##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the Fiscal Year Ended April 30,
    2003                                                
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File Number: 0-30869



---

STRATOS LIGHTWAVE, INC.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                  |  | 36-4360035                              
|(State or other jurisdiction of
    incorporation or organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|7444 West Wilson Avenue
    Chicago, Illinois(Address of principal executive
    offices) |  | 60706(Zip Code)                         

Registrants telephone number, including
area code:

(708) 867-9600


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: $.01 par value Common
Stock

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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K 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 the
Form 10-K.     o

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

The aggregate market value of the $.01 par value
common stock held by non-affiliates of the registrant on
October 31, 2002, based upon the closing sale price on that
date as reported in The Wall Street Journal was approximately
$5.50.

The registrant had 7,353,319 shares of $.01 par
value common stock outstanding as of July 23, 2003.



---






---



##### Table of Contents








DOCUMENTS INCORPORATED BY REFERENCE


Portions of the proxy statement for the Annual
Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K.



---

TABLE OF CONTENTS



|                                                                                                         |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|DOCUMENTS INCORPORATED BY REFERENCE                                                                     
|TABLE OF CONTENTS                                                                                       
|FORWARD LOOKING STATEMENTS                                                                              
|PART I                                                                                                  
|Item 1. Business                                                                                        
|Item 2. Properties                                                                                      
|Item 3. Legal Proceedings                                                                               
|Item 4. Submission of Matters to a Vote of Security Holders                                             
|PART II                                                                                                 
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters                           
|Equity Compensation Plan Information                                                                    
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations           
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                     
|Item 8. Financial Statements and Supplementary Data                                                     
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            
|PART III                                                                                                
|Item 10. Directors and Executive Officers of the Registrant                                             
|Item 11. Executive Compensation                                                                         
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
|Item 13. Certain Relationships and Related Transactions                                                 
|Item 14. Controls and Procedures                                                                        
|PART IV                                                                                                 
|Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               
|Item 15A. Index to Financial Statements and Financial Statement Schedule                                
|REPORT OF INDEPENDENT AUDITORS                                                                          
|CONSOLIDATED BALANCE SHEETS                                                                             
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                                   
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY                                                         
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                              
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES                                           
|Exhibit 10.12                                                                                           
|Exhibit 10.13                                                                                           
|Exhibit 10.14                                                                                           
|Exhibit 10.15                                                                                           
|Exhibit 10.16                                                                                           
|List of Subsidiaries                                                                                    
|Consent of Ernst & Young LLP                                                                            
|Certification of Periodic Financial Report                                                              



---



##### Table of Contents








TABLE OF CONTENTS


|                           |  |                                                                                           |   |      |     | 
|-------------------------- |  | ----------------------------------------------------------------------------------------- | - | ---- | --- | 
|Section                    |  |                                                                                           |   | Page
|                           |  |                                                                                           |   |     
|Forward-Looking Statements |  |                                                                                           | 2 |     
|PART I                    
|Item 1.                    |  | Business                                                                                  |   |      | 2   | 
|Item 2.                    |  | Properties                                                                                |   |      | 10  | 
|Item 3.                    |  | Legal Proceedings                                                                         |   |      | 10  | 
|Item 4.                    |  | Submission of Matters to a Vote of Security
    Holders                                   |   |      | 12  | 
|PART II                   
|Item 5.                    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |   |      | 13  | 
|Item 6.                    |  | Selected Financial Data                                                                   |   |      | 14  | 
|Item 7.                    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |   |      | 16  | 
|Item 7A.                   |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |   |      | 31  | 
|Item 8.                    |  | Financial Statements and Supplementary Data                                               |   |      | 32  | 
|Item 9.                    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |   |      | 32  | 
|PART III                  
|Item 10.                   |  | Directors and Executive Offices of the Registrant                                         |   |      | 32  | 
|Item 11.                   |  | Executive Compensation                                                                    |   |      | 33  | 
|Item 12.                   |  | Security Ownership of Certain Beneficial Owners
    and Management                        |   |      | 33  | 
|Item 13.                   |  | Certain Relationships and Related Transactions                                            |   |      | 33  | 
|Item 14.                   |  | Controls and Procedures                                                                   |   |      | 33  | 
|PART IV                   
|Item 15.                   |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                      |   |      | 34  | 
|Item 15A.                  |  | Index to Financial Statements and Financial
    Statement Schedule                        |   |      | F-1 | 

1



---



##### Table of Contents








FORWARD LOOKING STATEMENTS


The following discussion should be read in
conjunction with the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on
Form 10-K. This report contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ materially from the results contemplated by these forward
looking statements due to certain factors, including those
discussed below in Item 7 and elsewhere in this report.






PART I







Item 1.     Business


Overview

We develop, manufacture and sell optical
subsystems for various applications and multiple end markets.
These subsystems are designed for use in storage, data
networking, metro and wide area telecom networks, military and
government applications, and other industrial markets and
applications. We plan to continue to diversify our end markets
and expand our product offerings through internal and external
growth. Our optical subsystems are compatible with the advanced
transmission protocols used in these networks, including Gigabit
Ethernet, Fast Ethernet, Fibre Channel, and synchronous optical
network (SONET).

Pursuant to a merger agreement dated as of
July 2, 2003, the Company agreed to acquire Sterling
Holding Company, a privately-held company based in Mesa, Arizona
that designs and manufactures RF and Microwave interconnect
products via its two operating units, Trompeter Electronics,
Inc. and Semflex, Inc. Under the terms of the agreement,
Sterling will become a wholly owned subsidiary of the Company.
Sterling shareholders will receive approximately
6.1 million shares of the Companys common stock and
50,000 shares of the Companys Series B preferred
stock. The preferred stock has a face value of $5.0 million
and a contingent value of up to an additional $6.25 million
based on certain events, including the future performance of the
Companys share price. The transaction is expected to close
in the Companys third fiscal quarter of 2004 and the
parties intend to take the position that the transaction will
qualify as a tax-free reorganization. The transaction is subject
to approval by both the Companys and Sterlings
shareholders and other customary conditions. In connection with
the transaction, the Company will expand its Board of Directors
to nine members. The new board will be comprised of four members
of the Companys current Board, four members from
Sterlings Board, and an additional director chosen by
Sterling.

On February 23, 2000, Methode Electronics,
Inc. (Methode) announced plans to create a separate
company comprised of its optical products businesses.
Accordingly, we were incorporated in Delaware in April 2000 as a
wholly-owned subsidiary of Methode. In June 2000 we launched our
initial public offering of 1,006,250 shares of common stock at
$210.00 per share. After the completion of our public offering,
Methode owned approximately 84.3% of our outstanding common
stock. On March 23, 2001, Methode announced that its board
of directors had declared a stock dividend of all of
Methodes shares in us. The dividend was distributed on
April 28, 2001 to Methode stockholders of record as of
April 5, 2001. The distribution was made on the basis of
..15113 shares of our common stock for each share of Methode
Class A and Class B common stock held. The data in
this paragraph regarding our initial public offering and our
spin-off from Methode has been adjusted to reflect our 1 for 10
reverse stock split effected on October 21, 2002.

Industry Background



| |                                           
| | ------------------------------------------
| | Increasing Demand for Higher
    Bandwidth

Over the last decade, the number of communication
networks and the amount of data transmitted over networks has
increased substantially due to the growth of data intensive
applications such as Internet access, e-commerce, e-mail, video
conferencing, multimedia file transfers and the movement of
large blocks of stored data across networks. In addition, the
expansion of data and storage networks for business over a
geographically dispersed user base has increased the amount of
data transmitted over communication networks. This

2



---



##### Table of Contents



growth has exposed the transmission speed and
physical space limitations of existing networks that
traditionally have relied primarily on the transmission of
electronic signals.




| |                                                         
| | --------------------------------------------------------
| | Use of Optical Technology in Communications
    Networks

To address expanding bandwidth and transmission
distance requirements, new communication equipment was developed
using optical technology for high data rate networking, data
storage and telecommunication applications. Optical technology
uses light instead of electricity to transmit information. An
optical network is comprised of a series of network devices,
such as hubs, switches, servers and storage elements, which are
interconnected with fiber optic cabling and free space optical
links.

Optical transceivers convert electronic signals
into optical signals and back into electronic signals, thereby
facilitating the transmission of information over optical
communication networks. At the sending end, an optical
transceiver converts electronic-based information streams into
light-based information streams for launch into the optical
communication network. A focused light source, either a light
emitting diode or a laser, within the optical transceiver is
used to illuminate the fiber core with a series of coded pulses
of light that represent the information to be transmitted. At
the receiving end, an optical transceiver converts the
light-based information stream back into an electronic-based
stream.



| |                                                          
| | ---------------------------------------------------------
| | Growth of Optical Technology in the
    Enterprise Market

Gigabit Ethernet and Fast Ethernet in Local
Area Networks.LANs interconnect
computer users within an organization and allow users to share
computer resources. Early LANs, which had relatively limited
performance requirements, short connection distances and low
transmission speeds, were generally interconnected using copper
cabling. Most present day LANs use the Ethernet transmission
protocol. As performance requirements, transmission distance and
bandwidth requirements of network users have increased,
transmission protocols have evolved to 100 Mbps Fast Ethernet,
and Gigabit Ethernet technology, which operates at 1,000 Mbps or
1 gigabit per second (Gbps). Each Gigabit Ethernet switch port
relies on a subsystem to transmit and receive data.

The increasing bandwidth needs of network users
have prompted manufacturers to begin developing networking
systems with per-port transmission speeds of 10 Gbps. The
scalability and migration capacity built into the Gigabit
Ethernet protocol allows original equipment manufacturers (OEMs)
developing these systems to leverage their experience with this
standard to transition to the higher data rate. This next
generation of high data rate networking systems will require
even higher performance optical subsystems and components.

Fibre Channel in Storage Area Networks.Data storage technology is evolving
rapidly. Early storage networks used a standard interface
protocol known as the small computer systems interface or SCSI.

To address the limitations of SCSI-based storage
systems, the Fibre Channel standard was developed in the early
1990s. Fibre Channel allows devices to communicate with each
other at rates up to 2.125 Gbps over distances up to 10
kilometers, while maintaining backward compatibility with the
installed base of SCSI-based storage systems. The next
generation of SAN products will operate at speeds of 4.25 Gbps.
Fibre Channel also is scalable and expected to support systems
with data rates of 10 Gbps and higher. Fibre Channel-based SANs
enable enhanced network applications such as storage backup, and
better overall storage management achievable through centralized
storage resources. Each Fibre Channel switch port relies on a
subsystem to transmit and receive data.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Increasing Penetration of Optical
    Technology in MANs, WANs and Telecommunication
    Networks

Metropolitan and Wide Area Networks.The increased transmission
capabilities of optical technology have allowed for the
geographic extension of LANs and SANs through the use of
extended networks, such as MANs and WANs. These networks enable
enterprises to interconnect network systems throughout a
corporate campus or wide geographic area rather than within a
single building. Interconnections between network systems are
performed by switches and routers that use optical subsystems to
effect the necessary

3



---



##### Table of Contents



conversions between electronic and optical
systems. In addition, optical components are used at each
interface to join optical fibers in cable-to-cable and
cable-to-optical subsystem connections. These networks enable
business enterprises to use their networks for enhanced
applications, such as real-time backup data storage at longer
distances for disaster protection. In addition, these networks
offer organizations a cost-effective way to address increased
bandwidth requirements.


Telecommunication Networks.Optical technology also is being used
in high data rate telecommunication applications, including the
intra-office connection of clusters of telecommunication
switches based on the SONET and ATM protocols. SONET switches
and ATM access switches are often used in telecommunication
networks to switch regional traffic and route long distance
traffic. Newest generation networks are also applying Ethernet
protocols to these telecommunication networks. In these core
networks, multiple switches are often grouped together within a
service providers central office network. The
interconnections between these systems are often provided by
optical subsystems and components.



| |                                                              
| | -------------------------------------------------------------
| | Demands on Suppliers of Optical Subsystems
    and Components

The ability to send high data rate optical
signals over longer distances depends not only on optical
transceiver technology, but also on the precision of the optical
connections within the network. The demand for increasing
bandwidth places continued emphasis on the need for high quality
optical connectivity in critical applications such as in
telecommunications networks, where the transmission of higher
data rates over long distances has pushed the limits of signal
integrity. Optical connections within the network contribute to
signal loss and even small differences in signal loss due to the
quality of individual connections can substantially reduce the
distance over which optical signals can reliably be sent. The
market demands on optical communication OEMs to produce
networking systems with ever increasing data rates over long
distances have driven the need for advanced optical subsystems
and components that provide the critical interconnections
between devices within these high data rate network systems.

OEMs increasingly rely on highly integrated
subsystem suppliers to rapidly develop major elements of their
systems. These suppliers allow optical communication OEMs to
better focus on their core competencies in overall product
design, specific differentiating product benefits, marketing and
distribution. We expect this trend to continue, with optical
communication OEMs outsourcing an increasing percentage of their
non-core functions to contract manufacturers and integrated
subsystem suppliers.

Products

We design, manufacture and sell a broad line of
high-performance, optical subsystems and components. Our
products are designed for the various fiber optic interfaces on
the market today, including the SC and LC interfaces. The SC
fiber optic interface is one of the most common interfaces used
in optical network applications. This interface was designed to
be used over the entire range of optical network applications.
The LC fiber optic interface is one-half the size of the SC
interface and was designed to meet the higher port density
requirements of space restricted applications. The LC interface
is an evolutionary version of the SC interface that shares
proven connector technology. As network demands have required
ever greater port density and cost reduction, several connectors
have emerged based on the multi-fiber MT ferrule. These ferrules
commonly contain up to 24 fibers in the space of an SC
interface. We manufacture MPX compatible, HBMT compatible, and
MTP/ MPO connectors and cable assemblies, and optical flex
circuits terminated with these connectors to take advantage of
the MT technology.



| |                   
| | ------------------
| | Optical Subsystems

Our optical subsystems consist of a broad range
of optical transceivers and multi-channel optical links. These
devices serve as high data rate interconnects between network
devices, such as hubs, switches, servers and storage elements.
Our optical subsystems are available in a variety of fiber optic
interfaces, or form factors, and support a wide range of data
rates, protocols, wavelengths, modes and transmission distances.

4



---



##### Table of Contents



Embedded Transceivers.Embedded transceivers are designed to
be directly attached to a printed circuit board. We believe our
transceivers deliver some of the lowest radiated electromagnetic
interference levels in the industry, assisting our customers in
achieving required FCC certification. Our highly miniaturized
optical RJ-format transceivers use the identical shell and
external port dimensions as the most common copper-wired network
interface, allowing manufacturers to use the same cabinetry,
port labels and panel cutouts of previous electronic-signal
based designs.

Internal Removable Transceivers.Internal removable transceivers, also
known as gigabit interface converters or GBICs, are configured
in a protective module designed to plug into a connector and
guide rail system that has been soldered to a printed circuit
board. This allows for the easy removal of the transceiver from
the system, giving network designers greater configuration
flexibility and replacement options. Removable transceivers are
hot pluggable, meaning they can be replaced while
the system is operational. This feature is particularly
advantageous in network applications where maintaining
uninterrupted service is critical.

External Removable Transceivers.External removable transceivers, also
known as media interface adapters or MIAs, are similar to GBICs,
except the transceiver module remains outside of the system.
This configuration is used to convert electronic signals from a
short-distance copper-wire based transceiver to optical signals.
This product is typically used to extend the flexibility of
copper-wire based storage networking equipment.



| |                   
| | ------------------
| | Optical Components

Our passive network elements include optical
interconnect products, WDM modules, fiber packaging services and
related accessories.

High Density Backplane Connectors.Fiber optic backplane connectors are
high density connectors specifically designed for internal
systems such as switches. These connectors are increasingly
replacing electronic interconnections inside many
high-performance systems, solving many of the heat, distance and
electromagnetic interference problems associated with standard
electronic based wiring. Our MPX compatible, HBMT
compatible, and MTP/ MPO compatible fiber optic backplane
connectivity systems offers very high-density connectivity in
backplane applications such as those used in high speed data
networking and telecommunications switching equipment.

Optical Flex Circuits.Optical Flex circuits provide OEM
customers the optical equivalent of the copper printed circuit
board. Designed to facilitate extremely high fiber counts with
complex custom layouts, Optical Flex circuits have all the
channels, ports and fiber routings preconfigured to reduce
installation time and simplify system architecture. Utilizing
discreet Singlemode or Multimode fibers, sophisticated computer
aided machining can precisely manufacture Optical Flex circuits
in any routing matrix, size or shape. We provide a wide variety
of Optical Flex circuit interconnect options including MPX
compatible, HBMT compatible, MTP/ MPT compatible, MP, LC, MT-RJ,
FC, ST, MU and SC. Optical Flex circuits may be factory
terminated and are typically optically tested providing system
designers a true plug and play option in an optical domain.

Harsh Environment Connectors.We offer a comprehensive line of
high-performance connectors for harsh environment applications.
These connectors sometimes use patented expanded beam technology
that increases the size of the optical signal target by nearly
15 times, neutralizing most of the effects of shock, vibration,
particle contamination and misalignment. We also supply harsh
environment connectors that utilize butt-joint technology.

Our harsh connector products are designed
primarily for use in tactical military, petrochemical and video
broadcast applications.

Optical Multiplexing and Coupling
Components.We design, manufacture,
and sell a range of components that separate and combine up to
18 transmission streams of different wavelengths from and onto a
single fiber. These components are generally known as coarse
wave division multiplexers/demultiplexers (CWDM). These
components allow system designers to increase utilization of
installed fiber plant in metropolitan and

5



---



##### Table of Contents



local area networks. Additionally we design,
manufacture, and sell a product known as an interleaver that
combines two streams of closely spaced wavelengths into one
stream of greater wavelength density. Generally known as dense
wavelength division multiplexing (DWDM), it combines multiple
wavelength streams onto installed fiber plant to increase
utilization. Our interleaver can double the density of two DWDM
streams, doubling fiber utilization.


Cable Assemblies.We
manufacture a variety of customized cable assemblies for use
where greater performance such as generally lower and more
predictable insertion loss, reflectance and mechanical
characteristics are required. Common applications include
intra-system inter-connecting patch cords for OEMs of high
capacity networking systems and telecommunications switches as
well as inter-connecting cable terminations for high and
intermediate data rate applications in other markets, including
military, industrial and all video.

Specialty Fiber Assemblies.We manufacture custom integrated
optical connector assemblies where our specialized capabilities
can be used to provide our customers with value-added products.
These capabilities include precision connection of optoelectric
devices to active subsystems, air tight fiber optic connections
used in laser packaging applications, precision attachment of
connectors to fiber optic cable, direct attachment of
multi-fiber assemblies to integrated circuits, and assembly,
splicing and termination of high density fiber optic connectors.

Other Accessories.Our multi-fiber adapters are
physically configured to translate between cabling systems and
devices with incompatible interconnection geometries. Our test
loop-backs monitor on-line performance and fault location.

Technology

The design, manufacture and testing of
high-performance optical subsystems and components for optical
communication networks require diverse technical skills and
expertise. Key elements of our technological capabilities
include:

Integrated Systems Design.The design, manufacture and testing of
our optical subsystems require a combination of sophisticated
technical competencies in optical engineering, electronic
circuit design, mechanical engineering and electro-mechanical
packaging. We believe our technical competencies in these areas
enable us to produce optical subsystems with some of the
industrys lowest radiated electromagnetic interference
levels. Our technical capabilities in miniaturization and
advanced circuitry integration also allow us to design products
with higher port density and smaller packages.

Advanced Optical Subassembly Design.We combine advanced semiconductor
laser designs and our internally developed device positioning,
alignment and bonding technologies with integrated optical
packaging techniques to produce advanced optical subassemblies.
We believe these designs and technologies improve the
performance of our products as well as enhance yields and reduce
material costs.

Electronic Circuit Design.Our electronic circuit design
expertise includes a full range of analog and digital signaling
capabilities. Our proprietary designs and innovations in laser
driver, pre-amplifier and post-processing circuits have allowed
us to be early entrants in the Gigabit data communication
market. We believe our electronic circuit design capabilities
will enable us to develop future optoelectronic products capable
of even faster data rates.

Precision Molding Capability.Our experience in the precision
molding of polymer materials allows us to minimize optical
signal loss and maximize performance for our customers
products. This capability is at the core of both our approach to
the subassembly fabrication within our optical subsystem product
lines and our optical component products.

Manufacturing Systems.Our in-house manufacturing expertise
enables us to design, implement and optimize manufacturing
processes from the initial development of product prototypes
through full-scale production. To maximize production yield and
minimize production costs, our manufacturing process includes
extensive quality assurance systems and performance testing.

6



---



##### Table of Contents



Manufacturing

Our integrated manufacturing capabilities include
product design, engineering, fabrication, assembly and packaging
of our products. We also provide quality assurance through
proprietary internal testing procedures throughout the entire
manufacturing process. These capabilities enable us to reduce
development times, increase end-to-end production yields and
rapidly respond to customer needs, enabling us to leverage our
diverse skill base and multiple core competencies in design and
manufacturing.

We currently manufacture our subsystems and
components in our Chicago, Illinois facilities. These operations
involve high-capacity pick-and-place equipment, wave and
convection-reflow soldering systems, precision plastic molding
equipment, evaporative metal deposition chambers, automated and
semi-automated chip-to-wire bonding equipment and laser welding
systems as well as extensive test equipment laboratories,
clean-room capacity and in-house tool-making capability.

We manufacture expanded-beam and butt-joint harsh
environment fiber optic connectors and cables for tactical
military and other extreme conditions in Haverhill, England and
Chicago, Illinois, USA. This involves micron tolerance
machining, and fiber metalization capability, as well as
extensive test equipment laboratories and clean-room capacity.
These resources allow us to manufacture specialized fiber optic
products.

The raw materials required to manufacture our
products are generally available from several suppliers,
although certain key components, such as semiconductor devices,
are available from a limited number of suppliers. Although we
enter into long-term agreements for the purchase of certain key
components from time to time, our purchases from limited source
suppliers are generally made on a purchase order basis. In
certain circumstances, we maintain an inventory of limited
source components to limit the potential impact of a component
shortage.

Research and Development

As of April 30, 2003, we had 78 employees
engaged in research and development, including 5 engineers with
Ph.Ds. Our research and development expenses were
$40.2 million, $28.1 million and $14.7 million in
fiscal 2003, 2002 and 2001, respectively.

We believe continued investment in technology is
critical to our future success. We concentrate our research and
development activities on enhancing our existing products and
developing new products to meet the evolving needs of our
customers. Our interaction with customers throughout the product
design process enables us to anticipate emerging technological
trends in the networking industry and focus our research and
development efforts on addressing these needs.

Customers

We sell our products primarily to optical
communication OEMs and resellers. In some cases, we sell our
products directly to contract manufacturers who, at the
direction of our customers, incorporate them into products being
assembled by these contract manufacturers for our customers.

A small number of customers have historically
accounted for a significant portion of our net sales. For fiscal
2003, our two largest customers and their respective contract
manufacturers accounted for 13% of our net sales, with Redfern
Broadband and QLogic accounting for 8% and 5% of our net sales,
respectively. For fiscal 2002, McData Corporation, our largest
customer, accounted for 24% of our net sales. For fiscal 2001,
our three largest customers and their respective contract
manufacturers accounted for 32% of our net sales, with McData
Corporation, Alcatel Network Systems and Cisco Systems
accounting for 11%, 11% and 10% of our net sales, respectively.

Backlog

Backlog consists of written purchase orders for
products for which we have assigned shipment dates within the
following 12 months. As of April 30, 2003 and
April 30, 2002, our backlog was approximately

7



---



##### Table of Contents



$5.0 million and $8.4 million,
respectively. Orders in backlog are firm, but are subject to
cancellation or rescheduling by the customer.


Sales, Marketing and Technical
Support

We market and sell our products domestically and
internationally through our direct sales force, local resellers
and manufacturers representatives. Specifically, we have
established relationships with resellers and manufacturers
representatives in Australia, Europe, Israel and the Pacific Rim.

Our marketing organization develops strategies
and implements programs to support the sale of our products and
enhance our reputation in the industry. Our current marketing
efforts include the following initiatives:



| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ongoing interaction with customers in the context
    of product development and technical support;                                                                                                                                                                                 
|
| |  | advertising and other promotional activities in
    industry trade journals and publications targeting design
    engineers;                                                                                                                                                        
|
| |  | participation in major trade show events and
    conferences in the communications network industry to promote
    our broad lines of optical subsystems and components; and                                                                                                        
|
| |  | interaction with our customers in industry
    associations and standards committees to promote and further
    enhance active and passive interconnection technologies, promote
    standardization in the LAN and SAN markets and increase our
    visibility as industry experts.

We believe our ability to deliver value-added
customer service and technical support is essential to our
business. Our sales force and design engineers work closely with
our customers through the design and manufacturing process. We
also provide extensive technical support to our customers after
the design and qualification process is complete. We intend to
strengthen our current customer relationships by continuing to
deliver a high level of value-added service and technical
support and leveraging our reputation for high quality products
and service to establish relationships with new customers.

Competition

The market for optical subsystems and components
for optical communication network applications is highly
competitive and subject to rapidly changing technology. We
believe the primary competitive factors impacting our business
are:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | data rate, port density, reliability and other
    performance features;
|
| |  | ability to rapidly scale production for high
    volumes;               
|
| |  | timeliness of new product introductions;                                
|
| |  | length of product design cycle;                                         
|
| |  | compatibility with emerging industry standards;                         
|
| |  | scope and responsiveness of service and technical
    support;          
|
| |  | price and performance characteristics; and                              
|
| |  | established reputation with key customers.                              

For active optical subsystems, we compete
primarily with Agilent Technologies, Inc., Finisar Corporation,
Infineon Technologies Corp., JDS Uniphase Corporation and
Optical Communications Products, Inc. For passive optical
subsystems, we compete primarily with Infineon Technologies
Corp., OFS, Inc., Molex, Inc. and Tyco International, Ltd. and
numerous other smaller companies. Many of our current and
potential

8



---



##### Table of Contents



competitors have significantly greater financial,
technical, marketing, purchasing and other resources than we do,
and as a result, may be able to:




| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | respond more quickly to new or emerging
    technologies or standards and to changes in customer
    requirements;
|
| |  | devote greater resources to the development,
    promotion and sale of their products; and                        
|
| |  | deliver competitive products at a lower price.                                                                    

In addition, some of our existing and potential
customers are also current and potential competitors. These
companies may attempt to integrate their operations by producing
their own optical subsystems or components or by acquiring one
of our competitors, thereby eliminating the need to purchase our
products. Furthermore, larger companies in other related
industries may develop or acquire technologies and apply their
significant resources, including their distribution channels and
brand name recognition, to capture significant market share.

We cannot assure you that we will be able to
compete successfully against either current or future
competitors. Increased competition could result in significant
price erosion, reduced revenue, lower margins or loss of market
share, any of which would significantly harm our business.

Intellectual Property

We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect
our proprietary rights. As of April 30, 2003, we had 110
U.S. patents issued and 26 U.S. patent applications pending. Our
issued patents expire between 2005 and 2022. Policing
unauthorized use of our products and technology is difficult. We
file patent applications and other registrations in foreign
countries to establish and protect our proprietary rights where
we believe such filings are necessary to protect our technology.
However, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the
United States. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Our inability to
adequately protect against unauthorized use of our intellectual
property could devalue our property content and impair our
ability to compete effectively. Further, enforcing our
intellectual property rights could result in the expenditure of
significant financial and managerial resources, whether or not
we are successful. Litigation may be necessary in the future to
enforce our intellectual property rights.

Regulatory Matters

Our properties and business operations are
subject to a wide variety of federal, state, local, and foreign
environmental, health and safety laws and other legal
requirements, including those relating to the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous
substances used in our manufacturing processes. If we fail to
obtain required permits or otherwise fail to operate within
these or future legal requirements, we may be required to pay
substantial penalties, suspend our operations or make costly
changes to our manufacturing processes or facilities. Although
we believe that we are in compliance and have complied with all
applicable legal requirements, we may be required to incur
additional costs to comply with current or future legal
requirements.

Employees

As of April 30, 2003, we employed a total of
487 full-time employees, 352 of whom were primarily engaged in
manufacturing, 78 of whom were engaged in research and
development, 24 of whom were engaged in sales, marketing and
technical support, and 33 of whom were engaged in
administration. We also from time to time employ part-time
employees and hire independent contractors. Our employees are
not represented by any collective bargaining agreement, and we
have never experienced a work stoppage. We believe that our
employee relations are good.

9



---



##### Table of Contents



Geographic Areas

Information concerning our operations in
different geographic regions is set forth in Note 15 to our
financial statements included in Item 15 of this Annual
Report on Form 10-K.

Available Information

We make available free of charge through our
website, www.stratoslightwave.com, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements and all amendments to
those reports as soon as reasonably practicable after such
material is electronically filed with the Securities and
Exchange Commission. These reports may also be obtained without
charge by contacting Investor Relations, Stratos Lightwave, Inc,
7444 West Wilson Avenue, Chicago, Illinois 60706,
phone 708-867-9600. Our Internet website and the
information contained therein or incorporated therein are not
intended to be incorporated into this Annual Report on
Form 10-K.






Item 2.     Properties


Our corporate headquarters are located in
Chicago, Illinois. This facility occupies two buildings owned by
us with approximately 88,500 total square feet and contains our
administrative offices, sales and marketing offices, research
and development facilities and primary optical subsystems
manufacturing facility. In addition, we own an approximately
60,000 square foot facility in Chicago, Illinois that contains a
substantial passive optical subsystems manufacturing facility.
We own an approximately 16,000 square foot facility in Palm Bay,
Florida, which contains administrative offices, sales and
marketing and research and development facilities.

We lease approximately 38,000 square feet in
Mountain View, California for administrative, sales and
marketing, and research and development. This lease expires in
August 2007. We lease approximately 30,000 square feet for
design and manufacturing in Haverhill, Suffolk, United Kingdom.
This lease expires in 2010. In addition, we lease approximately
20,000 square feet in Hauppauge, New York for design and
manufacturing. This lease expires in September 2004. We also
lease an approximately 15,000 square foot manufacturing facility
in Shenzhen, China. This lease expires in September, 2009.

We believe our facilities are adequate to meet
our current needs.






Item 3.     Legal
Proceedings


From time to time, we become involved in various
lawsuits and legal proceedings that arise in the normal course
of business. Litigation is subject to inherent uncertainties and
an adverse result in a lawsuit may harm our business, financial
condition or results of operation. Our management believes that
the resolution of these lawsuits and legal proceedings will not
have a significant effect on the Companys business,
financial condition or results of operation.

The Company and certain of its directors and
executive officers have been named as defendants in purported
class action lawsuits filed in the United States District Court,
Southern District of New York. The first of these lawsuits,
filed on July 25, 2001, is captioned Kucera v. Stratos
Lightwave, Inc. et. al., No. 01 CV 6821. Three other
similar lawsuits have also been filed against the Company and
certain of its directors and executive officers. The complaints
also name as defendants the underwriters for the Companys
initial public offering. The complaints are substantially
identical to numerous other complaints filed against other
companies that went public over the last several years. The
complaints generally allege, among other things, that the
registration statement and prospectus from the Companys
June 26, 2000 initial public offering failed to disclose
certain alleged actions by the underwriters for the offering.
The complaints charge the Company and two or three of its
directors and executive officers with violations of
Sections 11 and 15 of the Securities Act of 1933, as
amended, and/or Sections 10(b) and Section 20(a) of
the Securities Exchange Act of 1934, as amended. The complaints
also allege claims solely against the underwriting defendants
under Section 12(a)(2) of the Securities Act of 1933, as
amended.

The Company recently agreed to a Memorandum of
Understanding, which reflects a settlement of these class
actions as between the purported class action plaintiffs, the
Company and the defendant officers and

10



---



##### Table of Contents



directors, and the Companys liability
insurer. Under the terms of the Memorandum of Understanding, the
Companys liability insurers will pay certain sums to the
plaintiffs, with the amount dependent upon the plaintiffs
recovery from the underwriters in the IPO class actions as a
whole. The plaintiffs will dismiss with prejudice their claims
against the Company and its officers and directors, and the
Company will assign to the plaintiffs certain claims that it may
have against the underwriters.


In June 2002, Catherine Lego, as representative
of the former stockholders of Tsunami Optics, Inc.
(Tsunami) filed a lawsuit against the Company in the
Superior Court of California, City and County of Santa Clara,
relating to the Companys acquisition of Tsunami in
February 2002. Stratos has removed the lawsuit to the federal
district court for the Northern District of California. The
complaint alleges, among other things, that the Company breached
the acquisition agreement by failing and refusing to allow
Tsunami to operate as a separate subsidiary in the ordinary
course and by firing the Tsunami executives necessary to operate
the business in the ordinary course, making it impossible for
Tsunami to achieve the $18 million earn-out payment
provided for in the acquisition agreement. The complaint also
alleges fraud and violations of federal securities laws in
connection with the acquisition of Tsunami. Plaintiffs are
seeking $18 million in damages or, in the alternative,
rescission of the acquisition agreement. The Company has filed a
counterclaim which alleges, among other things, claims for
fraud, breach of contract and violations of federal securities
laws against Lego and several other shareholders and officers of
Tsunami in connection with the acquisition of Tsunami. The
counterclaim seeks compensatory and punitive damages. The
Company believes that the plaintiffs claims in this
lawsuit are without merit and intends to vigorously defend
against these claims.

In August 2002, James Campbell filed a lawsuit
against the Company and Tsunami alleging breach of an alleged
employment contract, fraud, violation of the implied covenant of
good faith and fair dealing, age discrimination and wrongful
termination in violation of public policy. Campbell seeks
unspecified damages, punitive damages and attorneys fees.
The Company believes that this lawsuit is without merit and
intends to vigorously defend against these claims.

In a separate action filed in the Circuit Court
of Cook County, Illinois, the Company filed suit against James
P. Campbell and Catherine Lego, individually. In its complaint,
the Company seeks declaratory judgment that the Company has the
right to make changes in Tsunamis business under the
agreement for the Tsunami acquisition. The complaint also
includes claims against Lego and Campbell for fraud and breach
of contract for misrepresentations made by them to the Company
in connection with the Tsunami acquisition and a claim for
breach of fiduciary duty against Campbell. The complaint seeks
compensatory and punitive damages.

We are plaintiffs in several lawsuits relating to
our intellectual property rights. The defendants in these
lawsuits include Infineon Technologies Corp. (Northern District
of California), E2O, Inc. (District of Delaware and Northern
District of Illinois), and PicoLight, Inc. (District of Delaware
and Northern District of Illinois). In these actions, Stratos
alleges that optoelectronic products sold by the defendants
infringe numerous Stratos patents. We are seeking monetary
damages and injunctive relief. The defendants in these lawsuits
have filed various affirmative defenses and contend that the
patents are invalid, unenforceable and/or not infringed by the
products sold by the defendants and, if successful, are seeking
attorneys fees and costs in connection with the lawsuits.
We intend to pursue these lawsuits and defend against these
counterclaims vigorously.

11



---



##### Table of Contents








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


There were no matters submitted to security
holders during the fourth quarter of fiscal 2003.

Stratos Lightwave Executive Officers

The following table sets forth information
concerning our executive officers:

|     |                      |     |  |           |    |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | -------------------- | --- |  | --------- | -- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name |                      | Age |  | Positions
|     |                      |     |  |          
|     | James W. McGinley    |     |  |           | 48 |  |  | President, Chief Executive Officer and Director
    since April 2000. Mr. McGinley was President of Methode
    Electronics, Inc. from August 1998 through June 2000.
    Mr. McGinley served as President of Methode
    Electronics Optical Interconnect Products Division from
    January 1995 through July 1998. Mr. McGinley has been a
    director of Methode since 1993.                                                                                                                                                                                                                
|    
|     | David A. Slack       |     |  |           | 50 |  |  | Executive Vice President of Finance and Chief
    Financial Officer since September 2002 and Vice President,
    Finance and Chief Financial Officer since April 2000.
    Mr. Slack served as the Chief Financial Officer of the
    Optoelectronics Group of Methode Electronics from March 27,
    2000 through April 2000. From 1993 through March 27, 2000,
    Mr. Slack served as Director of Finance, Chief Financial
    Officer and Director of Information Technology of Bretford
    Manufacturing, Inc., a manufacturer of furniture, carts, mounts,
    screens and other equipment.
|    
|     | Robert Scharf        |     |  |           | 47 |  |  | Executive Vice President of the Active Subsystems
    Group since September 2002 and Vice President and General
    Manager of our Stratos Micro Systems subsidiary since its
    acquisition in April 1999. From 1994 through April 1999,
    Mr. Scharf was Vice President of Polycore technologies, the
    predecessor to Stratos Micro Systems.                                                                                                                                                                                                                                              
|    
|     | Richard C.E. Durrant |     |  |           | 41 |  |  | Executive Vice President of the Passive
    Subsystems Group since September 2002 and the Managing Director
    of our Stratos Limited subsidiary since its acquisition in
    December 1998. Mr. Durrant previously served as the
    Managing Director of Methode Fibre Optic Europe Ltd. from 1997
    through April 2000. From 1993 through 1997 Mr. Durrant
    served as Sales Director of Mikon Ltd., a Methode subsidiary.                                                                                                                                                                

12



---



##### Table of Contents








PART II







Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters


Market Information

Our common stock is currently traded on the
Nasdaq National Market under the symbol STLW. The
following table sets forth the range of high and low closing
sales prices of our common stock for the periods indicated:

|                                  |  |      |      |     |  |   |      | 
|--------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|                                  |  | High |      | Low
|                                  |  |      |      |    
|Fiscal Year Ended April 30, 2003: |  |      |      |     |  |   |      | 
|First Quarter                     |  | $    | 2.94 |     |  | $ | 0.76 | 
|Second Quarter                    |  | $    | 3.69 |     |  | $ | 0.24 | 
|Third Quarter                     |  | $    | 8.83 |     |  | $ | 3.17 | 
|Fourth Quarter                    |  | $    | 4.48 |     |  | $ | 2.63 | 
|                                 
|Fiscal Year Ended April 30, 2002: |  |      |      |     |  |   |      | 
|First Quarter                     |  | $    | 1.41 |     |  | $ | 0.88 | 
|Second Quarter                    |  | $    | 1.00 |     |  | $ | 0.34 | 
|Third Quarter                     |  | $    | 0.72 |     |  | $ | 0.40 | 
|Fourth Quarter                    |  | $    | 0.60 |     |  | $ | 0.27 | 

The high and low closing sales prices above have
been restated, when applicable, to reflect a 1 for
10 reverse split effected on October 21, 2002.

The closing price of our common stock on
July 23, 2003 was $5.72. The approximate number of
stockholders of record on July 23, 2003 was 445,
excluding shares held in street name.

Dividends

We have never declared or paid dividends on our
common stock and currently do not intend to pay dividends in the
foreseeable future so that we may reinvest our earnings in the
development of our business. The payment of dividends in the
future will be at the discretion of the Board of Directors.

Equity Compensation Plan Information

The following table provides information about
shares of our common stock that may be issued upon exercise of
stock options under all of our existing equity compensation
plans as of April 30, 2003.






Equity Compensation Plan Information


|                                                               |       |                      |         |                   |  |                       |       |       |  |  |         |         | 
|-------------------------------------------------------------- | ----- | -------------------- | ------- | ----------------- |  | --------------------- | ----- | ----- |  |  | ------- | ------- | 
|                                                               |       |                      |         |                   |  | Number of securities 
|                                                               |       |                      |         |                   |  | remaining available  
|                                                               |       |                      |         |                   |  | for future issuance  
|                                                               |       | Number of securities |         | Weighted-average  |  | under equity         
|                                                               |       | to be issued upon    |         | exercise price of |  | compensation plans   
|                                                               |       | exercise of          |         | outstanding       |  | (excluding securities
|                                                               |       | outstanding options, |         | options, warrants |  | reflected in the     
|Plan category                                                  |       | warrants and rights  |         | and rights        |  | first column)        
|                                                               |       |                      |         |                   |  |                      
|Equity compensation plans approved by security
    holders     |       |                      | 660,585 |                   |  | $                     | 13.81 |       |  |  | 239,415 |        
|Equity compensation plans not approved by
    security holders |       |                      | 74,639  |                   |  |                       | 4.69  |       |  |  | 40,361  |        
|                                                               |       |                      |         |                   |  |                       |       |       |  |  |         |        
|                                                               | Total |                      |         | 735,224           |  |                       | $     | 12.88 |  |  |         | 279,776 | 
|                                                               |       |                      |         |                   |  |                       |       |       |  |  |         |        

13



---



##### Table of Contents



The Companys only equity compensation plan
not approved by security holders is the Stratos Lightwave, Inc.
2002 Stock Plan for Acquired Companies (the 2002
Plan). The 2002 Plan permits the Company to award stock
options, restricted stock and stock appreciation rights to
present and future directors, officers and employees of the
Company. The maximum number of shares for which awards may be
issued under the 2002 Plan is 115,000 shares, and the number of
shares for which restricted stock awards may be issued under the
2002 Plan may not exceed 10,000 shares. See Note 9 to
our financial statements included in Item 15 of this Annual
Report on Form 10-K.

Item 6.     Selected
Financial Data

You should read the following selected combined
financial data in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our combined financial statements and the
related notes included elsewhere in this report.

The consolidated statement of operations data set
forth below for the fiscal years ended April 30, 2003, 2002
and 2001 and the consolidated balance sheet data as of
April 30, 2003 and 2002 are derived from, and are qualified
by reference to, our audited consolidated financial statements
included elsewhere in this report. The consolidated statement of
operations data set forth below for the fiscal year ended
April 30, 2000 and 1999 and the consolidated balance sheet
data as of April 30, 2001, 2000 and 1999 are derived from
consolidated audited financial statements not included in this
report.

|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------------------------ | ----------------------------- | --------------------------------- | -------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                               |                               |                                  
|                                                                               |                               | Fiscal Year Ended April 30,      
|                                                                               |                               |                                  
|                                                                               |                               | 2003                              |          | 2002   |         | 2001 |         | 2000   |         | 1999
|                                                                               |                               |                                   |          |        |         |      |         |        |         |     
|                                                                               |                               |                                  
|                                                                               |                               | (in thousands, except share data)
|Statement of Operations Data:                                                  |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|Revenue:                                                                       |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|                                                                               | Net sales                     |                                   | $        | 37,236 |         |      | $       | 56,387 |         |      | $       | 126,902 |         |   | $      | 71,785 |        |   | $      | 46,458 |       
|                                                                               | License fees and royalties    |                                   |          | 14,398 |         |      |         | 3,622  |         |      |         | 4,873   |         |   |        | 1,459  |        |   |        | 50     |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|                                                                               |                               |                                   | 51,634   |        |         |      | 60,009  |        |         |      | 131,775 |         |         |   | 73,244 |        |        |   | 46,508 |       
|Cost and expenses:                                                             |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|                                                                               | Cost of sales(1)              |                                   |          | 63,114 |         |      |         | 64,713 |         |      |         | 89,617  |         |   |        | 48,064 |        |   |        | 29,543 |       
|                                                                               | Research and development(2)   |                                   |          | 40,208 |         |      |         | 28,087 |         |      |         | 14,729  |         |   |        | 7,045  |        |   |        | 3,301  |       
|                                                                               | Sales and marketing           |                                   |          | 7,063  |         |      |         | 7,999  |         |      |         | 9,146   |         |   |        | 6,724  |        |   |        | 4,514  |       
|                                                                               | General and administrative(3) |                                   |          | 45,675 |         |      |         | 37,349 |         |      |         | 13,367  |         |   |        | 5,361  |        |   |        | 3,518  |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|                                                                               |                               | Total costs and expenses          |          |        | 156,060 |      |         |        | 138,148 |      |         |         | 126,859 |   |        |        | 67,194 |   |        |        | 40,876 | 
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|Income (loss) from operations                                                  |                               |                                   | (104,426 | )      |         |      | (78,139 | )      |         |      | 4,916   |         |         |   | 6,050  |        |        |   | 5,632  |       
|Investment income, net                                                         |                               |                                   | 1,117    |        |         |      | 3,368   |        |         |      | 7,770   |         |         |   |       |        |        |   |       |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|Income (loss) before income taxes                                              |                               |                                   | (103,309 | )      |         |      | (74,771 | )      |         |      | 12,686  |         |         |   | 6,050  |        |        |   | 5,632  |       
|Provision for income taxes (credit)                                            |                               |                                   |         |        |         |      | (2,581  | )      |         |      | 3,510   |         |         |   | 2,260  |        |        |   | 2,130  |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|Income (loss) before cumulative effect of a
    change in accounting principle |                               |                                   | (103,309 | )      |         |      | (72,190 | )      |         |      | 9,176   |         |         |   | 3,790  |        |        |   | 3,502  |       
|Cumulative effect of a change in accounting
    principle                      |                               |                                   | (16,982  | )      |         |      |        |        |         |      |        |         |         |   |       |        |        |   |       |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       
|Net income (loss)                                                              |                               | $                                 | (120,291 | )      |         | $    | (72,190 | )      |         | $    | 9,176   |         |         | $ | 3,790  |        |        | $ | 3,502  |       
|                                                                               |                               |                                   |          |        |         |      |         |        |         |      |         |         |         |   |        |        |        |   |        |       

14



---



##### Table of Contents



|                                                                 |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |       | 
|---------------------------------------------------------------- | ------- | --------------------------------- | ------ | ----- |  | ---- | ------ | ----- |  | ---- | ---- | ----- |  | - | ---- | ----- |  | - | ---- | ----- | 
|                                                                 |         |                                  
|                                                                 |         | Fiscal Year Ended April 30,      
|                                                                 |         |                                  
|                                                                 |         | 2003                              |        | 2002  |  | 2001 |        | 2000  |  | 1999
|                                                                 |         |                                   |        |       |  |      |        |       |  |     
|                                                                 |         |                                  
|                                                                 |         | (in thousands, except share data)
|Net income (loss) per share, basic and
    diluted:(4)           |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      
|Before cumulative effect of a change in
    accounting principle |         | $                                 | (14.12 | )     |  | $    | (11.06 | )     |  | $    | 1.47 |       |  | $ | 0.70 |       |  | $ | 0.65 |      
|Cumulative effect of a change in accounting
    principle        |         |                                   | (2.32  | )     |  |      |       |       |  |      |     |       |  |   |     |       |  |   |     |      
|                                                                 |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      
|Net income (loss)                                                |         | $                                 | (16.44 | )     |  | $    | (11.06 | )     |  | $    | 1.47 |       |  | $ | 0.70 |       |  | $ | 0.65 |      
|                                                                 |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      
|Weighted average number of common
    shares outstanding         |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      
|                                                                 | Basic   |                                   |        | 7,317 |  |      |        | 6,525 |  |      |      | 6,246 |  |   |      | 5,403 |  |   |      | 5,403 | 
|                                                                 |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      
|                                                                 | Diluted |                                   |        | 7,317 |  |      |        | 6,525 |  |      |      | 6,281 |  |   |      | 5,403 |  |   |      | 5,403 | 
|                                                                 |         |                                   |        |       |  |      |        |       |  |      |      |       |  |   |      |       |  |   |      |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cost of sales for fiscal 2003 and 2002 includes
    $6,805 and $8,100, respectively, for charges for obsolete and
    slow moving inventory and $900 and $8,300, respectively, of
    expenses related to the restructuring of operations. In
    addition, cost of sales for fiscal 2003 includes $16,400 of
    charges for impairment of long-lived assets. See Note 5 to
    Consolidated Financial Statements.                                                                                                                                                                                                                                                                       
|   
|(2) | Research and development expenses for fiscal 2003
    includes $16,900 of charges for impairment of long-lived assets,
    a $2,070 charge to in-process research and development and
    $1,100 of expenses related to the restructuring of operations.
    Research and development expenses for fiscal 2002 include $6,300
    of expenses as the result of the Companys change of its
    policy on research and development expenses. Such expenses would
    have been classified as cost of sales under the previous policy.
    It is not practicable to determine the effect this change would
    have had on prior years. See Note 5 to Consolidated
    Financial Statements.
|   
|(3) | General and administrative expenses for fiscal
    2003 includes $28,430 of charges for impairment of goodwill and
    $3,800 of charges for impairment of long-lived assets. General
    and administrative expenses for fiscal 2003 and 2002 include
    $1,100 and $22,400, respectively, of expenses related to the
    restructuring of operations. See Notes 4 and 5 to Consolidated
    Financial Statements.                                                                                                                                                                                                                                                                      
|   
|(4) | Net income (loss) per share for fiscal 2002,
    2001, 2000 and 1999 has been restated to reflect a 1 for
    10 reverse split effected on October 21, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                            |  |                                   |         |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|------------------------------------------- |  | --------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                            |  |                                  
|                                            |  | As of April 30,                  
|                                            |  |                                  
|                                            |  | 2003                              |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                            |  |                                   |         |      |  |      |         |      |  |     
|                                            |  |                                  
|                                            |  | (in thousands, except share data)
|Balance Sheet Data:                         |  |                                   |         |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|Cash and cash equivalents                   |  | $                                 | 43,649  |      |  | $    | 61,020  |      |  | $    | 125,438 |  |  | $ | 537    |  |  | $ | 550    | 
|Working capital                             |  |                                   | 65,097  |      |  |      | 98,040  |      |  |      | 178,514 |  |  |   | 17,748 |  |  |   | 11,994 | 
|Total assets                                |  |                                   | 124,612 |      |  |      | 251,776 |      |  |      | 280,448 |  |  |   | 61,137 |  |  |   | 31,523 | 
|Long-term obligations, less current portion |  |                                   | 298     |      |  |      | 6,569   |      |  |      |        |  |  |   |       |  |  |   |       | 
|Shareholders equity                        |  |                                   | 101,045 |      |  |      | 220,480 |      |  |      | 254,899 |  |  |   | 52,962 |  |  |   | 26,169 | 

15



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion of our financial
condition and results of operations should be read in
conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this Form 10-K.
The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ substantially from those anticipated in these
forward-looking statements as a result of several factors,
including those set forth under Factors That May Affect
Our Future Results.

Overview

We develop, manufacture and sell optical
subsystems for various applications and multiple end markets.
These subsystems are designed for use in storage, data
networking, metro and wide area telecom networks, military and
government applications, and other industrial markets and
applications. We plan to continue to diversify our end markets
and expand our product offerings through internal and external
growth. Our optical subsystems are compatible with the advanced
transmission protocols used in these networks, including Gigabit
Ethernet, Fast Ethernet, Fibre Channel, and synchronous optical
network (SONET). As previously announced, we discontinued the
manufacture of single ferrule connectors and certain other
commodity products in the fourth quarter of fiscal 2002.
Beginning in fiscal 2003, sales of optical products previously
classified as optical components are reclassified as part of our
optical subsystem products.

Pursuant to a merger agreement dated as of
July 2, 2003, the Company agreed to acquire Sterling
Holding Company, a privately-held company based in Mesa, Arizona
that designs and manufactures RF and Microwave interconnect
products via its two operating units, Trompeter Electronics,
Inc. and Semflex, Inc. Under the terms of the agreement,
Sterling will become a wholly owned subsidiary of the Company.
Sterling shareholders will receive approximately
6.1 million shares of the Companys common stock and
50,000 shares of the Companys Series B preferred
stock. The preferred stock has a face value of $5.0 million
and a contingent value of up to an additional $6.25 million
based on certain events, including the future performance of the
Companys share price. The transaction is expected to close
in the Companys third fiscal quarter of 2004 and the
parties intend to take the position that the transaction will
qualify as a tax-free reorganization. The transaction is subject
to approval by both the Companys and Sterlings
shareholders and other customary conditions. In connection with
the transaction, the Company will expand its Board of Directors
to nine members. The new board will be comprised of four members
of the Companys current Board, four members from
Sterlings Board, and an additional director chosen by
Sterling.

On February 23, 2000, Methode Electronics,
Inc. (Methode) announced plans to create a separate
company comprised of its optical products businesses.
Accordingly, we were incorporated in Delaware in April 2000 as a
wholly owned subsidiary of Methode. In June 2000 we launched our
initial public offering of 1,006,250 shares of common stock at
$210.00 per share. After the completion of our public offering,
Methode owned approximately 84.3% of our outstanding common
stock. On March 23, 2001, Methode announced that its board
of directors had declared a stock dividend of all of
Methodes shares in us. The dividend was distributed on
April 28, 2001 to Methode stockholders of record as of
April 5, 2001. The distribution was made on the basis of
..15113 shares of Stratos stock for each share of Methode
Class A and Class B common stock held. The data in
this paragraph regarding our initial public offering and our
spin-off from Methode has been adjusted to reflect our
1 for 10 reverse stock split effected on
October 21, 2002.

Our net sales are derived principally from the
sale of optical subsystems to original equipment manufacturers
(OEMs). Our net sales have fluctuated from period to period
based on customer demand for our products, the size and timing
of customer orders, particularly from our largest customers, and
based on any canceled, delayed or rescheduled orders in the
relevant period. We determine reserves for rapid technological
change on a product by product basis. While it is likely that
obsolescence due to rapid technological change will continue,
the timing and amount of this obsolescence cannot be predicted
with certainty.

The average unit prices of our products generally
decrease as the products mature in response to factors such as
increased competition, the introduction of new products and
increased unit volumes. We anticipate that average selling
prices will continue to decline in future periods, although the
timing and degree of the

16



---



##### Table of Contents



declines cannot be predicted with any certainty.
We must continue to develop and introduce on a timely basis new
products that incorporate features that can be sold at higher
average selling prices.


License fees and royalties represent payments
received from licensees of our patented technology, which is
also used by us in our optical subsystems. These license
agreements generally provide for up-front payments and/or future
fixed payments or ongoing royalty payments based on a percentage
of sales of the licensed products. The timing and amounts of
these payments is beyond our control. Accordingly, the amount
received in any given period is expected to vary significantly.
The duration of all of these license agreements extends until
the expiration of the licensed patents. We will consider
entering into similar agreements in the future, however, we are
not able to predict whether we will enter into any additional
licenses in the future and, if so, the amount of any license
fees or royalties.

Our cost of sales consists of materials, salaries
and related expenses for manufacturing personnel and
manufacturing overhead. We purchase several key components used
in the manufacture of our products from a limited number of
suppliers. We have periodically experienced shortages and
delivery delays for these materials. In some circumstances, we
maintain an inventory of limited source components to decrease
the risk of shortage. If we overestimate our requirements, we
may have excess inventory of these components. Substantially all
of our products are designed and manufactured in our own
facilities. In the future we may expand the volume of products
manufactured by third parties. Accordingly, a significant
portion of our cost of sales is fixed over the near term. In
order to remain competitive, we must continually reduce our
manufacturing costs through design and engineering innovations
and increases in manufacturing efficiencies. There can be no
assurance that we will be able to reduce our manufacturing costs
or introduce new products to offset anticipated decreases in the
average selling prices of our products.

Research and development expenses consist
primarily of salaries and related expenses for design engineers,
scientists and other technical personnel, depreciation of test
and prototyping equipment, and tooling. Research and development
expenses also consist of materials and operating expenses
related to major product development projects. Prior to
May 28, 2000, research and development expenses have
included allocations from Methode Electronics, Inc.
(Methode) of expenses for salaries and related
expenses for research and development personnel. We charge all
research and development expenses to operations as incurred. We
believe that continued investment in research and development is
critical to our long-term business success. We intend to
continue to invest in research and development programs in
future periods for the purpose of enhancing or reducing the cost
of current optical subsystems, and developing new optical
subsystems.

We market and sell our products domestically and
internationally through our direct sales force, local resellers
and manufacturers representatives. Sales and marketing
expenses consist primarily of personnel costs, including sales
commissions and product marketing and promotion costs. Prior to
May 28, 2000, expenses have included allocations from
Methode of expenses for the salaries and related expenses for
sales and marketing personnel. We expect to continue to make
significant expenditures for sales and marketing services.

General and administrative expenses consist
primarily of personnel costs for our administrative and
financial groups, as well as legal, accounting and other
professional fees. General and administrative expenses in fiscal
2002 and 2001 also include the amortization of goodwill
resulting from the excess of the purchase price over net assets
of acquired companies. Prior to May 28, 2000, expenses have
included allocations from Methode for the salaries and related
expenses for administrative, finance and human resources
personnel; professional fees; information technology and other
corporate expenses. We expect to continue to make significant
expenditures for general and administrative services.

17



---



##### Table of Contents



Critical Accounting Policies



| |                    
| | -------------------
| | Accounts Receivable

We sell products primarily to various original
equipment manufacturers and distributors. Sales to these
customers have varying degrees of collection risk associated
with them. Judgment is required in assessing the realization of
these receivables based on aging, historical experience and
customers financial condition.



| |                   
| | ------------------
| | Inventory Reserves

It is our policy to reserve 100% of the value of
inventory we specifically identify and consider obsolete or
excessive to fulfill future sales estimates. We define obsolete
inventory as inventory that will no longer be used in the
manufacturing process or items that have potential quality
problems. Excess inventory is defined as inventory in excess of
one years projected usage. Excess inventory is determined
using our best estimate of future demand at the time, based upon
information then available to us. In general, our policy is to
scrap inventory determined to be obsolete shortly after the
determination is made and to keep excess inventory for a
reasonable amount of time before it is discarded. Occasionally,
changed circumstances in the marketplace present us with an
opportunity to sell inventory that was previously determined to
be excessive and reserved for. If this occurs, we vigorously
pursue such opportunities.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

We review the carrying value of our long-lived
assets, including goodwill, if the facts and circumstances, such
as significant declines in sales, earnings or cash flows or
material adverse changes in the business climate suggest that
they may be impaired. If this review indicates that goodwill or
other long-lived assets will not be recoverable, as determined
based on the estimated undiscounted cash flows of the long-lived
asset, impairment is measured by comparing the carrying value of
the long-lived asset to fair value. Fair value is determined
based on quoted market values, discounted cash flows or
appraisals. If an asset is considered held for sale, we adjust
the carrying value of the underlying assets to fair value, as
determined based on the estimated net realizable proceeds of the
assets.



| |                    
| | -------------------
| | Revenue Recognition

Revenue from product sales, net of trade
discounts, is recognized when title passes, which generally
occurs upon shipment. We handle returns by replacing, repairing
or issuing credit for defective products when returned. We
establish a reserve for returns based on any known and
anticipated returns.



| |                 
| | ----------------
| | Customer Returns

It is our policy to establish a reserve for
customer returns based on any known and anticipated returns
based on past experience. Occasionally, we will receive requests
from customers to accept the return of merchandise for which
they had previously accepted delivery. Although we have no
obligation to do so, each such request is evaluated in light of
the contemplation of future business from the customer. We will
continue to consider these requests in the future, however, we
are not able to predict that we will enter into any additional
agreements in the future, and, if so, the amount of any returns.



| |                         
| | ------------------------
| | Research and Development

All expenses relative to the development of a new
product, prior to its introduction into production, are
considered research and development expenses. In addition, the
costs of the engineering effort to do significant redesign to
enhance product performance that results essentially in a new
product are also considered to be research and development
expenses. Because the true manufacturability of our products is
not obvious until a period of volume production has occurred,
initial production is considered a part of the development
process. During this phase, a portion of the scrap expense and
yield loss is considered development expense. A product is still
considered under development until it matures to the point where
its production yields (volumes) are

18



---



##### Table of Contents



consistent with other mature products and any
engineering effort is predominately dedicated to customer
applications and/or quality support.


Basis of Presentation

Our historical consolidated financial statements
for periods ending on or prior to May 28, 2000 have been
carved out from the consolidated financial statements of Methode
using the historical results of operations and cash flows and
historical basis of the assets and liabilities of our business.
The historical consolidated financial statements also include
allocations to us of Methodes corporate expenses,
including centralized accounting, treasury, information
technology, human resources, sales and marketing, legal, real
estate and other corporate services and infrastructure costs. We
consider the expense allocations to be reasonable reflections of
the utilization of the services provided to us or the benefits
received by us. The consolidated financial statements after
May 28, 2000 reflect the operations, cash flows and assets
and liabilities of the Company on a stand-alone basis.

Our historical financial information for periods
ending on or prior to May 28, 2000, is not indicative of
our financial position, results of operation or cash flows in
the future, nor is it necessarily indicative of what our
financial position, results of operations or cash flows would
have been were we a separate, stand-alone entity for the periods
presented. Our consolidated financial information for periods
ending on or prior to May 28, 2000 does not reflect
additional expenses that we may incur as a result of being a
stand-alone public company.

Results of Operations

The following table sets forth certain statement
of operations data as a percentage of net sales for the periods
indicated:

|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |       |       | 
|------------------------------------------------------------------------------ | -------------------------- | --------------------------- | ------ | ----- | ----- | ---- | ------ | ----- | ----- |  | ---- | ----- | ----- | 
|                                                                               |                            |                            
|                                                                               |                            | Fiscal Year Ended April 30,
|                                                                               |                            |                            
|                                                                               |                            | 2003                        |        | 2002  |       | 2001
|                                                                               |                            |                             |        |       |       |     
|Revenue:                                                                       |                            |                             |        |       |       |      |        |       |       |  |      |      
|                                                                               | Net sales                  |                             |        | 100.0 | %     |      |        | 100.0 | %     |  |      | 100.0 | %    
|                                                                               | License fees and royalties |                             |        | 38.7  |       |      |        | 6.2   |       |  |      | 3.8   |      
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      
|                                                                               |                            | Total                       |        |       | 138.7 |      |        |       | 106.2 |  |      |       | 103.8 | 
|Cost and expenses:                                                             |                            |                             |        |       |       |      |        |       |       |  |      |      
|                                                                               | Cost of sales              |                             |        | 169.5 |       |      |        | 114.4 |       |  |      | 70.6  |      
|                                                                               | Research and development   |                             |        | 108.0 |       |      |        | 49.8  |       |  |      | 11.6  |      
|                                                                               | Sales and marketing        |                             |        | 19.0  |       |      |        | 14.2  |       |  |      | 7.2   |      
|                                                                               | General and administrative |                             |        | 122.6 |       |      |        | 66.4  |       |  |      | 10.5  |      
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      
|                                                                               |                            | Total costs and expenses    |        |       | 419.1 |      |        |       | 244.8 |  |      |       | 99.9  | 
|Income (loss) from operations                                                  |                            |                             | (280.4 | )     |       |      | (138.6 | )     |       |  | 3.9  |      
|Investment income, net                                                         |                            |                             | 3.0    |       |       |      | 6.0    |       |       |  | 6.1  |      
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      
|Income (loss) before income taxes                                              |                            |                             | (277.4 | )     |       |      | (132.6 | )     |       |  | 10.0 |      
|Provision for income taxes (credit)                                            |                            |                             |       |       |       |      | (4.6   | )     |       |  | 2.8  |      
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      
|Income (loss) before cumulative effect of a
    change in accounting principle |                            |                             | (277.4 | )     |       |      | (128.0 | )     |       |  | 7.2  |      
|Cumulative effect of a change in accounting
    principle                      |                            |                             | (45.6  | )     |       |      |       |       |       |  |     |      
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      
|Net income (loss)                                                              |                            |                             | (323.0 | )%    |       |      | (128.0 | )%    |       |  | 7.2  | %    
|                                                                               |                            |                             |        |       |       |      |        |       |       |  |      |      

Fiscal Years Ended April 30, 2003 and
2002

Net Sales.Net sales
decreased to $37.2 million in fiscal 2003 from
$56.4 million in fiscal 2002. This $19.2 million
decrease represents a $10.3 million decrease in the net
sales into the storage end market, a $9.5 million decrease
in the net sales into the data networking end market, a
$1.8 million decrease in the net

19



---



##### Table of Contents



sales into the telecom/metro end market and a
$500,000 decrease in net sales into other end markets. These
decreases were offset in part by a $2.9 million increase in
the net sales into the military/governmental end market.


The decrease in net sales was primarily due to
lower customer demand due to the current economic climate and
reduced capital spending for optical networking equipment. Sales
were also negatively impacted by declines in average unit prices
for our products resulting from pricing pressure and changes in
product mix. Our total sales order backlog decreased to
$5.0 million as of April 30, 2003 from
$8.4 million as of April 30, 2002. These decreases
reflect lower customer demand for our products, customer
push-outs and cancellation of orders, due in part to delays in
the launch of new product programs by our customers.

License Fees and Royalties.License fees and royalties increased
to $14.4 million in fiscal 2003 from $3.6 million in
fiscal 2002. The increase relates to lump sum payments of
approximately $5.8 million from the receipt of license and
royalty payments in association with the settlement of several
patent infringement cases in fiscal 2003. In addition, the
Company has recorded in fiscal 2003 the present value of
$2.5 million and $5.5 million of license and royalty
payments to be received in fiscal 2004 and fiscal 2006,
respectively, from the settlement of a patent infringement case.
The increase was partially offset by lower royalties as a result
of generally lower sales of optical subsystems among licensees
consistent with general economic conditions in the optical
networking market. License fees consist of both fixed schedule
payments and contingent payments based on sales volumes of
licensed products.

Cost of Sales and Gross Margins.Cost of sales decreased to
$63.1 million in fiscal 2003 from $64.7 million in
fiscal 2002. Gross profit as a percentage of net sales, or gross
margin, decreased to negative (69.5)% in fiscal 2003 from
negative (14.8)% in fiscal 2002. Approximately
30.6 percentage points of the 54.7 percentage point
decrease in gross margin was due to charges related to
impairment of long-lived assets, 16.3 percentage points was
a result of the decline in sales and the decline in the average
unit selling price for our products due primarily to pricing
pressures and product mix, 4.5 percentage points was due to
the write down to fair market value of assets held for sale,
3.9 percentage points was due to charges for obsolete and
slow moving inventory and 2.4 percentage points was due to
the expenses related to restructuring charges. These factors
were offset by the sale of approximately $1.9 million of
inventory that was previously considered excess and fully
reserved. The sale of this inventory favorably impacted gross
margin by 3.0 percentage points.

Cost of sales was charged approximately
$6.8 million and $13.8 million in fiscal 2003 and
2002, respectively, to increase the reserve for obsolete and
excess inventory.

Research and Development.Research and development expenses
increased to $40.2 million in fiscal 2003 from
$28.1 million in fiscal 2002. The $12.1 million
increase was primarily due to $16.9 million in charges
related to impairment of long-lived assets, a $2.0 million
charge to in-process research and development, an increase of
$2.9 million in costs of research and development
facilities, $1.1 million for employee severance pay related
to restructuring of operations and a $700,000 write down to fair
market value of assets held for sale. These increases were
offset by a $8.7 million reduction in material and
operating costs and a reduction of $2.8 million of
personnel costs dedicated to research and development.

Sales and Marketing.Sales and marketing expenses decreased
to $7.1 million in fiscal 2003 from $8.0 million in
fiscal 2002. This decrease was due to a decrease of $200,000 in
sales and marketing salaries, fringe benefits, bonuses and
commissions, and $700,000 in field sales operating costs
supporting our sales volume.

General and Administrative.General and administrative expenses
increased to $45.7 million in fiscal 2003 from
$37.3 million in fiscal 2002. This $8.4 million
increase was due primarily to a $28.4 million charge for
goodwill impairment, $3.8 million in charges related to
impairment of long-lived assets, other than goodwill, and a
$2.9 million increase in corporate management costs. These
increases were offset by a $21.2 million reduction in
expenses related to restructuring charges, a $2.1 million
reduction in charges to the allowance for doubtful accounts and
a $3.4 million reduction in general operating expenses.

We operate in markets that are currently
experiencing a severe economic downturn that began late in the
third quarter of fiscal 2001 and escalated during the first
quarter of fiscal 2002. As a result, many of our

20



---



##### Table of Contents



customers began to stretch their payment terms.
Days sales in accounts receivable decreased to 50 days at
April 30, 2003 compared to 52 days at April 30,
2002. During the first quarter of fiscal 2002, we identified
customers that we considered to be high risk relative to the
collection of accounts receivable. Based upon this review, we
recorded an additional $2.1 million provision for doubtful
accounts in the first quarter of fiscal 2002.


Investment Income, Net.Investment income, net of investment
expense, decreased to $1.1 million in fiscal 2003 from
$3.4 million in fiscal 2002. Investment income consists of
earnings on the short-term investment of excess cash balances
and the decrease of this income in fiscal 2003 reflects the
reduction of excess cash balances as well as lower interest
rates throughout the market place during this period.

Income Taxes.During
fiscal 2002, we determined the need for a valuation allowance
against the carrying value of deferred tax assets primarily
associated with tax loss carry forwards based on the significant
reduction in business levels experienced. As a result, a
valuation reserve of $24.7 million was recorded at
April 30, 2002, which eliminated the tax benefit
attributable to the losses incurred in fiscal 2002. We have
continued to experience similar reductions in business levels
during fiscal 2003, and an additional valuation reserve of
$30.5 million was recorded, which eliminated the tax
benefit attributable to the net loss incurred in fiscal 2003.

We have net operating loss carry forwards of
approximately $98.5 million that are available to offset
taxable income in the future. The net operating loss carry
forwards will expire in 2022 and 2023.

Cumulative Effect of a Change in Accounting
Principle.Effective May 1, 2002,
the Company has adopted the provisions of SFAS No. 142, and
performed a transitional goodwill impairment test as of that
date. As a result, it was determined that the goodwill of our
active optical subsystems reporting unit had been impaired and
recorded a one-time noncash charge of approximately
$17.0 million. This charge was recorded as of May 1,
2002 and is reflected as a cumulative effect of a change in
accounting principle in the Statement of Operations. See
Note 4 to the Consolidated Financial Statements located
elsewhere in this filing for further discussion of this item.

Fiscal Years Ended April 30, 2002 and
2001

Net Sales.Net sales
decreased to $56.4 million in fiscal 2002 from
$126.9 million in fiscal 2001. This $70.5 million
decrease represents a $9.7 million decrease in the net
sales into the storage end market, a $22.9 million decrease
in the net sales into the data networking end market, a
$38.6 million decrease in the net sales into the
telecom/metro end market and a $600,000 decrease in the net
sales into the military/governmental end market. These decreases
were offset in part by a $1.3 million increase in net sales
into other end markets.

The overall decrease in sales was primarily due
to lower customer demand due to the current economic climate and
reduced capital spending for optical networking equipment. Sales
were also negatively impacted by declines in average unit prices
for our products resulting from pricing pressure and changes in
the product mix. Our total sales order backlog decreased to
$8.4 million as of April 30, 2002 from
$34.2 million as of April 30, 2001. These decreases
reflect lower customer demand for our products, customer
push-outs and cancellation of orders, due in part to delays in
the launch of new product programs by our customers.

License Fees and Royalties.License fees and royalties decreased
to $3.6 million in fiscal 2002 from $4.9 million in
fiscal 2001. The decrease primarily relates to lump sum payments
of approximately $3.5 million from the receipt of license
and royalty payments in association with the settlement of
several patent infringement cases in fiscal 2001 and generally
lower sales of optical subsystems and components among licensees
consistent with general economic conditions in the optical
networking market. The decrease was partially offset by the
receipt of a $1.0 million lump sum payment from the
settlement of a patent infringement suit in fiscal 2002. License
fees consist of both fixed schedule payments and contingent
payments based on sales volumes of licensed products.

Cost of Sales and Gross Margins.Cost of sales decreased to
$64.7 million in fiscal 2002 from $89.6 million in
fiscal 2001. Gross profit as a percentage of net sales, or gross
margin, decreased to negative (14.8)% in fiscal 2002 from 29.4%
in fiscal 2001. Approximately 14.4 percentage points of the
44.2 percentage

21



---



##### Table of Contents



point decrease in gross margin was due to charges
for obsolete and slow moving inventory, 16.9 percentage
points of the decrease in gross margin was a result of the
decline in sales and the decline in the average unit selling
price for our products due primarily to pricing pressures and
product mix, 14.7 percentage points was due to the expenses
related to the restructuring charges (including
10.2 percentage points due to charges for obsolete and slow
moving inventory relating to the exit from the single ferrule
connector business, 3.0 percentage points for fixed asset
impairment related to the exit from the single ferrule connector
business and the discontinuance of the vertical cavity surface
emitting laser (VCSEL) development program, and
1.5 percentage points for employee severance pay related to
the restructuring of operations), and 2.0 percentage points
was due to customer returns of unusable inventory. These factors
were offset by the sale of approximately $2.1 million of
inventory that was previously considered excess and fully
reserved in the fourth quarter of fiscal 2001. The sale of this
inventory favorably impacted gross margin by 3.8 percentage
points.


Cost of sales was charged approximately
$13.8 million and $3.9 million in fiscal 2002 and 2001
to increase the reserve for obsolete and excess inventory.

Research and Development.Research and development expenses
increased to $28.1 million in fiscal 2002 from
$14.7 million in fiscal 2001. This increase was due
primarily to $6.6 million in material and operating costs
related to major product development projects, $4.7 million
of additional personnel costs dedicated to research and
development, and $2.1 million for expanded research and
development facilities.

During fiscal 2002, we refined our policy on
research and development expenses to include the costs of scrap
and the yield loss during the development stage of our products.
The effect of this change was the classification of
$6.3 million in expenses as research and development that
would have been classified as cost of sales under the previous
policy. It is not practicable to determine the effect this
change would have had on prior years.

Sales and Marketing.Sales and marketing expenses decreased
to $8.0 million in fiscal 2002 from $9.1 million in
fiscal 2001. This decrease was due to a decrease of $500,000 in
sales and marketing salaries, fringe benefits, bonuses and
commissions, and $600,000 in field sales operating costs
supporting our sales volume.

General and Administrative.General and administrative expenses
increased to $37.3 million in fiscal 2002 from
$13.4 million in fiscal 2001. This $23.9 million
increase was due primarily to $22.3 million of expenses
related to the restructuring charges (including
$12.8 million for fixed asset impairment related to the
proposed sale of the Companys Bandwith Semiconductor LLC
subsidiary and the Companys corporate aircraft,
$8.5 million for goodwill impairment related to Bandwith
Semiconductor LLC, and $1.0 million of legal and other
costs related to the restructuring of operations), a
$2.4 million increase in the allowance for doubtful
accounts offset in part by a reduction of $800,000 in corporate
management costs.

We operate in markets that are currently
experiencing a severe economic downturn that began in the third
quarter of fiscal 2001 and escalated during the first quarter of
fiscal 2002. As a result, many of our customers began to stretch
their payment terms and our days sales in accounts receivable
increased to 85 days at April 30, 2001. Days sales in
accounts receivable improved to 52 days at April 30,
2002. During the first quarter of fiscal 2002, we identified
customers that we considered to be high risk relative to the
collection of accounts receivable. Based upon this review, we
recorded a $2.1 million provision for doubtful accounts in
the first quarter of fiscal 2002.

Investment Income.Investment income, net of investment
expense, decreased to $3.4 million in fiscal 2002 from
$7.8 million in fiscal 2001. Investment income consists of
earnings on the short-term investment of excess cash balances
and the decrease of this income in fiscal 2002 reflects the
reduction of excess cash balances as well as lower interest
rates throughout the market place during this period.

Income Taxes.The
tax benefit recognized in fiscal 2002 represents the benefit of
tax loss carrybacks available to us. In the second quarter of
fiscal 2002, we determined the need for a valuation allowance
against the carrying value of deferred tax assets primarily
associated with tax loss carry forwards based on the significant
reduction in business levels experienced during the quarter and
our revised estimate of taxable earnings for the remainder of
the fiscal year. As a result, a $24.7 million valuation
allowance has been recorded

22



---



##### Table of Contents



which eliminated the tax benefit attributable to
the net losses incurred in the second, third and fourth quarters
of fiscal 2002 (approximately $20.4 million), eliminated
approximately $3.9 million of tax benefits recorded in the
quarter ended July 31, 2001, and reserved for approximately
$400,000 of deferred tax assets recorded as of April 30,
2001.


Liquidity and Capital Resources

Net cash used in operating activities totaled
$22.8 million and $20.2 million for fiscal 2003 and
fiscal 2002, respectively. The use of cash in operating
activities resulted primarily from the net loss and a decrease
in accounts payable and accrued expenses offset in part by
decreases in accounts receivable and inventories. Cash provided
by operating activities in fiscal 2001 resulted primarily from
growth in net income and increases in accounts payable and
accrued expenses, which were offset in part by increases in
accounts receivable and inventories.

Net cash provided by investing activities was
$11.9 million for fiscal 2003, which represents the net
proceeds from sales of short-term investments, and proceeds from
the sale of assets held for sale, offset in part by the
purchases of equipment and facilities.

Net cash used in investing activities was
$43.5 million for fiscal 2002 and $71.7 million for
fiscal 2001. Net cash used in investing activities during these
periods related primarily to acquisitions, purchases of
equipment and facilities, and the purchase of short-term
investments. We expended $2.95 million for the acquisition
of Polycore Technologies, Inc. in July 2000, $770,500 for the
acquisition of substantially all of the assets of B&H Mold,
Inc. in November 2001, $204,000 to increase our investment in MP
Optical Communications LLC in March 2001, $8.1 million for
the acquisition of substantially all of the net assets of the
Optical Flexcircuits division of Advanced Interconnection
Technology, Inc. and $4.6 million (net of cash received)
for the acquisition of Tsunami Optics, Inc. in February 2002. In
addition, the Company acquired $2.8 million in cash from
the acquisition of all the outstanding common stock of Paracer,
Inc. in March 2002.

Net cash used in financing activities for fiscal
2003 and fiscal 2002 represents repayments on long-term
borrowings. Net cash provided by financing activities for fiscal
2001 consisted primarily of net proceeds of $195.5 million,
after related expenses, from our initial public offering, offset
by $1.2 million in net advances repaid to Methode
subsidiaries and $333,000 for repayment of a note assumed in
connection with the acquisition of our Stratos Ltd. subsidiary.
We sold 1,006,250 shares of common stock at $210.00 per share in
our initial public offering, as adjusted to reflect our
1 for 10 reverse split effected October 21, 2002.

As of April 30, 2003, our principal source
of liquidity was approximately $61.5 million in cash, cash
equivalents and short-term investments. Our future capital
requirements will depend on a number of factors, including our
future net sales and our ability to lower operating expenses.
The continued diversification of our end markets and expansion
of our product offerings through internal and external growth
could materially change our level of cash and cash equivalents.
Our only cash commitment is the repayment of long-term debt of
approximately $6.6 million. We believe that our current
cash balances will be sufficient to meet our cash needs for
working capital, capital expenditures and repayments of
long-term debt for the next 12 months.

Factors That May Affect Our Future
Results

Risks Relating to Our Business



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have recently incurred significant net
    losses, primarily due to the current economic downturn. Unless
    we are able to increase our sales or further reduce our costs,
    we will continue to incur net losses.

The current economic downturn has resulted in
reduced capital spending for optical networking products. As a
result, many of our customers have significantly reduced,
cancelled or rescheduled orders for our products and expressed
uncertainty as to their future requirements. We experienced a
decrease in net sales of 34% and incurred a net loss of
$120.3 million during fiscal 2003. We expect difficult
industry conditions to continue for at least the next 6 to
12 months and may continue for a longer period. Any
continued or further decline in demand for our customers
products or in general economic conditions would likely result
in further reduction in demand for our products and our
business, operating results and financial condition would suffer.

23



---



##### Table of Contents



Although we have implemented personnel reductions
and other cost reduction programs, many of our costs are fixed
in the near term and we expect to continue to incur significant
manufacturing, research and development, sales and marketing and
administrative expenses. Consequently, we will need to generate
higher revenues while containing costs and operating expenses if
we are to return to profitability. If our efforts to increase
our revenues and contain our costs are not successful, we will
continue to incur net losses.



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our net sales and operating results vary
    significantly from quarter to quarter, and our stock price may
    fall if our quarterly performance does not meet analysts
    or investors expectations.

Our quarterly net sales and operating results
have varied significantly in the past and are likely to vary
significantly in the future, which makes it difficult to predict
our future operating results. Accordingly, we believe that
quarter-to-quarter comparisons of our net sales and operating
results are not meaningful and should not be relied upon as an
indicator of our future performance. Some of the factors which
cause our net sales and operating results to vary include:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | the timing of customer orders, particularly from
    our largest customers;                                  
|
| |  | the level of demand for our customers
    products;                                                         
|
| |  | the cancellation or postponement of orders;                                                                  
|
| |  | our ability to manufacture and ship our products
    on a timely basis;                                      
|
| |  | changes in our product mix;                                                                                  
|
| |  | competitive pressures resulting in lower prices;                                                             
|
| |  | our ability to control costs and expenses;                                                                   
|
| |  | the introduction of new products or technologies
    by us or our competitors;                               
|
| |  | the timing of our receipt of license fees and
    royalty payments relating to our intellectual property; and
|
| |  | general economic factors.                                                                                    

Our net sales and operating results have been and
in one or more future quarters will likely be below the
expectations of public market analysts and investors. If this
occurs, the price of our common stock would likely decline.



| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our success depends on the long-term growth
    of communication networks and their use of optical communication
    technologies. If these events do not occur, our net sales may
    decline and our business would likely be significantly
    harmed.

Our optical subsystems and components are used
primarily in military, video broadcast, industrial, enterprise,
metropolitan area, wide area and telecommunication networks.
These markets are rapidly evolving and it is difficult to
predict their potential size or future growth rate. In addition,
there is uncertainty as to the extent to which optical
communication technologies will be used throughout these
markets. Our success in generating revenue in these markets will
depend on the long-term growth of these markets and their use of
optical communication technologies. If these markets do not
grow, or if the use of optical communication technologies in
these markets does not expand, our net sales may decline and our
business would likely be significantly harmed.



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We must develop new products and technology
    as well as enhancements to existing products and technology in
    order to remain competitive. If we fail to do so, our products
    will no longer be competitive and our net sales will
    decline.

The market for our products and technology is
characterized by rapid technological change, new and improved
product introductions, changes in customer requirements and
evolving industry standards. Our future success will depend to a
substantial extent on our ability to develop, introduce and
support new products and technology on a successful and timely
basis. If we fail to develop and deploy new products and

24



---



##### Table of Contents



technologies or enhancements of existing products
on a successful and timely basis or we experience delays in the
development, introduction or enhancement of our products and
technologies, our products will no longer be competitive and our
net sales will decline. The introduction of new and enhanced
products may cause our customers to defer or cancel orders for
existing products. In addition, a slowdown in demand for
existing products ahead of a new product introduction could
result in a write down in the value of inventory on hand
relating to existing products.


The development of new, technologically advanced
products is a complex and uncertain process requiring high
levels of innovation and highly skilled engineering and
development personnel, as well as the accurate anticipation of
technological and market trends. We cannot assure you that we
will be able to identify, develop, manufacture, market or
support new or enhanced products successfully, if at all, or on
a timely basis. Further, we cannot assure you that our new
products will gain market acceptance or that we will be able to
respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Any
failure to respond to technological change would significantly
harm our business.



| |                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products are incorporated into larger
    systems which must comply with various domestic and
    international government regulations. If the performance of our
    products contributes to our customers inability to comply
    with these requirements, we may lose these customers and our net
    sales will decline.

In the United States, our products are
incorporated into larger systems which must comply with various
regulations and standards defined by the Federal Communications
Commission and Underwriters Laboratories. Internationally, our
products are incorporated into larger systems which must also
comply with standards established by local authorities in
various countries which may vary considerably. If the
performance of our products contributes to our customers
inability to comply with existing or evolving standards
established by regulatory authorities or to obtain timely
domestic or foreign regulatory approvals we may lose these
customers and our net sales will decline.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products fail to comply with
    evolving industry standards or alternative technologies in our
    markets, we may be required to make significant expenditures to
    redesign our products.

Our products comprise only a part of an entire
networking system and must comply with evolving industry
standards in order to gain market acceptance. In many cases, we
introduce a product before an industry standard has become
widely accepted and we depend on the companies that provide
other components to support industry standards as they evolve.
Because industry standards do not exist in some cases at the
time we are developing new products, we may develop products
that do not comply with the eventual industry standard. If this
occurs, we would need to redesign our products to comply with
adopted industry standards. In addition, if alternative
technologies were adopted as an industry standard within our
target markets, we would have to dedicate significant time and
resources to redesign our products to meet this new industry
standard. If we are required to redesign our products, we may
incur significant expenses and losses due to lack of customer
demand, unusable purchased components for these products and the
diversion of our engineers from future product development
efforts. If we are not successful in redesigning our products or
developing new products to meet new standards or any other
standard that may emerge, our net sales will decline.



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive a significant portion of our net
    sales from a few large customers, and our net sales may decline
    significantly if any of these customers cancels, reduces or
    delays purchases of our products.

Our success will depend on our continued ability
to develop and manage relationships with significant customers.
For fiscal 2003, our two largest customers and their respective
contract manufacturers accounted for 13% of our net sales, with
Redfern Broadband and QLogic accounting for 8% and 5% of our net
sales, respectively. For the fiscal year ended April 30,
2002, McData Corporation and its contract manufacturers
accounted for 24% of our net sales. For the 2001 fiscal year,
our three largest customers and their respective contract
manufacturers accounted for 32% of our net sales, with McData
Corporation, Alcatel Network Systems and Cisco Systems
accounting for 11%, 11% and 10% of our net sales, respectively.
We expect our dependence on sales to a small number of large
customers to continue.

25



---



##### Table of Contents



The markets in which we sell our products are
dominated by a relatively small number of systems manufacturers,
thereby limiting the number of our potential customers. As a
result, our relationships with these customers are critically
important to our business. We cannot assure you that we will be
able to retain our largest customers, that we will be able to
attract additional customers or that our customers will be
successful in selling their products that incorporate our
products. Our customers have in the past sought price
concessions from us and will continue to do so in the future.
Also, many of our customers have canceled, reduced or delayed
purchases of our products. Further, some of our customers may in
the future shift their purchases of products from us to our
competitors or to joint ventures between these customers and our
competitors. The loss of or a significant reduction in orders
from one or more of our largest customers, our inability to
successfully develop relationships with additional customers or
future price concessions that we may make could cause our net
sales to significantly decline.



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales cycle runs from our
    customers initial design to production for commercial
    sale. This cycle is long and unpredictable and may cause our net
    sales to decline or increase our operating
    expenses.

We cannot predict the timing of our sales
accurately because of the length of our sales cycles. As a
result, if sales forecasts from specific customers are not
realized, we may be unable to compensate for the sales shortfall
and our net sales may decline. The period of time between our
initial contact with a customer and the receipt of a purchase
order may span up to a year or more, and varies by product and
customer. During this time, customers may perform, or require us
to perform, extensive evaluation and qualification testing of
our products. Generally, they consider a wide range of issues
before committing to purchase our products, including ability to
interoperate with other subsystems and components, product
performance and reliability. We may incur substantial sales and
marketing expenses and expend significant management effort
while our potential customers are qualifying our products. Even
after incurring these costs, we ultimately may not sell any or
only small amounts of our products to these potential customers.
Consequently, if new sales do not result from our efforts to
qualify our products, our operating expenses will increase.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our customers may cease purchasing our
    products at any time and may cancel or defer purchases on short
    notice, which may cause our net sales to decline or increase our
    operating expenses.

We generally do not have long-term contracts with
our customers. Sales are typically made pursuant to individual
purchase orders, often with extremely short lead times, that may
be canceled or deferred by customers on short notice without
significant penalty. Our customers base their orders for our
products on the forecasted sales and manufacturing schedules for
their own products. Our customers have in the past significantly
accelerated, canceled or delayed orders for our products in
response to unanticipated changes in the manufacturing schedules
for their own products, and will likely do so again in the
future. During the last twelve months, our customers have
cancelled a significant number of orders. The reduction,
cancellation or delay of individual customer purchase orders has
caused and could continue to cause our net sales to decline.
Moreover, these uncertainties complicate our ability to
accurately plan our manufacturing schedule and may increase our
operating expenses.



| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not decrease our manufacturing
    costs or increase sales of higher margin products as the average
    unit price of our existing products decreases, our gross margins
    will decline.

The average unit prices of our products generally
decrease as the products mature in response to increased
competition, the introduction of new products and increased unit
volumes. Substantially all of our products are designed and
manufactured in our own facilities. Accordingly, a significant
portion of our cost of sales is fixed over the near term. In
order to remain competitive, we must continually reduce our
manufacturing costs through design and engineering changes and
increases in manufacturing efficiencies. We must also continue
to develop and introduce on a timely basis new products that
incorporate features that can be sold at higher average selling
prices. Our inability to reduce manufacturing costs or introduce
new products with higher average selling prices will cause our
gross margins to decline, which would significantly harm our
operating results.

26



---



##### Table of Contents





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The market for optical subsystems and
    components is highly competitive, which may result in lost sales
    or lower gross margins.

The markets for optical subsystems are highly
competitive and are expected to intensify in the future. We
compete primarily with Agilent Technologies, Inc., Finisar
Corporation, Infineon Technologies Corp, JDS Uniphase
Corporation, Lucent Technologies Inc., Molex, Inc., Optical
Communications Products, Inc., Tyco International, Ltd. and a
number of other smaller companies. Many of these companies have
substantially greater financial, technical, marketing and
distribution resources and brand name recognition than we have.
As a result, these competitors are able to devote greater
resources than we can to the development, promotion, sale and
support of their products. In addition, several of our
competitors have large market capitalizations or cash reserves
and are much better positioned than we are to acquire other
companies in our consolidating industry in order to gain new
technologies or products. Many of our competitors have much
greater name recognition, more extensive customer bases,
better-developed distribution channels and broader product
offerings. These companies can leverage their customer bases and
broader product offerings and adopt aggressive pricing policies
to gain market share. In addition, companies with diversified
product offerings can better sustain an economic downturn.

We expect that more companies, including some of
our customers, will enter the markets for our products. We may
not be able to compete successfully against either current or
future competitors. Competitive pressures, combined with
weakening demand, may result in further price reductions, lower
margins and loss of market share. In addition, some of our
current and potential customers are attempting to integrate
their operations by producing their own optical subsystems or
components or acquiring one or more of our competitors which may
eliminate the need to purchase our products. Furthermore, larger
companies in other related industries are developing and
acquiring technologies and applying their significant resources,
including their distribution channels and brand name
recognition, in an effort to capture significant market share.
While this trend has not historically impacted our competitive
position, it may result in future decreases in our net sales.



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on suppliers for several key
    components. If we underestimate or overestimate our requirements
    for these components, our business could be significantly
    harmed.

We purchase several key components that are
incorporated into our products from a limited number of
suppliers. We have experienced shortages and delays in obtaining
key components in the past and expect to experience shortages
and delays in the future. These shortages and delays have
typically occurred when demand within the industry has increased
rapidly and exceeds the capacity of suppliers of key components
in the short term. Delays and shortages also often occur in the
early stages of a products life cycle. The length of
shortages and delays in the past has varied from several days to
a month. We are unable to predict the length of any future
shortages or delays.

The inability to obtain sufficient quantities of
these components that meet our quality requirements may
interrupt and delay the manufacturing of our products or result
in the cancellation of orders for our products. In addition, our
suppliers could discontinue the manufacture or supply of these
components at any time. We may not be able to identify and
integrate alternative sources of supply in a timely fashion, or
at all. Any transition to alternative suppliers may result in
delays in shipment and increased expenses and may limit our
ability to deliver products to our customers. Furthermore, if we
are unable to identify an alternative source of supply, we may
have to redesign or modify our products, which may cause delays
in shipments, increased design and manufacturing costs and
increased prices for our products.

We make forecasts for our component requirements
based on anticipated product orders. Although we enter into
long-term agreements for the purchase of key components from
time to time, our purchases of key components are generally made
on a purchase order basis. We may also maintain an inventory of
limited source components to limit the potential impact of a
component shortage. We may not accurately predict the demand for
our products and the lead-time required to obtain key
components. If we overestimate our requirements, we may have
excess inventory, which may become obsolete and would increase
our costs. If we underestimate our requirements, we may have
inadequate inventory, which could interrupt our manufacturing

27



---



##### Table of Contents



and delay delivery of our products to our
customers. Either of these occurrences would significantly harm
our business.




| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our success depends on our ability to hire
    and retain qualified technical personnel, and if we are unable
    to do so, our product development efforts and customer relations
    will suffer.

Our products require sophisticated manufacturing,
research and development, marketing and sales, and technical
support. Our success depends on our ability to attract, train
and retain qualified technical personnel in each of these areas.
Competition for personnel in all of these areas is intense and
we may not be able to hire or retain sufficient personnel to
achieve our goals or support the anticipated growth in our
business. The market for the highly-trained personnel we require
is very competitive, due to the limited number of people
available with the necessary technical skills and understanding
of our products and technology. If we fail to hire and retain
qualified personnel, our product development efforts and
customer relations will suffer.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products may contain defects which may
    cause us to incur significant costs, divert our attention from
    product development efforts and result in a loss of
    customers.

Our products are complex and may contain defects,
particularly when first introduced or as new versions are
released. Our customers integrate our subsystems and components
into systems and products that they develop themselves or
acquire from other vendors. As a result, when problems occur in
equipment or a system into which our products have been
incorporated, it may be difficult to identify the source of the
problem. We may be subject to liability claims for damages
related to product defects or experience manufacturing delays as
a result of these defects in the future, any or all of which
could be substantial. The length of any future manufacturing
delays in connection with a product defect will depend on the
nature of the defect and whether we or one of our component
suppliers was the source of the defect. Moreover, the occurrence
of defects, whether caused by our products or technology or the
products of another vendor, may result in significant customer
relations problems and injury to our reputation and may impair
the market acceptance of our products and technology.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to environmental laws and
    other legal requirements that have the potential to subject us
    to substantial liability and increase our costs of doing
    business.

Our properties and business operations are
subject to a wide variety of federal, state, and local
environmental, health and safety laws and other legal
requirements, including those relating to the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous
substances used in our manufacturing processes. We cannot assure
you that these legal requirements will not impose on us the need
for additional capital expenditures or other requirements. If we
fail to obtain required permits or otherwise fail to operate
within these or future legal requirements, we may be required to
pay substantial penalties, suspend our operations or make costly
changes to our manufacturing processes or facilities. Although
we believe that we are in compliance and have complied with all
applicable legal requirements, we may also be required to incur
additional costs to comply with current or future legal
requirements.



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Economic, political and regulatory risks
    associated with international operations may limit our sales and
    increase our costs of doing business abroad.

A significant portion of our sales are generated
from customers located outside the United States, principally in
Europe. We also operate manufacturing facilities in China and
the United Kingdom. Sales to customers located outside of the
United States were approximately 45.2% of our net sales during
fiscal 2003 and approximately 29.1% of our net sales in fiscal
2002. Our international operations are subject to a number of
risks and uncertainties, including:



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | difficulties in managing operations in different
    locations;
|
| |  | changes in foreign currency rates;                             
|
| |  | longer accounts receivable collection cycles;                  

28



---



##### Table of Contents





| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | difficulties associated with enforcing agreements
    through foreign legal systems;                                      
|
| |  | seasonal reductions in business activities in
    some parts of the world, such as during the summer months in
    Europe;
|
| |  | trade protection measures and import and export
    licensing requirements;                                               
|
| |  | changes in a specific countrys or
    regions political or economic conditions;                                         
|
| |  | potentially adverse tax consequences;                                                                                     
|
| |  | the potential difficulty in enforcing
    intellectual property rights in some foreign countries; and                     
|
| |  | acts of terrorism directed against the United
    States or U.S. affiliated targets.                                      

These factors could adversely impact our
international sales or increase our costs of doing business
abroad or impair our ability to expand into international
markets, and therefore could significantly harm our business.



| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We intend to pursue additional
    acquisitions. If we are unable to successfully integrate any
    businesses or technologies that we acquire in the future or are
    unable to realize the intended benefits of any future
    acquisitions, our business will be harmed.

As part of our strategy, we intend to pursue
opportunities to buy other businesses or technologies that would
complement our current products, expand our markets or enhance
our technical capabilities, or that may otherwise offer growth
opportunities. Our experience in acquiring other businesses and
technologies is limited. Acquisitions could result in a number
of financial consequences, including:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | use of significant amounts of cash;                                       
|
| |  | the incurrence of debt and contingent liabilities;                        
|
| |  | potentially dilutive issuances of equity
    securities;                  
|
| |  | large one-time write-offs; and                                            
|
| |  | amortization expenses related to goodwill and
    other intangible assets.

Acquisitions also involve numerous operational
risks, including:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | difficulties in integrating operations, products,
    technologies and personnel;
|
| |  | unanticipated costs or write-offs associated with
    the acquisition;           
|
| |  | diversion of managements attention from
    other business concerns;            
|
| |  | diversion of capital and other resources from our
    existing businesses; and   
|
| |  | potential loss of key employees of purchased
    organizations.                  

If we are unable to successfully integrate these
businesses or any other businesses or technologies that we may
acquire in the future or are unable to realize the intended
benefits of any future acquisitions, our business will be harmed.



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our recent acquisitions have not generated
    significant sales and require significant amounts of capital. If
    these businesses do not become profitable, our operating results
    could be seriously harmed.

In February 2002, we acquired all of the capital
stock of Tsunami Optics, Inc. In March 2002, we acquired all of
the capital stock of Paracer, Inc. The integration of these
businesses into our company is not complete. These businesses
are expected to focus on the development and introduction of new
products and have not generated significant revenues to date. In
addition, these businesses have or will require significant
amounts of capital to support their product development
activities, and we expect to continue to invest substantial
amounts of capital in these businesses for the foreseeable
future. If these businesses do not become profitable, our
operating results could be seriously harmed.

29



---



##### Table of Contents





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Our inability to protect our intellectual
    property rights would significantly impair their value and our
    competitive position.

We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect
our proprietary rights. Although we have numerous issued patents
and pending patent applications, we cannot assure you that any
patents will issue as a result of our pending patent
applications or, if issued, that any patent claim allowed will
be sufficiently broad to protect our technology. In addition, we
cannot assure you that any existing or future patents will not
be challenged, invalidated or circumvented, or that any right
granted thereunder would provide us with meaningful protection
of our technology. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. We may be
unable to detect the unauthorized use of our intellectual
property or to take appropriate steps to enforce our
intellectual property rights. Policing unauthorized use of our
products and technology is difficult. In addition, the laws of
some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States. Further,
enforcing our intellectual property rights could result in the
expenditure of significant financial and managerial resources
and the success of these efforts cannot be predicted with
certainty. Litigation has been necessary and may continue to be
necessary in the future to enforce our intellectual property
rights. This litigation could be costly and its outcome cannot
be predicted with certainty. Our inability to adequately protect
against unauthorized use of our intellectual property would
significantly impair its value and our competitive position.



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are currently involved in pending patent
    litigation which, if decided against us, could impair our
    ability to prevent others from using our technology, result in
    the loss of future royalty income and require us to pay
    significant monetary damages.

We are plaintiffs in several lawsuits relating to
our intellectual property rights. The defendants in these
lawsuits include Infineon Technologies Corp., E20, Inc. and
PicoLight, Inc. In these actions, Stratos alleges that
optoelectronic products sold by the defendants infringe upon
certain Stratos patents. The defendants in these lawsuits have
filed various affirmative defenses.

These lawsuits are in the preliminary stage, and
we cannot predict their outcome with certainty. If one or more
of these patents were found to be invalid or unenforceable, we
would lose the ability to prevent others from using the
technologies covered by the invalidated patents. This could
result in significant decreases in our sales and gross margins
for our products that use these technologies. In addition, we
would lose the future royalty payments from our current
licensees of these patents. We could also be required to pay
significant monetary damages to one or more of the defendants or
be required to reimburse them for their legal fees. Accordingly,
if one or more of these patents were found to be invalid or
unenforceable, our business would be significantly harmed.



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Claims that we infringe third-party
    intellectual property rights could result in significant
    monetary damages and expenses or restrictions on our ability to
    sell our products.

In recent years, there has been significant
litigation in the United States involving patents and other
intellectual property rights. From time to time, third parties
may assert patent, copyright and other intellectual property
rights to technologies used in our business. In addition, our
rights to use our name or other trademarks are subject to
challenge by others. Any claims, with or without merit, could be
time-consuming, result in costly litigation, and divert the
efforts of our technical and management personnel. If we are
unsuccessful in defending ourselves against these types of
claims, we could be subject to significant monetary damages and
may be required to do one or more of the following:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | stop using the challenged trademarks or selling
    our products that use or incorporate the relevant technology;

30



---



##### Table of Contents





| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | attempt to obtain a license to sell or use the
    challenged intellectual property, which license may not be
    available on reasonable terms or at all; or
|
| |  | redesign those products that use the relevant
    technology.                                                                                                

In the event a claim against us was successful
and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign
our products to avoid infringement, our business would be
significantly harmed.

Risks Relating to the Securities Markets and
Ownership of Our Common Stock



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The market prices for securities of
    technology related companies have been volatile in recent years
    and our stock price could fluctuate significantly.

Our common stock has been publicly traded only
since June 27, 2000. The market price of our common stock
has been subject to significant fluctuations since the date of
our initial public offering. These fluctuations could continue.
Factors that could affect our stock price include:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | economic and stock market conditions generally
    and specifically as they may impact participants in the
    communication industry;
|
| |  | earnings and other announcements by, and changes
    in market evaluations of, participants in the optical
    communication industry;
|
| |  | changes in financial estimates and
    recommendations by securities analysts following our stock;                                    
|
| |  | announcements or implementation by us or our
    competitors of technical innovations or new products; and                            
|
| |  | strategic moves by us or our competitors, such as
    acquisitions.                                                                   

In addition, the securities of many companies
have experienced extreme price and volume fluctuations in recent
years, often unrelated to the companies operating
performance. Specifically, market prices for securities of
technology related companies have frequently reached elevated
levels, often following their initial public offerings. These
levels may not be sustainable and may not bear any relationship
to these companies operating performances.



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in our charter documents and
    Delaware law may delay or prevent an acquisition of our company,
    which could decrease the value of your shares.

Our restated certificate of incorporation and
bylaws and Delaware law contain provisions that could make it
more difficult for a third party to acquire us without the
consent of our board of directors. These provisions include a
classified board of directors and limitations on actions by our
stockholders by written consent. In addition, our board of
directors has the right to issue preferred stock without
stockholder approval, which could be used to dilute the stock
ownership of a potential hostile acquiror. Delaware law also
imposes some restrictions on mergers and business combinations
between us and any holder of 15% or more of our outstanding
common stock. These provisions apply even if the offer may be
considered beneficial by some stockholders.






Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk


Although certain of our subsidiaries enter into
transactions in currencies other than their functional currency,
foreign currency exposures arising from these transactions are
not material to us. The primary foreign currency exposure arises
from the translation of our net equity investment in our foreign
subsidiaries to U.S. dollars. We generally view as long-term our
investments in foreign subsidiaries with functional currencies
other than the U.S. dollar. The primary currencies to which we
are exposed are the pound sterling and Chinese renminbi.

31



---



##### Table of Contents








Item 8.     Financial
Statements and Supplementary Data


See the Index to Financial Statements on Page
F-1. Such financial statements are incorporated herein by
reference.






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


None.






PART III







|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Set forth below is a list of the names, ages and
principal occupation of our directors.

James W. McGinley,48, has been our President, Chief Executive Officer and a
director since our inception. Mr. McGinley was President of
Methode Electronics from August 1998 through June 2000, and has
been a director of Methode Electronics since 1993.
Mr. McGinley previously served as President of Methode
Electronics Optical Interconnect Products Division from
January 1995 through July 1998.

Michael P. Galvin,51, has been President of Galvin Enterprises, Inc. since 1992.
Galvin Enterprises manages a venture capital portfolio of
investments in biotechnology, real estate development and
business services. From 1989 to 1992, Mr. Galvin served as
Assistant Secretary of Commerce for Export Administration under
the Bush Administration, managing the U.S. governments
dual-use (non-munitions) strategic trade and technology transfer
programs. From 1978 to 1989, Mr. Galvin was an attorney at
the law firm of Winston & Strawn where he was elected a
corporate finance transactions partner. Mr. Galvin has been
a director of Stratos Lightwave since June 2000. Mr. Galvin
is a member of our Boards Compensation Committee.

Brian J. Jackman,62, served as President of Global Systems and Technologies of
Tellabs, Inc. from 1998 and Executive Vice President of Tellabs
from 1990, until his retirement in September 2001.
Mr. Jackman also served as a director of Tellabs, Inc. from
1993 until April 2002. From 1993 to 1998, Mr. Jackman
served as President of Tellabs Operations, Inc. Mr. Jackman
has been a director of Stratos Lightwave since June 2000.
Mr. Jackman is a member of our Boards Compensation
Committee and Audit Committee. Mr. Jackman is also a
director of PCTEL, Inc.

Charles Daniel
Nelsen,40, has served as Director of
Global Supply Chain Strategy for Motorola Inc.s Network
Solutions Sector since 2000. From 1998 to 2000, Mr. Nelsen
served as Senior Manager, Supply Chain of A.T. Kearney, an
international consulting firm. Prior to that, from 1994 to 1998,
Mr. Nelsen held the positions of Managing Associate, Senior
Associate and Associate at Coopers & Lybrand Consulting.
Mr. Nelsen has been a director of Stratos Lightwave since
June 2000. Mr. Nelsen is a member of our Boards Audit
Committee.

Edward J.
OConnell,50, has served as
Chief Financial Officer of Gardner, Carton & Douglas, a
provider of professional legal services, since 2000. From 1999
to 2000, Mr. OConnell served as Chief Financial
Officer of Hey Company, LLC, a company involved with e-commerce.
From 1998 to 1999, Mr. OConnell served as the Senior
Vice President of Finance and Administration, Chief Financial
Officer and Secretary of Delphi Information Systems, Inc. (now
known as ebix.com), a software, consulting services
and e-commerce company. From 1995 to 1998,
Mr. OConnell served as Chief Operating Officer and
Chief Financial Officer for Keck, Mahin & Cate, a provider
of legal professional services. Mr. OConnell has been
a director of Stratos Lightwave since June 2000.
Mr. OConnell is a member of our Boards
Compensation Committee and Audit Committee.

Additional information regarding our directors is
included under the captions Directors and Director
Nominees and Section 16(a) Beneficial Ownership
Reporting Compliance in our proxy statement (Proxy
Statement) for the Annual Meeting of Stockholders and is
incorporated herein by reference. Information

32



---



##### Table of Contents



regarding our executive officers is included in
Part I of this report under Stratos Lightwave Executive
Officers.







Item 11.     Executive
Compensation


Information regarding executive compensation is
included under the captions Executive Compensation
and Comparison of Stockholder Return in the Proxy
Statement and is incorporated herein by reference.






|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholders
    Matters

Information regarding the security ownership of
certain beneficial owners and management is included under the
caption Stock Ownership in the Proxy Statement and
is incorporated herein by reference. Information regarding
equity compensation plans is included in Item 5 above.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information regarding certain relationships and
related transactions is included under the caption Related
Transactions in the Proxy Statement and is incorporated
herein by reference.






Item 14.     Controls
and Procedures


(a) Evaluation of disclosure controls and
procedures.Our Chief Executive Officer and our Chief
Financial Officer have concluded, based on their evaluation
within 90 days before the filing date of this annual
report, that the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of
1934 Rules 13a-15(e) and 15-d-15(e)) are effective to
ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.

(b) Changes in internal controls.There have been no significant changes in our internal
controls or in other factors that could significantly affect our
disclosure controls and procedures subsequent to the date of the
previously mentioned evaluation.

33



---



##### Table of Contents








PART IV







|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) 1. See Index to Financial
Statements on Page F-1.

2. Financial Statement Schedule.

3. See Index to Exhibits immediately
following the signature page.

(b) No Reports on Form 8-K were filed
during the quarter ended April 30, 2003.

(c) See Index to Exhibits following the
signature page.

(d) See Index to Financial Statements on
Page F-1, and Financial Statement Schedule on
Page II-1.

34



---



##### Table of Contents



STRATOS LIGHTWAVE, INC.

INDEX TO FINANCIAL STATEMENTS






Item 15A.     Index
to Financial Statements and Financial Statement
Schedule


|                                 |                                                                                                                  |      |  |      | 
|-------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                 |                                                                                                                  | Page
|                                 |                                                                                                                  |     
|1. Financial Statements:         |                                                                                                                  |      |  |     
|                                 | Report of Independent Auditors                                                                                   |      |  | F-2  | 
|                                 | Consolidated Balance Sheets 
    April 30, 2003 and 2002                                                        |      |  | F-3  | 
|                                 | Consolidated Statements of Operations 
    Years Ended April 30, 2003, 2002 and 2001                            |      |  | F-4  | 
|                                 | Consolidated Statements of Shareholders
    Equity  Years Ended April 30, 2003, 2002 and 2001                  |      |  | F-5  | 
|                                 | Consolidated Statements of Cash Flows 
    Years Ended April 30, 2003, 2002 and 2001                            |      |  | F-6  | 
|                                 | Notes to Consolidated Financial Statements                                                                       |      |  | F-7  | 
|2. Financial Statement Schedule: |                                                                                                                  |      |  |     
|                                 | Schedule II  Valuation and
    Qualifying Accounts and Reserves  Years Ended
    April 30, 2003, 2002 and 2001 |      |  | II-1 | 

All other schedules of which provision is made in
the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.

F-1



---



##### Table of Contents








REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders

Stratos Lightwave, Inc.


We have audited the accompanying consolidated
balance sheets of Stratos Lightwave, Inc. and Subsidiaries as of
April 30, 2003 and 2002, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
April 30, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the 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, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Stratos Lightwave, Inc. and
Subsidiaries as of April 30, 2003 and 2002, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended April 30,
2003, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

As discussed in Note 4 to the Consolidated
Financial Statements, effective May 1, 2002, the Company
changed its method of accounting for goodwill and other
intangible assets to conform with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Chicago Illinois

June 23, 2003,


except for Note 17, as to which the date is
July 2, 2003


F-2



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |         |        |         |         | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------- | ------------------------------------------ | ----- | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                         |                                                                                                                                                                      |                      
|                                         |                                                                                                                                                                      | April 30,            
|                                         |                                                                                                                                                                      |                      
|                                         |                                                                                                                                                                      | 2003                  |                            | 2002                                      
|                                         |                                                                                                                                                                      |                       |                            |                                           
|                                         |                                                                                                                                                                      |                      
|                                         |                                                                                                                                                                      | (in thousands, except
|                                         |                                                                                                                                                                      | share amounts)       
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         | Cash and cash equivalents                                                                                                                                            |                       | $                          | 43,649                                     |       |         | $       | 61,020  |       
|                                         | Short-term investments                                                                                                                                               |                       |                            | 17,879                                     |       |         |         | 30,900  |       
|                                         | Accounts receivable, less allowance
    (2003  $414; 2002  $727)                                                                                                   |                       |                            | 7,701                                      |       |         |         | 8,245   |       
|                                         | Inventories:                                                                                                                                                         |                       |                            |                                            |       |         |         |         |       
|                                         |                                                                                                                                                                      | Finished products     |                            |                                            | 864   |         |         |         | 798    |        
|                                         |                                                                                                                                                                      | Work in process       |                            |                                            | 797   |         |         |         | 2,107  |        
|                                         |                                                                                                                                                                      | Materials             |                            |                                            | 6,133 |         |         |         | 12,916 |        
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | 7,794                      |                                            |       |         | 15,821  |        
|                                         | Recoverable income taxes                                                                                                                                             |                       |                            | 2,391                                      |       |         |         | 2,820   |       
|                                         | Prepaid expenses                                                                                                                                                     |                       |                            | 2,083                                      |       |         |         | 1,789   |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | Total current assets       |                                            |       | 81,497  |         |         |        | 120,595 |        
|Other assets:                            |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         | Goodwill, less accumulated amortization
    (2002  $1,620)                                                                                                          |                       |                            |                                           |       |         |         | 55,155  |       
|                                         | Deferred income taxes                                                                                                                                                |                       |                            | 6,437                                      |       |         |         | 4,494   |       
|                                         | Assets held for sale                                                                                                                                                 |                       |                            | 3,484                                      |       |         |         | 4,202   |       
|                                         | Other                                                                                                                                                                |                       |                            | 6,942                                      |       |         |         | 1,252   |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | 16,863                     |                                            |       |         | 65,103  |        
|Property, plant and equipment:           |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         | Land                                                                                                                                                                 |                       |                            | 1,071                                      |       |         |         | 1,071   |       
|                                         | Buildings and building improvements                                                                                                                                  |                       |                            | 20,230                                     |       |         |         | 19,966  |       
|                                         | Furniture and fixtures                                                                                                                                               |                       |                            | 18,029                                     |       |         |         | 8,571   |       
|                                         | Machinery and equipment                                                                                                                                              |                       |                            | 54,337                                     |       |         |         | 69,310  |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | 93,667                     |                                            |       |         | 98,918  |        
|                                         | Less allowances for depreciation                                                                                                                                     |                       |                            | 67,415                                     |       |         |         | 30,020  |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | 26,252                     |                                            |       |         | 68,898  |        
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | Total assets               |                                            | $     | 124,612 |         |         | $      | 254,596 |        
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         | Notes payable                                                                                                                                                        |                       | $                          |                                           |       |         | $       | 2,840   |       
|                                         | Accounts payable                                                                                                                                                     |                       |                            | 5,063                                      |       |         |         | 10,126  |       
|                                         | Salaries, wages and payroll taxes                                                                                                                                    |                       |                            | 2,039                                      |       |         |         | 2,942   |       
|                                         | Other accrued expenses                                                                                                                                               |                       |                            | 2,967                                      |       |         |         | 2,932   |       
|                                         | Current portion of long-term debt                                                                                                                                    |                       |                            | 6,331                                      |       |         |         | 3,715   |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | Total current liabilities  |                                            |       | 16,400  |         |         |        | 22,555  |        
|Long-term debt, less current portion     |                                                                                                                                                                      |                       | 298                        |                                            |       |         | 6,569   |        
|Deferred income taxes                    |                                                                                                                                                                      |                       | 6,519                      |                                            |       |         | 4,494   |        
|Minority interest                        |                                                                                                                                                                      |                       | 350                        |                                            |       |         | 498     |        
|Shareholders equity:                    |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         | Preferred stock, $.01 par value. Authorized
    5,000,000 shares; none issued or outstanding                                                                         |                       |                            |                                           |       |         |         |        |       
|                                         | Common stock, $.01 par value. Authorized
    100,000,000 shares; issued and outstanding 7,342,081 and
    72,781,287 shares at April 30, 2003 and 2002, respectively |                       |                            | 74                                         |       |         |         | 728     |       
|                                         | Additional paid-in capital                                                                                                                                           |                       |                            | 284,254                                    |       |         |         | 283,162 |       
|                                         | Accumulated deficit                                                                                                                                                  |                       |                            | (183,406                                   | )     |         |         | (63,115 | )     
|                                         | Foreign currency translation adjustments                                                                                                                             |                       |                            | 154                                        |       |         |         | (295    | )     
|                                         | Cost of common stock in treasury                                                                                                                                     |                       |                            | (31                                        | )     |         |         |        |       
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       | Total shareholders equity |                                            |       | 101,045 |         |         |        | 220,480 |        
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        
|                                         |                                                                                                                                                                      |                       |                            | Total liabilities and shareholders equity |       | $       | 124,612 |         |        | $       | 254,596 | 
|                                         |                                                                                                                                                                      |                       |                            |                                            |       |         |         |        

See notes to consolidated financial statements.

F-3



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |         |         | 
|------------------------------------------------------------------------------ | -------------------------- | ---------------------------------------- | -------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------ | ------- | ------- | 
|                                                                               |                            |                                         
|                                                                               |                            | Fiscal Year Ended April 30,             
|                                                                               |                            |                                         
|                                                                               |                            | 2003                                     |          | 2002   |         | 2001
|                                                                               |                            |                                          |          |        |         |     
|                                                                               |                            |                                         
|                                                                               |                            | (in thousands, except per share amounts)
|Revenue:                                                                       |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               | Net sales                  |                                          | $        | 37,236 |         |      | $       | 56,387 |         |   | $      | 126,902 |        
|                                                                               | License fees and royalties |                                          |          | 14,398 |         |      |         | 3,622  |         |   |        | 4,873   |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               |                            | Total                                    |          |        | 51,634  |      |         |        | 60,009  |   |        |         | 131,775 | 
|Cost and expenses:                                                             |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               | Cost of sales              |                                          |          | 63,114 |         |      |         | 64,713 |         |   |        | 89,617  |        
|                                                                               | Research and development   |                                          |          | 40,208 |         |      |         | 28,087 |         |   |        | 14,729  |        
|                                                                               | Sales and marketing        |                                          |          | 7,063  |         |      |         | 7,999  |         |   |        | 9,146   |        
|                                                                               | General and administrative |                                          |          | 45,675 |         |      |         | 37,349 |         |   |        | 13,367  |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               |                            | Total costs and expenses                 |          |        | 156,060 |      |         |        | 138,148 |   |        |         | 126,859 | 
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Income (loss) from operations                                                  |                            |                                          | (104,426 | )      |         |      | (78,139 | )      |         |   | 4,916  |        
|Investment income, net                                                         |                            |                                          | 1,117    |        |         |      | 3,368   |        |         |   | 7,770  |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Income (loss) before income taxes                                              |                            |                                          | (103,309 | )      |         |      | (74,771 | )      |         |   | 12,686 |        
|Provision (credit) for income taxes                                            |                            |                                          |         |        |         |      | (2,581  | )      |         |   | 3,510  |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Income (loss) before cumulative effect of a
    change in accounting principle |                            |                                          | (103,309 | )      |         |      | (72,190 | )      |         |   | 9,176  |        
|Cumulative effect of a change in accounting
    principle                      |                            |                                          | (16,982  | )      |         |      |        |        |         |   |       |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Net income (loss)                                                              |                            | $                                        | (120,291 | )      |         | $    | (72,190 | )      |         | $ | 9,176  |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Net income (loss) per share, basic and diluted:(1)                             |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Before cumulative effect of a change in
    accounting principle               |                            | $                                        | (14.12   | )      |         | $    | (11.06  | )      |         | $ | 1.47   |        
|Cumulative effect of a change in accounting
    principle                      |                            |                                          | (2.32    | )      |         |      |        |        |         |   |       |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Net income (loss)                                                              |                            | $                                        | (16.44   | )      |         | $    | (11.06  | )      |         | $ | 1.47   |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|Weighted average number of common shares
    outstanding:                      |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               | Basic                      |                                          |          | 7,317  |         |      |         | 6,525  |         |   |        | 6,246   |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        
|                                                                               | Diluted                    |                                          |          | 7,317  |         |      |         | 6,525  |         |   |        | 6,281   |        
|                                                                               |                            |                                          |          |        |         |      |         |        |         |   |        |        



---



|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net income (loss) per share for fiscal 2002
    and 2001 has been restated to reflect a 1 for 10 reverse
    split effected on October 21, 2002.

See notes to consolidated financial statements.

F-4



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY


|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|----------------------------------------------------------- |  | ----------------------------------------- | ---- | ---------- |  | ------------ | ------- | ----------- |  | -------- | -------- | ------------- |  | ------------- | ---- | - |  | - | --- | - |  | - | -------- | - |  | - | -------- | -
|                                                            |  |                                          
|                                                            |  | Years Ended April 30, 2003, 2002 and 2001
|                                                            |  |                                          
|                                                            |  |                                           |      | Retained   |  | Foreign      |         |            
|                                                            |  |                                           |      | Additional |  | Earnings     |         | Currency    |  |          |          | Total         |  | Comprehensive
|                                                            |  | Common                                    |      | Paid-in    |  | (Accumulated |         | Translation |  | Treasury |          | Shareholders |  | Income       
|                                                            |  | Stock                                     |      | Capital    |  | Deficit)     |         | Adjustments |  | Stock    |          | Equity        |  | (Loss)       
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |              
|                                                            |  |                                          
|                                                            |  | (in thousands)                           
|Balance at April 30, 2000                                   |  | $                                         | 540  |            |  | $            | 52,422  |             |  | $        |         |               |  | $             |     |   |  | $ |    |   |  | $ | 52,962   |   |  |   |          |  
|Net proceeds of initial public offering                     |  |                                           | 101  |            |  |              | 195,354 |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   | 195,455  |   |  |   |          |  
|Net income                                                  |  |                                           |      |            |  |              | 101     |             |  |          | 9,075    |               |  |               |      |   |  |   |     |   |  |   | 9,176    |   |  | $ | 9,176    |  
|Foreign currency translation adjustments                    |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               | (355 | ) |  |   |     |   |  |   | (355     | ) |  |   | (355     | )
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  | $ | 8,821    |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|Net transactions with Methode Electronics,
    Inc.         |  |                                           |      |            |  |              | (2,339  | )           |  |          |          |               |  |               |      |   |  |   |     |   |  |   | (2,339   | ) |  |   |          |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|Balance at April 30, 2001.                                  |  |                                           | 641  |            |  |              | 245,538 |             |  |          | 9,075    |               |  |               | (355 | ) |  |   |    |   |  |   | (254,899 | ) |  |   |          |  
|Common stock issued in acquisitions of
    subsidiaries     |  |                                           | 87   |            |  |              | 37,624  |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   | 37,711   |   |  |   |          |  
|Net loss                                                    |  |                                           |      |            |  |              |         |             |  |          | (72,190  | )             |  |               |      |   |  |   |     |   |  |   | (72,190  | ) |  |   | (72,190  | )
|Foreign currency translation adjustments                    |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               | 60   |   |  |   |     |   |  |   | 60       |   |  |   | 60       |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  | $ | (72,130  | )
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|Balance at April 30, 2002                                   |  |                                           | 728  |            |  |              | 283,162 |             |  |          | (63,115  | )             |  |               | (295 | ) |  |   |    |   |  |   | 220,480  |   |  |   |          |  
|Issuance of 507,700 shares of restricted
    common stock   |  |                                           | 5    |            |  |              | 427     |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   | 432      |   |  |   |          |  
|Exercise of options for 2,455 shares of
    common stock    |  |                                           |     |            |  |              | 6       |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   | 6        |   |  |   |          |  
|Purchase of 251,959 shares of common stock
    for treasury |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   | (31 | ) |  |   | (31      | ) |  |   |          |  
|Effect of 1 for 10 reverse split                            |  |                                           | (659 | )          |  |              | 659     |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |         |   |  |   |          |  
|Net loss                                                    |  |                                           |      |            |  |              |         |             |  |          | (120,291 | )             |  |               |      |   |  |   |     |   |  |   | (120,291 | ) |  |   | (120,291 | )
|Foreign currency translation adjustments                    |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               | 449  |   |  |   |     |   |  |   | 449      |   |  |   | 449      |  
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  
|Balance at April 30, 2003                                   |  | $                                         | 74   |            |  | $            | 284,254 |             |  | $        | (183,406 | )             |  | $             | 154  |   |  | $ | (31 | ) |  | $ | 101,045  |   |  | $ | (119,842 | )
|                                                            |  |                                           |      |            |  |              |         |             |  |          |          |               |  |               |      |   |  |   |     |   |  |   |          |   |  |   |          |  

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |         |         |         |  
|----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | -
|                                                                        |                                                                                                                                                      |                                                           
|                                                                        |                                                                                                                                                      | Fiscal Year Ended April 30,                               
|                                                                        |                                                                                                                                                      |                                                           
|                                                                        |                                                                                                                                                      | 2003                                                       |                                                         | 2002    |        | 2001   
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |        
|                                                                        |                                                                                                                                                      |                                                           
|                                                                        |                                                                                                                                                      | (in thousands)                                            
|Operating activities:                                                   |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|Net income (loss)                                                       |                                                                                                                                                      | $                                                          | (120,291                                                | )       |        | $       | (72,190 | )       |         | $       | 9,176   |        
|                                                                        | Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:                                               |                                                            |                                                         |         |        |         |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      | Cumulative effect of a change in accounting
    principle  |                                                         |         | 16,982 |         |         |         |        |         |         |         |        |        
|                                                                        |                                                                                                                                                      | Provision for depreciation                                 |                                                         |         | 14,152 |         |         |         | 11,768  |         |         |         | 7,032   |        
|                                                                        |                                                                                                                                                      | Provision for amortization                                 |                                                         |         |       |         |         |         | 847     |         |         |         | 556     |        
|                                                                        |                                                                                                                                                      | Provision for goodwill impairment                          |                                                         |         | 28,429 |         |         |         | 8,493   |         |         |         |        |        
|                                                                        |                                                                                                                                                      | Provision for asset impairment                             |                                                         |         | 39,175 |         |         |         | 13,715  |         |         |         |        |        
|                                                                        |                                                                                                                                                      | Provision for losses on accounts receivable                |                                                         |         | 331    |         |         |         | 326     |         |         |         | 140     |        
|                                                                        |                                                                                                                                                      | Provision for obsolete and overstock inventory             |                                                         |         | 6,805  |         |         |         | 13,835  |         |         |         | 3,878   |        
|                                                                        |                                                                                                                                                      | Provision (credit) for deferred income taxes               |                                                         |         |       |         |         |         | 421     |         |         |         | (529    | )      
|                                                                        |                                                                                                                                                      | Minority interest                                          |                                                         |         | (148   | )       |         |         | 21      |         |         |         | 476     |        
|Changes in operating assets and liabilities:                            |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      | Accounts receivable                                        |                                                         |         | 213    |         |         |         | 16,302  |         |         |         | (12,798 | )      
|                                                                        |                                                                                                                                                      | Inventories                                                |                                                         |         | 1,222  |         |         |         | (976    | )       |         |         | (20,041 | )      
|                                                                        |                                                                                                                                                      | Prepaid expenses and other assets                          |                                                         |         | (4,578 | )       |         |         | (428    | )       |         |         | (811    | )      
|                                                                        |                                                                                                                                                      | Accounts payable and accrued expenses                      |                                                         |         | (5,082 | )       |         |         | (12,348 | )       |         |         | 15,582  |        
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      |                                                            | Net cash provided by (used in) operating
    activities |         |        | (22,790 | )       |         |         | (20,214 | )       |         |         | 2,661   |  
|Investing activities:                                                   |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        | Purchases of property, plant and equipment                                                                                                           |                                                            |                                                         | (2,126  | )      |         |         | (22,778 | )       |         |         | (47,320 | )      
|                                                                        | Purchases of short-term investments                                                                                                                  |                                                            |                                                         | (30,479 | )      |         |         | (54,700 | )       |         |         | (20,400 | )      
|                                                                        | Sales of short-term investments                                                                                                                      |                                                            |                                                         | 43,500  |        |         |         | 44,200  |         |         |         |        |        
|                                                                        | Acquisitions, net of cash acquired                                                                                                                   |                                                            |                                                         | (189    | )      |         |         | (9,961  | )       |         |         | (770    | )      
|                                                                        | Proceeds from sale of assets held for sale                                                                                                           |                                                            |                                                         | 1,209   |        |         |         |        |         |         |         |        |        
|                                                                        | Additional purchase price of prior-period
    acquisition                                                                                            |                                                            |                                                         |        |        |         |         |        |         |         |         | (2,957  | )      
|                                                                        | Increase investment in MP Optical                                                                                                                    |                                                            |                                                         |        |        |         |         |        |         |         |         | (204    | )      
|                                                                        | Other                                                                                                                                                |                                                            |                                                         |        |        |         |         | (275    | )       |         |         | (51     | )      
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      |                                                            | Net cash provided by (used in) investing
    activities |         |        | 11,915  |         |         |         | (43,514 | )       |         |         | (71,702 | )
|Financing activities:                                                   |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      | Net proceeds from initial public offering                  |                                                         |         |       |         |         |         |        |         |         |         | 195,454 |        
|                                                                        |                                                                                                                                                      | Payment of notes related to acquisitions                   |                                                         |         |       |         |         |         |        |         |         |         | (333    | )      
|                                                                        |                                                                                                                                                      | Repayments on long-term borrowings                         |                                                         |         | (6,496 | )       |         |         | (690    | )       |         |         |        |        
|                                                                        |                                                                                                                                                      | Net cash transfers from (to) Methode Electronics,
    Inc. |                                                         |         |       |         |         |         |        |         |         |         | (1,179  | )      
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        |                                                                                                                                                      |                                                            | Net cash provided by (used in) financing
    activities |         |        | (6,496  | )       |         |         | (690    | )       |         |         | 193,942 |  
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|Net increase (decrease) in cash and cash
    equivalents                |                                                                                                                                                      |                                                            | (17,371                                                 | )       |        |         | (64,418 | )       |         |         | 124,901 |        
|Cash and cash equivalents at beginning of period                        |                                                                                                                                                      |                                                            | 61,020                                                  |         |        |         | 125,438 |         |         |         | 537     |        
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|Cash and cash equivalents at end of period                              |                                                                                                                                                      | $                                                          | 43,649                                                  |         |        | $       | 61,020  |         |         | $       | 125,438 |        
|                                                                        |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|Supplement schedule of non cash investing and
    financing activities: |                                                                                                                                                      |                                                            |                                                         |         |        |         |         |         |         |         |         |        
|                                                                        | Long-term debt (including current portion)
    incurred in exchange for the purchase of software and equipment
    for information technology system |                                                            | $                                                       |        |        |         | $       | 9,084   |         |         | $       |        |        
|                                                                        | Common stock issued in acquisition of subsidiaries                                                                                                   |                                                            |                                                         |        |        |         |         | 37,711  |         |         |         |        |        
|                                                                        | Issuance of 507,500 shares of restricted
    common stock                                                                                            |                                                            |                                                         | 432     |        |         |         |        |         |         |         |        |        

See notes to consolidated financial statements.

F-6



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


April 30, 2003


(all amounts in thousands, except share
data)


Note 1.     Basis
of Presentation

As of May 28, 2000, Methode Electronics,
Inc. (Methode) contributed and transferred to the
Company all of the capital stock and equity interests held by
Methode in subsidiaries and other entities that conducted a
majority of its optical products business, pursuant to a master
separation agreement. The capital stock and equity interests
contributed and transferred to the Company were Bandwidth
Semiconductor, LLC; Methode Communications Modules, Inc. (now
Stratos Lightwave-Florida, Inc.); Stratos Lightwave, LLC;
Methodes 60% interest in MP Optical Communications, LLC
and Stratos Limited. Prior to its transfer of Stratos Lightwave,
LLC to the Company, Methode transferred all of the assets and
liabilities of its optoelectronics and fiber optic divisions,
the properties associated with its optoelectronics research
center and Methodes corporate facilities occupied by these
divisions to Stratos Lightwave, LLC.

In July 2000, the Company completed the sale of
1,006,250 shares of common stock in its initial public
offering at a price of $210 per share. The net proceeds
from the offering, after deducting the underwriting discount and
the offering expenses paid by the Company, were approximately
$195,500.

After completion of the Companys initial
public offering, Methode owned 5,402,980 shares of the
Companys common stock, representing approximately 84.3% of
the outstanding shares. After receiving a favorable letter
ruling from the Internal Revenue Service in March 2001, and in
accordance with its previously announced intentions, on
April 28, 2001, Methode distributed all of the shares of
the Companys common stock owned by Methode to
Methodes stockholders in a distribution intended to be tax
free for U.S. federal income tax purposes. The data set forth
above regarding the Companys initial public offering has
been adjusted to reflect the 1 for 10 reverse stock split
effected on October 21, 2002.

The Companys consolidated financial
statements for the periods ended on or prior to May 28,
2000, have been carved out from the consolidated financial
statements of Methode, using the historical results of
operations and cash flows and historical basis of the assets and
liabilities of the business. The consolidated financial
statements for the periods ended on or prior to May 28,
2000, also include allocations to the Company of Methodes
corporate expenses, including centralized accounting, treasury,
information technology, human resources, sales and marketing,
legal, real estate and other corporate services and
infrastructure costs. The Company considers the expense
allocations to be reasonable reflections of the utilization of
the services provided to it or the benefits received by it. The
consolidated financial statements after May 28, 2000
reflect the operations, cash flows and assets and liabilities of
the Company on a stand-alone basis.

Note 2.     Summary
of Significant Accounting Policies

Principles of consolidation.The consolidated financial statements
include the accounts and transactions of all subsidiaries in
which the Company has a controlling interest. Significant
intercompany accounts and transactions have been eliminated in
consolidation.

Cash and cash equivalents.All highly liquid investments with a
maturity of three or fewer months when purchased are carried at
their approximate fair value and classified in the balance sheet
as cash equivalents.

Short-term investments.Short-term investments represent
short-term corporate debt that is held to maturity. Cost
represents estimated fair value at the balance sheet date and
there are no gross unrealized gains or losses. Interest payments
are included in investment income.

Inventories.Inventories are stated at the lower of
cost (first-in, first-out method) or market. In fiscal 2003,
2002 and 2001, the Company incurred charges of $6,805, $13,835
and $3,878, respectively, to write-off inventory considered
obsolete or excessive to fulfill future sales estimates. The
decrease in these charges in fiscal 2003 is reflective of the
decrease in levels of inventory during the year. The increase in
these charges in

F-7



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


fiscal 2002 was related to both the
Companys optical subsystems and components inventory,
whereas the increase in fiscal 2001 was primarily related to the
Companys optical subsystems inventory.

Property, plant and equipment.Properties are stated on the basis of
cost. For financial reporting purposes the Company amortizes
such costs by annual charges to income, computed on the
straight-line method using estimated useful lives of 5 to
35 years for buildings and improvements, 3 to 15 years
for machinery and equipment and 5 to 10 years for furniture
and fixtures. Accelerated methods are generally used for income
tax purposes.

Research and development costs.Costs associated with the development
of new products are charged to expense when incurred.

During fiscal 2002, the Company refined its
policy on research and development expenses to include the costs
of scrap and the yield loss during the development stage of its
products. The effect of this change was the classification of
$6.3 million in expenses as research and development that
would have been classified as cost of sales under the previous
policy. It is not practicable to determine the affect this
change would have had on prior years.

Advertising.The
Company expenses all advertising costs in the year incurred.
Advertising expenses in fiscal 2003, 2002 and 2001 were $295,
$548 and $800, respectively.

Revenue recognition.Revenue from product sales, net of
trade discounts, is recognized when title passes, which
generally occurs upon shipment. The Company handles returns by
replacing, repairing or issuing credit for defective products
when returned. Returns were $929, $5,816 and $1,905,
respectively, in fiscal 2003, 2002 and 2001. The Company
establishes a reserve for returns based on any known and
anticipated returns. At the end of each of the years, the amount
recorded as a reserve for returns was not significant to the
financial statements.

The Company operates in markets that are
currently experiencing a severe economic downturn that began
late in the third quarter of fiscal 2001 and escalated during
the first quarter of fiscal 2002. As a result, many customers
began to experience excess inventory levels and requested
permission to return merchandise for which they had previously
accepted delivery or declined to accept delivery of the
merchandise after shipment from our facility. The majority of
this activity took place during the first six months of fiscal
2002. In consideration of the contemplation of future business,
the Company did accept return of merchandise previously shipped
to certain customers during fiscal 2002. The amount of returns
for these shipments were approximately $3,700 in fiscal
2002. In addition, returns for shipments declined by the
customers amounted to approximately $640. It is not
anticipated that these conditions will reoccur in the future.

Shipping and handling fees and costs.The Company includes shipping and
handling costs in costs of sales.

License fees and royalties.License fees and royalties represent
revenue from license agreements for patented technology which
also is used by the Company in its optical subsystems. The
license agreements generally provide for fixed up-front payments
and/or future fixed payments or continuing royalty payments
based on a percentage of sales of the licensed products. The
timing and amounts of these payments is beyond the
Companys control. Accordingly, the amount recorded in any
given period is expected to vary significantly. The duration of
these license agreements extend generally until the expiration
of the licensed patents which range from 2005 to 2023.

Income taxes.The
Companys operating results through fiscal 2001 were
included in Methodes consolidated U.S. and state income
tax returns or in tax returns of certain Methode foreign
subsidiaries. The provision for income taxes in the
Companys consolidated financial statements for fiscal year
2001 and prior was determined as if the Company were taxed as a
separate entity. Methode and the Company had entered

F-8



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


into a tax sharing agreement that required tax
calculation, accrual and payment by the Company as if the
Company were filing a separate tax return. All income tax
payments were made by Methode. The Company reimbursed Methode
for all tax payments made on its behalf relative to fiscal 2001.
The Company has and will file consolidated U.S. and state income
tax returns on a stand-alone basis for fiscal 2002 and beyond.
Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the
tax bases of assets and liabilities and their reported amounts,
and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The
Company assesses on an ongoing basis the need for valuation
reserves against these deferred tax assets.

Long-lived assets.The Company periodically reviews
long-lived assets to determine if there are indicators of
impairment. When indicators of impairment are present, the
Company evaluates the carrying value of property, plant, and
equipment and intangibles, including goodwill, in relation to
the operating performance and future undiscounted cash flows of
the underlying businesses. The Company adjusts the net carrying
value of the underlying assets if the sum of the expected future
undiscounted cash flows is less than carrying value.

During fiscal 2003 the Company reviewed the
carrying value of its long-lived assets (excluding goodwill) in
light of significant declines in sales, earnings and cash flows
and determined that substantially all of the Companys
long-lived assets would not be recoverable. In accordance with
the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,the Company has
recorded in fiscal 2003 non-cash charges of $37,105 to reduce
the carrying value of these long-lived assets to their fair
value. See Note 5 to Consolidated Financial Statements.

Due to restructuring during fiscal 2002 of the
Companys product offerings, along with current and
expected market conditions in the bandwidth marketplace, it
became apparent that the goodwill and fixed assets acquired with
the Bandwidth acquisition were impaired. In accordance with its
policies, the Company completed evaluations of the fair value of
the Bandwidth long-lived assets, including goodwill, during the
quarter ended April 30, 2002. The Company recorded non-cash
impairment charges of $11,800 and $8,500 for fixed assets and
goodwill, respectively, to reduce the carrying value of recorded
fixed assets and goodwill to their estimated fair value.

In addition, the Company recorded non-cash
charges of $1,000 and $900 in fiscal 2002 for impairment of the
corporate aircraft and fixed assets related to the exit from the
single ferrule connector business, respectively, to reduce the
carrying value of such assets to their estimated fair value.

Foreign currency translation.The functional currencies of the
Companys foreign subsidiaries are local currencies.
Accordingly, the results of operations of the Companys
foreign operations are translated into U.S. dollars using
average exchange rates during the year, while the assets and
liabilities are translated using period end exchange rates.

Intangibles.Prior
to fiscal 2003, the excess of purchase price over the estimated
fair value of net assets of acquired companies has been
amortized on a straight-line basis over 25 years. In
accordance with the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, the excess purchase price for the
acquisitions of Tsunami Optics, Inc. and Paracer, Inc. have not
been amortized because the acquisitions occurred after
July 1, 2001.

In accordance with the provisions of SFAS
No. 142, the Company performed the transitional goodwill
impairment evaluation during the second quarter of fiscal 2003.
This transitional impairment test resulted in an impairment of
goodwill of approximately $16,982 as of May 1, 2002. This
non-cash charge is reflected as a cumulative effect of a change
in accounting principle in the Statement of Operations for
fiscal 2003.

F-9



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


In addition, in accordance with the provisions of
SFAS No. 142, the Company performed its annual goodwill
impairment review during the fourth quarter of fiscal 2003. This
annual review indicated additional impairment existed and a
non-cash charge of approximately $28,430, classified as general
and administrative expense in the Statement of Operations for
fiscal 2003, was recorded.

In accordance with SFAS No. 2, Accounting
for Research and Development Costs, as interpreted by FASB
Interpretation No. 4, amounts assigned to purchased
in-process research and development in a purchase business
combination must be charged to expense at the date of
consummation of the purchase business combination. In connection
with the Tsunami and Paracer acquisitions, the Company recorded
a $2,070 charge to in-process research and development during
the second quarter of fiscal 2003. The charge has been
classified as research and development in the Statement of
Operations for fiscal 2003.

Use of estimates.The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.

Stock Based Compensation.The Company has elected to follow
Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees (APB No. 25) and
related interpretations in accounting for its employee stock
options and awards. Under APB No. 25, employee stock
options are valued using the intrinsic method, and no
compensation expense is recognized since the exercise price of
the options equals or is greater than the fair market value of
the underlying stock as of the date of the grant. The following
table shows the effect on net income (loss) and earnings (loss)
per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for
Stock Based Compensation.

|                                                                                                                                                       |  |                      |          |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                       |  |                     
|                                                                                                                                                       |  | Year ended April 30,
|                                                                                                                                                       |  |                     
|                                                                                                                                                       |  | 2003                 |          | 2002 |  | 2001
|                                                                                                                                                       |  |                      |          |      |  |     
|Net income (loss), as reported                                                                                                                         |  | $                    | (120,291 | )    |  | $    | (72,190 | ) |  | $ | 9,176   |  
|Deduct: Total stock based employee compensation
    expense determined under fair value based method for all awards,
    net of the related tax effect |  |                      | (6,766   | )    |  |      | (22,049 | ) |  |   | (12,220 | )
|                                                                                                                                                       |  |                      |          |      |  |      |         |   |  |   |         |  
|Pro forma net income (loss)                                                                                                                            |  | $                    | (127,057 | )    |  | $    | (94,239 | ) |  | $ | (3,044  | )
|                                                                                                                                                       |  |                      |          |      |  |      |         |   |  |   |         |  
|Basic and diluted earnings (loss) per share, as
    reported                                                                                           |  | $                    | (16.44   | )    |  | $    | (11.06  | ) |  | $ | 1.47    |  
|Basic and diluted earnings (loss) per share, Pro
    forma                                                                                             |  |                      | (17.36   | )    |  |      | (14.40  | ) |  |   | (0.50   | )

See Note 9 for further discussion of the
Companys option plans.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS),
No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 is effective for the
Company for the fiscal year ended April 30, 2002. The
adoption of this statement did not have a significant impact on
the Companys financial results.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, effective for exit or disposal activities
initiated after December 31, 2002. The Companys
current restructuring plan, initiated in fiscal 2003, was not
accounted for under SFAS No. 146. The Company accrued a
pre-tax charge of $3,100 when Company management approved the
current restructuring plan. If the Company had accounted for
this restructuring plan under SFAS No. 146, $400 of the
$3,100 charge would have been recognized as incurred and not
accrued in fiscal 2003.

F-10



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition to SFAS
No. 123s fair value method of accounting for
stock-based employee compensation. SFAS No. 148 does not
require companies to account for employee stock options using
the fair value method but does require additional footnote
disclosures. The Company adopted these disclosure requirements
beginning in fiscal 2003. The adoption of SFAS No. 148 has
not impacted the Companys results of operations.

On December 15, 2002, the Company adopted
the FASB Statement of Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. The Interpretation requires certain guarantees to be
recorded at fair value as well as expands disclosure
requirements. The adoption of this standard did not have a
material effect on the Companys financial statements or
disclosures.

Note
3.     Acquisitions



| |            
| | -----------
| | Fiscal 2002

On March 28, 2002, the Company acquired all
of the outstanding common stock of Paracer, Inc. for
approximately 5.5 million shares of the Companys
common stock valued at $21,832, and $459 in cash. In addition,
the Company assumed approximately $1,000 of debt, net of cash
acquired. Paracer designs and manufactures Parallel Optics
transceivers and subsystems and is based in Santa Clara,
California.

On February 4, 2002, the Company acquired
all of the outstanding common stock of Tsunami Optics, Inc. in
exchange for approximately 3.2 million shares of the
Companys common stock valued at $15,879, and $4,750 in
cash. In addition, the Company assumed approximately $5,900 of
debt, plus certain expenses in connection with the transaction,
including a loan of approximately $3,800 made by the Company to
Tsunami prior to the acquisition. The $3,800 loan was converted
to additional capital subsequent to the acquisition. Tsunami
develops and manufactures innovative fiber optic components and
modules and is based in Mountain View, California.

On May 31, 2001, the Company purchased
substantially all of the net assets of the Optical Flexcircuits
division of Advanced Interconnection Technology, Inc., a
manufacturer of fiber optic circuits located in Hauppauge,
New York, for approximately $8,117 in cash including costs
of acquisition.



| |            
| | -----------
| | Fiscal 2001

On November 22, 2000, the Company purchased
for approximately $770 in cash, including costs of acquisition,
substantially all of the net assets of B&H Mold, Inc.,
a tool manufacturer in Libertyville, Illinois.

Effective February 23, 2000, the Company
entered into an amendment to the Asset Purchase Agreement with
Rockledge Microelectronics, Inc. (formerly Polycore
Technologies, Inc.) which provided that in the event the Company
participated in an initial public offering of shares to be
accomplished not later than November 15, 2000, the sum of
$2,957 would become payable to the seller within 30 days
following the initial public offering in full satisfaction of
such additional contingent consideration. This amount was paid
in July 2000 and has been accounted for as additional purchase
price.

F-11



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


The allocation of the purchase price to the net
assets acquired was as follows:

|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |        |        | 
|-------------------------------------- | ----------------------------------- | ----------------- | --- | --------------- | --- | ------------ | ----- | ------------- | --- | - | ------ | ------ | ----- | - | ------ | ------ | ------ | 
|                                       |                                     |                   |     | Advanced        |     |              |       |              
|                                       |                                     |                   |     | Interconnection |     | Tsunami      |       |              
|Amount Allocated To:                   |                                     | B&H Mold          |     | Technology      |     | Optics, Inc. |       | Paracer, Inc.
|                                       |                                     |                   |     |                 |     |              |       |              
|Assets acquired:                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       | Cash                                |                   | $   |                |     |              | $     |              |     |   | $      | 79     |       |   | $      | 3,144  |       
|                                       | Accounts receivable                 |                   |     |                |     |              |       |              |     |   |        | 162    |       |   |        | 30     |       
|                                       | Inventories                         |                   |     | 43              |     |              |       | 559           |     |   |        | 827    |       |   |        |       |       
|                                       | In process research and development |                   |     |                |     |              |       |              |     |   |        | 130    |       |   |        | 1,940  |       
|                                       | Developed technology                |                   |     |                |     |              |       |              |     |   |        | 490    |       |   |        | 6,020  |       
|                                       | Computer software                   |                   |     |                |     |              |       |              |     |   |        | 87     |       |   |        | 66     |       
|                                       | Company trade name                  |                   |     |                |     |              |       |              |     |   |        | 660    |       |   |        | 540    |       
|                                       | Property, plant & equipment         |                   |     | 233             |     |              |       | 318           |     |   |        | 1,286  |       |   |        | 1,237  |       
|                                       | Other                               |                   |     | 10              |     |              |       | 50            |     |   |        | 417    |       |   |        | 299    |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       |                                     | Total assets      |     |                 | 286 |              |       |               | 927 |   |        |        | 4,318 |   |        |        | 13,276 | 
|Liabilities assumed:                   |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       | Notes payable                       |                   |     |                |     |              |       |              |     |   |        | 2,118  |       |   |        | 3,722  |       
|                                       | Accounts payable                    |                   |     |                |     |              |       |              |     |   |        | 1,254  |       |   |        | 156    |       
|                                       | Accrued expenses                    |                   |     | 107             |     |              |       | 180           |     |   |        | 350    |       |   |        | 719    |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       |                                     | Total liabilities |     |                 | 107 |              |       |               | 180 |   |        |        | 3,722 |   |        |        | 4,597  | 
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       | Net assets acquired                 |                   |     | 179             |     |              |       | 747           |     |   |        | 416    |       |   |        | 8,679  |       
|                                       | Goodwill                            |                   |     | 591             |     |              |       | 7,370         |     |   |        | 20,237 |       |   |        | 13,635 |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|                                       | Purchase price                      |                   | $   | 770             |     |              | $     | 8,117         |     |   | $      | 20,653 |       |   | $      | 22,314 |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|Cash paid, including transaction costs |                                     | $                 | 770 |                 |     | $            | 8,117 |               |     | $ | 4,774  |        |       | $ | 482    |       
|Stock consideration                    |                                     |                   |    |                 |     |              |      |               |     |   | 15,879 |        |       |   | 21,832 |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       
|Total purchase price                   |                                     | $                 | 770 |                 |     | $            | 8,117 |               |     | $ | 20,653 |        |       | $ | 22,314 |       
|                                       |                                     |                   |     |                 |     |              |       |               |     |   |        |        |       |   |        |       

In February 1999, Methode formed MP Optical
Communications LLC together with one Chinese national. Methode
held a 60% interest and the Chinese national owns a 40% interest
in the equity of the venture. In September 1999, MP Optical
Communications LLC formed MP Optical Communications (Shenzhen)
Co. Ltd. (MP Optical China) as a wholly owned subsidiary
and as its principal operating unit. The results of operations
are included in the Companys consolidated financial
statements. As of April 30, 2003, Methode has contributed
$471 (prior to transfer of ownership to the Company) and Stratos
has contributed $204 in capital to MP Optical China. The
MP Optical China facility is located in Shenzhen, China,
where its operations involve the development and production of
optical connectors.

Cash for the acquisitions described above was
provided by the Company except for the $471 contribution to MP
Optical China which was provided by Methode.

The above-described acquisitions were accounted
for using the purchase method of accounting and the results of
operations of the acquired companies have been included in the
Companys consolidated financial

F-12



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


statements from their respective dates of
acquisition. Had the fiscal 2002 and 2001 acquisitions been made
as of the beginning of fiscal 2001, unaudited pro forma sales
and operating results would have been as follows:

|                                               |  |                 |         |      |  |   |         | 
|---------------------------------------------- |  | --------------- | ------- | ---- |  | - | ------- | 
|                                               |  |                
|                                               |  | Fiscal Year    
|                                               |  | Ended April 30,
|                                               |  |                
|                                               |  | 2002            |         | 2001
|                                               |  |                 |         |     
|Net sales                                      |  | $               | 57,722  |      |  | $ | 131,495 | 
|Net income (loss)                              |  |                 | (82,892 | )    |  |   | 4,867   | 
|Net income (loss) per share, basic and diluted |  |                 | (1.27   | )    |  |   | 0.08    | 

The pro forma results reported above are not
necessarily indicative of future results.

Current tax regulations do not permit the
goodwill related to the Tsunami and Paracer acquisitions to be
deducted for federal and state income tax purposes.

Note 4.     Goodwill
and Other Tangible Assets

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statements. Intangible assets with finite
lives will continue to be amortized over those useful lives.
Goodwill amortization expense in fiscal years 2001 and 2002 was
$556 and $848, respectively. The following table discloses pro
forma results for net income and earnings per share as if the
non-amortization of goodwill provisions of SFAS No. 142
were adopted at the beginning of fiscal year 2001.

|                                                       |  |                     |          |      |  |      |         |   |  |   |       | 
|------------------------------------------------------ |  | ------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ----- | 
|                                                       |  |                    
|                                                       |  | Year Ended April 30
|                                                       |  |                    
|                                                       |  | 2003                |          | 2002 |  | 2001
|                                                       |  |                     |          |      |  |     
|Reported net income (loss)                             |  | $                   | (120,291 | )    |  | $    | (72,190 | ) |  | $ | 9,176 | 
|Add back: Goodwill amortization                        |  |                     |         |      |  |      | 848     |   |  |   | 556   | 
|                                                       |  |                     |          |      |  |      |         |   |  |   |       | 
|Adjusted net income (loss)                             |  | $                   | (120,291 | )    |  | $    | (71,342 | ) |  | $ | 9,732 | 
|                                                       |  |                     |          |      |  |      |         |   |  |   |       | 
|Reported basic and diluted income (loss) per
    share |  | $                   | (16.44   | )    |  | $    | (11.06  | ) |  | $ | 1.47  | 
|Add back: Goodwill amortization per share              |  |                     |         |      |  |      | 0.13    |   |  |   | 0.09  | 
|                                                       |  |                     |          |      |  |      |         |   |  |   |       | 
|Adjusted basic and diluted income (loss) per
    share |  | $                   | (16.44   | )    |  | $    | (10.93  | ) |  | $ | 1.56  | 
|                                                       |  |                     |          |      |  |      |         |   |  |   |       | 

In accordance with the provisions of Statement of
Financial Accounting Standards No. 141, Business
Combinations, $1,367 and $8,566 of the purchase price for
the Tsunami and Paracer acquisitions respectively, previously
allocated to goodwill in our preliminary purchase price
allocation has been reallocated based upon independent
appraisals, to other intangible assets which are being amortized
over their estimated useful lives.

Purchased in-process research and development
represents the value assigned in a purchase business combination
to research and development projects of the acquired business
that were commenced but not yet completed at the date of
acquisition, for which technological feasibility has not been
established and which have no alternative future use in research
and development activities or otherwise. In accordance with SFAS
No. 2, Accounting for Research and Development
Costs, as interpreted by FASB Interpretation No. 4,
amounts assigned to purchased in-process research and
development meeting the above criteria must be charged to
expense at the date of consummation of the purchase business
combination. In connection with the Tsunami and Paracer
acquisitions, the Company recorded a $2,070 charge to in-process
research and

F-13



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


development during the second quarter of fiscal
2003. The charge has been classified as research and development
in the Statement of Operations for fiscal 2003.

For the transitional goodwill impairment
evaluation, SFAS No. 142 required the Company to perform an
assessment of whether there was an indication that goodwill was
impaired as of the date of adoption, or step one of the
impairment test. To implement SFAS No. 142, the Company
identified reporting units consistent with the way the Company
is managed. The Company then determined the carrying value of
each reporting unit by allocating the assets and liabilities,
including the goodwill and intangible assets, to the units as of
the date of adoption. The Company had up to six months from the
date of adoption to determine the fair value of each reporting
unit and compare it to the reporting units carrying value.
If a reporting units carrying amount exceeds its fair
value, an indication exists that the reporting units
goodwill is impaired, and the Company would be required to
perform the second step of the transitional impairment test.

During the second quarter of fiscal 2003, the
Company performed its transitional goodwill impairment test in
accordance with SFAS No. 142 which included step one as
described above for each of the reporting units. Results of step
one indicated that the goodwill associated with the active
optical subsystems reporting unit was impaired because the
estimated fair value of the assets of this unit, based on
expected future discounted cash flows to be generated by the
unit, was less than their carrying value. Pursuant to the second
step of the test, the Company compared the implied fair value of
the units goodwill (determined by allocating the
units fair value based on expected future discounted cash
flows, to all of its assets, recognized and unrecognized, and
liabilities in a manner similar to a purchase price allocation
for an acquired business) to its carrying value. The Company did
not obtain independent valuations of unrecognized intangible
assets or fixed assets since the units fair value
indicated full impairment of its goodwill.

Significant negative industry and economic trends
affecting the Companys current and future operations
contributed to the transitional impairment test resulting in an
impairment of goodwill related to the active optical subsystems
reporting unit of approximately $16,982. This non-cash charge is
reflected as a cumulative effect of a change in accounting
principle in the Statement of Operations for fiscal 2003.

Effective February 1, 2003, the Company
performed its annual impairment review of goodwill utilizing
similar procedures that it used to perform its transitional
goodwill impairment test described above. Results of this review
indicated that an impairment existed within the passive optical
subsystems reporting unit because the estimated fair value of
the assets of this unit, based on expected future discounted
cash flows to be generated by the unit, was less than their
carrying value. Pursuant to this test, the Company compared the
implied fair value of the units goodwill (determined by
allocating the units fair value based on expected future
discounted cash flows, to all of its assets, recognized and
unrecognized, and liabilities in a manner similar to a purchase
price allocation for an acquired business) to its carrying
value. The Company performed these tests after applying the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to identifiable
intangible assets and fixed assets. The units fair value
determined by these tests indicated full impairment of its
goodwill.

Continued significant negative industry and
economic trends affecting the Companys current and future
operations, and therefore future cash flows, contributed to the
annual impairment test resulting in an impairment of goodwill
related to the passive optical subsystems reporting unit of
approximately $28,430. This non-cash charge is reflected in
general and administrative expenses in the Statement of
Operations for fiscal 2003. In accordance with SFAS
No. 142, this amount was not included in the cumulative
effect of a change in accounting principle because it relates to
the annual impairment review.

F-14



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


Note 5.     Impairment
of Long-Lived Assets

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The Company adopted this standard on
May 1, 2002.

SFAS No. 144 requires that long-lived assets
to be held and used be evaluated for impairment. The general
process requires consideration of whether indicators of
impairment are present. If present, a determination whether the
sum of the estimated undiscounted future cash flows attributable
to the long-lived assets is less than their carrying value. If
less, to recognize an impairment loss based on the excess of the
carrying amount of the long-lived assets over their respective
fair value.

During the third and fourth quarters of fiscal
2003 the Company gathered information to determine if the
indicators of impairment were present. Early in the fourth
quarter it became apparent that the sustained downturn in
business under the Companys current business model was not
able to generate sufficient cash flows and the pursuit of a new
direction for the Company was necessary. It was the decision of
management to formulate a plan for presentation to the Board of
Directors during the fourth quarter that would deploy its core
competency into a new strategic plan. The plan calls for the
closing of some of the Companys business units and the
consolidation of others. Management acknowledged the fact that
it needed time to decide the future of the Company and
therefore, the formulation of the strategic plan took a good
part of the fourth quarter. At the conclusion of the formulation
process, cash flows were prepared utilizing the assumptions and
reorganization contemplated by the new plan. It was evident from
the new cash flows (based upon the reorganization) that an
indication of impairment was present and that a triggering event
had taken place in the fourth quarter. Accordingly, a
SFAS 144 review of the Companys long-lived assets was
necessary. These current cash flow projections demonstrated that
the estimated undiscounted cash flows were not sufficient to
recover the carrying value of long-lived assets, requiring the
Company to determine the fair value of long-lived assets. The
Company made the decision to evaluate the fair value of the
long-lived assets at the level of the active and passive optical
subsystems reporting units and engaged an independent appraisal
firm to compute the fair value of these asset groups. The
independent appraiser computed the fair value of the long-lived
assets based upon the expected future discounted cash flows to
be generated by each unit. The Company in turn reviewed the fair
value computed by the independent appraiser to ensure that the
value determined was not less than the known or perceived fair
market value of the assets. Results of these computations
indicated that an impairment existed within each reporting unit
because the estimated fair value of the assets of each reporting
unit was less than their carrying value. A non-cash charge for
impairment of long-lived assets of approximately $37,100 was
recorded in the fourth quarter of fiscal 2003.

This charge has been classified in the fiscal
2003 Statement of Operations as follows:

|                           |  |   |        | 
|-------------------------- |  | - | ------ | 
|Cost of sales              |  | $ | 16,400 | 
|Research and development   |  |   | 16,900 | 
|General and administrative |  |   | 3,800  | 
|                           |  |   |        | 
|Total                      |  | $ | 37,100 | 
|                           |  |   |        | 

Note 6.     Restructuring
Charges

The Company recorded restructuring charges of
approximately $3,100 and $31,200 in fiscal 2003 and fiscal 2002
respectively. These charges included excess and obsolete
inventory, goodwill and fixed asset impairment, personnel, bad
debt, and legal costs related to the restructuring of operations.

F-15



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


Accruals related to the restructuring charges and
their utilization are summarized as follows:

|                      |  |                |       |         |  |                  |       |                |  |   |       |     |  |   |     | 
|--------------------- |  | -------------- | ----- | ------- |  | ---------------- | ----- | -------------- |  | - | ----- | --- |  | - | --- | 
|                      |  | Balance        |       | 2003    |  | Utilized through |       | Balance       
|                      |  | April 30, 2002 |       | Charges |  | April 30, 2003   |       | April 30, 2003
|                      |  |                |       |         |  |                  |       |               
|Employee costs        |  | $              | 850   |         |  | $                | 2,800 |                |  | $ | 3,250 |     |  | $ | 400 | 
|Legal and other costs |  |                | 1,210 |         |  |                  | 100   |                |  |   | 1,310 |     |  |   |    | 
|                      |  |                |       |         |  |                  |       |                |  |   |       |     |  |   |     | 
|Cash charge           |  |                | 2,060 |         |  |                  | 2,900 |                |  |   | 4,560 |     |  |   | 400 | 
|Asset impairment      |  |                |      |         |  |                  | 200   |                |  |   | 200   | (1) |  |   |    | 
|                      |  |                |       |         |  |                  |       |                |  |   |       |     |  |   |     | 
|Non-cash charge       |  |                |      |         |  |                  | 200   |                |  |   | 200   |     |  |   |    | 
|                      |  |                |       |         |  |                  |       |                |  |   |       |     |  |   |     | 
|Total charge          |  | $              | 2,060 |         |  | $                | 3,100 |                |  | $ | 4,760 |     |  | $ | 400 | 
|                      |  |                |       |         |  |                  |       |                |  |   |       |     |  |   |     | 

|                      |  |                |   |         |  |                  |        |                |  |   |        |     |  |   |       | 
|--------------------- |  | -------------- | - | ------- |  | ---------------- | ------ | -------------- |  | - | ------ | --- |  | - | ----- | 
|                      |  | Balance        |   | 2002    |  | Utilized through |        | Balance       
|                      |  | April 30, 2001 |   | Charges |  | April 30, 2002   |        | April 30, 2002
|                      |  |                |   |         |  |                  |        |               
|Employee costs        |  | $              |  |         |  | $                | 850    |                |  | $ |       |     |  | $ | 850   | 
|Legal and other costs |  |                |  |         |  |                  | 1,850  |                |  |   | 640    |     |  |   | 1,210 | 
|                      |  |                |   |         |  |                  |        |                |  |   |        |     |  |   |       | 
|Cash charge           |  |                |  |         |  |                  | 2,700  |                |  |   | 640    |     |  |   | 2,060 | 
|Asset impairment      |  |                |  |         |  |                  | 13,700 |                |  |   | 13,700 | (1) |  |   |      | 
|Goodwill impairment   |  |                |  |         |  |                  | 8,500  |                |  |   | 8,500  | (1) |  |   |      | 
|Inventory             |  |                |  |         |  |                  | 6,300  |                |  |   | 6,300  | (1) |  |   |      | 
|                      |  |                |   |         |  |                  |        |                |  |   |        |     |  |   |       | 
|Non-cash charge       |  |                |  |         |  |                  | 28,500 |                |  |   | 28,500 |     |  |   |      | 
|                      |  |                |   |         |  |                  |        |                |  |   |        |     |  |   |       | 
|Total charge          |  | $              |  |         |  | $                | 31,200 |                |  | $ | 29,140 |     |  | $ | 2,060 | 
|                      |  |                |   |         |  |                  |        |                |  |   |        |     |  |   |       | 



---



|    |                                                         
|--- | --------------------------------------------------------
|(1) | Offset against carrying values of respective
    assets.

These expenses have been classified in the
Statement of Operations as follows:

|                           |       |                   |       |       |  |   |        |        | 
|-------------------------- | ----- | ----------------- | ----- | ----- |  | - | ------ | ------ | 
|                           |       |                  
|                           |       | Fiscal Year Ended
|                           |       | April 30         
|                           |       |                  
|                           |       | 2003              |       | 2002 
|                           |       |                   |       |      
|Cost of sales              |       | $                 | 900   |       |  | $ | 8,300  |       
|Research and development   |       |                   | 1,100 |       |  |   | 500    |       
|General and administrative |       |                   | 1,100 |       |  |   | 22,400 |       
|                           |       |                   |       |       |  |   |        |       
|                           | Total |                   | $     | 3,100 |  |   | $      | 31,200 | 
|                           |       |                   |       |       |  |   |        |       

The Company terminated 198 and 94 employees
in fiscal 2003 and 2002, respectively, during the restructuring
of its operations, including both production and administrative
personnel. Severance pay in the amount or $245 relative to these
terminations will be paid out during fiscal 2003 and the
remainder through fiscal 2006.

Note 7.     Income
Taxes

During fiscal 2002, the Company determined the
need for a valuation allowance against the carrying value of
deferred tax assets primarily associated with tax loss carry
forwards based on the significant reduction in business levels
experienced. As a result, a valuation of $24,700 was recorded at
April 30, 2002, which eliminated the tax benefit
attributable to the losses incurred in fiscal 2002. We continued
to experience similar

F-16



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


reductions in business levels during fiscal 2003,
and an additional valuation of $30,500 was recorded, which
eliminated the tax benefit attributable to the net loss incurred
in fiscal 2003.

Significant components of the Companys
deferred tax assets and liabilities were as follows:

|                                 |                                  |                 |        |         |   |  |        |         |  
|-------------------------------- | -------------------------------- | --------------- | ------ | ------- | - |  | ------ | ------- | -
|                                 |                                  |                
|                                 |                                  | As of April 30,
|                                 |                                  |                
|                                 |                                  | 2003            |        | 2002   
|                                 |                                  |                 |        |        
|Deferred income tax assets:      |                                  |                 |        |         |   |  |        |        
|                                 | Allowance for doubtful accounts  |                 | $      | 166     |   |  | $      | 246     |  
|                                 | Inventory reserves               |                 |        | 4,773   |   |  |        | 6,261   |  
|                                 | Basis difference in assets       |                 |        | 4,729   |   |  |        | 4,729   |  
|                                 | Impairment of long-lived assets  |                 |        | 14,842  |   |  |        |        |  
|                                 | Deferred compensation            |                 |        | 100     |   |  |        | 459     |  
|                                 | Net operating loss carryforwards |                 |        | 36,819  |   |  |        | 17,019  |  
|                                 | Vacation accrual                 |                 |        | 168     |   |  |        | 214     |  
|                                 | Other                            |                 |        |        |   |  |        | 263     |  
|                                 |                                  |                 |        |         |   |  |        |        
|                                 |                                  |                 | 61,597 |         |   |  | 29,191 |        
|Deferred income tax liabilities: |                                  |                 |        |         |   |  |        |        
|                                 | Accelerated tax depreciation     |                 |        | 5,875   |   |  |        | 4,309   |  
|                                 | Investment basis differences     |                 |        | 495     |   |  |        | 185     |  
|                                 |                                  |                 |        |         |   |  |        |        
|                                 |                                  |                 | 6,370  |         |   |  | 4,494  |        
|                                 | Valuation allowance              |                 |        | (55,227 | ) |  |        | (24,697 | )
|                                 |                                  |                 |        |         |   |  |        |        
|                                 | Net deferred income tax asset    |                 | $      |        |   |  | $      |        |  
|                                 |                                  |                 |        |         |   |  |        |        

Income taxes consisted of the following:

|                  |                  |                             |   |      |  |      |        |        |   |   |       |       | 
|----------------- | ---------------- | --------------------------- | - | ---- |  | ---- | ------ | ------ | - | - | ----- | ----- | 
|                  |                  |                            
|                  |                  | Fiscal Year Ended April 30,
|                  |                  |                            
|                  |                  | 2003                        |   | 2002 |  | 2001
|                  |                  |                             |   |      |  |     
|Current:          |                  |                             |   |      |  |      |        |        |   |   |       |      
|                  | Federal (credit) |                             | $ |     |  |      | $      | (2,778 | ) |   | $     | 2,602 | 
|                  | Foreign          |                             |   |     |  |      |        |       |   |   |       | 773   | 
|                  | State (credit)   |                             |   |     |  |      |        | (224   | ) |   |       | 664   | 
|                  |                  |                             |   |      |  |      |        |        |   |   |       |      
|                  |                  | $                           |  |      |  | $    | (3,002 | )      |   | $ | 4,039 |      
|Deferred (credit) |                  |                             |  |      |  |      | 421    |        |   |   | (529  | )    
|                  |                  |                             |   |      |  |      |        |        |   |   |       |      
|                  |                  | $                           |  |      |  | $    | (2,581 | )      |   | $ | 3,510 |      
|                  |                  |                             |   |      |  |      |        |        |   |   |       |      

F-17



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


A reconciliation of the consolidated provisions
for income taxes to amounts determined by applying the
prevailing statutory federal income tax rate of 35% to pre-tax
earnings is as follows:

|                                      |                                               |                             |         |        |   |      |         |        |   |   |       |        |  
|------------------------------------- | --------------------------------------------- | --------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ----- | ------ | -
|                                      |                                               |                            
|                                      |                                               | Fiscal Year Ended April 30,
|                                      |                                               |                            
|                                      |                                               | 2003                        |         | 2002   |   | 2001
|                                      |                                               |                             |         |        |   |     
|Income tax at statutory rate (credit) |                                               | $                           | (42,102 | )      |   | $    | (26,169 | )      |   | $ | 4,440 |       
|                                      | Effect of State income taxes                  |                             |         | (3,609 | ) |      |         | (2,242 | ) |   |       | 364    |  
|                                      | Tax exempt investment income                  |                             |         | 217    |   |      |         | 785    |   |   |       | (1,042 | )
|                                      | Foreign operations with lower statutory rates |                             |         | 130    |   |      |         | 121    |   |   |       | (299   | )
|                                      | Impairment of goodwill                        |                             |         | 14,722 |   |      |         |       |   |   |       |       |  
|                                      | Valuation allowance                           |                             |         | 30,530 |   |      |         | 24,697 |   |   |       |       |  
|                                      | Other-net                                     |                             |         | 112    |   |      |         | 227    |   |   |       | 47     |  
|                                      |                                               |                             |         |        |   |      |         |        |   |   |       |       
|Income tax provision (credit)         |                                               | $                           |        |        |   | $    | (2,581  | )      |   | $ | 3,510 |       
|                                      |                                               |                             |         |        |   |      |         |        |   |   |       |       

Income taxes are based on pre-tax earnings
(losses) which are distributed geographically as follows:

|         |  |                             |          |      |  |      |         |   |  |   |        | 
|-------- |  | --------------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|         |  |                            
|         |  | Fiscal Year Ended April 30,
|         |  |                            
|         |  | 2003                        |          | 2002 |  | 2001
|         |  |                             |          |      |  |     
|Domestic |  | $                           | (118,153 | )    |  | $    | (70,697 | ) |  | $ | 9,935  | 
|Foreign  |  |                             | (2,138   | )    |  |      | (1,493  | ) |  |   | 2,751  | 
|         |  |                             |          |      |  |      |         |   |  |   |        | 
|         |  | $                           | (120,291 | )    |  | $    | (72,190 | ) |  | $ | 12,686 | 
|         |  |                             |          |      |  |      |         |   |  |   |        | 

At April 30, 2003 and 2002, recoverable
income taxes represent the future recovery of taxes paid with
the fiscal 2001 federal and state income tax returns and in
addition, recoverable income taxes at April 30, 2002
included amounts due from Methode for overpayment of fiscal 2001
estimated tax payments.

The Company paid $1,405 to Methode in fiscal 2002
for fiscal 2001 federal and state income taxes.

The Company has net operating loss carryforwards
of approximately $98,500 that are available to offset taxable
income in the future. The net operating loss carryforwards will
expire in 2022 and 2023.

Note 8.     Long-Term
Debt

Long-term debt represents two notes payable for
the purchase of computer software and hardware in connection
with the implementation of a new information technology system
in fiscal 2002, and several equipment financing arrangements. At
April 30, 2003, information relating to these notes is as
follows:

|                |  |                        |         |           |  |           |           |       |  |  |         |  |  |   |       | 
|--------------- |  | ---------------------- | ------- | --------- |  | --------- | --------- | ----- |  |  | ------- |  |  | - | ----- | 
|                |  |                        |         |           |  |          
|                |  | Information Technology |         |           |  |          
|                |  |                        |         | Equipment |  |          
|                |  | Note 1                 |         | Note 2    |  | Financing |           | Total
|                |  |                        |         |           |  |           |           |      
|Current portion |  |                        | $4,516  |           |  |           | $1,168    |       |  |  | $647    |  |  | $ | 6,331 | 
|Long-term       |  |                        |        |           |  |           | 298       |       |  |  |        |  |  |   | 298   | 
|                |  |                        |         |           |  |           |           |       |  |  |         |  |  |   |       | 
|                |  |                        | $4,516  |           |  |           | $1,466    |       |  |  | $647    |  |  | $ | 6,629 | 
|                |  |                        |         |           |  |           |           |       |  |  |         |  |  |   |       | 
|Interest rate   |  |                        | 5.50%   |           |  |           | 3.52%     |       |  |  | 13.72%  |  |  |   |       | 
|Payment terms   |  |                        | Monthly |           |  |           | Quarterly |       |  |  | Monthly |  |  |   |       | 
|Maturity        |  |                        | 2006    |           |  |           | 2005      |       |  |  | 2005    |  |  |   |       | 

Cash payments and interest expense in fiscal 2003
and 2002 for interest on debt amount to $564 and $219,
respectively.

F-18



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


The aggregate amount of scheduled annual
maturities of long-term debt for each of the next
five years is:

|            |  |        |       | 
|----------- |  | ------ | ----- | 
|Fiscal Year |  | Amount
|            |  |       
|2004        |  | $      | 6,331 | 
|2005        |  |        | 298   | 
|2006        |  |        |      | 
|2007        |  |        |      | 
|2008        |  |        |      | 
|            |  |        |       | 
|            |  | $      | 6,629 | 
|            |  |        |       | 

At April 30, 2003 the Company is in default
of a restrictive covenant relative to Information Technology
Note 1. The Company is currently negotiating an amendment to the
agreement and the total amount of the note is classified as
current portion of long-term debt in the April 30, 2003
financial statements.

Note 9.     Stock
Options

On June 17, 2002, the Board of Directors of
the Company approved a voluntary stock option exchange program
under which eligible employees of the Company had the
opportunity to exchange their existing options for new options
to be granted in the future under the 2000 Plan and the 2002
Plan. The offer period for the exchange program began on Monday,
July 8, 2002 and ended on August 5, 2002.

All properly tendered stock options were
exchanged under the program for a promise by the Company to
grant the optionee new options no earlier than the first
business day that is six months and one day after the
cancellation date, August 6, 2002. On February 7,
2003, to complete the exchange, the Company granted 479,251 new
options under the 2000 Plan and 66,742 under the 2002 Plan. The
exercise price of the new options was equal to the closing price
of the Companys common stock on the grant date. The new
options were 25% vested and exercisable on the grant date and
the remaining options vest ratably over periods of 18 to
42 months.

In fiscal 2001, the Company adopted the Stratos
Lightwave, Inc. 2000 Stock Plan (the 2000 Plan). The
2000 Plan permits the Company to award stock options, restricted
stock and stock appreciation rights to present and future
directors, officers and employees of the Company. Pursuant to
the 2000 Plan, the maximum number of shares for which awards may
be issued is 900,000 shares and the number of shares for which
restricted stock awards may be issued may not exceed 187,500
shares. At April 30, 2003, awards for 239,415 shares under
the 2000 Plan are reserved for issuance in the future. These
amounts take into consideration the 1

F-19



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


for 10 reverse split effected October 21,
2002. Stock options granted to date generally vest over a period
of 12 to 48 months after the date of grant and have a term
of 10 years.

|                              |  |                     |          |                     |  |        |        |                |  |  |         |  |  |   |        | 
|----------------------------- |  | ------------------- | -------- | ------------------- |  | ------ | ------ | -------------- |  |  | ------- |  |  | - | ------ | 
|                              |  |                     |          |                     |  |       
|                              |  | Options Outstanding |          |                    
|                              |  | at April 30, 2003   |          | Options Exercisable
|                              |  |                     |          |                    
|                              |  |                     |          | Weighted            |  |        |        | Weighted      
|                              |  |                     |          | Average             |  |        |        | Average       
|                              |  | Shares              |          | Exercise Price      |  | Shares |        | Exercise Price
|                              |  |                     |          |                     |  |        |        |               
|April 30, 2000.               |  |                     |         |                     |  |        |       |                |  |  |        |  |  |   |       | 
|Granted                       |  |                     | 524,732  |                     |  | $      | 191.40 |                |  |  |         |  |  |   |        | 
|Conversion of Methode options |  |                     | 15,630   |                     |  |        | 139.20 |                |  |  |         |  |  |   |        | 
|Cancelled                     |  |                     | (27,635  | )                   |  |        | 191.30 |                |  |  |         |  |  |   |        | 
|                              |  |                     |          |                     |  |        |        |                |  |  |         |  |  |   |        | 
|April 30, 2001.               |  |                     | 512,727  |                     |  | $      | 189.80 |                |  |  | 2,500   |  |  | $ | 210.00 | 
|Granted                       |  |                     | 347,632  |                     |  |        | 56.20  |                |  |  |         |  |  |   |        | 
|Cancelled                     |  |                     | (101,305 | )                   |  |        | 164.40 |                |  |  |         |  |  |   |        | 
|                              |  |                     |          |                     |  |        |        |                |  |  |         |  |  |   |        | 
|April 30, 2002.               |  |                     | 759,054  |                     |  | $      | 132.00 |                |  |  | 196,711 |  |  | $ | 186.60 | 
|Granted                       |  |                     | 577,913  | (A)                 |  |        | 2.69   |                |  |  |         |  |  |   |        | 
|Exchanged                     |  |                     | (550,773 | )                   |  |        | 137.20 |                |  |  |         |  |  |   |        | 
|Cancelled                     |  |                     | (123,154 | )                   |  |        | 103.90 |                |  |  |         |  |  |   |        | 
|Exercised                     |  |                     | (2,455   | )                   |  |        | 2.63   |                |  |  |         |  |  |   |        | 
|                              |  |                     |          |                     |  |        |        |                |  |  |         |  |  |   |        | 
|April 30, 2003.               |  |                     | 660,585  |                     |  | $      | 13.81  |                |  |  | 179,673 |  |  | $ | 29.36  | 
|                              |  |                     |          |                     |  |        |        |                |  |  |         |  |  |   |        | 



---



|    |                                         
|--- | ----------------------------------------
|(A) | Includes 86,750 restricted stock awards.

|                         |  |        |         |              |  |                |     |  |  |   |        | 
|------------------------ |  | ------ | ------- | ------------ |  | -------------- | --- |  |  | - | ------ | 
|                         |  |        |         | Average      |  | Average       
|                         |  |        |         | Remaining    |  | Weighted      
|Range of Exercise Prices |  | Shares |         | Life (Years) |  | Exercise Price
|                         |  |        |         |              |  |               
|$2.63  6.97.            |  |        | 569,301 |              |  |                | 9.7 |  |  | $ | 3.03   | 
|$20.60  32.00.          |  |        | 2,250   |              |  |                | 9.0 |  |  |   | 27.01  | 
|$52.00  99.60.          |  |        | 69,229  |              |  |                | 8.6 |  |  |   | 52.71  | 
|$105.80  241.30.        |  |        | 19,805  |              |  |                | 7.2 |  |  |   | 186.37 | 
|                         |  |        |         |              |  |                |     |  |  |   |        | 
|                         |  |        | 660,585 |              |  |                | 8.6 |  |  | $ | 13.81  | 
|                         |  |        |         |              |  |                |     |  |  |   |        | 

Unvested Methode options held by the
Companys employees were forfeited as of Methodes
distribution of the Companys common stock on
April 28, 2001, under the terms of the Methode 1997 Stock
Plan. The Company has assumed all unvested Methode options held
by its employees on the distribution and such options were
converted at the distribution date into options to purchase
shares of the Companys common stock. The number of shares
and the exercise price of Methode options that converted into
Company options were adjusted using a conversion formula. The
conversion formula was based on the opening per-share price of
shares of the Companys common stock on the first trading
day after the distribution, relative to the closing per-share
price of Methode Class A common stock on the last trading
day before the distribution. The resulting Stratos options have
maintained the original vesting provisions and option period.
The Methode options converted into 156,305 options to purchase
shares of the Companys common stock at a weighted average
price of $13.92.

In fiscal 2002, the Company adopted the Stratos
Lightwave, Inc. 2002 Stock Plan for Acquired Companies (the
2002 Plan). The 2002 Plan permits the Company to
award stock options, restricted stock

F-20



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


and stock appreciation rights to present and
future directors, officers and employees of the Company. As of
April 30, 2002, the maximum number of shares for which
awards may be issued is 115,000 shares and the number of shares
for which restricted stock awards may be issued may not exceed
10,000 shares. At April 30, 2003, awards for 40,361 shares
under the 2002 Plan are reserved for issuance in the future.
These amounts take into consideration the 1 for 10 reverse split
effected October 21, 2002. Stock options granted to date
generally vest over a period of 12 to 48 months after the
date of grant and have a term of 10 years. Shareholder
approval was not solicited for this plan.

|                |  |                        |         |                     |  |        |       |                  |  |  |        |  |  |   |      | 
|--------------- |  | ---------------------- | ------- | ------------------- |  | ------ | ----- | ---------------- |  |  | ------ |  |  | - | ---- | 
|                |  |                        |         |                     |  |       
|                |  | Options Outstanding at |         |                    
|                |  | April 30, 2003         |         | Options Exercisable
|                |  |                        |         |                    
|                |  |                        |         | Weighted Average    |  |        |       | Weighted Average
|                |  | Shares                 |         | Exercise Price      |  | Shares |       | Exercise Price  
|                |  |                        |         |                     |  |        |       |                 
|April 30, 2001. |  |                        |        |                     |  | $      |      |                  |  |  |       |  |  |   |     | 
|Granted         |  |                        | 111,250 |                     |  |        | 41.90 |                  |  |  |        |  |  |   |      | 
|Cancelled       |  |                        | (10,187 | )                   |  |        | 47.90 |                  |  |  |        |  |  |   |      | 
|                |  |                        |         |                     |  |        |       |                  |  |  |        |  |  |   |      | 
|April 30, 2002. |  |                        | 101,063 |                     |  |        | 41.30 |                  |  |  |       |  |  |   |     | 
|Granted         |  |                        | 66,742  |                     |  |        | 2.63  |                  |  |  |        |  |  |   |      | 
|Exchanged       |  |                        | (66,742 | )                   |  |        | 43.80 |                  |  |  |        |  |  |   |      | 
|Cancelled       |  |                        | (26,424 | )                   |  |        | 42.10 |                  |  |  |        |  |  |   |      | 
|                |  |                        |         |                     |  |        |       |                  |  |  |        |  |  |   |      | 
|April 30, 2003. |  |                        | 74,639  |                     |  | $      | 4.69  |                  |  |  | 18,510 |  |  | $ | 4.67 | 
|                |  |                        |         |                     |  |        |       |                  |  |  |        |  |  |   |      | 

|                         |  |        |        |              |  |                |     |  |  |   |       | 
|------------------------ |  | ------ | ------ | ------------ |  | -------------- | --- |  |  | - | ----- | 
|                         |  |        |        | Average      |  | Average       
|                         |  |        |        | Remaining    |  | Weighted      
|Range of Exercise Prices |  | Shares |        | Life (Years) |  | Exercise Price
|                         |  |        |        |              |  |               
|$1.90  8.00.            |  |        | 71,276 |              |  |                | 9.7 |  |  | $ | 2.63  | 
|$42.00  50.00.          |  |        | 3,363  |              |  |                | 8.8 |  |  |   | 48.32 | 
|                         |  |        |        |              |  |                |     |  |  |   |       | 
|                         |  |        | 74,639 |              |  |                | 9.2 |  |  | $ | 4.69  | 
|                         |  |        |        |              |  |                |     |  |  |   |       | 

Under the terms of the acquisition agreements,
the Company has assumed all outstanding options held by the
employees of Tsunami Optics, Inc. and Paracer, Inc. at the date
of acquisition. These options were converted into options to
purchase shares of the Companys common stock. The number
of shares and the exercise price of the Tsunami and Paracer
options that converted into Stratos options were adjusted using
a conversion formula set per the purchase agreement. The
resulting Stratos options have maintained the original vesting
provisions and option period. The Tsunami and Paracer options
converted into 110,498 options under the 2002 Plan to purchase
shares of the Companys common stock at a weighted average
price of $0.50.

The weighted average estimated fair value of
options granted during fiscal 2003, 2002 and 2001 was $2.47,
$4.96 and $17.16, respectively. In computing the fair value of
stock options granted as disclosed in Note 2, the fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions:

|                              |  |      |       |      |  |      |       |   |  |  |       |  
|----------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                              |  | 2003 |       | 2002 |  | 2001
|                              |  |      |       |      |  |     
|Risk free interest rates      |  |      | 5.0   | %    |  |      | 5.6   | % |  |  | 6.3   | %
|Expected option life in years |  |      | 7.0   |      |  |      | 7.0   |   |  |  | 7.0   |  
|Expected volatility           |  |      | 124.8 | %    |  |      | 126.4 | % |  |  | 116.3 | %
|Dividend yield                |  |      | 0.0   | %    |  |      | 0.0   | % |  |  | 0.0   | %

F-21



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


In total, the Company has reserved for issuance
in the future the following number of shares of its common stock:

|                |       |        |         |         | 
|--------------- | ----- | ------ | ------- | ------- | 
|                |       | Shares
|                |       |       
|2000 Stock Plan |       |        | 239,415 |        
|2002 Stock Plan |       |        | 40,361  |        
|                |       |        |         |        
|                | Total |        |         | 279,776 | 
|                |       |        |         |        

Note 10.     Employee
401(k) Savings Plan

The Company sponsors a 401(k) Savings Plan (the
Plan) which covers substantially all of its
employees. The Plan is a salary reduction plan that allows
employees to defer a percentage of wages subject to Internal
Revenue Service limits. The Plan also allows for Company
discretionary contributions equal to 3% of eligible
compensation. The Company provided for discretionary
contributions to the Plan totaling approximately $567 and $475
for fiscal 2003 and 2002, respectively.

Note 11.     Shareholders
Rights Agreement

On March 22, 2001, the Companys Board
of Directors declared a dividend of one preferred share purchase
right (a Right) for each share of Common Stock
outstanding on April 3, 2001 to the shareholders of record
on that date. Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of the
Companys Series A Junior Participating Preferred
Stock at an exercise price of $80.00 per one one-thousandth of a
preferred share, subject to adjustment.

The Rights will trade automatically with the
Common Stock and will not be exercisable until it is announced
that a person or group has become an acquiring
person by acquiring 15% or more of the Common Stock, or a
person or group commences a tender offer that will result in
such person or group owning 15% or more of the Common Stock.
Thereafter, separate right certificates will be distributed, and
each right will entitle its holder to purchase for the exercise
price, a fraction of a share of the Companys Series A
Junior Participating Preferred Stock having economic and voting
terms similar to one share of Common Stock.

Upon announcement that any person or group has
become an acquiring person, each Right will entitle all
rightholders (other than the acquiring person) to purchase, for
the exercise price, a number of shares of Common Stock having a
market value of twice the exercise price. Rightholders would
also be entitled to purchase the common stock of another entity
having a value of twice the exercise price if, after a person
has become an acquiring person, the Company were to enter into
certain mergers or other transactions with such other entity. If
any person becomes an acquiring person, the Companys Board
of Directors may, at its option and subject to certain
limitations, exchange one share of Common Stock for each Right.

The Rights may be redeemed by the Companys
Board of Directors for $0.01 per Right at any time prior to
a person or group having become an acquiring person. The Rights
will expire on April 3, 2011.

F-22



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


Note 12.     Earnings
(Loss) Per Share

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

|                              |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |       | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------- | --------------------------- | -------- | ------ | - | ---- | ------- | ------ | - | - | ----- | ----- | 
|                              |                                                                                                                 |                            
|                              |                                                                                                                 | Fiscal Year Ended April 30,
|                              |                                                                                                                 |                            
|                              |                                                                                                                 | 2003                        |          | 2002   |   | 2001
|                              |                                                                                                                 |                             |          |        |   |     
|Numerator  net income (loss) |                                                                                                                 | $                           | (120,291 | )      |   | $    | (72,190 | )      |   | $ | 9,176 |      
|                              |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |      
|Denominator:                  |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |      
|                              | Denominator for basic earnings per
    share  weighted-average shares outstanding                              |                             |          | 7,317  |   |      |         | 6,525  |   |   |       | 6,246 | 
|                              | Dilutive potential common shares 
    employee stock options                                                   |                             |          |       |   |      |         |       |   |   |       | 35    | 
|                              |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |      
|                              | Denominator for diluted earnings per
    share  adjusted weighted  average shares
    and assumed conversions |                             |          | 7,317  |   |      |         | 6,525  |   |   |       | 6,281 | 
|                              |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |      
|                              | Basic and diluted earnings (loss) per share                                                                     |                             | $        | (16.44 | ) |      | $       | (11.06 | ) |   | $     | 1.47  | 
|                              |                                                                                                                 |                             |          |        |   |      |         |        |   |   |       |      

Net income (loss) per share for fiscal 2002
and 2001 has been restated to reflect a 1 for 10 reverse split
effected on October 21, 2002.

Options to purchase 650,929, 860,118 and 226,234
shares of Common Stock at a weighted average option price of
$13.48, $121.00 and $200.60 were outstanding during fiscal 2003,
2002 and 2001, respectively, but were not included in the
computation of diluted earnings per share because of the net
loss or because the exercise price was greater than the average
market price of the common shares and, therefore, the effect
would have been antidilutive. The amounts for fiscal 2002 and
2001 have been restated to reflect a 1 for 10 reverse split
effected on October 21, 2002.

Note 13.     Transactions
with Methode

The Companys revenues from sales of
products to Methode in fiscal 2003, 2002 and 2001 were $801,
$2,752 and $3,684, respectively.

For purposes of governing certain of the ongoing
relationships between the Company and Methode after the
separation and to provide for an orderly transition, the Company
and Methode entered into various agreements to provide similar
services as those provided in the past. The agreements govern
individual transitional services, as requested by Methode or the
Company, of the other party. These services are to be provided
in accordance with the policies, procedures and practices in
effect before the transfer date. The term of each agreement is
one year (provision for extension exists) unless earlier
terminated.

The Companys expenses under its
transitional service arrangements with Methode do not differ
significantly from the costs historically allocated to it by
Methode for similar arrangements. The need for services under
these agreements have been substantially reduced at the close of
fiscal 2001. Shared services have continued in fiscal 2003 and
2002 only in the areas of legal and quality control. Net charges
incurred in fiscal 2003, 2002 and 2001 under these transitional
service agreements were insignificant.

The allocation of Methode corporate expenses was
discontinued on May 28, 2000. After this date, the Company
incurred corporate expenses directly in its operations or
indirectly under its transitional services

F-23



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


agreement with Methode. Charges to the Company
from Methode for allocations in fiscal 2001 were classified as
follows:

|                           |       |   |     |     | 
|-------------------------- | ----- | - | --- | --- | 
|Cost of sales              |       | $ | 106 |    
|Research and development   |       |   | 5   |    
|Sales and marketing        |       |   | 188 |    
|General and administrative |       |   | 376 |    
|                           |       |   |     |    
|                           | Total |   | $   | 675 | 
|                           |       |   |     |    

Note 14.     Material
Customers and Concentration of Credit Risk

During fiscal 2003, sales to Redfern Broadband
and QLogic and their respective contract manufacturers amounted
to 8% and 5%, respectively, of consolidated net sales.

During fiscal 2002, sales to McData Corporation
and its contract manufacturers amounted to 24% of consolidated
net sales.

During fiscal 2001, sales to McData Corporation,
Alcatel Network Systems and Cisco Systems, Inc. and their
respective contract manufacturers amounted to 11%, 11% and 10%,
respectively, of consolidated net sales.

Accounts receivable are generally due within 30
to 45 days. Credit losses relating to all customers
consistently have been within managements expectations.

Note 15.     Segment
Information

The Company operates in one industry segment, the
development, manufacture and sale of optical subsystems for
various applications and multiple end markets. These subsystems
are designed for use in storage, data networking, metro and wide
area telecom networks, military and government applications, and
other industrial markets and applications.

Information about the results of the
Companys operations in different geographic regions is as
follows:

|                  |               |                             |          |          |   |      |         |         |   |   |         |         | 
|----------------- | ------------- | --------------------------- | -------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | 
|                  |               |                            
|                  |               | Fiscal Year Ended April 30,
|                  |               |                            
|                  |               | 2003                        |          | 2002     |   | 2001
|                  |               |                             |          |          |   |     
|Net sales         |               |                             |          |          |   |      |         |         |   |   |         |        
|                  | United States |                             | $        | 29,418   |   |      | $       | 47,010  |   |   | $       | 112,842 | 
|                  | Europe        |                             |          | 7,818    |   |      |         | 9,377   |   |   |         | 14,060  | 
|                  |               |                             |          |          |   |      |         |         |   |   |         |        
|                  |               | $                           | 37,236   |          |   | $    | 56,387  |         |   | $ | 126,902 |        
|                  |               |                             |          |          |   |      |         |         |   |   |         |        
|Net income (loss) |               |                             |          |          |   |      |         |         |   |   |         |        
|                  | United States |                             | $        | (115,956 | ) |      | $       | (70,697 | ) |   | $       | 7,198   | 
|                  | Europe        |                             |          | (4,335   | ) |      |         | (1,493  | ) |   |         | 1,978   | 
|                  |               |                             |          |          |   |      |         |         |   |   |         |        
|                  |               | $                           | (120,291 | )        |   | $    | (72,190 | )       |   | $ | 9,176   |        
|                  |               |                             |          |          |   |      |         |         |   |   |         |        
|Long-lived assets |               |                             |          |          |   |      |         |         |   |   |         |        
|                  | United States |                             | $        | 25,400   |   |      | $       | 65,813  |   |   | $       | 61,751  | 
|                  | Europe        |                             |          | 852      |   |      |         | 3,085   |   |   |         | 3,309   | 
|                  |               |                             |          |          |   |      |         |         |   |   |         |        
|                  |               | $                           | 26,252   |          |   | $    | 68,898  |         |   | $ | 65,060  |        
|                  |               |                             |          |          |   |      |         |         |   |   |         |        

F-24



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


Note 16.     Litigation

The Company and certain of its directors and
executive officers have been named as defendants in purported
class action lawsuits filed in the United States District Court,
Southern District of New York. The first of these lawsuits,
filed on July 25, 2001, is captioned Kucera v. Stratos
Lightwave, Inc. et. al., No. 01 CV 6821. Three other
similar lawsuits have also been filed against the Company and
certain of its directors and executive officers. The complaints
also name as defendants the underwriters for the Companys
initial public offering. The complaints are substantially
identical to numerous other complaints filed against other
companies that went public over the last several years. The
complaints generally allege, among other things, that the
registration statement and prospectus from the Companys
June 26, 2000 initial public offering failed to disclose
certain alleged actions by the underwriters for the offering.
The complaints charge the Company and two or three of its
directors and executive officers with violations of
Sections 11 and 15 of the Securities Act of 1933, as
amended, and/or Sections 10(b) and Section 20(a) of
the Securities Exchange Act of 1934, as amended. The complaints
also allege claims solely against the underwriting defendants
under Section 12(a)(2) of the Securities Act of 1933, as
amended.

The Company recently agreed to a Memorandum of
Understanding, which reflects a settlement of these class
actions as between the purported class action plaintiffs, the
Company and the defendant officers and directors, and the
Companys liability insurer. Under the terms of the
Memorandum of Understanding, the Companys liability
insurers will pay certain sums to the plaintiffs, with the
amount dependent upon the plaintiffs recovery from the
underwriters in the IPO class actions as a whole. The plaintiffs
will dismiss with prejudice their claims against the Company and
its officers and directors, and the Company will assign to the
plaintiffs certain claims that it may have against the
underwriters.

In June 2002, Catherine Lego, as representative
of the former stockholders of Tsunami Optics, Inc.
(Tsunami) filed a lawsuit against the Company in the
Superior Court of California, City and County of Santa Clara,
relating to the Companys acquisition of Tsunami in
February 2002. Stratos has removed the lawsuit to the federal
district court for the Northern District California. The
complaint alleges, among other things, that the Company breached
the acquisition agreement by failing and refusing to allow
Tsunami to operate as a separate subsidiary in the ordinary
course and by firing the Tsunami executives necessary to operate
the business in the ordinary course, making it impossible for
Tsunami to achieve the $18 million earn-out payment
provided for in the acquisition agreement. The complaint also
alleges fraud and violations of federal securities laws in
connection with the acquisition of Tsunami. Plaintiffs are
seeking $18 million in damages or, in the alternative,
rescission of the acquisition agreement. The Company has filed a
counterclaim which alleges, among other things, claims for
fraud, breach of contract and violations of federal securities
laws against Lego and several other shareholders and officers of
Tsunami in connection with the acquisition of Tsunami. The
counterclaim seeks compensatory and punitive damages. The
Company believes that the plaintiffs claims in this lawsuit are
without merit and intends to vigorously defend against these
claims.

In August 2002, James Campbell filed a lawsuit
against the Company and Tsunami alleging breach of an alleged
employment contract, fraud, violation of the implied covenant of
good faith and fair dealing, age discrimination and wrongful
termination in violation of public policy. Campbell seeks
unspecified damages, punitive damages and attorneys fees.
The Company believes that this lawsuit is without merit and
intends to vigorously defend against these claims.

In a separate action filed in the Circuit Court
of Cook County, Illinois, the Company filed suit against James
P. Campbell and Catherine Lego, individually. In its complaint,
the Company seeks declaratory judgment that the Company has the
right to make changes in Tsunamis business under the
agreement for the Tsunami acquisition. The complaint also
includes claims against Lego and Campbell for fraud and breach
of contract for misrepresentations made by them to the Company
in connection with the Tsunami acquisition

F-25



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


and a claim for breach of fiduciary duty against
Campbell. The complaint seeks compensatory and punitive damages.

The Company is a plaintiff in several lawsuits
relating to our intellectual property rights. The defendants in
these lawsuits include Infineon Technologies Corp. (Northern
District of California), E2O, Inc. (District of Delaware and
Northern District of Illinois), and PicoLight, Inc. (District of
Delaware and Northern District of Illinois). In these actions,
the Company alleges that optoelectronic products sold by the
defendants infringe numerous Stratos patents. The Company is
seeking monetary damages and injunctive relief. The defendants
in these lawsuits have filed various affirmative defenses and
contend that the patents are invalid, unenforceable and/or not
infringed by the products sold by the defendants and, if
successful, are seeking attorneys fees and costs in
connection with the lawsuits. The Company intends to pursue
these lawsuits and defend against these counterclaims vigorously.

The Companys management believes that the
resolution of these lawsuits will not have a significant effect
on the Companys business or financial condition.

During fiscal 2003, 2002 and 2001, the Company
settled several patent infringement cases. As a result of these
settlements, the Company received lump-sum payments of
approximately $5,800 in fiscal 2003, $1,000 in fiscal 2002 and
$3,500 in fiscal 2001, which were recorded as license fees and
royalties in the consolidated statement of operations. In
addition, the Company will receive $2,500 and $5,500 in fiscal
2004 and fiscal 2006, respectively, from the settlement of one
case in fiscal 2003. The present value of these amounts were
recorded as license fees and royalties in the fiscal 2003
consolidated statement of operations. Legal fees in connection
with some of these matters of approximately $990 in fiscal 2002
and $1,500 in fiscal 2001 were classified in general and
administrative expenses. In addition, the Company is entitled to
fixed future payments and/or ongoing royalty payments based on a
percentage of sales of licensed products. The timing and/or the
amount of these payments is not within the Companys
control. Also, in certain circumstances, the Company is entitled
to other future economic benefits.

In addition, certain litigation arising in the
normal course of business is pending against the Company.
Management believes that the resolution of this Companys
litigation will not have a significant effect on the
consolidated financial statements.

Note 17.     Subsequent
Events

Effective May 23, 2003, the Company sold the
assets and business of its wholly owned subsidiary, Bandwith
Semiconductor LLC, located in Hudson, New Hampshire. The Company
realized a net gain of approximately $1,200 which will be
reflected in fiscal 2004.

Pursuant to a merger agreement dated as of
July 2, 2003, the Company agreed to acquire Sterling
Holding Company, a privately-held company based in Mesa, Arizona
that designs and manufactures RF and Microwave interconnect
products via its two operating units, Trompeter Electronics,
Inc. and Semflex, Inc. Under the terms of the agreement,
Sterling will become a wholly owned subsidiary of the Company.
Sterling shareholders will receive approximately
6.1 million shares of the Companys common stock and
50,000 shares of the Companys Series B preferred
stock. The preferred stock has a face value of $5.0 million
and a contingent value of up to an additional $6.25 million
based on certain events, including the future performance of the
Companys share price. The transaction is expected to close
in the Companys third fiscal quarter of 2004 and the
parties intend to take the position that the transaction will
qualify as a tax-free reorganization. The transaction is subject
to approval by both the Companys and Sterlings
shareholders and other customary conditions. In connection with
the transaction, the Company will expand its Board of Directors
to nine members. The new board will be comprised of four members
of the Companys current Board, four members from
Sterlings Board, and an additional director chosen by
Sterling.

F-26



---



##### Table of Contents



STRATOS LIGHTWAVE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(all amounts in thousands, except share
data)


Note 18.     Quarterly
Results of Operations (Unaudited)

The following is a summary of unaudited quarterly
results of operations for the two years ended April 30,
2003:

|                                                                                                             |  |                                |         |            |  |            |         |          |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | ------- | ---------- |  | ---------- | ------- | -------- |  | - | ------ | - |  | - | ------- | -
|                                                                                                             |  |                               
|                                                                                                             |  | Fiscal Year 2003 Quarter Ended
|                                                                                                             |  |                               
|                                                                                                             |  | July 31                        |         | October 31 |  | January 31 |         | April 30
|                                                                                                             |  |                                |         |            |  |            |         |         
|Net sales                                                                                                    |  | $                              | 10,722  |            |  | $          | 11,051  |          |  | $ | 8,109  |   |  | $ | 7,354   |  
|Gross profit (loss)                                                                                          |  |                                | (35     | )          |  |            | (5,394  | )        |  |   | (3,353 | ) |  |   | (17,096 | )
|Net loss before cumulative effect of a change in
    accounting principle                                    |  |                                | (11,854 | )          |  |            | (19,535 | )        |  |   | (9,338 | ) |  |   | (62,582 | )
|Net loss                                                                                                     |  |                                | (28,836 | )          |  |            | (19,535 | )        |  |   | (9,338 | ) |  |   | (62,582 | )
|Net loss before cumulative effect of a change in
    accounting principle per basic and diluted common share |  |                                | (1.63   | )          |  |            | (2.67   | )        |  |   | (1.27  | ) |  |   | (8.54   | )
|Net loss per basic and diluted common share                                                                  |  |                                | (3.96   | )          |  |            | (2.67   | )        |  |   | (1.27  | ) |  |   | (8.54   | )

|                                            |  |                                |        |            |  |            |         |          |  |   |        |   |  |   |         |  
|------------------------------------------- |  | ------------------------------ | ------ | ---------- |  | ---------- | ------- | -------- |  | - | ------ | - |  | - | ------- | -
|                                            |  |                               
|                                            |  | Fiscal Year 2002 Quarter Ended
|                                            |  |                               
|                                            |  | July 31                        |        | October 31 |  | January 31 |         | April 30
|                                            |  |                                |        |            |  |            |         |         
|Net sales                                   |  | $                              | 17,499 |            |  | $          | 12,212  |          |  | $ | 12,524 |   |  | $ | 14,152  |  
|Gross profit (loss)                         |  |                                | (4,095 | )          |  |            | (290    | )        |  |   | 970    |   |  |   | (4,911  | )
|Net loss                                    |  |                                | (9,717 | )          |  |            | (16,272 | )        |  |   | (8,223 | ) |  |   | (37,978 | )
|Net loss per basic and diluted common share |  |                                | (1.52  | )          |  |            | (2.54   | )        |  |   | (1.28  | ) |  |   | (5.72   | )

Net loss per share for fiscal 2002 and the
quarter ended July 31, 2002 has been restated to reflect a
1 for 10 reverse split effected on October 21,
2002.

The unaudited quarterly results of operations
include a $17,000 cumulative effect of a change in accounting
principle and a $2,070 charge to in-process research and
development in the quarters ended July 31, 2002 and
October 31, 2002, respectively. In addition, the unaudited
quarterly results of operations for the quarter ended
April 30, 2003 includes a charge of $28,400 for goodwill
impairment and a $37,100 charge for impairment of long-lived
assets.

The unaudited quarterly results of operations
include restructuring charges of $30,100 and $1,100 in the
quarters ended April 30, 2002 and January 31, 2002,
respectively. See Note 6.

F-27



---



##### Table of Contents








SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES


STRATOS LIGHTWAVE, INC.

YEARS ENDED APRIL 30, 2003, 2002 AND
2001


|                                    |  |                |        |            |  |                |        |            |  |           |   |  |  |  |       |     |  |  |        | 
|----------------------------------- |  | -------------- | ------ | ---------- |  | -------------- | ------ | ---------- |  | --------- | - |  |  |  | ----- | --- |  |  | ------ | 
|                                    |  |                |        |            |  |                |        |           
|                                    |  |                |        | Additions  |  |                |        |           
|                                    |  | Balance at     |        |            |  |                |        | Balance   
|                                    |  | beginning      |        | Charged to |  | Charged to     |        |            |  | at end of
|Description                         |  | of period      |        | expense    |  | other accounts |        | Deductions |  | period   
|                                    |  |                |        |            |  |                |        |            |  |          
|                                    |  |               
|                                    |  | (in thousands)
|Reserve for Inventory Obsolescence: |  |                |        |            |  |                |        |            |  |           |   |  |  |  |       |     |  |  |        | 
|April 30, 2001                      |  |                | 1,561  |            |  |                | 3,878  |            |  |           |  |  |  |  | 1,694 | (A) |  |  | 3,745  | 
|April 30, 2002                      |  |                | 3,745  |            |  |                | 13,835 |            |  |           |  |  |  |  | 3,673 | (A) |  |  | 13,907 | 
|April 30, 2003                      |  |                | 13,907 |            |  |                | 6,805  |            |  |           |  |  |  |  | 8,682 | (A) |  |  | 12,030 | 
|Allowance for Doubtful Accounts:    |  |                |        |            |  |                |        |            |  |           |   |  |  |  |       |     |  |  |        | 
|April 30, 2001                      |  |                | 261    |            |  |                | 158    |            |  |           |  |  |  |  | 18    | (B) |  |  | 401    | 
|April 30, 2002                      |  |                | 401    |            |  |                | 2,693  |            |  |           |  |  |  |  | 2,367 | (B) |  |  | 727    | 
|April 30, 2003                      |  |                | 727    |            |  |                | 331    |            |  |           |  |  |  |  | 644   | (B) |  |  | 414    | 



---



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(A) | Represents write-off of obsolete inventory and
    usage of product previously reserved for.



|    |                                                                     
|--- | --------------------------------------------------------------------
|(B) | Write-off of accounts receivable considered to be
    uncollectible.

II-1



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.



| |                        
| | -----------------------
| | STRATOS LIGHTWAVE, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ JAMES W. MCGINLEY

| |                                          
| | -----------------------------------------
| | James W. McGinley                        
| | President and Chief Executive
    Officer

Date: July 28, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                               |  |                                                                          |  |              
|---------------------------------------------- |  | ------------------------------------------------------------------------ |  | -------------
|/s/ JAMES W. MCGINLEYJames W. McGinley         |  | President,
    Chief Executive Officer and Director                      |  | July 28, 2003
|                                              
|/s/ DAVID A. SLACKDavid A. Slack               |  | Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | July 28, 2003
|                                              
|/s/ MICHAEL P. GALVINMichael P. Galvin         |  | Director                                                                 |  | July 28, 2003
|                                              
|/s/ BRIAN J. JACKMANBrian J. Jackman           |  | Director                                                                 |  | July 28, 2003
|                                              
|/s/ CHARLES DANIEL NELSENCharles Daniel Nelsen |  | Director                                                                 |  | July 28, 2003
|                                              
|/s/ EDWARD J. OCONNELLEdward J. OConnell     |  | Director                                                                 |  | July 28, 2003

II-2



---



##### Table of Contents



CERTIFICATION

I, James W. McGinley, certify that:

1. I have reviewed this annual report on
Form 10-K of Stratos Lightwave, Inc.;

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

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

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | /s/ JAMES W. MCGINLEY 
     _______________________________________ 
     James W. McGinley
| | President and Chief Executive
    Officer                                                  

Dated: July 28, 2003



---



##### Table of Contents



CERTIFICATION

I, David A. Slack, certify that:

1. I have reviewed this annual report on
Form 10-K of Stratos Lightwave, Inc.;

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

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

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | /s/ DAVID A. SLACK 
     _______________________________________ 
     David A. Slack
| | Chief Financial Officer                                                              

Dated: July 28, 2003



---



##### Table of Contents



EXHIBIT INDEX

|        |       |                         |  |                                                                                                                                                          
|------- | ----- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 3.1   |                         |  | Certificate of Incorporation of Registrant(1)                                                                                                            
|        | 3.2   |                         |  | Restated Certificate of Incorporation of
    Registrant(1)                                                                                               
|        | 3.3   |                         |  | Bylaws of Registrant(1)                                                                                                                                  
|        | 3.4   |                         |  | Certificate of Designation of Series A
    Junior Participating Preferred Stock, included as Exhibit A
    to Exhibit 4.2                                
|        | 3.5   |                         |  | Certificate of Amendment of Restated Certificate
    of Incorporation(7)                                                                                 
|        | 4.1   |                         |  | Specimen certificate representing the common
    stock(1)                                                                                                
|        | 4.2   |                         |  | Rights Agreement, dated as of March 23,
    2001, between Stratos Lightwave, Inc. and Mellon Investor
    Services LLC(2)                                
|        | 10.1  |                         |  | Form of Indemnity Agreement between Registrant
    and Registrants directors and officers(1)**                                                          
|        | 10.2  |                         |  | Stratos Lightwave, Inc. 2000 Stock Plan, as
    amended and restated(3)                                                                                  
|        | 10.3  |                         |  | Agreement and Plan of Reorganization, dated
    January 22, 2002, by and among the Registrant, Tundra
    Acquisition Corp. and Tsunami Optics, Inc.(4)  
|        | 10.4  |                         |  | Stratos Lightwave, Inc. 2002 Stock Plan for
    Acquired Companies(5)                                                                                    
|        | 10.5  |                         |  | Agreement and Plan of Reorganization, dated
    March 22, 2002, by and among the Registrant, Polar
    Acquisition Corp. and Paracer, Inc.(6)            
|        | 10.6  |                         |  | Management Retention Agreement between the
    Registrant and James McGinley(7)**                                                                        
|        | 10.7  |                         |  | Management Retention Agreement between the
    Registrant and David Slack(7)**                                                                           
|        | 10.8  |                         |  | Management Retention Agreement between the
    Registrant and Robert Scharf(7)**                                                                         
|        | 10.9  |                         |  | Management Retention Agreement between the
    Registrant and Richard Durrant(7)**                                                                       
|        | 10.10 |                         |  | Stratos Lightwave, Inc. Severance Plan(7)**                                                                                                              
|        | 10.11 |                         |  | Agreement and Plan of Merger, dated as of
    July 2, 2003, among Stratos Lightwave, Inc., Sleeping Bear
    Merger Corp. and Sterling Holding Company(8)
|        | 10.12 |                         |  | Amendment to Management Retention Agreement
    between the Registrant and James McGinley* **                                                            
|        | 10.13 |                         |  | Amendment to Management Retention Agreement
    between the Registrant and David Slack* **                                                               
|        | 10.14 |                         |  | Amendment to Management Retention Agreement
    between the Registrant and Robert Scharf* **                                                             
|        | 10.15 |                         |  | Amendment to Management Retention Agreement
    between the Registrant and Richard Durrant* **                                                           
|        | 10.16 |                         |  | Amendment to Stratos Lightwave, Inc. Severance
    Plan*                                                                                                 
|        | 21    |                         |  | List of Subsidiaries*                                                                                                                                    
|        | 23    |                         |  | Consent of Ernst & Young LLP*                                                                                                                            
|        | 99    |                         |  | Certification of Periodic Financial Report*                                                                                                              



---



|    |                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
    Registrants Registration Statement on Form S-1
    effective June 26, 2000.  
|   
|(2) | Incorporated by reference to the
    Registrants Form 8-K dated March 22, 2001.                                   
|   
|(3) | Incorporated by reference to the
    Registrants Annual Report on Form 10-K for the year
    ended April 30, 2001.
|   
|(4) | Incorporated by reference to the
    Registrants Form 8-K dated February 15, 2002.                                
|   
|(5) | Incorporated by reference to the
    Registrants Registration Statement on Form S-8 dated
    January 31, 2002.   
|   
|(6) | Incorporated by reference to the
    Registrants Form 8-K dated April 12, 2002.                                   



---



##### Table of Contents





|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(7) | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended October 31, 2002.
|   
|(8) | Incorporated by reference to the
    Registrants Form 8-K dated July 2 , 2003.                                            
|   
|*   | Filed herewith                                                                                                             
|   
|**  | Management contract or compensatory plan or
    arrangement.