently manufacture products exclusively for use in military applications, could enter commercial markets and compete directly with us. Competitors of our timing, test and measurement products include Frequency Electronics, Inc., Trak Systems, Inc. (a Veritas Corporation subsidiary) and Brandywine Communications. In addition, the Telecommunications Act of 1996 permits ILECs to manufacture telecommunications equipment, which may result in increased competition.

Research and Development

As of June 30, 2004, we had 85 engineers and technicians directly involved in the research, design and development of our products. We also utilize domestic and international contractors to assist us in our research and development activities. We focused our development efforts in fiscal 2004 on the development of both hardware and software products. Our new product development program includes wireline and wireless synchronization, network management software, government communication, space defense, avionics, network time service, integrated access devices and updates and maintenance on existing products. In fiscal years 2004, 2003 and 2002, our overall research and development expenditures were $16.8 million, $21.5 million and $11.3 million, respectively. We expensed all research and development expenditures as they were incurred.

Our primary product development centers are in San Jose, California; Santa Rosa, California; Beverly, Massachusetts and Austin, Texas.

Government Regulation

The telecommunications industry is subject to government regulatory policies regarding pricing, taxation and tariffs, which may adversely impact the demand for our products. These policies are continuously reviewed and subject to change by the various governmental agencies. We are also subject to government regulations and standards for our products.

Environmental Regulation

Our operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Failure to comply with such regulations could result in a suspension or cessation of our operations, or could subject us to significant future liabilities. See “Item 3. Legal Proceedings.”

Sources and Availability of Raw Materials

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

Employees

At June 30, 2004, we had 879 employees, including 607 in manufacturing, 85 in engineering and 187 in sales, marketing, service and general and administration. None of our employees are represented by a labor union, and we have experienced no work stoppages. We believe that our employee relations are good.

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The following are our principal facilities as of June 30, 2004:

We have sublet approximately 34,000 square feet of our San Jose facility through March 2007 and approximately 25,000 square feet of our Santa Rosa facility through January 2005. We believe that our current facilities are suitable and adequate to meet our anticipated needs for the foreseeable future. In June 2003, we announced that our manufacturing operations in our Irvine facility would be consolidated into our Beverly, Massachusetts facility. The integration was completed in December 2003.

In late 1996, Datum (which we acquired in October 2002) received notice of potential environmental contamination from the owner of a premises in Austin, Texas that had previously been occupied by Austron, Inc., a Datum subsidiary for its wireline operation (“Austron”), prior to Datum’s acquisition of Austron in 1988. Although Austron had remediated the site pursuant to then-existing environmental regulations in connection with vacating the site in 1983, the applicable environmental regulations were modified after 1983, providing the basis for the property owner’s claim that the soil at the site contains the same contaminants that were the focus of Austron’s previous remediation efforts. In compliance with current law, Datum had established the extent of the site contamination, which extends to adjoining properties owned by third parties. In May 2004, we received a demand from the owner of several adjoining lots for damages, as well as seeking an indemnity for the contamination and a promise to remediate the contamination. The adjacent property owner has not filed suit but, if a suit is filed, we will contest it vigorously. We believe that we will continue to incur monitoring costs for the next several years in connection with the site contamination and may be subject to demands and claims from other adjoining landowners in addition to the claim for remediation discussed above, and the amount of such costs and the extent of the our exposure to such claims cannot be determined at this time. Although there can be no assurance that the costs of remediation efforts, the property owners’ claims or any related governmental action will not singly or in the aggregate have a material adverse effect on our financial condition or results of operations, we do not believe our ultimate aggregate liability will have such an effect. We currently have an accrual of $0.9 million for remediation costs, appraisal fees and other ongoing monitoring costs. This site is currently available for sale.

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 impact on our financial position and results of operations.

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Not applicable.

Executive Officers of Symmetricom

Following is a list of our executive officers as of June 30, 2004 and brief summaries of their business experience. All officers, including executive officers, are appointed annually by the Board of Directors at its meeting following the annual meeting of stockholders. We are not aware of any officer who was appointed to the office pursuant to any arrangement or understanding with another person.

Mr. Steipp has served as Chief Executive Officer of Symmetricom since December 1998. Mr. Steipp served as Chief Executive Officer and Chief Financial Officer of Symmetricom from December 1998 to October 1999. Mr. Steipp served as President and Chief Operating Officer, Telecom Solutions, a division of Symmetricom, from March 1998 to December 1998. Prior to joining Symmetricom, from February 1996 to February 1998, Mr. Steipp served as Vice President and General Manager of Broadband Data Networks, a division of Scientific-Atlanta.

Mr. Slater has served as Chief Financial Officer and Secretary of Symmetricom since August 2000. From September 1992 to December 1999, Mr. Slater served as Executive Vice President and Chief Financial Officer of Computer Curriculum Corporation, an educational software company that was a division of Viacom. Prior to that Mr. Slater held senior financial management positions at Simon Schuster and Revlon.

Mr. Stroupe has served as Executive Vice President and General Manager of Symmetricom since June 2000. Mr. Stroupe served as Senior Vice President, Worldwide Sales and Service of Symmetricom from April 1997 to June 2000 and as Vice President, Sales from October 1993 to April 1997.

Dr. Bromage has served as Executive Vice President and General Manager of the Timing, Test and Measurement Division since April 2004. Dr. Bromage joined Symmetricom in April 2002 and served as Vice President, Strategic Planning and Alliances from April 2002 to April 2004. Prior to joining Symmetricom, from February 2000 to April 2002, Dr. Bromage held senior management positions with two startup companies. From August 1993 to February 2000, Dr. Bromage was Director of Business Development with Hewlett Packard.

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PART II

Item 5.    Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq National Market, under the symbol “SYMM”. We had approximately 1,371 stockholders of record as of June 30, 2004.

The following table sets forth the high and low per share sale prices reported on the Nasdaq National Market for our common stock for the periods indicated.

Symmetricom has never declared nor paid cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future.

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

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

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The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes included elsewhere in this report.

Overview

Symmetricom is a leading supplier of synchronization and timing products to industry, government, utilities, 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 a time and frequency-based signal. We design and manufacture ribidium 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, internet service providers (ISPs), and communications original equipment manufacturers (OEMs). With the fiscal 2003 addition of customers from TrueTime and Datum, we entered into the government defense and industry sectors.

In June 2003, we discontinued the operation of the Trusted Time Division and integrated the Broadband Network Division into the Telecom Solutions Division. The Trusted Time Division was acquired as part of the acquisition of Datum in October 2002. The division has been accounted for as a discontinued operation and, accordingly, the results of operations have been excluded from continuing operations in the consolidated statements of operations. Certain charges related to the discontinuance of this operation, including a non-cash impairment charge for goodwill and intangibles associated with this business, were taken in fiscal 2003.

On October 29, 2002, we completed our acquisition of Datum. Each share of Datum common stock outstanding was converted into the right to receive 2.7609 shares of Symmetricom common stock. The aggregate consideration was approximately 17.4 million shares of our common stock. The acquisition of Datum was intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of Internal Revenue code and was accounted for as a purchase.

On October 15, 2002, we acquired certain assets from NetMonitor. The acquisition was accounted for as an asset purchase. We paid $230,000 in cash for the acquired assets and incurred direct acquisition costs of approximately $30,000. The net purchase price was allocated to tangible assets of $40,000 and existing technology of $220,000.

On October 4, 2002, we completed our acquisition of TrueTime. Each outstanding common share of TrueTime was converted into the right to receive 0.43697 of a share of Symmetricom common stock and cash of $0.84. All vested and unvested outstanding options to purchase TrueTime’s common stock were cancelled and surrendered in exchange for cash payment, which totaled $34,000 in the aggregate. The total consideration was approximately 2.6 million shares of our common stock and $5.0 million in cash. The acquisition of TrueTime 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

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reported amounts of assets, liabilities, revenue and expenses, and related disclosure at the date of our financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets, income taxes, and warranty obligations. 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. Symmetricom considers certain accounting policies related to revenue recognition and allowance for doubtful accounts, reserve for warranty, inventory valuation, capitalized acquisition costs, 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 allocated 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 engaged 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; also 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

Our standard arrangement for our domestic and international customers includes a signed purchase order or contract and no right of return of delivered products. Revenue from sales of product and software licenses is recognized when: (1) we enter into a legally binding arrangement with a customer; (2) we deliver the products; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenue from post-sale customer support is deferred and recognized ratably over the term of the support contract. Revenue from consulting and training services is recognized as the services are performed.

We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of our customers and do not require collateral from our customers. 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 a fee 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 probable. 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 is recognized under the percentage of completion method

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of accounting, principally based upon the costs incurred relative to the total estimated costs to complete the individual contracts. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made. Any anticipated losses on contracts are charged to operations as soon as they are determinable.

Warranty Reserve

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 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. 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.

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. During fiscal 2004, we charged $0.9 million to cost of goods sold to write down excess and obsolete inventory.

Accounting for Income Taxes

The determination of our tax provision is subject to judgments and estimates due to operations outside the United States, primarily in Puerto Rico. Net earnings of our Puerto Rico subsidiary are taxed under Internal Revenue Code Section 936, which exempts qualified Puerto Rico earnings from federal income tax. Section 936 limits the amount of qualified Puerto Rico earnings and expires in fiscal year 2006. The change in tax law may affect our future tax rate.

The carrying value of our net deferred tax assets, which is made up primarily of tax deductions and net operating loss carryforwards, assumes we will be able to generate sufficient future income to fully realize these deductions. 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 significant portion of our tax credits is related to stock options and have a valuation allowance because of uncertainty regarding their realization. If these tax credits are realized, the benefit will be credited to common stock.

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Valuation of Investments

We did not carry any investments in public or private companies during fiscal 2004. During fiscal 2003, we concluded that our $0.2 million investment in Sarantel Ltd., a privately held company, was not realizable and the investment was expensed as a loss on equity investment. During fiscal 2002, we concluded that the decline in value of our investment in the common stock of Parthus Technologies plc (“Parthus”) was other than temporary and recorded $1.0 million as a loss on equity investment, based on the quoted fair value of Parthus common stock on the date the impairment loss was recorded.

Valuation of Intangible Assets and Goodwill

We periodically evaluate our intangible assets and goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets primarily include goodwill, purchased technology and trademarks. 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, and the remaining amortization period may be adjusted. 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 is recognized, the amortization related to intangible assets would decrease during the remainder of the fiscal year. In fiscal 2004, no impairment losses were recorded based on these evaluations. In fiscal 2003, we recorded $26.3 million goodwill impairment in fiscal 2003, $11.6 million of which related to the discontinuance of the Trusted Time Division.

Option Repurchase and Exchange

On May 28, 2003, we commenced an offer (i) to purchase for cash from our eligible employees all outstanding stock options with exercise prices of $8.00 or greater that were granted under the Symmetricom 1999 Employee Stock Option Plan (the Symmetricom 1999 Plan) or the Datum Inc. 1994 Incentive Stock Plan (the Datum Plan) and (ii) to exchange for shares of restricted stock under the Symmetricom 1999 Plan all outstanding options to purchase shares of our common stock held by certain of our officers granted under either the Symmetricom 1999 Plan or the Datum Plan with exercise prices of $8.00 or greater. Pursuant to the offer to purchase, we purchased and cancelled options to purchase an aggregate of 1.0 million shares of our common stock for an aggregate purchase price of $1.3 million. Pursuant to the offer to exchange, we exchanged and cancelled options to purchase an aggregate of 1.0 million shares of our common stock for an aggregate of 0.3 million shares of restricted stock.

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Results of Operations

The following table presents the percentage of total revenue for the respective line items in our consolidated statement of operations.

Fiscal Years Ended June 30, 2004 and 2003

Net revenue

Net revenue consists of product and services sales. Net revenue increased 30.9% to $172.8 million in fiscal 2004 from $132.0 million in fiscal 2003. Part of this increase was due to the acquisitions of TrueTime and Datum in the second quarter of fiscal 2003. On a pro forma basis, including the fiscal 2003 pre-acquisition revenue for TrueTime and Datum, net revenue in fiscal 2003 was $156.1 million. Based on these pro forma results, net revenue in fiscal 2004 increased 10.7%, or $16.7 million, compared to net revenue in fiscal 2003.

Net revenue in fiscal 2004 included $71.5 million in net revenue from our wireline products segment, $34.6 million from our OEM products segment, $8.3 million from our global services segment, $9.5 million from our specialty manufacturing and $48.9 million from our timing, test and measurement segment.

The increase in net revenue of $16.7 million, after accounting for the increase due to acquisitions, was mainly attributable to an increase of $2.8 million in our wireline products segment, an increase of $1.0 million in our OEM products segment, an increase of $2.8 million in our global services segment, an increase of $5.0 million in specialty manufacturing segment, and an increase of $5.1 million in our timing, test and measurement segment. The increase in the wireline products segment was partly due to a combination of upgrades to the synchronization infrastructure of customers, as well as synchronization deployment to support the build out for the next generation of telecommunication infrastructure. The increase in the OEM products segment was partly due to increased purchases by wireless equipment manufacturers. The increase in specialty manufacturing

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segment was due to increased demand from our primary customers. The increase in global services segment was due to increases in revenue from our wireline and OEM products. The increase in the timing, test and measurement segment was partly due to continued strength in the government communications sector.

Gross profit

Gross profit increased 33.1% to $61.7 million in fiscal 2004 from $46.3 million in fiscal 2003. As a percentage of revenue, gross profit increased 0.6% to 35.7% in fiscal 2004 from 35.1% in fiscal 2003. The increase in gross profit percentage of 0.6% is primarily due to a 2.2% gross profit improvement from our cost of products and services, a 0.4% improvement from the fiscal 2003 write-off of our Telmax royalty and a 0.1% improvement from continuing amortization of purchased technology resulting from the Datum and TrueTime acquisitions. These increases were partially offset by a 2.1% decrease in gross profit due to increased integration and restructuring charges, mainly related to relocation of our Irvine, California manufacturing to our Beverly, Massachusetts facility.

The 2.2% improvement in gross profit from cost of products and services was a result of the TrueTime and Datum acquisition synergies. These manufacturing synergies included a full year savings impact due to the fiscal 2003 move of our Austin, Texas (formerly Datum) manufacturing operations to Puerto Rico, the partial year impact from the move of one-half of our Irvine, California (formerly Datum) manufacturing operations to Puerto Rico during the first quarter of fiscal 2004, and the partial year impact from the completion of the move of the remaining Irvine, California operations to our Beverly, Massachusetts facility. The 2.1% decrease in gross profit from integration and restructuring charges related to the relocations. We anticipate continued improvements in gross profit as a result of initiatives to improve efficiencies at our plants.

Operating Expense

Research and development

Research and development expenses consist primarily of salaries and benefits, prototype expenses, and fees paid to outside consultants. Research and development expenses decreased 21.9% to $16.8 million in fiscal 2004 from $21.5 million in fiscal 2003. The $4.7 million decrease in research and development expenses is primarily due to reductions in headcount and expenses for the Broadband Network Division and due to headcount and expense reductions in San Jose, California; Austin, Texas and Irvine, California related primarily to the synergies from the acquisitions. 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 and for fiscal 2005 expenses to be consistent with fiscal 2004 expenses.

Selling, general and administrative, including amortization of intangible assets

Selling, general and administrative expenses consist primarily of salaries, benefits, sales commissions and travel related expenses for our sales and services, finance, human resources, information technology and facilities departments. Selling, general and administrative expenses decreased 2.0% to $45.8 million in fiscal 2004 from $46.7 million in fiscal 2003. In fiscal 2004, we had a total of 187 employees in our selling, general and administrative departments, compared to 229 employees in fiscal 2003. The decrease in headcount resulted from restructuring plans for the integration of TrueTime and Datum. However, expenses decreased by only 2.0% because the savings from headcount reductions were partially offset by $0.9 million of costs related to our compliance process for the Sarbanes-Oxley Act of 2002 and $0.3 million in unplanned severance expenses. We plan to add 10 to 15 personnel to the sales, service and marketing organizations during fiscal 2005.

In June 2003, we issued to senior executives 252,000 shares of restricted stock valued at $1.1 million. The restricted stock has a five-year vesting schedule (June 2008) but may vest sooner if certain quarterly earnings per share goals are achieved. We expense the cost of these restricted shares ratably over the five-year vesting

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period. If we achieve cumulative earnings per share of $0.24 over four consecutive quarters, then 50% of the restricted stock grant will immediately vest on an accelerated basis. Since we achieved cumulative earnings per share of $0.09 in the third and fourth quarter of fiscal 2004, if we achieve an aggregate earnings per share of $0.15 in the first and second quarters of fiscal 2005, we will record additional compensation expense to recognize the cost of vesting 50% of the restricted stock grant.

Integration and restructuring charges

During fiscal 2004, we recorded integration and restructuring charges of $2.3 million in acquisition-related costs and other restructuring expenses. Of these costs, $1.6 million is related to our facility restructuring in Irvine, California and $0.7 million is for land remediation accruals related to a former Datum facility in Austin, Texas. See Note O of our notes to the consolidated financial statements for further discussion of integration and restructuring charges.

Impairment of goodwill

We performed our annual goodwill impairment test as of June 30, 2004 and determined that goodwill was not impaired.

During fiscal 2003 we recorded a goodwill impairment charge of $14.7 million. We completed the acquisition of TrueTime and Datum during the second quarter of fiscal 2003. In connection with the acquisitions of TrueTime and Datum during the second quarter of fiscal 2003, we recorded an additional $72.8 million of goodwill. This goodwill was based upon the values assigned to the transactions at the time they were announced: March 2002 for TrueTime and May 2002 for Datum, using a Symmetricom stock price of $6.20 and $5.69 per share, respectively. At the end of the second quarter of fiscal 2003 on December 31, 2002, when the Symmetricom stock price was $4.22, which represented a decline of 31.9% and 25.8% from the Symmetricom stock price as of the acquisition announcement dates for TrueTime and Datum, respectively, management determined that goodwill was likely impaired as forecasts for anticipated revenue growth for the telecommunications industry had declined since the transactions were valued.

We compared the fair values of the reporting units to their respective carrying values and determined that the carrying values for two of the reporting units were impaired. The fair values of the reporting units were estimated using the present value of estimated future cash flows based on management’s estimates of future revenues. We recorded the $14.7 million excess of the carrying value of the reporting units goodwill over its implied fair value as an impairment loss in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”

During fiscal 2003, in addition to the goodwill impairment test performed as of December 31, 2003, we performed our annual goodwill impairment test for fiscal 2003 as of June 30, 2003, and determined that goodwill from continuing operations was not impaired. However, due to the discontinued operations of the Trusted Time Division, we recorded an impairment charge from continuing operations of $11.6 million for goodwill associated with that division.

Acquired in-process research and development expenses

During fiscal 2004, we did not record any purchased in-process research and development expense. During fiscal 2003, $1.6 million of the purchase price of the Datum and TrueTime acquisitions was allocated to purchased in-process research and development expense based upon the values assigned to the acquisitions. Projects that qualify as in-process research and development represent those that have not yet reached technological feasibility and have no alternative future use. Technological feasibility is defined as being equivalent to a beta-phase working prototype in which there is no remaining risk relating to the development. The $1.6 million represented $1.2 million from Datum and $0.4 million from TrueTime. The projected value of

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these projects was determined by estimating the discounted net cash flows from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

The nature of the efforts to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all prototyping and testing activities that are necessary to establish that the product can meet its design specification including function, features and technical performance requirements. Therefore, the amount allocated to in-process research and development has been charged to operations.

Gain (loss) on sale of equity investments

During fiscal 2004, we did not record any net gains or losses on the sale of equity investments. During fiscal 2003, we recorded a net loss of $0.5 million on the sale of equity investments due to impairment losses on investments.

Interest income

Interest income decreased 50.7% to $0.3 million in fiscal 2004 from $0.6 million in fiscal 2003. This decrease was primarily due to a lower average cash balance during the first three quarters of fiscal 2004, as well as lower average interest rates during fiscal 2004 compared to fiscal 2003. We expect interest income to increase during fiscal 2005, mainly due to our higher cash balance as of June 30, 2004 and the expectation that our cash balance will increase during fiscal 2005.

Interest expense

Interest expense consists primarily of interest on our capital lease for our headquarters building in San Jose, California. Interest expense remained consistent at $0.6 million in fiscal 2004 and 2003. We do not expect a significant change in interest expense during fiscal 2005.

Income tax benefit

Our income tax benefit was $2.1 million (effective tax rate of 48.5%) in fiscal 2004 compared to an income tax benefit of $12.2 million (effective tax rate of 26.1%) in fiscal 2003. The effective tax rate has fluctuated significantly as a result of the impact of the fiscal 2003 write-off or impairment of non-deductible goodwill and disposition of business lines. Our effective tax rate has also been affected by the percentage of qualified Puerto Rico earnings compared to total earnings, as most of our Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code, which exempts qualified Puerto Rico earnings from federal income taxes. This exemption is subject to wage-based and other limitations and expires at the end of fiscal 2006.

Gain (loss) from discontinued operations, net of tax

In June 2003, we discontinued the operation of the Trusted Time Division as part of our post-acquisition consolidation process. The division was acquired as part of the acquisition of Datum in October 2002. The division has been accounted for as a discontinued operation and, accordingly, the results of operations have been excluded from continuing operations in the consolidated statements of operations. During fiscal 2004, we recorded a gain of $13,000 from our discontinued operations, and expect these operations to cease during fiscal 2005. During fiscal 2003, we recorded a $15.0 million loss, or $0.42 per share, net of taxes, of which $12.7 million was due to the loss on disposal, and $2.3 million were operational losses. The loss from disposal consisted of an $11.6 million goodwill impairment charge and a $1.1 million impairment charge for intangible assets.

Net loss

As a result of the factors above, we incurred a net loss of $2.2 million, or $0.05 per basic and diluted share, in fiscal 2004 compared to a net loss of $49.3 million, or $1.38 per basic and diluted share, in fiscal 2003.

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Fiscal Years Ended June 30, 2003 and 2002

Net revenue

Net revenue increased 81.8% to $132.0 million in fiscal 2003 from $72.6 million in fiscal 2002. The increase in net revenue of $59.4 million was attributable to the acquisitions of Datum and TrueTime in October 2002. Net revenue in fiscal 2003 included $61.5 million in net revenue from our wireline products segment, $30.0 million from our wireless products segment, $30.8 million from our timing, test and measurement segment, $1.0 million from our broadband network segment and $3.9 million from our global services segment.

The net revenue increase of $59.4 million is comprised primarily of two components: an increase of $30.8 million for the timing, test and measurement segment sales which relates to the Datum and TrueTime acquisitions and an increase of $21.0 million in net revenue for our wireless segment, also due to the Datum and TrueTime acquisitions. Revenue increases in the wireline and global services segments also relate to the Datum and TrueTime acquisitions.

On a pro forma basis, including Datum and TrueTime, net revenue in fiscal 2003 were $156.1 million as compared to the pro forma revenue of $171.5 million in fiscal 2002, or a decrease of 9.0%.

Gross profit

Gross profit increased 79.4% to $46.3 million in fiscal 2003 from $25.8 million in fiscal 2002. As a percentage of revenue, gross profit decreased 0.5% to 35.1% in fiscal 2003 from 35.6% in fiscal 2002. A decrease in gross profit percentage of 0.5% is primarily due to three items: integration and restructuring charges accounted for a decrease of 0.7%, increased amortization of product technology due to acquisitions accounted for a decrease of 0.6%, and write off of Telmax prepaid royalty accounted for a decrease of 0.4%. These decreases were partially offset by a 1.2% margin improvement due to sales volume.

Operating Expense

Research and development

Research and development expenses increased 89.7% to $21.5 million in fiscal 2003 from $11.3 million in fiscal 2002. The dollar increase in research and development expenses is primarily due to spending for the products acquired in the Datum and TrueTime acquisitions.

Selling, general and administrative, including amortization of intangible assets

Selling, general and administrative expenses increased 88.7% to $46.7 million in fiscal 2003 from $24.8 million in fiscal 2002. This increase was due to our acquisitions of TrueTime and Datum. In fiscal 2003, we had a total of 229 employees in our selling, general and administrative departments, compared to 119 employees in fiscal 2002.

Integration and restructuring charges

During fiscal 2003, we recorded integration and restructuring charges of $6.7 million in acquisition-related costs and other restructuring expenses. These include acquisition related costs incurred for severance, facility and financial system consolidations, proxy solicitation, employee travel, consulting services, legal, and financial advisory fees. Other restructuring included severance costs related to the involuntary termination of 48 personnel from engineering, sales, marketing and administration in connection with workforce reductions primarily in our Broadband Networking Division. As part of the facility consolidation, we exited several of our leased buildings and included the future lease payments, net of anticipated sublease revenue, in the charge.

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Impairment of goodwill

We completed the acquisition of TrueTime and Datum during the second quarter of fiscal 2003. In connection with these acquisitions, we recorded an additional $72.8 million of goodwill. This goodwill was based upon the values assigned to the transactions at the time they were announced: March 2002 for TrueTime and May 2002 for Datum, using a Symmetricom stock price of $6.20 and $5.69 per share, respectively. At the end of the second quarter of fiscal 2003 on December 31, 2002, when the Symmetricom stock price was $4.22, which represented a decline of 31.9% and 25.8% from the Symmetricom stock price as of the acquisition announcement dates for TrueTime and Datum, respectively, management determined that goodwill was likely impaired as forecasts for anticipated revenue growth for the telecommunications industry had declined since the transactions were valued.

We compared the fair values of the reporting units to their respective carrying values and determined that the carrying values for two of the reporting units were impaired. The fair values of the reporting units were estimated using the present value of estimated future cash flows based on management’s estimates of future revenues. We recorded the $14.7 million excess of the carrying value of the reporting units goodwill over its implied fair value as an impairment loss in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”

Due to the discontinued operations of the Trusted Time Division, we recorded an impairment charge of $11.6 million in fiscal 2003 for goodwill associated with that division.

Acquired in-process research and development expenses

During fiscal 2003, $1.6 million of the purchase price of the Datum and TrueTime acquisitions was allocated to purchased in-process research and development expense based upon the values assigned to the acquisitions. The $1.6 million represented $1.2 million from Datum and $0.4 million from TrueTime. The value of these projects was determined by estimating the discounted net cash flows from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

Gain (loss) on sale of equity investments

During fiscal 2003, we recorded a loss of $0.5 million in losses on equity investments. The loss was due to $0.3 million loss on the sale of Parthus Technologies plc common stock and a $0.2 million impairment of our investment in Sarantel Ltd. During fiscal 2002, we recorded a gain of $2.5 million from the sale of our investment in Brocade common stock. During fiscal 2002, we also concluded that the value of our investment in the common stock of Parthus was other than temporary. To determine that the value of our investment was other than temporary, we considered both the duration of the decline and the extent to which the market value of Parthus common stock was below our recorded cost basis in the common stock. Market value is determined based on the share prices as quoted on the NASDAQ National Market. Accordingly, $1.0 million was recorded as an impairment loss on investments.

Interest income

Interest income decreased 53.4% to $0.6 million in fiscal 2003 from $1.3 million in fiscal 2002. This decrease was primarily due to a decrease in our short-term investments as well as lower average interest rates during fiscal 2003 compared to fiscal 2002.

Interest expense

Interest expense consists primarily of interest on our capital lease for our headquarters building in San Jose, California. Interest expense was $0.6 million and $0.7 million in fiscal 2003 and 2002, respectively.

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Income tax benefit

Our income tax benefit was $12.2 million (effective tax rate of 26.1%) in fiscal 2003 compared to an income tax benefit of $3.3 million (effective tax rate of 36.5%) in fiscal 2002. The effective tax rate fluctuated as a result of the impact of the write-off or impairment of non-deductible goodwill and the acquisition and disposition of business lines.

Gain (loss) from discontinued operations, net of tax

In June 2003, we discontinued the operation of the Trusted Time Division as part of our post-acquisition consolidation process. The division was acquired as part of the acquisition of Datum in October 2002. The division has been accounted for as a discontinued operation and, accordingly, the results of operations have been excluded from continuing operations in the consolidated statements of operations. During fiscal 2003, we recorded a $15 million loss, net of taxes, of which $12.7 million was due to the loss on disposal, and $2.3 million were operational losses. The loss from disposal consisted of an $11.6 million goodwill impairment charge and a $1.1 million impairment charge for intangible assets.

During fiscal 2002, we recognized a $0.4 million gain, net of taxes, for discontinued operations related to Linfinity. This gain relates to the release of funds from an escrow account established in connection with the sale during fiscal 1999 of our Linfinity Microelectronics, Inc. semiconductor subsidiary.

Net loss

As a result of the factors above, we incurred a net loss of $49.3 million, or $1.38 per basic and diluted share, in fiscal 2003 compared to a net loss of $5.3 million in fiscal 2002.

Key Operating Metrics

Key operating metrics for measuring our performance include sales backlog, contract revenue, headcount and deferred revenue. These metrics, which compare fiscal 2004 with fiscal 2003, are 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 total backlog amounted to $41.8 million as of June 30, 2004, compared to $33.4 million as of June 30, 2003. Our backlog which is shippable within the next six months was $27.9 million as of June 30, 2004, compared to $20.9 million as of June 30, 2003.

Contract revenue:

Revenue from contracts that require development and manufacture in accordance with customer specifications and have a lengthy development period is recognized under the percentage of completion method of accounting, principally based upon the costs incurred relative to the total estimated costs to complete the individual contracts. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made. Any anticipated losses on contracts are fully charged to operations as soon as they are determinable. As of June 30, 2004, we have approximately $3.4 million in contract revenue to be performed and recognized within the next 36 months, compared to approximately $0.3 million in contract revenue that was to be performed and recognized within the following 36 months as of June 30, 2003. These amounts have been accounted for as part of our sales backlog discussed above.

Headcount:

Our consolidated headcount as of June 30, 2004 comprised of 754 regular employees and 125 temporary employees, compared to 768 regular employees and 87 temporary employees as of June 30, 2003.

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Deferred revenue:

Deferred revenue is comprised of 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 $0.6 million as of June 30, 2004, compared to $0.8 million as of June 30, 2003. Deferred revenue for maintenance contracts was $0.8 million as of June 30, 2004, compared to $0.7 million as of June 30, 2003. Deferred revenue for distributor return allowances was $0.7 million as of June 30, 2004, compared to $0.8 million as of June 30, 2003.

Liquidity and Capital Resources

As of June 30, 2004, working capital was $72.3 million compared to $63.1 million as of June 30, 2003 and $68.9 million as of June 30, 2002. Cash and cash equivalents as of June 30, 2004 increased $1.9 million to $34.2 million from $32.3 million as of June 30, 2003. This increase was primarily the result of a $6.7 million increase in cash provided by operating activities, a $12.9 million decrease in cash used for investing activities and a $8.2 million increase in cash provided by financing activities. Short-term investments increased from $0.7 million as of June 30, 2003 to $13.4 million as of June 30, 2004. This increase resulted primarily from the fact that we moved some of our cash equivalent investments to longer-term corporate debt securities, which changed their classification to short-term investments.

The $6.7 million net cash provided by operating activities in fiscal 2004 was primarily attributable to: non-cash expenses related to depreciation and amortization of $11.8 million and an increase in accounts payable of $3.1 million, which was partially offset by a $5.2 million increase in accounts receivable and a net loss of $2.2 million. The increase in accounts receivable was the result of higher sales during the fourth quarter of fiscal 2004 compared to the same quarter in fiscal 2003. The $12.9 million net cash used for investing activities in fiscal 2004 was primarily attributable to $19.6 million in purchases of short-term investments and $3.9 million in purchases of plant and equipment, which was partially offset by $7.2 million in maturities of short-term investments and $3.4 million decrease in restricted cash as a result of our line of credit set up with Wells Fargo Bank, which did not require us to hold restricted cash. The $8.2 million net cash provided by financing activities was primarily attributable to a $9.9 million in proceeds from issuance of common stock due to stock option exercises, which was offset by $1.7 million in scheduled repayments of our long-term obligations.

Our total capital commitments outstanding as of June 30, 2004 were $1.0 million. Days sales outstanding in accounts receivable was 53 days as of June 30, 2004, a decrease from 59 days as of June 30, 2003. This decrease is attributable to a higher rate of cash collections during the fiscal fourth quarter ended June 30, 2004 compared to the same period in fiscal 2003.

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. The line of credit will expire on March 1, 2005. No withdrawals were made as of June 30, 2004.

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On June 1, 2001, the Massachusetts Development Finance Agency issued a $2.7 million industrial development bond on Datum’s behalf to finance the expansion of Datum’s manufacturing facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable rate of interest. The remarketing agent determines the interest rate for each rate period to be the lowest rate, which in its judgment would permit the sale of the bonds at par. The bond is collateralized by the line of credit with Wells Fargo Bank described above.

As part of the merger with Datum, we assumed a warrant to purchase common stock of Datum that was held by UBS Warburg to purchase 486,754 shares of our common stock at an exercise price of $4.135 per share. The warrant was exercised in September 2003, upon which we received total cash proceeds of $2.0 million.

As part of the merger with TrueTime, we assumed a warrant to purchase common stock of TrueTime that was held by C.E. Unterberg, Towbin to purchase 87,394 shares of our common stock at an exercise price of $12.59 per share. This warrant expires on December 22, 2004; and as of June 30, 2004 had not been exercised.

Contractual Obligations

In connection with the Datum acquisition, 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 that in its judgment would permit the sale of the bonds at par. The bond is collateralized by a $2.7 million letter of credit issued under our credit facility with Wells Fargo Bank.

We operate in multiple locations domestically and internationally. As such, certain facilities and equipment are leased under capital lease agreements or operating lease agreements. Due to excess capacity on several noncancelable leases as a result of the economic downturn, we subleased certain facilities and recognized lease loss liability for the rest.

We incur purchase commitments during our normal course of business. As of June 30, 2004, our principal commitments totaled $11.9 million and related primarily to commitments to purchase inventory.

In connection with the Datum acquisition, we assumed Datum’s post-retirement health care benefits plan. Post-retirement benefits are recognized over the employee’s service period based on the expected costs of providing such benefits to the employee and the employee’s beneficiaries after retirement. The health care plan was curtailed as of December 31, 2002, and only existing retired participants and former Datum employees, now employed by Symmetricom and who meet the retirement eligibility requirements by December 31, 2005, are eligible for participation. The health care plan is a contributory plan.

The following table summarizes our contractual cash obligations as of June 30, 2004, and the effect such obligations are expected to have on liquidity and cash flow in future periods.

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Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force, or the EITF, reached a consensus on Issue No. 00-21, Accounting for Revenue Arrangements With Multiple Deliverables, or EITF 00-21. EITF 00-21 concluded that revenue arrangements with multiple elements should be divided into separate units of accounting if the deliverables in the arrangement have value to the customer on a standalone basis, if there is objective and reliable evidence of the fair value of the undelivered elements, and as long as there are no rights of return or additional performance guarantees by us. The adoption did not have a material effect on our operating results or financial condition.

In November 2002, the Financial Accounting Standards Board, or the FASB, issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, or FIN 45. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The adoption did not have a material effect on our operating results or financial condition.

The FASB issued Interpretation No. 46, or FIN 46, “Consolidation of Variable Interest Entities,” in January 2003, and a revised interpretation of FIN 46, or FIN 46R, in December 2003. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The adoption of FIN 46R in the second quarter of fiscal year 2004 did not have an impact on our financial position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. We have not entered into any contracts that would fall within the scope of SFAS No. 149.

In May 2003, the FASB issued Statement SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 did not have an impact on our operating results or financial position.

In December 2003, the Securities Exchange Commission or the SEC issued Staff Accounting Bulletin No. 104, Revenue Recognition, or SAB 104, which codifies, revises and rescinds certain sections of SAB 101, Revenue Recognition in Financial Statements, in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption did not have a material effect on our operating results or financial condition.

In March 2004, the EITF reached a final consensus on Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”, to provide additional guidance in determining whether investment securities have an impairment which should be considered other-than-temporary. The adoption of Issue 03-01 did not have an effect on our operating results or financial condition.

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Factors That May Affect Results

Our quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future, which could cause our stock price to decline and result in losses to our investors

We believe that period-to-period comparisons of our operating results may not be a good indication of our future performance. Our quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future. Some of the factors that could cause our operating results to fluctuate include:

A significant portion of our operating and manufacturing expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. If we are unable to adjust spending in a timely manner to compensate for any unexpected future sales shortfall, our operating results will be negatively impacted. Our operations entail a high level of fixed costs and require an adequate volume of production and sales to achieve and maintain reasonable gross profit margins and net earnings. If we increase the volume of product

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manufacturing by outside sources and decrease our internal production, we could incur higher fixed costs (per unit) and integration and restructuring charges. Significant decreases in demand for our products or reduction in our average selling prices, or any material delay in customer orders may negatively harm our business, financial condition and results of operations. Our future results depend in large part on growth in the markets for our products. The growth in each of these markets may depend on changes in general economic conditions; conditions related to the markets in which we compete, changes in regulatory conditions, legislation, export rules or conditions, interest rates and fluctuations in the business cycle for any particular market segment. If our quarterly or annual operating results do not meet the expectations of securities analysts and investors, the trading price of our common stock could decline significantly.

We experienced net operating losses in the past and may experience net operating losses again in the future

We had a net loss of $2.2 million for the fiscal year ended June 30, 2004. Although we had net earnings for both the third and fourth quarters of fiscal 2004, we cannot assure you that we will be able to maintain operating profitability. If we are unable to maintain operating profitability or if we incur future losses and negative cash flow, our stock price may decline.

If we incur net losses in the future, we may have to record a valuation allowance against most or all of our deferred tax assets, which would significantly increase our tax expense and hurt our net earnings

We had a net loss of $2.2 million for the fiscal year ended June 30, 2004 and a net loss of $49.3 million for the fiscal year ended June 30, 2003. Continued losses may create uncertainty about the recoverability of our $45.4 million net deferred tax asset. If we record a valuation allowance against our deferred tax assets, we would record an additional tax expense, which would reduce net earnings. In addition, these uncertainties about the recoverability of our deferred tax assets would limit our ability to recognize future deferred tax assets on our balance sheet and correspondingly reduce net earnings. At the end of each fiscal quarter, our management reviews the results of operations for that quarter, and forecasts for the remainder of the fiscal year and future years, to determine if it is more likely than not that a valuation allowance for the deferred tax assets is needed.

The economic downturn in the telecommunications industry has negatively impacted the demand for our products and may impair our customers’ ability to pay us

The telecommunications industry, from which we derive a significant portion of our revenue, has experienced a general economic downturn over the last three years. This downturn has negatively affected many of our customers and has significantly weakened the financial condition of others. Some customers have filed for bankruptcy protection and others may do so as well. If a customer seeks bankruptcy protection it could result in nonpayment for products delivered, the cancellation of one or more contracts and the loss of a customer. In addition, any continued decline in demand in the telecommunications industry could delay decisions by some of our customers to renew their agreements or relationships with us or could delay decisions by prospective customers to make initial evaluations of our products. Reductions or delays in expenditures for our products, nonpayment for products delivered and the cancellation of contracts and the loss of customers could have a material adverse effect on our business and results of operations.

We purchase certain key components of our synchronization and timing equipment from single or limited sources and could lose sales if these sources fail to fulfill our needs

We have limited suppliers for a number of our components, which are key components of our synchronization and timing equipment. If single source components were to become unavailable on satisfactory terms, we would be required to purchase comparable components from other sources. If for any reason we could not obtain comparable replacement components from other sources in a timely manner, our business results of operations and financial condition could be harmed. In addition, some of our suppliers require long lead-times to

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deliver requested quantities of components. If we are unable to obtain sufficient quantities of components, we could experience delays or reductions in product shipments, which could also have a material adverse effect on our business, result of operations and financial condition. Due to rapid changes in technology, on occasion, one or more of the components used in our products have become unavailable, resulting in unanticipated redesign and related delays in shipments. We cannot assure you that similar delays will not occur in the future.

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

Although a relatively small number of customers have historically accounted for a significant portion of our net revenue, no single customer accounted for 10% or more of our net revenue during fiscal 2004 and 2003. However, 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. 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.

We have direct or indirect sales pursuant to contracts with United States government agencies, which can be terminated at the convenience of the government, and our revenue would decline if the government terminated these contracts

Historically, approximately 10% to 16% of our net revenue was made to United States government agencies either directly or indirectly through subcontracts. Government-related contracts and subcontracts are subject to standard provisions for termination at the convenience of the government. In such event, however, we are generally entitled to reimbursement of costs incurred on the basis of work completed plus other amounts specified in each individual contract. These contracts and subcontracts are either fixed-price or cost reimbursable contracts. Fixed-price contracts provide fixed compensation for specified work. Under cost reimbursable contracts, we agree to perform specified work in return for reimbursement of costs (to the extent allowable under government regulations) and a specified fee. In general, while the risk of loss is greater under fixed-price contracts than under cost reimbursable contracts, the potential for profit under fixed-price contracts is greater than under cost reimbursable contracts.

If we are unable to develop new products, or we are delayed in production startup, sales of our products could decline, which could reduce our revenue

The markets for our products are characterized by:

Technological advancements could render our products obsolete and unmarketable. Our success will depend on our ability to respond to changing technologies and customer requirements and our ability to develop and introduce new and enhanced products in a cost-effective and timely manner. The development of new or enhanced products is a complex and uncertain process requiring the accurate anticipation of technological and market trends. We may experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of our new products and enhancements.

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The introduction of new or enhanced products also requires that we manage a smooth transition from older products to new products. Delays in new product development or delays in production startup could reduce sales of our products, which would negatively impact our revenue.

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

Our products are complex and often use state-of-the-art components, processes and techniques. When we release new products, or new versions of existing products, they may contain undetected or unresolved errors or defects. Despite testing, errors or defects may be found in new products or upgrades after the commencement of commercial shipments. Undetected errors and design flaws have occurred in the past and could occur in the future. These errors could result in delays, loss of market acceptance and sales, diversion of development resources, damage to our reputation, legal action by our customers, failure to attract new customers, and increased service and warranty costs. The occurrence of any of these factors could cause our net revenue to decline.

The telecommunications market is highly competitive, and if we are unable to compete successfully in our markets, our revenue could decline

Competition in the telecommunications industry in general, and in the markets we serve, is intense and likely to increase substantially. We face competition in all of our markets. Competitors in our synchronization products segment include Frequency Electronics, Inc., Huawei Technologies Co. Ltd., MicroTel International Inc. and Oscilloquartz SA. Competitors in our wireless segment include Frequency Electronics, Inc. and Trimble Navigation, Ltd. Competitors in our broadband access segment include Adtran, Inc., Cisco Systems, Inc., Efficient Networks, Inc. and Thomson Multimedia S.A. In the enterprise network timing market, we compete primarily with Meinberg and EndRun Technologies. In the cesium standards market, we compete primarily with Agilent Technologies, Inc. In the rubidium oscillators market, we compete primarily with Frequency Electronics, Inc. and Temex. In addition, certain companies, such as Perkin Elmer, Inc. that currently manufacture products for use in military applications, could enter commercial markets and compete directly with us. Competitors in our timing, test and measurement segment include Frequency Electronics, Inc., Trak Systems, Inc. (a Veritas Corporation subsidiary) and Brandywine Communications. In addition, the Telecommunications Act of 1996 permits ILECs to manufacture telecommunications equipment, which may result in increased competition. Our ability to compete successfully in the future will depend on many factors including:

Many of our competitors or potential competitors are well established and have significant financial, manufacturing, technical and marketing resources. These competitors may be able to respond more quickly to new and emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at lower prices. We expect to continue to experience pricing pressures from our competitors in all of our markets. If we are unable to compete by delivering new products or by delivering competitive products at lower prices, we could lose market share and our revenue could decline.

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We may in the future have to take a lease impairment charge, which would negatively impact our operating results

As a result of the acquisitions of Datum and TrueTime, we have excess office and manufacturing space in California and Texas that we are seeking to sublease. Should we be unable to find tenants for these vacant facilities, we may have to take additional lease impairment charges in future quarters that will negatively impact our operating results.

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

We believe our success will depend in a large part on our ability to protect trade secrets, obtain or license patents and operate without infringing on the rights of others. We rely on a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect our proprietary rights. These measures may not provide sufficient protection for our trade secrets or other proprietary information. We have United States and international patents and patent applications pending that cover certain technology used by our operations. However, while we believe that our patents have value, we rely primarily on innovation, technological expertise and marketing competence to maintain our competitive position. While we intend to continue our efforts to obtain patents whenever possible, there can be no assurance that patents will be issued, or that new, or existing patents will not be challenged, invalidated or circumvented, or that the rights granted will provide us with any commercial benefit.

Third parties may assert intellectual property infringement claims, which would be difficult to defend, costly and may result in our loss of significant rights

The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We are subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. Although we are currently not a party to any intellectual property litigation, from time to time we have received claims asserting that we have infringed the proprietary rights of others. We cannot assure you that third parties will not assert infringement claims against us in the future, or that any such claims will not result in costly litigation or require us to obtain a license for such intellectual property rights regardless of the merit of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms.

If we acquire other companies and are unable to smoothly integrate the businesses we acquire, our operations and financial results could be harmed

As part of our business strategy we have engaged in acquisitions in the past, including the acquisitions of TrueTime and Datum, and continue to evaluate other acquisition opportunities that could provide additional product or service offerings, technologies or additional industry expertise. Our recent acquisitions involve risks, which include the following:

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

We are subject to environmental regulations that could result in costly environmental liability

Our operations are subject to numerous international, federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. While we have not experienced any significant effects on our operations from environmental regulations, changes in these regulations may require additional capital expenditures or restrict our ability to expand our operations. Failure to comply with such regulations could result in suspension or cessation of our operations or could subject us to significant liabilities. Although we periodically review our facilities and internal operations for compliance with applicable environmental regulations, these reviews are necessarily limited in scope and frequency and may not reveal all potential instances of noncompliance, possible injury or possible contamination. The liabilities arising from any noncompliance with environmental regulations, or liability resulting from accidental contamination or injury from toxic or hazardous chemicals could result in liability that exceeds our resources. The risk of liabilities increases as we acquire other companies, such as Datum, which use, or have used, hazardous substances at various current or former facilities.

Our manufacturing facility previously operated by Datum in Austin, Texas is undergoing remediation for known subsurface contamination at that facility and adjoining properties. We believe that we will incur monitoring costs for years to come in connection with this subsurface contamination. Further, we have received a demand from adjoining landowner and may be subject to claims from other adjoining landowners, in addition to claims for remediation, and the amount of these costs and the extent of our exposure to these demands and claims cannot be determined at this time. The determination of the existence and cost of any additional contamination could involve costly and time-consuming negotiations and litigation. Remediation activities and subsurface contamination may require us to incur additional unreimbursed costs and could harm on-site operations and the future use and value of the property. The remediation efforts, the property owners claims and any related governmental action may expose us to material liability and could significantly harm our business.

We are subject to various rules and regulations, which may cause us to incur significant compliance costs

Our customers and we are subject to various governmental regulations, compliance with which may cause us to incur significant expenses. If we fail to maintain satisfactory compliance with these regulations, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.

Our business is subject to various other significant international, federal, state and local, health and safety, packaging, product content and labor regulations. These regulations are complex, change frequently and have

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become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy past violations of these regulations. Any failure by us to comply with applicable government regulations could also result in cessation of its operations or portions of our operations, product recalls or impositions of fines and restrictions on its ability to carry on or expand our operations. In addition, because many of our products are regulated or sold into regulated industries, we must comply with additional regulations in marketing our products. Our products and operations are also often subject to the rules of industrial standards bodies, like the International Standards Organization, as well as regulation of other agencies such as the United States Federal Communications Commission. If we fail to adequately address any of these regulations, our business may suffer.

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

Federal and state regulatory agencies, including the Federal Communications Commission and the various state public utility commissions and public service commissions, regulate most of our domestic telecommunications customers. Similar government oversight also exists in the international market. While we are not directly affected by this legislation, such regulation of our customers may negatively impact our business. For instance, the sale of our products may be affected by the imposition upon certain of our customers of common carrier tariffs and the taxation of telecommunications services. These regulations are continuously reviewed and changed by the various governmental agencies. Changes in current or future laws or regulations, in the United States or elsewhere, could negatively impact our business results.

Sales of a significant portion of our products to customers outside of the United States subjects us to business, economic and political risks

Our export sales, which are primarily to Western Europe, Latin America, the Far East and Canada, accounted for 32% of net revenue during fiscal 2004 compared to 33% of net revenue during fiscal 2003. We anticipate that sales to customers located outside of the United States will continue to be a significant part of our net revenue for the foreseeable future. Because significant portions of our sales are to customers outside of the United States we are subject to risks, including:

To date, very few of our international revenue and cost obligations have been denominated in foreign currencies. As a result, an increase in the value of the United States dollar relative to foreign currencies could make our products more expensive, and thus, less competitive in foreign markets. A portion of our international revenues may be denominated in foreign currencies in the future, including the Euro, which will subject us to risks associated with fluctuations in these foreign currencies. We do not currently engage in foreign currency hedging activities or derivative arrangements, but may do so in the future to the extent that such obligations become more significant.

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If we have significant inventories that become obsolete or cannot be sold at acceptable prices, our results may be negatively impacted

Although we believe that we currently have made adequate adjustments for inventory that has declined in value, become obsolete, or is in excess of anticipated demand, there can be no assurance that such adjustments will be adequate. If significant inventories of our products become obsolete, or are otherwise not able to be sold at favorable prices, our business could be materially affected.

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

As of June 30, 2004, we had recorded goodwill with a net book value of $49.2 million related to acquisitions of Datum, TrueTime and certain assets of Hewlett Packard Company’s Communication Synchronization Business. We test for impairment at least annually and whenever evidence of an impairment exists. We performed our annual goodwill impairment test as of June 30, 2004 and determined that goodwill was not impaired. In fiscal 2003, we recorded a $14.7 million impairment charge for goodwill. In connection with the discontinuance of the Trusted Time Division in the fourth quarter of fiscal 2003, we recorded an additional $11.6 million impairment of goodwill. If our future financial performance or other events indicate that the value of our recorded goodwill is impaired, we may record additional impairment charges that could have a material adverse effect on our reported results.

Increases in our effective tax rate will negatively impact our cash flow

Our effective tax rate is affected by the percentage of qualified Puerto Rican earnings compared to our total earnings. Most of our Puerto Rican earnings are taxed under Section 936 of the United States Internal Revenue Code, which exempts qualified Puerto Rican earnings from federal taxes when calculating our effective tax rate. Historically, using this exemption has reduced our effective tax rate. Our overall effective tax rate could increase during fiscal years 2005 and 2006, as the exemption will become subject to additional limitations before it expires at the end of fiscal 2006. Any increase in our effective tax rate will increase our federal income taxes and negatively impact our cash flow.

We may be subject to additional taxes from tax reviews by foreign authorities

Although we believe that we have made adequate reserves for foreign tax provisions, there can be no assurance that such reserves will be adequate until the foreign authorities have reviewed the foreign tax filings.

Our sales may be affected by the ongoing movement towards environmentally friendly manufacturing (“green” manufacturing)

Various countries in the international marketplace are moving towards more environmentally friendly manufacturing requirements, and some companies or countries may require us to meet new standards, which could affect the sales of our products. These standards could possibly be based on the production methods of our manufacturing process, and materials used in this process. If we have to change our methods or processes to comply, our manufacturing costs may increase.

Investor confidence and share value may be adversely impacted if our independent auditors are unable to provide us with the attestation of the adequacy of our internal controls over financial reporting as of December 31, 2004, as required by Section 404 of the Sarbanes-Oxley Act of 2002

The Securities and Exchange Commission, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in its annual reports on Form 10-K that contain an assessment by management of the effectiveness of the company’s internal controls over financial reporting. In addition, the company’s independent

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auditors must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. This requirement will first apply to our annual report on Form 10-K for the fiscal year ending June 30, 2005. Although we intend to diligently and vigorously review our internal controls over financial reporting in order to ensure compliance with the Section 404 requirements, if our independent auditors are not satisfied with our internal controls over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if the independent auditors interpret the requirements, rules or regulations differently from us, then they may decline to attest to management’s assessment or may issue a report that is qualified. This could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact the market price of our shares.

Interest Rate Exposure

As of June 30, 2004, we had short-term investments of $13.4 million. These investments in corporate debt securities have maturity dates of greater than three months. Our corporate debt securities are subject to interest rate risk inasmuch as their fair value will fall if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at June 30, 2004, the fair value of the portfolio would not decline by a material amount. Additionally, a 10% decrease in the market interest rates would not materially impact the fair value of the portfolio. 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 believe that we currently have the ability to hold these investments until maturity, and therefore, believe that reductions in the value of these securities attributable to short-term fluctuations in interest rates would not materially harm 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 United States currency. Transaction gains or losses have not been significant in the past and we do not presently engage in hedging activity. Based on the intercompany balances of $0.8 million with the United Kingdom and $0.1 million with Germany at June 30, 2004, a hypothetical 10% adverse change in sterling or Euro against United States dollars would not result in a material foreign exchange loss. Consequently, we do not expect that reductions in the value of such intercompany balances, or of other accounts denominated in foreign currencies resulting from even a sudden or 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 United States, foreign and global economies which could materially harm our business.

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Supplementary quarterly financial data (unaudited):

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SYMMETRICOM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Symmetricom, Inc.

We have audited the accompanying consolidated balance sheets of Symmetricom, Inc. and subsidiaries (the “Company”) as of June 30, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended June 30, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Symmetricom, Inc. and subsidiaries at June 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

San Jose, California

September 7, 2004

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SYMMETRICOM, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

See notes to the consolidated financial statements.

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