##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended April 30, 2007
 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 INTERNATIONAL, INC.
  Delaware
    
    36-4360035(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)7444 West Wilson Avenue, Chicago, Illinois
    
    60706(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(708) 867-9600


Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange which registered$.01 par value Common Stock
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act: None  (Title of Class)
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ




---



##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE
  
 FORWARD-LOOKING STATEMENTS
 You should read the discussions in this report together with our consolidated financial
statements and notes to those financial statements, which are included in this report. This report
contains forward-looking statements made pursuant to the safe harbor provisions of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934,
as amended. The words anticipates, intends, expects, could, should, plans, believes,
estimates, or words or phrases of similar import generally identify forward-looking statements.
You are cautioned that forward-looking statements are subject to risks, trends and uncertainties
that could cause actual results, performance or achievements to differ materially from those
expressed in any forward-looking statements. Important factors that could cause our actual
results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by those statements include, but are not limited
to the following: (i) consummation of our proposed merger with Emerson Electric Co.; (ii) the
economic climate, the long-term growth and short term trends in the communications, aerospace, and
military industries; (iii) our ability to adapt to changing technologies; (iv) our ability to
develop and market new products and technology and to make enhancements to existing products and
technology on a successful and timely basis; (v) our and our customers ability to comply with
evolving domestic and international government regulations; (vi) expenditures associated with
redesigning products to comply with evolving industry standards or alternative technologies that
become the industry standard; (vii) our dependence on sales to the communications and
military/aerospace industries; (viii) our ability to develop and manage relationships with large
customers that comprise, and will comprise, a significant percentage of our net sales; (ix) the
length of sales cycles, which vary by product and customer, and the effect that this length has on
net sales and operating expenses; (x) the lack of long-term customer contracts and its effect on
customers ability to reduce, cancel and defer orders on short notice without significant penalty;
(xi) the effect on gross margins of an inability to reduce manufacturing costs or increase sales of
higher margin products; (xii) the impact of competitive products and competitive pricing pressure;
(xiii) our reliance on a limited number of suppliers and the effect of underestimating or
overestimating the need for certain supplies; (xiv) our ability to attract and retain qualified
personnel; (xv) the effect of defects in our products; (xvi) the effect of compliance with
environmental laws and other legal requirements; (xvii) the effect of economic, political and
regulatory risks associated with international operations, including acts of terrorism directed
against the United States or U.S. affiliated targets; (xviii) our ability to complete and integrate
acquisitions, strategic alliances and joint ventures, including our ability to complete the
integration of Stratos and Sterling Holding Company; (xix) our ability to secure and defend
intellectual property rights and, when appropriate, license required technology; (xx) adverse
outcomes of pending, threatened or future litigation, including suits related to intellectual
property matters; (xxi) volatile market prices for securities of technology-related companies;
(xxii) the effect of provisions in our organizational documents and Delaware law that may delay or
prevent the acquisition of Stratos or may decrease the value of Stratos common stock; and (xxiii)
our ability to meet management, analyst and investor expectations. Because forward-looking
statements are subject to assumptions and
 2




---



##### Table of Contents



uncertainties, actual results may differ materially from those expressed or implied by such
forward-looking statements. Shareholders are cautioned not to place undue reliance on such
statements, which speak only as of the date of this document or the date of any document
incorporated by reference. All subsequent written and oral forward-looking statements concerning
the matters addressed in this document and attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained or referred to in
this section. Except to the extent required by applicable law or regulation, we undertake no
obligation to release publicly any revisions or updates to such forward-looking statements to
reflect events or circumstances after the date of this document or to reflect the occurrence of
unanticipated events.
 Please read the cautionary statements included in Item 7 Management Discussion and Analysis of
Financial Condition and Results of Operations of this annual report on Form 10-K for a more
detailed discussion of the foregoing and other factors that could cause actual results to differ
materially from those included in the forward-looking statements and that, among others, should be
considered in evaluating our financial outlook.
 3




---



##### 



TABLE OF CONTENTS
  
 Section
    
    
    
    PageForward-looking statements
    
    
    2PART IItem 1.
    
    Business
    
    
    5Item 1A.
    
    Risk Factors
    
    
    18Item 1B.
    
    Unresolved Staff Comments
    
    
    26Item 2.
    
    Properties
    
    
    26Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    28Item 6.
    
    Selected Financial Data
    
    
    28Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    41Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    74Item 9A.
    
    Controls and procedures
    
    
    75Item 9B.
    
    Other Information
    
    
    75PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    76Item 11.
    
    Executive Compensation
    
    
    80Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
    
    
    85Item 13.
    
    Certain Relationships and Related Transactions
    
    
    88Item 14.
    
    Principal Accountant Fees and Services
    
    
    88PART IVItem 15.
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    90Signatures
    
    
    91Consent of BDO Seidman, LLPConsent of Ernst & Young LLPCertification of Principal Executive OfficerCertification of Principal Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
  4




---



##### Table of Contents



PART I
 
 Item 1. Business
 OVERVIEW
      INDUSTRY
 Increasing Demand for Higher Bandwidth
  5




---



##### Table of Contents



Growth of High Bandwidth Technology in the Enterprise Market
 10 Gigabit Ethernet and Fast Ethernet in Local Area Networks (LANs).
  Fiber Channel in Storage Area Networks (SANs).
 Optical and RF Technology in Access, Metropolitan Area, Wide Area and Telecommunication Networks
 Access.
 Metropolitan and Wide Area Networks (MANs and WANs, respectively).
 6




---



##### Table of Contents



Telecommunication Networks
 Optical, RF, and Microwave Technology in Military and Aerospace Applications
  Demands on Suppliers of Optical, RF, and Microwave Subsystems and Components
   7




---



##### Table of Contents



PRODUCTS
  Optical Products:
  Specialty Transceivers 
 Military and Harsh Environment Components and Subsystems 
 Video Components and Subsystems 
 8




---



##### Table of Contents



CWDM Components and Modules  
 MSA Transceivers for Telecom/ Enterprise
 Optical Flex Circuits and Multifiber Assemblies 
 Optical Harsh Environment Connectors 
 Specialty Fiber Components and Assemblies 
 Optical Connectors and Cable Assemblies 
 Sources and Availability of Raw Materials 
 Raw Material
    
    Primary Source
    
    AvailabilityElectricalActive
    
    Domestic Dist./ Mfg. NumerousPassive
    
    Domestic Distributors
    
    StockPCB
    
    Domestic Manufacturer
    
    1-8 weeksMechanicalMachined
    
    Domestic Manufacturer
    
    2 days-4 weeksStamped
    
    Domestic Manufacturer
    
    4-6 weeksCastings
    
    Domestic Manufacturer
    
    8 weeksPlastics
    
    Domestic Manufacturer
    
    1-6 weeksInsulators
    
    Domestic Manufacturer
    
    1-3 weeksTubings
    
    Domestic Manufacturer
    
    Stock-2 weeks
 9




---



##### Table of Contents



Raw Material
    
    Primary Source
    
    AvailabilityConnectors
    
    Domestic Manufacturer
    
    2 days-4 weeksCable
    
    Domestic Manufacturer
    
    2 days- 10 weeksHeatshrink
    
    Domestic Dist/Mfg.
    
    2 days-2 weeksTubing
    
    Domestic Dist/Mfg.
    
    2 days- 6 weeksMachined Parts
    
    Domestic Manufacturer
    
    2 days- 6 weeksPlastic Parts
    
    Domestic Manufacturer
    
    2 days- 8 weeksMilitary Conn.
    
    Offshore/Domestic Mfg.
    
    4- 20 weeksOpticalTransceivers
    
    Offshore /Domestic Mfg.
    
    Stock-16 weeksRosa
    
    Offshore /Domestic Mfg.
    
    8-10 weeksTosa
    
    Offshore / Domestic Mfg.
    
    8-10 weeksFilters
    
    Offshore Manufacturer
    
    2-12 weeksCollimators
    
    Offshore Manufacturer
    
    2-12 weeksLasers
    
    Offshore Manufacturer
    
    8-18 weeks
 Copper Products:
  
    
    Our Trompeter brand product line offers RF connectors, patch jacks, installation tools,
adaptors, cable and cable assemblies. Over the past 40 years, Trompeter has carved out a
unique position of high customer regard and industry recognition that regularly places it
as a leader in independent, third party supplier performance surveys. We emphasize
knowledge of customer application design, extraordinary service levels, and high
responsiveness to customer needs. We primarily sell our RF interconnect products to the
telecom, military/aerospace, and video markets.
    
    Our Semflex brand product line includes flexible microwave frequency bulk cable and
cable assemblies for the military, aerospace, and test instrumentation markets. Our
microwave cable and cable assemblies business, operated under the Semflex brand, designs
and manufactures flexible microwave frequency coaxial cable and custom cable assemblies for
the military/aerospace, commercial OEM and test instrumentation markets. Additionally,
Semflex manufactures custom connectors, adapters, phase trimmers and other components to
meet special application requirements, usually associated with the cable assemblies being
built.
 RF Interconnection Products for Military/ Aerospace 
 RF Interconnection Products for Telecom 
 10




---



##### Table of Contents



RF Interconnection Products for Video 
 RF Cable Assemblies 
 Microwave Cable
 Microwave Cable Assemblies 
 Sources and Availability of Raw Materials 
 Raw Material
    
    Primary Source
    
    AvailabilityBrass
    
    Local Distributor
    
    StockStainless Steel
    
    Local Distributor
    
    StockBeCu
    
    Local Distributor
    
    StockPTFE Rod
    
    Local Distributor
    
    StockPTFE Tapes
    
    Domestic Manufacturer
    
    Manufactured from stockCopper Conductors
    
    Domestic Manufacturer
    
    Manufactured from stockFEP Jacket Material
    
    Domestic Manufacturer
    
    Manufactured from stockPolyurethane Jacket Material
    
    Domestic Manufacturer
    
    Manufactured from stockRF Cable
    
    Domestic Manufacturer
    
    Manufactured from stockPolyolefin Sleeving
    
    Local Distributor
    
    StockMachine parts
    
    Domestic/Offshore/Internal
    
    Stock to 8 weeks
 11




---



##### Table of Contents



CUSTOMERS
  BACKLOG
  MANUFACTURING
  Chicago, Illinois:
    Mesa, Arizona:
 12




---



##### Table of Contents



Haverhill, United Kingdom:
 RESEARCH AND DEVELOPMENT
   TECHNOLOGY AND INTELLECTUAL PROPERTY
  Active Components and Subsystems (Optoelectronics)
  13




---



##### Table of Contents



Active Integrated Modules and Passive Components and Subsystems (Fiber Optics)
  RF and Microwave Interconnect Products (RF/ Microwave)
  SALES AND TECHNICAL SUPPORT
   14




---



##### Table of Contents



MARKETING
  COMPETITION
  
    
    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.
  
    
    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.
  15




---



##### Table of Contents



REGULATORY MATTERS
   EMPLOYEES
  EXECUTIVE OFFICERS OF THE REGISTRANT
  Phillip A. Harris (60):
 16




---



##### Table of Contents



Barry Hollingsworth (42):
 Richard C.E. Durrant (46):
 Joe D. Norwood (65):
 Dale Reed (58):
 GEOGRAPHIC AREAS
  AVAILABLE INFORMATION
 www.stratosinternational.com
 17




---



##### Table of Contents



Item 1A. Risk Factors
 BUSINESS RISK FACTORS:
 In the past, we have incurred significant net losses, primarily due to the economic climate in the
communications industry.
   Our success depends on the long-term growth of the communications industry and its use of our
technologies. If these events do not occur, our net sales may decline and our business would likely
be significantly harmed.
   
    
    The amount of capital expenditures by network providers
    
    Regulatory and legal developments
    
    Changes to capital expenditure rates by network providers
    
    The addition of new customers to the market
    
    End-user demand for integrated Internet, data, video, voice and other network services
 18




---



##### Table of Contents



We must develop new products and technologies as well as enhancements to existing products and
technologies in order to remain competitive. If we fail to do so, our products will no longer be
competitive and our net sales will decline.
   Our products are incorporated into larger systems, which must comply with various domestic and
international government regulations. If the performance of our products adversely affects our
customers ability to comply with these requirements, 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.
  19




---



##### Table of Contents



We are also dependent on sales to the military/aerospace industry, including U.S. and foreign
government entities.
  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 our operating expenses to
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.
  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.
  20




---



##### Table of Contents



The market for our products is highly competitive, which may result in lost sales or lower gross
margins.
     We depend on suppliers for several key components. If we underestimate or overestimate our
requirements for these components, our business could be significantly harmed.
  21




---



##### Table of Contents



Our success depends on our ability to hire and retain qualified personnel, and if we are unable to
do so, 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.
  22




---



##### Table of Contents



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.
  Economic, political and regulatory risks associated with international operations may limit our
sales and increase our costs of doing business abroad.
  
    
    Difficulties in managing operations in different locations
    
    Changes in foreign currency rates
    
    Longer accounts receivable collection cycles
    
    Difficulties associated with enforcing agreements through foreign legal systems
    
    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
    
    Acts of terrorism directed against the United States or U.S. affiliated targets
  We may 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.
  23




---



##### Table of Contents




    
    Use of significant amounts of cash
    
    The incurrence of debt and contingent liabilities
    
    Potentially dilutive issuances of equity securities
    
    Large one-time write-offs
    
    Amortization expenses related to intangible assets
  
    
    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
    
    Potential loss of key employees of purchased organizations
  Our inability to protect our intellectual property rights would significantly impair their value
and our competitive position.
  Various litigation matters, in which we are defendants, could result in significant monetary
damages and expenses or restrictions on our ability to sell our products.
   24




---



##### Table of Contents



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.
  
    
    Strategic moves by us or our competitors, such as acquisitions (including our announced
merger with Emerson Electric Co.)
    
    Economic and stock market conditions generally and specifically as they may impact
participants in the communications industry
    
    Earnings and other announcements by, and changes in market evaluations of, participants
in the communications 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
  Provisions in our charter documents and Delaware law and our shareholder rights plan may delay or
prevent an acquisition of our company, which could decrease the value of the shares of our common
stock.
  25




---



##### Table of Contents



Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Own or leaseLocation
    
    Function
    
    
    Sq. ft.
    
    (Lease Expiration)Active operationsChicago, IL
    
    Corporate
headquarters,
administrative
offices, sales and
marketing,
engineering,
research and
development
facilities, and
primary optical
subsystems
manufacturing
facility
    
    
    89,360
    
    
    OwnedMesa, AZ
    
    RF/Microwave
administrative
offices, sales and
marketing,
engineering,
research and
development
facilities, and
manufacturing
facility
    
    
    50,000
    
    
    OwnedHaverhill, UK
    
    Administrative
offices, sales and
marketing,
engineering,
research and
development
facilities, and
manufacturing
facility for fiber
optic passive
products
    
    
    30,000
    
    
    Leased (2013)Melbourne, FL
    
    Military subsystems
administrative
offices and
engineering,
research and
development
facilities
    
    
    7,752
    
    
    Leased (2011)Inactive facilitiesChicago, IL
    
    Limited use
    
    
    61,590
    
    
    Owned (actively marketed for sale)Mountain View, CA
    
    Limited use
    
    
    38,000
    
    
    Leased (2007) $62,000/month
  
 Item 3. Legal Proceedings
  26




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  27




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  Market price per share2007
    
    2006High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    7.68
    
    
    $
    5.59
    
    
    $
    5.71
    
    
    $
    4.05Second quarter
    
    
    6.92
    
    
    
    5.96
    
    
    
    6.00
    
    
    
    5.14Third quarter
    
    
    7.93
    
    
    
    6.32
    
    
    
    6.59
    
    
    
    5.09Fourth quarter
    
    
    7.90
    
    
    
    7.16
    
    
    
    8.11
    
    
    
    6.44
   
 Item 6. Selected Financial Data.
   28




---



##### Table of Contents



Fiscal years ended April 30,2007
    
    2006
    
    2005
    
    2004
    
    2003Statement of Operations DataRevenues
    
    $
    92,744
    
    
    $
    79,852
    
    
    $
    80,454
    
    
    $
    50,369
    
    
    $
    38,416Cost of revenues
    
    
    58,028
    
    
    
    50,090
    
    
    
    52,642
    
    
    
    41,954
    
    
    
    45,809Gross profit (loss)
    
    
    34,716
    
    
    
    29,492
    
    
    
    27,812
    
    
    
    8,415
    
    
    
    (7,393
    )Operating expenses:Research and development
    
    
    8,177
    
    
    
    8,270
    
    
    
    9,518
    
    
    
    8,800
    
    
    
    20,138Sales and marketing
    
    
    11,141
    
    
    
    10,212
    
    
    
    10,467
    
    
    
    8,225
    
    
    
    7,063General and administrative
    
    
    16,693
    
    
    
    15,781
    
    
    
    21,907
    
    
    
    20,799
    
    
    
    12,706Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,429Impairment of other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,105Write off in-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,070Restructuring and other charges
    
    
    
    
    
    
    1,023
    
    
    
    4,679
    
    
    
    3,066
    
    
    
    3,100Litigation settlements, net
    
    
    
    
    
    
    (1,100
    )
    
    
    (2,553
    )
    
    
    (454
    )
    
    
    (13,218
    )Total operating expenses
    
    
    36,011
    
    
    
    34,186
    
    
    
    44,018
    
    
    
    40,436
    
    
    
    97,393Loss from operations
    
    
    (1,295
    )
    
    
    (4,694
    )
    
    
    (16,206
    )
    
    
    (32,021
    )
    
    
    (104,786
    )Gain on sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    Investment income, net
    
    
    1,821
    
    
    
    1,219
    
    
    
    553
    
    
    
    777
    
    
    
    1,117Other income
    
    
    1,118
    
    
    
    838
    
    
    
    464
    
    
    
    1,057
    
    
    
    360Income (loss) before income taxes
    
    
    1,644
    
    
    
    (2,637
    )
    
    
    (15,189
    )
    
    
    (28,882
    )
    
    
    (103,309
    )Income tax (provision) credit
    
    
    (14
    )
    
    
    (194
    )
    
    
    (118
    )
    
    
    1,797
    
    
    
    -Income (loss) before cumulative effect of change in accounting principle
    
    
    1,630
    
    
    
    (2,831
    )
    
    
    (15,307
    )
    
    
    (27,085
    )
    
    
    (103,309
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,982
    )Net income (loss)
    
    
    1,630
    
    
    
    (2,831
    )
    
    
    (15,307
    )
    
    
    (27,085
    )
    
    
    (120,291
    )Preferred stock dividend requirements
    
    
    (346
    )
    
    
    (1,147
    )
    
    
    (350
    )
    
    
    (142
    )
    
    
    -Net income (loss) attributable to common shareholders
    
    $
    1,284
    
    
    $
    (3,978
    )
    
    $
    (15,657
    )
    
    $
    (27,227
    )
    
    $
    (120,291
    )Net income (loss) per share, basic and diluted:Basic earnings (loss) per share (weighted average)
    
    $
    0.09
    
    
    $
    (0.29
    )
    
    $
    (1.16
    )
    
    $
    (2.61
    )
    
    $
    (16.44
    )Diluted earnings (loss) per share (weighted average)
    
    
    0.09
    
    
    
    (0.29
    )
    
    
    (1.16
    )
    
    
    (2.61
    )
    
    
    (16.44
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.32
    )Weighted average common shares outstanding:Basic
    
    
    13,672
    
    
    
    13,888
    
    
    
    13,546
    
    
    
    10,444
    
    
    
    7,317Diluted
    
    
    14,602
    
    
    
    13,888
    
    
    
    13,546
    
    
    
    10,444
    
    
    
    7,317Balance Sheet DataCash and short-term investments
    
    $
    33,570
    
    
    $
    30,742
    
    
    $
    31,828
    
    
    $
    36,989
    
    
    $
    61,528Total assets
    
    
    99,499
    
    
    
    99,154
    
    
    
    114,980
    
    
    
    129,050
    
    
    
    118,175Total liabilities
    
    
    12,811
    
    
    
    12,947
    
    
    
    24,507
    
    
    
    24,271
    
    
    
    17,130Working capital (current assets less current liabilities)
    
    
    57,205
    
    
    
    51,289
    
    
    
    52,073
    
    
    
    52,974
    
    
    
    65,097Shareholders equity
    
    $
    86,688
    
    
    $
    86,207
    
    
    $
    90,473
    
    
    $
    104,779
    
    
    $
    101,045
 29




---



##### 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 included elsewhere in this
annual report on 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, the
cautionary statements set forth under Business Risk Factors.
 ORGANIZATION OF INFORMATION
  
    
    Overview is a general discussion of our business.
    
    Critical Accounting Policies are the policies we believe are
important to understanding certain of the material judgments and
assumptions incorporated in our reported financial results.
    
    Results of Operations include an overview of our consolidated 2007
results compared to 2006, and 2006 results compared to 2005. This
section also includes a discussion of key actions and events that
impacted our results.
 OVERVIEW
    30




---



##### Table of Contents



31




---



##### Table of Contents



Critical Accounting Policies
 Accounts Receivable
  Inventory Reserves
  32




---



##### Table of Contents



Impairment of Long-Lived Assets
  Revenue Recognition
  Customer Returns
   Recent Accounting Pronouncements: Fair Value Measurements
  Accounting for
Stock-Based Compensation.
 33




---



##### Table of Contents



Results of Operations
 Fiscal years ended April 30, 2007 and 2006
 2007
    
    2006
    
    ChangeDollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Revenues:Net sales
    
    $
    91,654
    
    
    
    99
    %
    
    $
    79,042
    
    
    
    99
    %
    
    $
    12,612
    
    
    
    16
    %License fees and royalties
    
    
    1,090
    
    
    
    1
    %
    
    
    540
    
    
    
    1
    %
    
    
    550
    
    
    
    102
    %Total revenues
    
    
    92,744
    
    
    
    100
    %
    
    
    79,582
    
    
    
    100
    %
    
    
    13,162
    
    
    
    17
    %Cost of revenues
    
    
    58,028
    
    
    
    63
    %
    
    
    50,090
    
    
    
    63
    %
    
    
    7,938
    
    
    
    16
    %Gross profit
    
    
    34,716
    
    
    
    37
    %
    
    
    29,492
    
    
    
    37
    %
    
    
    5,224
    
    
    
    18
    %Operating expensesResearch and development
    
    
    8,177
    
    
    
    9
    %
    
    
    8,270
    
    
    
    10
    %
    
    
    (93
    )
    
    
    (1
    %)Sales and marketing
    
    
    11,141
    
    
    
    12
    %
    
    
    10,212
    
    
    
    13
    %
    
    
    929
    
    
    
    9
    %General and administrative
    
    
    16,693
    
    
    
    18
    %
    
    
    15,781
    
    
    
    20
    %
    
    
    912
    
    
    
    6
    %Restructuring and other charges
    
    
    
    
    
    
    0
    %
    
    
    1,023
    
    
    
    1
    %
    
    
    (1,023
    )
    
    
    (100
    %)Litigation settlements, net
    
    
    
    
    
    
    0
    %
    
    
    (1,100
    )
    
    
    (1
    %)
    
    
    1,100
    
    
    
    (100
    %)Total operating expenses
    
    
    36,011
    
    
    
    39
    %
    
    
    34,186
    
    
    
    43
    %
    
    
    1,825
    
    
    
    5
    %Loss from operations
    
    
    (1,295
    )
    
    
    (1
    %)
    
    
    (4,694
    )
    
    
    (6
    %)
    
    
    3,399
    
    
    
    (72
    %)Investment income, net
    
    
    1,821
    
    
    
    2
    %
    
    
    1,219
    
    
    
    2
    %
    
    
    602
    
    
    
    49
    %Other income
    
    
    1,118
    
    
    
    1
    %
    
    
    838
    
    
    
    1
    %
    
    
    280
    
    
    
    33
    %Income (loss) before income taxes
    
    
    1,644
    
    
    
    2
    %
    
    
    (2,637
    )
    
    
    (3
    %)
    
    
    4,281
    
    
    
    (162
    %)Income tax provision
    
    
    (14
    )
    
    
    (1
    %)
    
    
    (194
    )
    
    
    0
    %
    
    
    180
    
    
    
    (93
    %)Net income (loss)
    
    
    1,630
    
    
    
    1
    %
    
    
    (2,831
    )
    
    
    (3
    %)
    
    
    4,461
    
    
    
    (158
    %)Preferred stock dividend
    
    
    (346
    )
    
    
    0
    %
    
    
    (1,147
    )
    
    
    (1
    %)
    
    
    801
    
    
    
    (70
    %)Net income (loss) attributable to common shareholders
    
    $
    1,284
    
    
    
    1
    %
    
    $
    (3,978
    )
    
    
    (4
    %)
    
    $
    5,262
    
    
    
    (132
    %)
 Net Sales:
 License Fees and Royalties:
 Cost of Revenues and Gross Margins:
  Research and Development:
 34




---



##### Table of Contents



Sales and Marketing:
 General and Administrative:
 Restructuring and Other Charges
 Litigation Settlements, Net:
 Investment Income, Net:
 Other Income
 Income Taxes:
  35




---



##### Table of Contents



Fiscal years ended April 30, 2006 and 2005
 2006
    
    2005
    
    ChangeDollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Revenues:Net sales
    
    $
    79,042
    
    
    
    99
    %
    
    $
    79,931
    
    
    
    99
    %
    
    $
    (889
    )
    
    
    (1
    %)License fees and royalties
    
    
    540
    
    
    
    1
    %
    
    
    523
    
    
    
    1
    %
    
    
    17
    
    
    
    3
    %Total revenues
    
    
    79,582
    
    
    
    100
    %
    
    
    80,454
    
    
    
    100
    %
    
    
    (872
    )
    
    
    (1
    %)Cost of revenues
    
    
    50,090
    
    
    
    63
    %
    
    
    52,642
    
    
    
    65
    %
    
    
    (2,552
    )
    
    
    (5
    %)Gross profit
    
    
    29,492
    
    
    
    37
    %
    
    
    27,812
    
    
    
    35
    %
    
    
    1,680
    
    
    
    6
    %Operating expensesResearch and development
    
    
    8,270
    
    
    
    10
    %
    
    
    9,518
    
    
    
    12
    %
    
    
    (1,248
    )
    
    
    (13
    %)Sales and marketing
    
    
    10,212
    
    
    
    13
    %
    
    
    10,467
    
    
    
    13
    %
    
    
    (255
    )
    
    
    (2
    %)General and administrative
    
    
    15,781
    
    
    
    20
    %
    
    
    21,907
    
    
    
    27
    %
    
    
    (6,126
    )
    
    
    (28
    %)Restructuring and other charges
    
    
    1,023
    
    
    
    1
    %
    
    
    4,679
    
    
    
    6
    %
    
    
    (3,656
    )
    
    
    (78
    %)Litigation settlements, net
    
    
    (1,100
    )
    
    
    (1
    %)
    
    
    (2,553
    )
    
    
    (3
    %)
    
    
    1,453
    
    
    
    (57
    %)Total operating expenses
    
    
    34,186
    
    
    
    43
    %
    
    
    44,018
    
    
    
    55
    %
    
    
    (9,832
    )
    
    
    (22
    %)Loss from operations
    
    
    (4,694
    )
    
    
    (6
    %)
    
    
    (16,206
    )
    
    
    (20
    %)
    
    
    11,512
    
    
    
    (71
    %)Investment income, net
    
    
    1,219
    
    
    
    2
    %
    
    
    553
    
    
    
    1
    %
    
    
    666
    
    
    
    120
    %Other income
    
    
    838
    
    
    
    1
    %
    
    
    464
    
    
    
    1
    %
    
    
    374
    
    
    
    81
    %Loss before income taxes
    
    
    (2,637
    )
    
    
    (3
    %)
    
    
    (15,189
    )
    
    
    (18
    %)
    
    
    12,552
    
    
    
    (83
    %)Income tax provision
    
    
    (194
    )
    
    
    (1
    %)
    
    
    (118
    )
    
    
    0
    %
    
    
    (76
    )
    
    
    64
    %Net loss
    
    
    (2,831
    )
    
    
    (4
    %)
    
    
    (15,307
    )
    
    
    (18
    %)
    
    
    12,476
    
    
    
    (82
    %)Preferred stock dividend
    
    
    (1,147
    )
    
    
    (1
    %)
    
    
    (350
    )
    
    
    0
    %
    
    
    (797
    )
    
    
    228
    %Net loss attributable to common shareholders
    
    $
    (3,978
    )
    
    
    (5
    %)
    
    $
    (15,657
    )
    
    
    (18
    %)
    
    $
    11,679
    
    
    
    (75
    %)
 Net Sales:
 License Fees and Royalties:
 Cost of Revenues and Gross Margins:
  36




---



##### Table of Contents



Research and Development:
 Sales and Marketing:
 General and Administrative:
 Restructuring and Other Charges
 Litigation Settlements, Net:
 Investment Income, Net:
 Other Income:
 Income Taxes:
 37




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES:
        38




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS:
  Payment due by period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    1,906
    
    
    
    603
    
    
    
    1,055
    
    
    
    248
    
    
    
    Purchase obligations
    
    
    6,393
    
    
    
    6,393
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    8,299
    
    
    $
    6,996
    
    
    $
    1,055
    
    
    $
    248
    
    
    $
    
 OFF-BALANCE SHEET ARRANGEMENTS:
  39




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   40




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Financial Statements
 Reports of Independent Registered Public Accounting Firms
    
    
    42Consolidated Balance Sheets at April 30, 2007 and 2006
    
    
    44Consolidated Statements of Operations
For the fiscal years ended April 30, 2007, 2006, and 2005
    
    
    45Consolidated Statements of Shareholders Equity
For the fiscal years ended April 30, 2007, 2006, and 2005
    
    
    46Consolidated Statements of Cash Flows
For the fiscal years ended April 30, 2007, 2006, and 2005
    
    
    47Consolidated Statements of Comprehensive Income (Loss)
For the fiscal years ended April 30, 2007, 2006, and 2005
    
    
    48Notes to Consolidated Financial Statements
    
    
    49
 41




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     Internal
Control  Integrated Framework
  
 42




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 43




---



##### Table of Contents



Stratos International, Inc.
 
 Consolidated Balance Sheets
 At April 30, 2007 and 2006
(In thousands, except par value and share amounts)
 2007
    
    
    2006Assets:Current assets:Cash and cash equivalents
    
    $
    14,070
    
    
    $
    11,742Short-term investments
    
    
    19,500
    
    
    
    19,000Accounts receivable, net
    
    
    15,915
    
    
    
    13,606Inventories
    
    
    19,092
    
    
    
    15,482Refundable income taxes
    
    
    87
    
    
    
    1,837Prepaid expenses and other current assets
    
    
    370
    
    
    
    590Total current assets
    
    
    69,034
    
    
    
    62,257Property, plant and equipment, net
    
    
    11,524
    
    
    
    16,437Intangible assets, net
    
    
    10,566
    
    
    
    11,832Goodwill and other indefinite-lived assets
    
    
    5,664
    
    
    
    5,664Assets held for sale
    
    
    2,600
    
    
    
    2,864Other assets
    
    
    111
    
    
    
    100Total assets
    
    $
    99,499
    
    
    $
    99,154Liabilities and shareholders equity:Current liabilities:Accounts payable
    
    $
    5,282
    
    
    $
    4,724Accrued expenses
    
    
    6,371
    
    
    
    6,028Income taxes payable
    
    
    176
    
    
    
    216Total current liabilities
    
    
    11,829
    
    
    
    10,968Series B redeemable preferred stock
    
    
    982
    
    
    
    1,979Shareholders equity:Preferred stock, Series B redeemable $0.01 par value: Authorized 1,000,000 shares;
issued and outstanding 9,820 and 19,790 shares at April 30, 2007 and 2006 respectively.
    
    
    
    
    
    
    Common stock, $0.01 par value: Authorized 20,000,000 shares; issued and outstanding
14,500,494, and 14,640,643 shares at April 30, 2007 and 2006, respectively
    
    
    151
    
    
    
    149Cost of
shares in treasury: 582,808 and 301,521 shares at April 30, 2007 and 2006 respectively.
    
    
    (3,723
    )
    
    
    (1,871
    )Additional paid-in capital
    
    
    319,847
    
    
    
    318,207Accumulated other comprehensive loss
    
    
    (602
    )
    
    
    (9
    )Accumulated deficit
    
    
    (228,985
    )
    
    
    (230,269
    )Total shareholders equity
    
    
    86,688
    
    
    
    86,207Total liabilities and shareholders equity
    
    $
    99,499
    
    
    $
    99,154
  44




---



##### Table of Contents



Stratos International, Inc
 
 Consolidated Statements of Operations
 For the fiscal years ended April 30, 2007, 2006 and 2005
 (In thousands, except per share amounts)
 2007
    
    
    2006
    
    
    2005Revenues:Net sales
    
    $
    91,654
    
    
    $
    79,042
    
    
    $
    79,931License fees and royalties
    
    
    1,090
    
    
    
    540
    
    
    
    523Total revenues
    
    
    92,744
    
    
    
    79,582
    
    
    
    80,454Cost of revenues
    
    
    58,028
    
    
    
    50,090
    
    
    
    52,642Gross profit
    
    
    34,716
    
    
    
    29,492
    
    
    
    27,812Operating expensesResearch and development
    
    
    8,177
    
    
    
    8,270
    
    
    
    9,518Sales and marketing
    
    
    11,141
    
    
    
    10,212
    
    
    
    10,467General and administrative
    
    
    16,693
    
    
    
    15,781
    
    
    
    21,907Restructuring and other charges
    
    
    
    
    
    
    1,023
    
    
    
    4,679Litigation settlements, net
    
    
    
    
    
    
    (1,100
    )
    
    
    (2,553
    )Total operating expenses
    
    
    36,011
    
    
    
    34,186
    
    
    
    44,018Loss from operations
    
    
    (1,295
    )
    
    
    (4,694
    )
    
    
    (16,206
    )Investment income, net
    
    
    1,821
    
    
    
    1,219
    
    
    
    553Other income
    
    
    1,118
    
    
    
    838
    
    
    
    464Income (loss) before income taxes
    
    
    1,644
    
    
    
    (2,637
    )
    
    
    (15,189
    )Income tax provision
    
    
    (14
    )
    
    
    (194
    )
    
    
    (118
    )Net income (loss)
    
    
    1,630
    
    
    
    (2,831
    )
    
    
    (15,307
    )Preferred stock dividend
    
    
    (346
    )
    
    
    (1,147
    )
    
    
    (350
    )Net income (loss) attributable to common shareholders
    
    $
    1,284
    
    
    $
    (3,978
    )
    
    $
    (15,657
    )Per share data, basic and diluted:Basic earnings (loss) per share (weighted average)
    
    
    0.09
    
    
    
    (0.29
    )
    
    
    (1.16
    )Diluted earnings (loss) per share (weighted average)
    
    
    0.09
    
    
    
    (0.29
    )
    
    
    (1.16
    )Weighted average number of common shares outstanding:Basic number of shares outstanding
    
    
    13,672
    
    
    
    13,888
    
    
    
    13,546Diluted number of shares outstanding
    
    
    14,602
    
    
    
    13,888
    
    
    
    13,546
  45




---



##### Table of Contents



Stratos International, Inc
 
 Consolidated Statements of Shareholders Equity
 For the fiscal years ended April 30, 2007, 2006 and 2005
 (In thousands, except share amounts)
 Accum.Additional
    
    
    
    
    
    Other Com-
    
    
    
    
    
    TotalCommon
    
    Treasury
    
    Paid-in
    
    Unearned
    
    prehensive
    
    Accumulated
    
    ShareholdersStock
    
    Shares
    
    Capital
    
    Compensation
    
    Income(Loss)
    
    Deficit
    
    EquityBalance at April 30, 2004
    
    $
    143
    
    
    $
    (248
    )
    
    $
    319,212
    
    
    $
    (3,809
    )
    
    $
    114
    
    
    $
    (210,633
    )
    
    $
    104,779Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,307
    )
    
    
    (15,307
    )Dividends on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350
    )
    
    
    (350
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    (143
    )Issuance of 383,834 shares of restricted common stock
    
    
    4
    
    
    
    
    
    
    
    1,658
    
    
    
    (1,662
    )
    
    
    
    
    
    
    
    
    
    
    Modification of stock option agreements
    
    
    
    
    
    
    
    
    
    
    377
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    377Amortization of restricted stock grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Forfeiture of 282,074 shares of restricted common stock
    
    
    (3
    )
    
    
    
    
    
    
    (1,448
    )
    
    
    1,416
    
    
    
    
    
    
    
    
    
    
    
    (35
    )Option exercises (217,749 shares)
    
    
    2
    
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613Purchase of common stock for treasury
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Balance at April 30, 2005
    
    
    146
    
    
    
    (259
    )
    
    
    320,410
    
    
    
    (3,505
    )
    
    
    (29
    )
    
    
    (226,290
    )
    
    
    90,473Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,831
    )
    
    
    (2,831
    )Dividends on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,147
    )
    
    
    (1,147
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Issuance of 278,900 shares of restricted common stock
    
    
    3
    
    
    
    
    
    
    
    2,020
    
    
    
    (2,023
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    987
    
    
    
    
    
    
    
    
    
    
    
    987Forfeiture of 28,871 shares of restricted common stock
    
    
    (1
    )
    
    
    
    
    
    
    (140
    )
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    Option exercises (80,043 shares)
    
    
    1
    
    
    
    
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Purchase of common stock for treasury
    
    
    
    
    
    
    (1,612
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,612
    )Balance at April 30, 2006
    
    
    149
    
    
    
    (1,871
    )
    
    
    322,607
    
    
    
    (4,400
    )
    
    
    (9
    )
    
    
    (230,269
    )
    
    
    86,207Adoption of SFAS No. 123(R)
    
    
    
    
    
    
    
    
    
    
    (4,400
    )
    
    
    4,400
    
    
    
    
    
    
    
    
    
    
    
    0Net lncome
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,630
    
    
    
    1,630Dividends on redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (346
    )
    
    
    (346
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (593
    )
    
    
    
    
    
    
    (593
    )Issuance of 108,000 shares of restricted common stock
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock grants and options
    
    
    
    
    
    
    
    
    
    
    1,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,466Forfeiture of 17,854 shares of restricted common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option exercises (49,092 shares)
    
    
    1
    
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176Purchase of common stock for treasury
    
    
    
    
    
    
    (1,852
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,852
    )Balance at April 30, 2007
    
    $
    151
    
    
    $
    (3,723
    )
    
    $
    319,847
    
    
    $
    
    
    
    $
    (602
    )
    
    $
    (228,985
    )
    
    $
    86,688
  46




---



##### Table of Contents



Stratos International, Inc
 
 Consolidated Statements of Cash Flows
 For the fiscal years ended April 30, 2007, 2006 and 2005
 (In thousands)
 2007
    
    
    2006
    
    
    2005Operating activities:Net income (loss)
    
    $
    1,630
    
    
    $
    (2,831
    )
    
    $
    (15,307
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for depreciation
    
    
    6,088
    
    
    
    5,853
    
    
    
    6,550Provision for amortization of intangible assets
    
    
    1,266
    
    
    
    1,532
    
    
    
    1,630Provision for amortization of stock based compensation
    
    
    1,466
    
    
    
    987
    
    
    
    927Provision for losses on accounts receivable
    
    
    100
    
    
    
    320
    
    
    
    259Gain on sale of assets
    
    
    92
    
    
    
    (52
    )
    
    
    Provision for excess and obsolete inventory
    
    
    868
    
    
    
    1,372
    
    
    
    984Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,618
    )
    
    
    (999
    )
    
    
    (641
    )Inventories
    
    
    (4,740
    )
    
    
    (880
    )
    
    
    (994
    )Prepaid expenses and other assets
    
    
    1,953
    
    
    
    7,977
    
    
    
    544Accounts payable and accrued expenses
    
    
    553
    
    
    
    (7,281
    )
    
    
    2,276Net cash provided (used) in operating activities
    
    
    6,658
    
    
    
    5,998
    
    
    
    (3,772
    )Investing activities:Purchases of property, plant and equipment
    
    
    (1,157
    )
    
    
    (1,024
    )
    
    
    (1,003
    )Purchases of short-term investments
    
    
    (5,000
    )
    
    
    (13,896
    )
    
    
    (9,265
    )Sale of short-term investments
    
    
    4,500
    
    
    
    13,448
    
    
    
    19,872Net proceeds from sale of assets
    
    
    154
    
    
    
    197
    
    
    
    1,578Net cash provided (used) by investing activities
    
    
    (1,503
    )
    
    
    (1,275
    )
    
    
    11,182Financing activities:Repayment of long-term borrowings
    
    
    
    
    
    
    (815
    )
    
    
    (2,216
    )Dividends paid on preferred stock
    
    
    (346
    )
    
    
    (1,147
    )
    
    
    (350
    )Net proceeds from exercise of stock options
    
    
    176
    
    
    
    318
    
    
    
    613Purchase of shares for treasury
    
    
    (1,852
    )
    
    
    (1,612
    )
    
    
    (11
    )Redemption of preferred shares
    
    
    (997
    )
    
    
    (3,021
    )
    
    
    Net cash (used) in financing activities
    
    
    (3,019
    )
    
    
    (6,277
    )
    
    
    (1,964
    )Effect of exchange rates on cash
    
    
    192
    
    
    
    20
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    2,328
    
    
    
    (1,534
    )
    
    
    5,446Cash and cash equivalents at beginning of year
    
    
    11,742
    
    
    
    13,276
    
    
    
    7,830Cash and cash equivalents at end of year
    
    $
    14,070
    
    
    $
    11,742
    
    
    $
    13,276Supplemental cash flow dataIssuance of shares of restricted common stock
    
    $
    670
    
    
    $
    2,023
    
    
    $
    1,662Release of income tax valuation allowance to goodwill
    
    $
    
    
    
    $
    446
    
    
    $
    
  47




---



##### Table of Contents



Stratos International, Inc
 
 Consolidated Statements
of Comprehensive Income (Loss)
 For the fiscal years ended April 30, 2007, 2006 and 2005
 (In thousands)
 2007
    
    2006
    
    2005Net income (loss)
    
    $
    1,630
    
    
    $
    (2,831
    )
    
    $
    (15,307
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (593
    )
    
    
    20
    
    
    
    (143
    )Comprehensive income (loss)
    
    $
    1,037
    
    
    $
    (2,811
    )
    
    $
    (15,450
    )
  48




---



##### Table of Contents



Stratos International, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
 (all amounts in thousands, except share and per share data)
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The Company:
 Principles of consolidation:
  Foreign currency translation:
 Use of estimates:
 Revenue recognition:
  49




---



##### Table of Contents



Shipping and handling fees and costs:
 Research and development costs:
 Advertising:
 Stock-based compensation:
  Income
taxes:
 Cash and cash equivalents:
 Short-term investments:
 Financial instruments:
 Accounts receivable:
 50




---



##### Table of Contents



Inventories:
 Property, plant and equipment:
 Assets held for sale:
 Intangible assets:
 Goodwill:
 Long-lived assets:
 Impairment of Long-Lived Assets:
 Recent Accounting Pronouncements: Fair Value Measurements
 51




---



##### Table of Contents



Accounting for
Stock-Based Compensation.
 52




---



##### Table of Contents



NOTE 2. ACCOUNTS RECEIVABLE
  Allowance for doubtful accounts
    
    2007
    
    2006
    
    2005Beginning balance
    
    $
    575
    
    
    $
    548
    
    
    $
    358Charged to expense
    
    
    98
    
    
    
    320
    
    
    
    259Write offs of amounts considered to be uncollectible, net of recoveries
    
    
    (270
    )
    
    
    (293
    )
    
    
    (69
    )Ending balance
    
    $
    403
    
    
    $
    575
    
    
    $
    548
 NOTE 3. INVENTORIES
  Inventories
    
    2007
    
    2006Raw materials
    
    $
    13,722
    
    
    $
    11,100Work in progress
    
    
    1,355
    
    
    
    954Finished goods
    
    
    4,015
    
    
    
    3,428$
    19,092
    
    
    $
    15,482
 Inventory reserves
    
    2007
    
    2006
    
    2005Beginning balance
    
    $
    6,737
    
    
    $
    6,735
    
    
    $
    9,083Charged to expense
    
    
    868
    
    
    
    1,372
    
    
    
    984Write offs, net of recoveries
    
    
    (2,705
    )
    
    
    (1,370
    )
    
    
    (3,332
    )Ending balance
    
    $
    4,900
    
    
    $
    6,737
    
    
    $
    6,735
  53




---



##### Table of Contents



NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  NOTE 5. PROPERTY, PLANT AND EQUIPMENT
  2007
    
    2006
    
    Useful livesLand
    
    $
    1,721
    
    
    $
    1,721
    
    
    indefiniteBuildings and building improvements
    
    
    11,625
    
    
    
    11,533
    
    
    5-35 yearsMachinery and equipment
    
    
    60,464
    
    
    
    58,195
    
    
    3-15 yearsFurniture and office equipment
    
    
    19,309
    
    
    
    19,048
    
    
    5-10 yearsProperty, plant and equipment at cost
    
    
    93,119
    
    
    
    90,497Less accumulated depreciation
    
    
    (81,595
    )
    
    
    (74,060
    )Property, plant and equipment, net
    
    $
    11,524
    
    
    $
    16,437
 54




---



##### Table of Contents



NOTE
6. INTANGIBLE ASSETS
  April 30, 2007
    
    
    April 30, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    UsefulAmortizable Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    LivesCustomer relationships
    
    $
    10,800
    
    
    $
    (3,024
    )
    
    $
    7,776
    
    
    $
    10,800
    
    
    $
    (2,159
    )
    
    $
    8,641
    
    
    12.50 yearsPatents and related technology
    
    
    4,368
    
    
    
    (1,578
    )
    
    $
    2,790
    
    
    
    4,368
    
    
    
    (1,295
    )
    
    
    3,073
    
    
    14.25 yearsDeveloped software
    
    
    700
    
    
    
    (700
    )
    
    
    
    
    
    
    700
    
    
    
    (582
    )
    
    
    118
    
    
    3.00 yearsTotal amortized intangible
assets
    
    $
    15,868
    
    
    $
    (5,302
    )
    
    $
    10,566
    
    
    $
    15,868
    
    
    $
    (4,036
    )
    
    $
    11,832
  Fiscal Year2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterAmortization amount
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (4,826
    )
 NOTE
7. GOODWILL
   NOTE
8. IMPAIRMENT OF LONG-LIVED ASSETS
  NOTE
9. RESTRUCTURING AND OTHER CHARGES
  55




---



##### Table of Contents



Limited-useRestructuring
    
    Employee costs
    
    Legal and other
    
    facility rent
    
    TotalBalance at April
30, 2004
    
    $
    240
    
    
    $
    
    
    
    $
    738
    
    
    $
    9782005 charges
    
    
    2,724
    
    
    
    
    
    
    
    1,955
    
    
    
    4,679Utilized in 2005
    
    
    (2,687
    )
    
    
    
    
    
    
    (894
    )
    
    
    (3,581
    )Balance at April
30, 2005
    
    
    277
    
    
    
    
    
    
    
    1,799
    
    
    
    2,0762006 charges
    
    
    627
    
    
    
    396
    
    
    
    
    
    
    
    1,023Utilized in 2006
    
    
    (584
    )
    
    
    (396
    )
    
    
    (853
    )
    
    
    (1,833
    )Balance at April
30, 2006
    
    
    320
    
    
    
    
    
    
    
    946
    
    
    
    1,2662007 charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Utilized in 2007
    
    
    (220
    )
    
    
    
    
    
    
    (753
    )
    
    
    (973
    )Balance at April
30, 2007
    
    $
    100
    
    
    $
    
    
    
    $
    193
    
    
    $
    293
  56




---



##### Table of Contents



NOTE
10. ACCRUED EXPENSES
  As of April 30,Other Current Liabilities
    
    2007
    
    2006Employee costs
    
    $
    2,887
    
    
    $
    2,514Professional fees, litigation and claims
    
    
    1,468
    
    
    
    977Commissions and Royalties
    
    
    1,068
    
    
    
    801Inventory received, not vouchered
    
    
    312
    
    
    
    70Other
    
    
    247
    
    
    
    386Real estate and other taxes
    
    
    196
    
    
    
    334Rent for limited-use facilities
    
    
    193
    
    
    
    946Total
    
    $
    6,371
    
    
    $
    6,028
 NOTE
11. LONG-TERM DEBT
   NOTE
12. REDEEMABLE SERIES B PREFERRED STOCK
    57




---



##### Table of Contents



58




---



##### Table of Contents



NOTE
13. CAPITAL STOCK
 Common and preferred stock
   Stock options
  59




---



##### Table of Contents



Options outstanding
    
    Options Exercisableat April 30, 2007
    
    at April 30, 2007Weighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    Life (years)
    
    Price
    
    Shares
    
    Price$     2.63 - 7.60
    
    
    
    184,629
    
    
    
    5.92
    
    
    $
    3.82
    
    
    
    183,629
    
    
    $
    3.80$   27.50 - 59.80
    
    
    
    51,708
    
    
    
    3.82
    
    
    $
    51.57
    
    
    
    51,708
    
    
    $
    51.57$ 105.80 - 210.00
    
    
    
    2,988
    
    
    
    3.34
    
    
    $
    170.68
    
    
    
    2,988
    
    
    $
    170.68Total
    
    
    
    239,325
    
    
    
    5.43
    
    
    $
    16.22
    
    
    
    238,325
    
    
    $
    16.26
 Options outstanding
    
    Options Exercisableat April 30, 2006
    
    at April 30, 2006Weighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    Life (years)
    
    Price
    
    Shares
    
    Price$     2.63 - 7.60
    
    
    
    232,830
    
    
    
    6.91
    
    
    $
    3.76
    
    
    
    230,325
    
    
    $
    3.74$   27.50 - 59.80
    
    
    
    51,708
    
    
    
    4.82
    
    
    $
    51.57
    
    
    
    51,645
    
    
    $
    51.60$ 105.80 - 210.00
    
    
    
    5,988
    
    
    
    4.25
    
    
    $
    181.77
    
    
    
    5,988
    
    
    $
    181.77Total
    
    
    
    290,526
    
    
    
    6.48
    
    
    $
    15.94
    
    
    
    287,958
    
    
    $
    16.03
 60




---



##### Table of Contents



WeightedNumber of
    
    
    AverageOptions
    
    
    Exerciseoutstanding
    
    
    PriceBalance at April 30, 2004
    
    
    645,168
    
    
    $
    13.05Granted
    
    
    
    
    
    
    0.00Exercised
    
    
    (217,749
    )
    
    
    2.82Cancelled
    
    
    (58,716
    )
    
    
    36.08Balance at April 30, 2005
    
    
    368,703
    
    
    $
    15.43Granted
    
    
    
    
    
    
    0.00Exercised
    
    
    (80,043
    )
    
    
    6.17Cancelled / Other
    
    
    1,866
    
    
    
    36.20Balance at April 30, 2006
    
    
    290,526
    
    
    $
    15.94Granted
    
    
    
    
    
    
    0.00Exercised
    
    
    (49,092
    )
    
    
    3.59Cancelled / Other
    
    
    (2,109
    )
    
    
    192.81Balance at April 30, 2007
    
    
    239,325
    
    
    $
    16.22
   NOTE
14. EMPLOYEE 401(K) SAVINGS PLAN
 .
 NOTE
15. LEASES
  61




---



##### Table of Contents



Fiscal 2008
    
    $
    603Fiscal 2009
    
    
    411Fiscal 2010
    
    
    364Fiscal 2011
    
    
    280Fiscal 2012
    
    
    187Thereafter
    
    
    60$
    1,906
 NOTE
16. NET INCOME (LOSS) PER SHARE
  Fiscal Years Ended April 30,2007
    
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    1,630
    
    
    $
    (2,831
    )
    
    $
    (15,307
    )Preferred stock dividend requirements
    
    
    (346
    )
    
    
    (1,147
    )
    
    
    (350
    )Net income (loss) attributable to common shareholders
    
    $
    1,284
    
    
    $
    (3,978
    )
    
    $
    (15,657
    )Per share data, basic and diluted:Basic earnings (loss) per share (weighted average)
    
    
    0.09
    
    
    
    (0.29
    )
    
    
    (1.16
    )Diluted earnings (loss) per share (weighted average)
    
    
    0.09
    
    
    
    (0.29
    )
    
    
    (1.16
    )Weighted
average number of shares outstanding in thousands:Basic number
of shares outstanding
    
    
    13,672
    
    
    
    13,888
    
    
    
    13,546Diluted number of shares outstanding
    
    
    14,602
    
    
    
    13,888
    
    
    
    13,546
  NOTE
17. INCOME TAXES
  62




---



##### Table of Contents



As of April 30,Deferred tax assets and liabilities
    
    2007
    
    2006Deferred tax assets:Net operating loss carryforwards
    
    $
    73,174
    
    
    $
    73,549Impairment of long-lived assets
    
    
    
    
    
    
    Inventory reserves
    
    
    2,007
    
    
    
    2,922Accrued vacation
    
    
    279
    
    
    
    244Deferred compensation
    
    
    790
    
    
    
    258Allowance for doubtful accounts
    
    
    176
    
    
    
    213Restructuring reserve
    
    
    117
    
    
    
    378Investment basis differences
    
    
    3,132
    
    
    
    3,350Other
    
    
    345
    
    
    
    470Total
    
    
    80,020
    
    
    
    81,384Less: Valuation allowance
    
    
    (80,020
    )
    
    
    (79,880
    )Total deferred tax assets
    
    
    
    
    
    
    1,504Deferred tax liabilities:Accelerated tax depreciation
    
    
    
    
    
    
    (664
    )Additional depreciation and amortization on the
step-up in value of fixed assets and intangibles
    
    
    
    
    
    
    (394
    )Other
    
    
    
    
    
    
    (446
    )Total deferred tax liabilities
    
    
    
    
    
    
    (1,504
    )Net deferred tax liabilities
    
    $
    
    
    
    $
    
 63




---



##### Table of Contents



Fiscal years ended April 30,Income tax
    
    2007
    
    2006
    
    2005Current:Federal
    
    $
    
    
    
    $
    144
    
    
    $
    Foreign
    
    
    
    
    
    
    
    
    
    
    State
    
    
    14
    
    
    
    50
    
    
    
    118Total current income taxes
    
    
    14
    
    
    
    194
    
    
    
    118Deferred
    
    
    
    
    
    
    
    
    
    
    Total income taxes
    
    $
    14
    
    
    $
    194
    
    
    $
    118The current federal income tax expense for fiscal 2006 is primarily due to a proposed Internal
Revenue Service audit adjustment related to the 2001 tax return of Sterling Holding Company, which
Stratos acquired in November 2003. The current state tax provision for fiscal 2007, 2006 and
2005 represents taxes due related to taxable income generated for state income tax purposes.A reconciliation of the federal statutory rate to the effective tax rate is as follows:Fiscal years ended April 30,Reconciliation
    
    2007
    
    2006
    
    2005Income tax (credit) at statutory rate
    
    $
    559
    
    
    $
    (963
    )
    
    $
    (5,358
    )Effect of state income taxes
    
    
    99
    
    
    
    (142
    )
    
    
    (578
    )Tax exempt investment income
    
    
    
    
    
    
    
    
    
    
    (53
    )Valuation allowance
    
    
    140
    
    
    
    881
    
    
    
    6,071Filing differences from prior years
    
    
    (163
    )
    
    
    223
    
    
    
    (12
    )Other, net
    
    
    (620
    )
    
    
    194
    
    
    
    48Income taxes
    
    $
    14
    
    
    $
    194
    
    
    $
    118Income taxes are based on pre-tax losses, which are distributed geographically as follows:Fiscal years ended April 30,Geographic distribution of income (loss) before taxes
    
    2007
    
    2006
    
    2005United States
    
    $
    1,045
    
    
    $
    234
    
    
    $
    (15,261
    )International
    
    
    599
    
    
    
    (2,871
    )
    
    
    72Total loss before taxes
    
    $
    1,644
    
    
    $
    (2,637
    )
    
    $
    (15,189
    )
 64




---



##### Table of Contents



NOTE
18. SEGMENT AND GEOGRAPHIC INFORMATION
    Fiscal years ended April 30,2007
    
    
    2006
    
    
    2005Net salesUnited States
    
    $
    63,207
    
    
    $
    68,712
    
    
    $
    67,118Foreign
    
    
    28,447
    
    
    
    10,330
    
    
    
    12,813$
    91,654
    
    
    $
    79,042
    
    
    $
    79,931Net income (loss)United States
    
    $
    1,031
    
    
    $
    40
    
    
    $
    (15,445
    )Foreign
    
    
    599
    
    
    
    (2,871
    )
    
    
    138$
    1,630
    
    
    $
    (2,831
    )
    
    $
    (15,307
    )Property, plant and equipment, netUnited States
    
    $
    10,296
    
    
    $
    14,960
    
    
    $
    19,470Foreign
    
    
    1,228
    
    
    
    1,477
    
    
    
    1,868$
    11,524
    
    
    $
    16,437
    
    
    $
    21,338
 NOTE
19. MATERIAL CUSTOMERS and CONCENTRATION of CREDIT RISK
     65




---



##### Table of Contents



NOTE
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  Fiscal Year 2007 Quarter EndedJuly 31
    
    October 31
    
    January 31
    
    April 30Net sales
    
    $
    21,064
    
    
    $
    23,036
    
    
    $
    22,101
    
    
    $
    25,452Gross profit
    
    
    6,506
    
    
    
    8,813
    
    
    
    8,715
    
    
    
    10,680Income (loss) from operations
    
    
    (1,931
    )
    
    
    255
    
    
    
    414
    
    
    
    (33
    )Net income (loss)
    
    
    (1,262
    )
    
    
    773
    
    
    
    1,515
    
    
    
    604Preferred stock dividends
    
    
    (287
    )
    
    
    (25
    )
    
    
    (17
    )
    
    
    (17
    )Net income (loss) attributable to common
shareholders
    
    
    (1,549
    )
    
    
    748
    
    
    
    1,498
    
    
    
    587Net income (loss) per share available to common
shareholders
    
    $
    (0.11
    )
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    0.04
 Fiscal Year 2006 Quarter EndedJuly 31
    
    October 31
    
    January 31
    
    April 30Net sales
    
    $
    20,480
    
    
    $
    18,949
    
    
    $
    18,993
    
    
    $
    20,620Gross profit
    
    
    8,171
    
    
    
    6,752
    
    
    
    6,890
    
    
    
    7,678Loss from operations
    
    
    (684
    )
    
    
    (1,668
    )
    
    
    (1,378
    )
    
    
    (964
    )Net loss
    
    
    (1,088
    )
    
    
    (346
    )
    
    
    (981
    )
    
    
    (418
    )Preferred stock dividends
    
    
    (87
    )
    
    
    (88
    )
    
    
    (88
    )
    
    
    (884
    )Net loss attributable to common shareholders
    
    
    (1,175
    )
    
    
    (434
    )
    
    
    (1,069
    )
    
    
    (1,302
    )Net loss per share available to common
shareholders
    
    $
    (0.09
    )
    
    $
    (0.03
    )
    
    $
    (0.08
    )
    
    $
    (0.09
    )
    NOTE
21. LITIGATION
  66




---



##### Table of Contents



67
    Table of Contents  NOTE
22. OPERATING CONSIDERATIONS AND MANAGEMENT PLANS
  68
    Table of Contents  NOTE
23. SUBSEQUENT EVENTS
     
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
  69
    Table of Contents  Item 9A. Controls and procedures
  
 Managements Report on Internal Controls Over Financial Reporting
   /s/ Phillip A. HarrisPhillip A. HarrisPresident and Chief Executive Officer
 /s/ Barry HollingsworthBarry HollingsworthChief Financial Officer
 70
    Table of Contents  Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
 
 Internal Control-Integrated Framework
    Internal
Control-Integrated Framework Internal Control-Integrated
Framework
     Changes
in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  Director
    
    Age
    
    Principal OccupationReginald W. Barrett
    
    78
    
    Mr. Barrett has served as a Director of Stratos
since November 2003. Mr. Barrett is Chairman of the
Stratos Board of Directors. He serves as member of Stratos
Compensation Committee and Chairman of its
Strategic Development Committee and Governance Committee.
Mr. Barrett is President and Chief Executive Officer of Clements
National Company (a manufacturer of electrical and hot air
products). Mr. Barrett was a director of Sterling
from 1991 through the closing of Stratos
acquisition of Sterling in November 2003. From 1982
until his retirement in 1990, Mr. Barrett served as
President of Pyle National, which became part of
Brintec Corporation (a connector manufacturer).Kenne P. Bristol
    
    63
    
    Mr. Bristol serves as Chairman of Stratos Compensation
Committee and is a member of its Strategic Development
Committee and Governance Committee. He served as Chairman
of the Alliance Bancorp Division of Charter One
Financial, Inc., a Nasdaq-listed banking company,
from July 2001 to September 2004. Mr. Bristol also
served as President, Chief Executive Officer and a
Director of Alliance Bancorp, Inc., and its primary
subsidiary Liberty Federal Bank, from July 1992
until it was acquired by Charter One Financial,
Inc. in July 2001. Prior to its acquisition,
Alliance Bancorp, Inc., was a Nasdaq-listed public
company. Mr Bristol chairs the Compensation Committee
and has been a director of Stratos since 2005.
 71
    Table of Contents  Director
    
    Age
    
    Principal OccupationPhillip A. Harris
    
    60
    
    Mr. Harris has served as President and Chief
Executive Officer of Stratos since December 2004
and as a director of Stratos since November 2003.
Prior to being elected as President and Chief
Executive Officer, Mr. Harris served as Chairman of
the corporate governance and nominating committee
and as a member of the compensation committee.
Mr. Harris was a director of Sterling Holding
Company (Sterling) from 2002 through the closing
of Stratos acquisition of Sterling in November
2003. Mr. Harris was Executive Vice President of
Sprint North Supply (a telecommunications equipment
distributor) from 1994 until his retirement in
2001. From 1978 until 1994, Mr. Harris held a
number of senior operating positions with Sprint
Corporation (a telecommunications provider).David Y. Howe
    
    43
    
    Mr. Howe has served as a director of Stratos since
November 2003. Mr. Howe is a member
of the Stratos Compensation Committee and
the Stratos Audit Committee.
Mr. Howe was a director of Sterling from 1997
through the closing of Stratos acquisition of
Sterling in November 2003. Mr. Howe serves as
managing general partner of Enhanced Equity Fund, LP
Mr. Howe had been Managing Director and Partner at
Lightyear Capital, a private equity firm, from 2003
through June 2005. From 1993 through 2003 he
was employed by Citicorp Venture Capital, most
recently as a Partner. Mr. Howe is a director of
Integrated Mobile, Inc., Fitness Together, Inc.,
Enhanced Wireless, and Layered Technologies, Inc.Charles Daniel 
Nelsen
    
    43
    
    Mr. Nelsen has served as a director of Stratos
since June 2000 and is a member of the
Audit Committee. Mr. Nelsen is Director
of Mergers and Acquisitions for Motorolas Integrated Supply
Chain (ISC) and has served in various other roles at Motorola since
2000. From 1998 to 2000, Mr. Nelsen served as Senior
Manager, Supply Chain of A.T. Kearney. From
1994 to 1998, Mr. Nelsen held the positions of
Managing Associate, Senior Associate and Associate
at Coopers & Lybrand Consulting.
 72
    Table of Contents  Director
    
    Age
    
    Principal OccupationEdward J. OConnell
    
    54
    
    Mr. OConnell has served as a director of Stratos
since June 2000 and is Chairman of the Audit Committee.
He is also a member of Stratos Governance Committee.
Mr. OConnell has been Chief Financial Officer at
Hinshaw & Culbertson, LLP, a provider of professional
legal services, since May 2005. Prior to that, he 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 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.Newell V. Starks
    
    55
    
    Mr. Starks has served as Vice Chairman of the Board
of Stratos since November 2003.
From November 2003 through September 2005, Mr. Starks
served as Chief Strategy Officer of Stratos. He was Chairman of
Sterlings board of directors during 2003 and a
director of Sterling from its organization in 1989
through the closing of Stratos acquisition of
Sterling in November 2003. From 1984 until 1991,
Mr. Starks was employed by CVC, most recently as
Vice President, where he was in charge of CVCs
initial investment in Sterling. Since leaving CVC,
Mr. Starks has served as a private consultant to
technology companies, including Sterling, on
strategic matters and also has been a private
investor.Brian J. Stark
    
    58
    
    Brian J Stark has been a director since June 2006.
Mr. Stark is former President of the Controls Group for
Johnson Controls, where he was responsible for
systems, products and services worldwide, and
facility management covering a broad range of
operations, maintenance and consulting programs.
Mr. Stark serves on the Board of Directors for the
Milwaukee School of Engineering and Childrens
Hospital of Wisconsin. He holds a Bachelor of Science
Degree in Electrical Engineering from Milwaukee School
of Engineering. Mr. Stark is a member of the Audit
Committee.
 73
    Table of Contents  74
    Table of Contents  Item 11. Executive Compensation
 Compensation Discussion and Analysis
           
    
    base salary;
    
    performance-based incentive compensation;
    
    long-term equity incentive compensation;
    
    retirement and other benefits; and
    
    perquisites and other personal benefits.
 75
    Table of Contents  
    
    market data from outside sources;
    
    internal review of the executives compensation, both individually
and relative to other officers; and
    
    individual performance of the executive.
  Compensation Committee Report
  The Compensation Committee
 
   76
    Table of Contents  All OtherCompensation
    
    TotalName and Principal Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    ($)
    
    ($)Phillip A. Harris
    
    
    2007
    
    
    $
    240,000
    
    
    $
    82,944
    
    
    $
    28,469
    
    
    $
    351,413President and Chief Executive OfficerBarry Hollingsworth
    
    
    2007
    
    
    $
    154,808
    
    
    $
    32,141
    
    
    $
    5,270
    
    
    $
    192,219Vice President and Chief Financial OfficerJoe Norwood
    
    
    2007
    
    
    $
    238,004
    
    
    $
    79,138
    
    
    $
    18,385
    
    
    $
    335,527Executive Vice PresidentRichard C.E. Durrant
    
    
    2007
    
    
    $
    234,954
    
    
    $
    168,352
    
    
    $
    31,761
    
    
    $
    435,067Executive Vice PresidentDale Reed
    
    
    2007
    
    
    $
    190,236
    
    
    $
    47,988
    
    
    $
    43,463
    
    
    $
    281,687Senior Vice President, Sales and MarketingThe following table summarizes the all other compensation included in the summary
compensation table above.Perquisites
    
    
    
    
    
    Companyand Other
    
    
    
    
    
    ContributionsPersonal
    
    Insurance
    
    to Retirement andBenefits
    
    Premiums
    
    401(k) PlansName
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    Total ($)Phillip A. Harris
    
    
    2007
    
    
    $
    21,600
    
    
    $
    
    
    
    $
    6,869
    
    
    $
    28,469President and Chief
Executive OfficerBarry Hollingsworth
    
    
    2007
    
    
    $
    
    
    
    $
    
    
    
    $
    5,270
    
    
    $
    5,270Vice President and
Chief Financial OfficerJoe Norwood
    
    
    2007
    
    
    $
    6,964
    
    
    $
    
    
    
    $
    11,421
    
    
    $
    18,385Executive Vice PresidentRichard C.E. Durrant
    
    
    2007
    
    
    $
    21,930
    
    
    $
    1,981
    
    
    $
    7,850
    
    
    $
    31,761Executive Vice PresidentDale Reed
    
    
    2007
    
    
    $
    31,476
    
    
    $
    2,885
    
    
    $
    9,102
    
    
    $
    43,463Senior Vice President,
Sales and Marketing
 
 77
    Table of Contents  Option Awards
    
    Stock AwardsEquityIncentiveEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity Incentive
    
    Plan Awards:Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    Market orPlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Number of
    
    Payout ValueNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Unearned
    
    of UnearnedSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Shares, Units
    
    Shares, UnitsUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    or Other
    
    or OtherUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Rights That
    
    Rights ThatOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    Have Not(#)
    
    (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)Phillip A. Harris
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    NAPresident and Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    7,632
    
    
    $
    61,056
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    NA
    
    
    
    
    
    
    $
    
    
    
    
    63,600
    
    
    $
    508,800Barry Hollingsworth
    
    
    3,000
    
    
    
    1,000
    
    
    
    
    
    
    $
    6.05
    
    
    
    4/5/2014
    
    
    
    
    
    
    $
    
    
    
    
    3,975
    
    
    $
    31,800Vice President and Chief Financial
Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    12,000
    
    
    $
    96,000
    
    
    $
    
    
    
    
    15,300
    
    
    $
    122,400Joe Norwood
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    NA
    
    
    
    
    
    
    $
    
    
    
    
    5,440
    
    
    $
    43,520Executive Vice President
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    26,000
    
    
    $
    208,000
    
    
    $
    
    
    
    
    15,300
    
    
    $
    122,400Richard C.E. Durrant
    
    
    12,289
    
    
    
    
    
    
    
    
    
    
    $
    2.63
    
    
    
    2/7/2013
    
    
    
    
    
    
    $
    
    
    
    
    9,540
    
    
    $
    76,320Executive Vice President
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    $
    5.10
    
    
    
    6/19/2013
    
    
    
    
    
    
    $
    
    
    
    
    22,000
    
    
    $
    176,000Dale Reed
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    NA
    
    
    
    
    
    
    $
    
    
    
    
    2,040
    
    
    $
    16,320Senior Vice President, Sales and
Marketing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    12,000
    
    
    $
    96,000
    
    
    $
    
    
    
    
    7,100
    
    
    $
    56,800
   78
    Table of Contents  Stock AwardsNumber of Shares
    
    Value RealizedAcquired on Vesting
    
    on VestingName
    
    (#)
    
    ($)Phillip A. Harris
    
    
    2,052
    
    
    $
    12,620President and Chief Executive Officer
    
    
    17,100
    
    
    $
    105,165Barry Hollingsworth
    
    
    1,069
    
    
    $
    6,574Vice President and Chief Financial OfficerJoe Norwood
    
    
    6,840
    
    
    $
    42,066Executive Vice PresidentRichard C.E. Durrant
    
    
    2,565
    
    
    $
    15,775Executive Vice PresidentDale Reed
    
    
    2,565
    
    
    $
    15,775Senior Vice President, Sales and Marketing
       79
    Table of Contents  Fees Earned orPaid in Cash
    
    Stock Awards
    
    TotalName
    
    ($)
    
    ($)
    
    ($)Reginald W. Barrett
    
    $
    135,500
    
    
    $
    72,600
    
    
    $
    208,100Kenne P. Bristol
    
    $
    75,500
    
    
    $
    72,600
    
    
    $
    148,100David Y. Howe
    
    $
    50,000
    
    
    $
    72,600
    
    
    $
    122,600Charles Daniel Nelsen
    
    $
    46,000
    
    
    $
    72,600
    
    
    $
    118,600Edward J. OConnell
    
    $
    59,000
    
    
    $
    72,600
    
    
    $
    131,600Brian J Stark
    
    $
    36,375
    
    
    $
    72,600$
    162,240
    
    
    $
    271,215Newell V. Starks
    
    $
    56,500
    
    
    $
    72,600
    
    
    $
    129,100
    
    
    Phillip A. Harris, our president and chief executive officer, is
entitled to certain severance benefits under his management
retention agreement if his employment is terminated voluntarily
for any reason following a change of control (as defined in such
agreement); and
    
    Barry Hollingsworth, our chief financial officer, Joe Norwood, our
executive vice president, and Dale Reed, our senior vice
president-sales and marketing, are each entitled to certain
severance benefits under their respective management retention agreements
if their employment is terminated by us other than for cause or they resign for good reason within two years
following a change of control (as such terms are defined in such agreements).
  80
    Table of Contents  Expected SeveranceName
    
    BenefitPhillip A. Harris
President and Chief Executive Officer
    
    $
    480,000Barry Hollingsworth
Vice President and Chief Financial Officer
    
    $
    224,750Joe Norwood
Executive Vice President
    
    $
    368,906Richard C.E. Durrant
Executive Vice President
    
    $
    862,592Dale Reed
Senior Vice President, Sales and Marketing
    
    $
    280,732
  81
    Table of Contents  
    
    the number of shares of our common stock, including restricted shares, held by such person as of April 30, 2007;
    
    the amount of cash that will be paid in respect of such shares upon consummation of the merger;
    
    the number of shares subject to outstanding options held by such person that have an exercise price per share that is
less than $8.00;
    
    the amount of cash that will be paid in respect of such options upon consummation of the merger; and
    
    the total amount of cash that will be received by such person in respect of such shares and options upon consummation
of the merger.
  Common Stock Owned
    
    
    Options with Exercise Price Less than $8(Including Restricted Shares)
    
    
    
    
    
    
    
    
    
    
    TotalName
    
    Shares
    
    
    Consideration
    
    
    Shares
    
    
    Consideration
    
    
    ConsiderationPhillip A. Harris
President and Chief Executive Officer
    
    
    193,270
    
    
    $
    1,546,160
    
    
    
    0
    
    
    $
    0
    
    
    $
    1,546,160Barry Hollingsworth
Vice President and Chief Financial Officer
    
    
    33,550
    
    
    $
    268,400
    
    
    
    4,000
    
    
    $
    7,800
    
    
    $
    276,200Joe Norwood
Executive Vice President
    
    
    201,655
    
    
    $
    1,613,240
    
    
    
    0
    
    
    $
    0
    
    
    $
    1,613,240Richard C.E. Durrant
Executive Vice President
    
    
    44,617
    
    
    $
    356,936
    
    
    
    18,289
    
    
    $
    83,392
    
    
    $
    440,328Dale Reed
Senior Vice President, Sales and Marketing
    
    
    83,786
    
    
    $
    670,288
    
    
    
    0
    
    
    $
    0
    
    
    $
    670,288
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters
   
    
    each person who is known to Stratos to own beneficially more
than 5% of the outstanding shares of Stratos common stock, based upon
Stratos records or the records of the SEC;
    
    each director and Named Executive Officer; and
    
    all directors and executive officers of Stratos as a group.
  82
    Table of Contents  Number ofNumber of
    
    
    
    
    
    Shares ofShares of
    
    
    
    
    
    Series BCommon
    
    Percent of
    
    Preferred
    
    Percent ofName and Address of Beneficial Owner
    
    Stock
    
    Class
    
    Stock
    
    ClassSteel Partners II, L.P. (1)
    
    
    2,183,650
    
    
    
    15.10
    %
    
    
    
    
    
    
    0.00
    %590 Madison Ave
32nd Floor
New York, New York 10022Riley Investment Partners Master Fund, L.P. (2)
    
    
    1,209,217
    
    
    
    8.30
    %
    
    
    
    
    
    
    0.00
    %11100 Santa Monica Blvd
Suite 810
Los Angeles, California 90025Dimensional Fund Advisors LP (3)
    
    
    1,102,925
    
    
    
    7.60
    %
    
    
    
    
    
    
    0.00
    %1299 Ocean Avenue
11th Floor
Santa Monica, California 90401William N. Stout (4)
    
    
    713,964
    
    
    
    4.90
    %
    
    
    9,462
    
    
    
    96.40
    %8084 McKenzie Ct.
Las Vegas, Nevada 89129
 
 (1)
    
    Based on a Statement on Schedule 13D/A filed by Steel Partners II, L.P. with the SEC on
June 12, 2006. Steel Partners L.L.C, as the general partner of Steel Partners II, L.P., and Warren
G. Lichtenstein, as the sole executive officer and managing member of Steel Partners L.L.C., may
each be deemed to beneficially own the 2,183,650 shares held by Steel Partners II, L.P. Mr.
Lichtenstein has sole voting and dispositive power with respect to such shares.(2)
    
    Based on a Statement on Schedule 13G/A filed by Riley Investment Partners Master Fund, L.P.
with the SEC on February 2, 2007. Riley Investment Management LLC has sole investment and voting
power over the 1,209,217 shares held by Riley Investment Partners Master Fund, L.P. and may be
deemed to have beneficial ownership of these shares.(3)
    
    Based on a Statement on Schedule 13G/A filed by Dimensional Fund Advisors LP with the SEC on
February 9, 2007. The 1,102,925 shares are held by one or more investment companies, trusts and
accounts to which Dimensional Fund Advisors LP serves as investment advisor or manager and, in
which capacity, Dimensional possess investment and/or voting power over the shares. Dimensional
Fund Advisors disclaims beneficial ownership of such shares.(4)
    
    Based on corporate records of Stratos and a Statement on Schedule 13G/A filed by William N.
Stout with the SEC on February 12, 2007. Includes 701,543 shares of common stock held by the
William N. and Carol A. Stout Trust dated November 24, 1998, which Mr. and Ms. Stout, as trustees
and beneficiaries of the Trust, may be deemed to beneficially own and over which they share voting
and dispositive power. In addition, Mr. Stout directly holds 12,421 shares of common stock. 83
    Table of Contents  Number of Shares andNature of Beneficial
    
    PercentName of Beneficial Owner
    
    Ownership
    
    of ClassReginald W. Barrett (1)
    
    
    113,826
    
    
    
    0.80
    %Kenne P. Bristol (2)
    
    
    56,000
    
    
    
    0.40
    %Richard C.E. Durrant (3)
    
    
    62,906
    
    
    
    0.40
    %Phillip A. Harris (4)
    
    
    193,270
    
    
    
    1.30
    %Barry Hollingsworth (5)
    
    
    37,550
    
    
    
    0.30
    %David Y. Howe (6)
    
    
    105,110
    
    
    
    0.70
    %Charles Daniel Nelsen (7)
    
    
    48,385
    
    
    
    0.30
    %Joe D. Norwood (8)
    
    
    201,655
    
    
    
    1.40
    %Edward J. OConnell (9)
    
    
    48,030
    
    
    
    0.30
    %Dale Reed (10)
    
    
    83,786
    
    
    
    0.60
    %Brian J. Stark (11)
    
    
    36,000
    
    
    
    0.20
    %Newell V. Starks (12)
    
    
    234,772
    
    
    
    1.60
    %Directors and Executive Officers
as a Group(12 individuals) (13)
    
    
    1,221,340
    
    
    
    8.40
    %
 
 (1)
    
    Includes 39,264 shares of restricted common stock.(2)
    
    Includes 36,000 shares of restricted common stock.(3)
    
    Includes 31,540 shares of restricted common stock, and 18,289 shares of common stock subject
to options that are exercisable.(4)
    
    Includes 126,832 shares of restricted common stock, and 4,968 shares of common stock held in
a 401(k) account.(5)
    
    Includes 31,275 shares of restricted common stock, and 4,000 options, of which 3,000 are
exercisable and 1,000 will vest in connection with the merger.(6)
    
    Includes 31,632 shares of restricted common stock.(7)
    
    Includes 31,632 shares of restricted common stock, and 385 shares of common stock held in an
individual retirement account.(8)
    
    Includes 46,740 shares of restricted common stock, and 124,215 shares of common stock held as
beneficiary of Norwood Family Trust dated November 10, 2003.(9)
    
    Includes 31,632 shares of restricted common stock, and 30 shares of common stock held in an individual retirement account.(10)
    
    Includes 21,140 shares of restricted common stock.(11)
    
    Includes 36,000 shares of restricted common stock. 84
    Table of Contents  (12)
    
    Includes 75,800 shares of restricted common stock, 12,421 shares of common stock held as
sole member of Kennan Road LLC, and 106,800 shares of common stock held as sole member of Kennan
Road II LLC.(13)
    
    Includes 21,289 shares of common stock subject to options that are exercisable, 1,000 shares
of common stock subject to options that will vest in connection with the merger, 5,383 shares of
common stock held in retirement plans, 124,215 shares of common stock held in trust, 50 shares of
common stock held jointly, and 539,487 shares of restricted common stock.  Equity Compensation Plan Information
  Number of securitiesremaining available forNumber of securities
    
    
    
    
    
    future issuance underto be issued
    
    Weighted-average
    
    equity compensationupon exercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflectedwarrants and rights
    
    warrants and rights
    
    in column (a))Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders
    
    
    239,325
    
    
    $
    16.22
    
    
    
    1,507,714
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  85
    Table of Contents  2007
    
    
    2006Audit fees
    
    $
    642,000
    
    
    $
    331,000Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    31,690
    
    
    
    3,395All Other Fees
    
    
    34,220
    
    
    
    20,940Total
    
    $
    707,910
    
    
    $
    355,335
   86
    Table of Contents  PART IV
 
 Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    87
    Table of Contents  Signatures
  STRATOS INTERNATIONAL, INC.July
11, 2007
    
    By: /s/ Phillip A. HarrisPhillip A. HarrisPresident and Chief Executive Officer
 88
    Table of Contents  POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ REGINALD W. BARRETT

Reginald W. Barrett
    
    Chairman of the Board
    
    July 11, 2007/s/ KENNE P. BRISTOL

Kenne P. Bristol
    
    Director
    
    July 11, 2007/s/ PHILLIP A. HARRIS

Phillip A. Harris
    
    Director, President and CEO (Principal
Executive Officer)
    
    July 11, 2007/s/ BARRY HOLLINGSWORTH

Barry Hollingsworth
    
    Chief Financial Officer (Principal
Financial Officer)
    
    July 11, 2007David Y. Howe
    
    Director
    
    July 11, 2007/s/ CHARLES DANIEL NELSEN

Charles Daniel Nelsen
    
    Director
    
    July 11, 2007/s/ EDWARD J. OCONNELL

Edward J. OConnell
    
    Director
    
    July 11, 2007/s/ BRIAN J. STARK

Brian J. Stark
    
    Director
    
    July 11, 2007/s/ NEWELL V. STARKS

Newell V. Starks
    
    Director
    
    July 11, 2007
 89
    Table of Contents  STRATOS INTERNATIONAL, INC.
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document2.1
    
    Merger Agreement dated as of May 14, 2007, among Stratos International, Inc., Emerson
Network Power Connectivity Solutions, Inc. and Emersub C, Inc. (incorporated by
reference to Exhibit 2.1 to the registrants Current Report on Form 8-K filed May 17,
2007)3.1
    
    Restated Certificate of Incorporation of registrant (incorporated by reference to
Exhibit 3.1 to the registrants Annual Report on Form 10-K for the fiscal year ended
April 30, 2005)3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of the registrant
(incorporated by reference to Exhibit 3.2 to the registrants Annual Report on Form
10-K for the fiscal year ended April 30, 2006)3.3
    
    Bylaws of registrant (incorporated by reference to Exhibit 3.2 to the registrants
Annual Report on Form 10-K for the fiscal year ended April 30, 2005)3.4
    
    Certificate of Designation of Series A Junior Participating Preferred Stock
(incorporated by reference to Exhibit 3.1)3.5
    
    Certificate of Designation for Series B Preferred Stock (incorporated by reference to
Exhibit 3.1)4.1
    
    Specimen certificate representing the common stock (incorporated by reference to
Exhibit 4.1 to registrants Amendment No. 2 to Form S-1, filed June 22, 2000)4.2
    
    Specimen certificate representing the Series B Preferred Stock (incorporated by
reference to Exhibit 4.2 to registrants Quarterly Report on Form 10-Q filed December
15, 2003)4.3
    
    Rights Agreement, dated as of March 23, 2001, between Stratos International, Inc. and
Mellon Investor Services LLC (incorporated by reference to Exhibit 99.2 to
registrants Current Report on Form 8-K, filed March 28, 2001)4.4
    
    First Amendment, dated as of July 2, 2003, to Rights Agreement, dated as of March 23,
2001, between Stratos Lightwave, Inc. and Mellon Investor Services LLC, as Rights
Agent (incorporated by reference to Exhibit 1.2 to registrants Form 8-A/A, filed
August 7, 2003)4.5
    
    Second Amendment, dated as of May 14, 2007, to Rights Agreement, dated as of March 23,
2001, between Stratos Lightwave, Inc. and Mellon Investor Services LLC, as Rights
Agent (incorporated by reference to Exhibit 4.1 to registrants Form 8-K, filed May
17, 2007)4.6
    
    Registration Rights Agreement, dated as of July 2, 2003, among Stratos Lightwave,
Inc., Citicorp Venture Capital Ltd., the William N. and Carol A. Stout Trust dated
11/24/98 and the William N. and Carol A. Stout Charitable Remainder Unit Trust
(incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Form S-4, filed
September 29, 2003)4.7
    
    Standstill Agreement, dated as of July 2, 2003, between Stratos Lightwave, Inc. and
Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 4.3 to Amendment
No. 1 to Form S-4, filed September 29, 2003)
 90
    Table of Contents  ExhibitNumber
    
    Description of Document10.1
    
    Form of Indemnity Agreement between registrant and registrants directors and
officers** (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to Form S-1,
filed June 5, 2000)10.2
    
    Stratos Lightwave, Inc. 2002 Stock Plan for Acquired Companies (incorporated by
reference to Exhibit 99.1 to registrants Form S-8, filed January 31, 2002)10.3
    
    Stratos Lightwave, Inc. Amended and Restated 2003 Stock Plan** (incorporated by
reference to Exhibit 10.1 to registrants Current Report on Form 8-K, filed September
19, 2006)10.4
    
    Form of the Option Agreement of the Stratos Lightwave, Inc. 2003 Stock Plan **
(incorporated by reference to Exhibit 10.22 on Form 10-K filed July 29, 2005)10.5
    
    Form of the Restricted Stock Agreement for Directors of the Stratos Lightwave, Inc.
2003 Stock Plan ** (incorporated by reference to Exhibit 99.1 on form 8-K, filed on
December 6, 2005).10.6
    
    Form of the Restricted Stock Agreement for Employees of the Stratos Lightwave, Inc.
2003 Stock Plan ** (incorporated by reference to Exhibit 10.3 on Form 8-K filed May 1,
2006)10.7
    
    Stratos Lightwave, Inc. 2003 Employee Stock Purchase Plan** (incorporated by reference
to Exhibit 10.2 to Amendment No. 1 to Form S-4, filed September 29, 2003)10.8
    
    Management Retention Agreement between the registrant and James McGinley**
(incorporated by reference to Exhibit 10.11 to registrants Quarterly Report on Form
10-Q, filed December 16, 2002)10.9
    
    Amendment to Management Retention Agreement between the registrant and James
McGinley** (incorporated by reference to Exhibit 10.12 to registrants Annual Report
on Form 10-K, filed July 29, 2003)10.10
    
    Amendment to Management Retention Agreement between the registrant and James McGinley
** (incorporated by reference to Exhibit 99.3 on Form 8-K filed on November 12, 2004)10.11
    
    Management Retention Agreement between the registrant and David Slack** (incorporated
by reference to Exhibit 10.12 to registrants Quarterly Report on Form 10-Q, filed
December 16, 2002)10.12
    
    Amendment to Management Retention Agreement between the registrant and David Slack**
(incorporated by reference to Exhibit 10.13 to registrants Annual Report on Form
10-K, filed July 29, 2003)10.13
    
    Amendment to Management Retention Agreement between the registrant and David A. Slack,
dated February 4, 2005** (incorporated by reference to Exhibit 99.2 on Form 8-K filed
on February 9, 2005)10.14
    
    Amended and Restated Management Retention Agreement between the registrant and Richard
Durrant** (incorporated by reference to Exhibit 10.2 to registrants Current Report on
Form 10-Q, filed September 19, 2006)10.15
    
    Employment, Confidentiality and Noncompete Agreement, dated as of November 3, 1997, by
and between Trompeter Electronics, Inc. and Joe Norwood ** (incorporated by reference
to Exhibit 10.17 on Form 10-K/A filed on August 30, 2004)10.16
    
    Salary Continuation Agreement, dated as of August 10, 2004, by and between Trompeter
Electronics, Inc. and Joe Norwood ** (incorporated by reference to Exhibit 10.20 on
Form 10-K/A filed on August 30, 2004)
 91
    Table of Contents  ExhibitNumber
    
    Description of Document10.17
    
    Management Retention Agreement between the registrant and Phillip A. Harris, dated
February 1, 2005** (incorporated by reference to Exhibit 10.1 on Form 8-K filed on
February 1, 2005)10.18
    
    Form of Management Retention Agreement ** (incorporated by reference to Exhibit 10.1
on Form 8-K filed May 1, 2006)10.19
    
    Restricted Stock Agreement between the registrant and Phillip A. Harris, dated
December 15, 2004, as amended and restated as of September 14, 2005 ** (incorporated
by reference to Exhibit 99.4 to the registrants Current Report on Form 8-K, filed
September 21, 2005).10.20
    
    Amendment to Restricted Stock Agreement between the registrant and Phillip A. Harris,
dated as of December 6, 2005 ** (incorporated by reference to Exhibit 99.3 to
registrants Current Report on Form 8-K, filed December 8, 2005).10.21
    
    Restricted Stock Agreement between the registrant and Newell V. Starks, dated April
29, 2004, as amended and restated as of September 14, 2005 ** (incorporated by
reference to Exhibit 99.5 to the registrants Current Report on Form 8-K, filed
September 21, 2005).10.22
    
    Restricted Stock Agreement between the registrant and Newell V. Starks, dated March 9,
2005 ** (incorporated by reference to Exhibit 99.3 to the registrants Current Report
on Form 8-K, filed September 21, 2005).10.23
    
    Restricted Stock Agreement between the registrant and Newell V. Starks, dated December
6, 2005 ** (incorporated by reference to Exhibit 99.4 to the registrants Current
Report on Form 8-K, filed December 8, 2005).10.24
    
    Letter agreement between the registrant and Newell V. Starks, dated November 23, 2005,
with respect to severance benefits ** (incorporated by reference to Exhibit 10.24 to
the registrants Quarterly Report on Form 10-Q, filed March 13, 2007)10.25
    
    Schedule of Non-Management Director Fees ** (incorporated by reference to Exhibit
10.24 on Form 10-K filed July 29, 2005)10.26
    
    Form of the 2006 Annual Incentive Bonus Plan ** (incorporated by reference to Exhibit
99.6 to registrants Current Report on Form 8-K, filed September 21, 2005)10.27
    
    2007 Annual Incentive Bonus Plan ** (incorporated by reference to Exhibit 10.1 on
Form 8-K filed May 1, 2006)14
    
    Stratos International, Inc. Code of Business Conduct and Ethics (posted on
registrants website at www.stratosinternational.com)21
    
    List of Subsidiaries (filed
previously)23.1
    
    Consent of BDO Seidman, LLP *23.2
    
    Consent of Ernst & Young LLP*24
    
    Power of Attorney (contained in the signature page to this annual report on Form 10-K)*31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer*31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer*32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 
 *
    
    Filed herewith.**
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit
to this annual report on Form 10-K.
    
    Furnished as exhibit to this annual report on Form 10-K. 92