##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the Fiscal Year Ended April 30, 2005                                                    
|          
|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.


(Exact Name of Registrant as Specified in its Charter)


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

Registrants telephone number, including area code:


(708) 867-9600


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


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


(Title of Class)


þ o


o


o þ












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##### 



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) the continuation of the
current economic climate in the communications industry and its
effect on our business; (ii) the long-term growth of 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 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.


1



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TABLE OF CONTENTS


|         |  |                                                                                                                         |  |                                                             |      |  |    | 
|-------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- | ---- |  | -- | 
|Section  |  |                                                                                                                         |  |                                                             | Page | 
|         |  |                                                                                                                         |  |                                                             |      | 
|         |  |                                                                                                                         |  | Forward-Looking Statements                                  |      |  | 1  | 
|         |  |                                                                                                                         |  | PART I                                                      |      |  |    | 
|Item 1.  |  | Business                                                                                                                |  |                                                             | 3    | 
|Item 2.  |  | Properties                                                                                                              |  |                                                             | 13   | 
|Item 3.  |  | Legal Proceedings                                                                                                       |  |                                                             | 14   | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                                 |  |                                                             | 15   | 
|         |  |                                                                                                                         |  | PART II                                                     |      |  |    | 
|Item 5.  |  | Market for Registrants Common Equity
    and Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |                                                             | 17   | 
|Item 6.  |  | Selected Financial Data                                                                                                 |  |                                                             | 17   | 
|Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                               |  |                                                             | 19   | 
|Item 7A. |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                          |  |                                                             | 37   | 
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                         |  |                                                             | 37   | 
|         |  |                                                                                                                         |  | Report of Independent Registered Public
    Accounting Firm |      |  | 38 | 
|         |  |                                                                                                                         |  | Notes to Consolidated Financial
    Statements              |      |  | 44 | 
|Item 9.  |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                                |  |                                                             | 66   | 
|Item 9A. |  | Controls and Procedures                                                                                                 |  |                                                             | 66   | 
|         |  |                                                                                                                         |  | PART III                                                    |      |  |    | 
|Item 10. |  | Directors and Executive Officers of the
    Registrant                                                                  |  |                                                             | 66   | 
|Item 11. |  | Executive Compensation                                                                                                  |  |                                                             | 66   | 
|Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                      |  |                                                             | 67   | 
|Item 13. |  | Certain Relationships and Related
    Transactions                                                                      |  |                                                             | 67   | 
|Item 14. |  | Principal Accountant Fees and Services                                                                                  |  |                                                             | 67   | 
|         |  |                                                                                                                         |  | PART IV                                                     |      |  |    | 
|Item 15. |  | Exhibits and Financial Statement
    Schedules                                                                          |  |                                                             | 67   | 
|         |  |                                                                                                                         |  | Signatures                                                  |      |  | 68 | 

2



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PART I







|        |         
|------- | --------
|Item 1. | Business

Overview






Industry




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





| |                                                                 
| | ----------------------------------------------------------------
| | 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).




3



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| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Optical and RF Technology in Access, Metropolitan Area,
    Wide Area and Telecommunication Networks

Access.


Metropolitan and Wide Area Networks (MANs and
WANs, respectively).


Telecommunication Networks.




| |                                                                                 
| | --------------------------------------------------------------------------------
| | Optical, RF, and Microwave Technology in Military and
    Aerospace Applications





| |                                                                                 
| | --------------------------------------------------------------------------------
| | Demands on Suppliers of Optical, RF, and Microwave
    Subsystems and Components



4



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Products






| |                  
| | -----------------
| | Optical Products:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Over the years, we have built standardized and custom broadband
    network data communication products, through our optoelectronic,
    passive fiber, RF and Microwave product families. Our legacy
    optoelectronics products evolved from an early emphasis on a
    broad range of standardized, multi-source agreement compliant
    (MSA) fiber optic components, including embedded and
    removable transceivers, multi-channel optical links and custom
    integrated modules used in telecom, storage, and data networking
    applications. These products support a wide variety of protocols
    including Gigabit Ethernet, Fiber Channel and SONET and address
    a wide range of wavelengths and transmission distances. Today,
    the Stratos optoelectronics product offerings consist of
    (i) MSA transceivers for telecom/enterprise,
    (ii) specialty transceivers, (iii) military and harsh
    environment components and subsystems, (iv) video
    components and subsystems and (v) card level and mux/demux
    solutions. Looking ahead, we see significant advantages for our
    customers as we combine our existing optoelectronics,
    multiplexing, copper TDM, and optical coarse wave division
    multiplexing (CWDM) technology, our advanced
    miniaturization techniques, and innovative packaging for even
    more fully integrated media adaptor solutions.
|
| | MSA Transceivers for Telecom/ Enterprise  Our
    MSA transceivers offerings include 1x9, gigabit interface
    converter (GBIC), small form factor
    (SFF), small form factor pluggable
    (SFP), and CWDM SFP form factors in multiple laser
    variations for short, medium and long reach applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Specialty Transceivers  We manufacture a line
    of specialty transceivers based upon less commonly manufactured
    standard and non-standard form factors and protocols. These
    products leverage our packaging, miniaturization and
    optoelectronic expertise and offer smaller modules with enhanced
    performance characteristics that are not available from other
    suppliers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Military and Harsh Environment Components and
    Subsystems  Our optoelectronics products for the
    military market meet the shock and vibration requirements of
    military and harsh environment applications. We sell specialized
    transceivers and custom integrated modules designed to meet
    specific customer requirements, including Active Bulkheads and
    connectors, which combine a transceiver media converter and
    expanded beam connection in a single integrated package.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Video Components and Subsystems  We provide
    optoelectronic solutions specifically designed for the transport
    of standard definition and high definition video signals. These
    products include transceivers, media converters, mux/demux
    products and subsystems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

5



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | CWDM Components and Modules  We manufacture
    and sell 4, 8 and 16-channel multiplexer and demultiplexer
    modules, one to four channel optical add/drop modules
    (OADM), integrated modules with pluggable and
    discrete active components and a dense wave division
    multiplexing (DWDM) interleaver product. These
    products are typically customized to the specific needs of our
    telecom and enterprise customers.                                                                                                                       
|
| | Optical Flex Circuits and Multifiber
    Assemblies  We have proprietary, automated and
    software driven optical flex-circuit manufacturing expertise.
    Using that expertise, we develop custom circuit cards and
    backplane solutions for specific customer requirements. The
    Fiber Optics product line consists of (i) CWDM components
    and modules, (ii) optical flex circuits and multi-fiber
    assemblies, (iii) harsh environment connectors,
    (iv) specialty fiber components and assemblies, and
    (v) connectors and cable assemblies.
|
| | Harsh Environment Connectors  We supply
    optical and copper expanded beam and physical contact harsh
    environment connectors to the military and other end markets.
    Our expanded beam connector technology utilizes optics to expand
    the beam of light at the end of the fiber, making the connector
    less susceptible to performance degradation due to dust, debris,
    moisture, shock and vibration. We also have developed a series
    of complementary physical contact connectors to address
    additional applications.                   
|
| | Specialty Fiber Components and Assemblies  Our
    products include custom optical subassemblies for transceiver
    and device manufacturers in single and multi-fiber applications.
    We have developed these specialized products for the medical
    device, military fiber sensor, industrial laser and sensing, and
    oil and gas markets.                                                                                                                                                                                                                  
|
| | Optical Connectors and Cable Assemblies  We
    incorporate industry standard optical connectors in support of
    our optical flex circuit, CWDM, harsh environment connector and
    specialty products.                                                                                                                                                                                                                                                                                                                                                            
|
| | Sources and Availability of Raw Materials  Raw
    materials used in the manufacturing of optical transceivers,
    connector products and cable assemblies are primarily:                                                                                                                                                                                                                                                                                                                                                                                            

|             |                |                |                               |              |                
|------------ | -------------- | -------------- | ----------------------------- | ------------ | ---------------
|Raw Material |                | Primary Source |                               | Availability
|             |                |                |                               |             
|Electrical   |                |                |                               |             
|             | Active         |                | Domestic Dist./Domestic Mfg.  |              | Numerous       
|             | Passive        |                | Domestic Distributors         |              | Stock          
|             | PCB            |                | Domestic Manufacturer         |              | 1-8 weeks      
|Mechanical   |                |                |                               |             
|             | Machined       |                | Domestic Manufacturer         |              | 2 days-4 weeks 
|             | Stamped        |                | Domestic Manufacturer         |              | 4-6 weeks      
|             | Castings       |                | Domestic Manufacturer         |              | 8 weeks        
|             | Plastics       |                | Domestic Manufacturer         |              | 1-6 weeks      
|             | Insulators     |                | Domestic Manufacture          |              | 1-3 weeks      
|             | Tubings        |                | Domestic Manufacturer         |              | Stock-2 weeks  
|             | Connectors     |                | Domestic Manufacturer         |              | 2 days-4 weeks 
|             | Cable          |                | Domestic Manufacturer         |              | 2 days-10 weeks
|             | Heatshrink     |                | Domestic Distributors/Mfg     |              | 2 days-2 weeks 
|             | Tubing         |                | Domestic Dist/Mfg             |              | 2 days-6 weeks 
|             | Machined Parts |                | Domestic Manufacturer         |              | 2 days-6 weeks 
|             | Plastic Parts  |                | Domestic Manufacturer         |              | 2 days-8 weeks 
|             | Military Conn. |                | Offshore/Domestic Mfg         |              | 4-20 weeks     
|Optical      |                |                |                               |             
|             | Transceivers   |                | Offshore Manufacture/Dom. Mfg |              | Stock-16 weeks 
|             | Rosa           |                | Offshore Manufacturer         |              | 8-10 weeks     

6



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|             |  |                       |  |             
|------------ |  | --------------------- |  | ------------
|Raw Material |  | Primary Source        |  | Availability
|             |  |                       |  |             
|Tosa         |  | Offshore Manufacturer |  | 8-10 weeks  
|Filters      |  | Offshore Manufacturer |  | 2-12 weeks  
|Collimators  |  | Offshore Manufacturer |  | 2-12 weeks  
|Lasers       |  | Offshore Manufacturer |  | 8-18 weeks  



| |                 
| | ----------------
| | Copper Products:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We design, manufacture and market two copper product lines. Our
    Trompeter 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
    performance surveys. We emphasize knowledge of customer
    application design, extraordinary service levels, and high
    responsiveness. We sell our RF interconnect products to the
    telecom, military, and video markets. Our Semflex 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  We produce impedance
    controlled Twinax and Triax RF connectors as well as patch jacks
    that enable high frequency electrical performance in harsh
    military and industrial environments. Applications for the
    military/aerospace RF connector products include MIL-STD-1553
    databus couplers, forward battlefield command centers, satellite
    equipment and hermetic interconnects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | RF Interconnection Products for Telecom  Our
    Trompeter BNC and M-BNC connectors are used in DS3 telecom
    applications in central offices as well as emerging deployments
    of DS3 line data rates in remote terminal applications. Our
    product offerings include the 75 ohm DS3 Coaxial BNC series, the
    mini-BNC series, Western Electric Company (WECo) and
    mini-WECo patch plugs and various other interconnect jacks,
    plugs, and adaptors. Inside a typical telecommunication central
    office the high speed digital copper line rate is DS3, and
    utilizes 75 ohm coaxial technology. We are a leading supplier of
    telco-grade plugs to the RBOCs and most other CLEC service
    providers largely due to our commitment to installer training,
    best-in-class installation tools, and high quality and service
    levels.                                                                                                                                                                                                                                                                                                                                                                                                                                        





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | RF Interconnection Products for Video  We
    manufacture 75 ohm BNC connectors and patch jacks for video
    signal applications in both WECo, and mini-WECo form factors.
    Our products are used in cable TV and broadcast station signal
    management, mobile production vehicles, and post-production
    editing applications.                                                                                                                                           
|
| | RF Cable Assemblies  We manufacturer coaxial
    cable assemblies, servicing primarily telecom service providers
    and their central office installers, as well as military
    communications shelter manufacturers.                                                                                                                                                                                                                                                            
|
| | Microwave Cable  We manufacture high
    performance, flexible microwave cable, and market those under
    the Semflex brand. Our production process delivers low
    attenuation characteristics over length and at microwave
    frequencies. This capability allows us to produce low-loss tuned
    cable assemblies where the performance of the cable is matched
    to the connector design. Applications are primarily high power
    or low loss or a combination of both.

7



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##### 





| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Microwave Cable Assemblies  Our cable
    assemblies are typically phase matched microwave frequency
    custom designs of both the cable and connector for a variety of
    military, precision test, and wireless applications. We sell
    both flexible and semi rigid cable assemblies to the military
    and aerospace industries.
|
| | Sources and Availability of Raw Materials  Raw
    materials used in the manufacturing of RF and Microwave
    connector and cable products are primarily:                                                                                                                                                                               

|                          |  |                                 |  |                        
|------------------------- |  | ------------------------------- |  | -----------------------
|Raw Material              |  | Primary Source                  |  | Availability           
|                          |  |                                 |  |                        
|PTFE tape and rod         |  | Distributor or foundry          |  | Numerous               
|Brass                     |  | Local Distributor               |  | Stock                  
|Stainless Steel           |  | Local Distributor               |  | Stock                  
|BeCu                      |  | Local Distributor               |  | Stock                  
|PTFE Rod                  |  | Local Distributor               |  | Stock                  
|PTFE Tapes                |  | Domestic Manufacturer           |  | Manufactured from stock
|Copper Conductors         |  | Domestic Manufacturer           |  | Manufactured from stock
|FEP Jacket Matl          |  | Domestic Manufacturer           |  | Manufactured from stock
|Polyurethane Jacket Matl |  | Domestic Manufacturer           |  | Manufactured from stock
|RF Cable                  |  | Domestic Manufacturer           |  | Manufactured from stock
|Polyolefin Sleeving       |  | Local Distributor               |  | Stock                  
|Machine Parts             |  | Domestic/Offshore/
    Internal |  | Stock to 8 weeks       

Customers




Backlog




Manufacturing




Chicago, IL:




8



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##### 







Mesa, Arizona:






Haverhill, United Kingdom: 2


Research and Development






Technology and Intellectual Property




9



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| |                                                   
| | --------------------------------------------------
| | Active Components and Subsystems (Optoelectronics)







| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Active Integrated Modules and Passive Components and
    Subsystems (Fiber Optics)





| |                                                           
| | ----------------------------------------------------------
| | RF and Microwave Interconnect Products (RF/
    Microwave)



Sales and Technical Support






Marketing




10



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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                                  
|
| |  | 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                        
|
| |  | Deliver competitive products at a lower price                                                                





11



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##### 



Regulatory Matters




Employees




Executive Officers of the Registrant




Phillip A. Harris (58):


Barry Hollingsworth (40):


Newell V. Starks (53):


Richard C.E. Durrant (44):


Joe D. Norwood (63):


12



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##### 





Geographic Areas




Available Information


www.stratosinternational.com







|        |            
|------- | -----------
|Item 2. | Properties.

|                     |  |                                                                                                                                                                                      |  |         |        |              |                    |                                   
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------- | ------ | ------------ | ------------------ | ----------------------------------
|                     |  |                                                                                                                                                                                      |  |         |        | Own or lease
|Location             |  | Function                                                                                                                                                                             |  | Sq. ft. |        |              | (Lease Expiration)
|                     |  |                                                                                                                                                                                      |  |         |        |              |                   
|Active operations    |  |                                                                                                                                                                                      |  |         |        |              |                    |                                   
|Chicago, IL          |  | Corporate headquarters, administrative offices, sales and
    marketing, engineering, research and development facilities, and
    primary optical subsystems manufacturing facility |  |         | 89,360 |              |                    | Owned                             
|Mesa, AZ             |  | RF/ Microwave administrative offices, sales and marketing,
    engineering, research and development facilities, and
    manufacturing facility                                      |  |         | 50,000 |              |                    | Owned                             
|Haverhill, UK        |  | Administrative offices, sales and marketing, engineering,
    research and development facilities, and manufacturing facility
    for fiber optic passive products                   |  |         | 30,000 |              |                    | Leased (2010)                     
|Westlake Village, CA |  | RF/ Microwave administrative offices, sales and marketing office                                                                                                                     |  |         | 9,929  |              |                    | Leased (2005)                     
|Melbourne, FL        |  | Military subsystems administrative offices and engineering,
    research and development facilities                                                                                  |  |         | 7,752  |              |                    | Leased (2007)                     
|Inactive facilities  |  |                                                                                                                                                                                      |  |         |        |              |                    |                                   
|Chicago, IL          |  | Limited use                                                                                                                                                                          |  |         | 61,590 |              |                    | Owned (actively marketed for sale)
|Mountlake, WA        |  | Limited use                                                                                                                                                                          |  |         | 2,178  |              |                    | Leased (2006) $7,100/month        
|Mountain View, CA    |  | Limited use                                                                                                                                                                          |  |         | 38,000 |              |                    | Leased (2007) $62,000/month       



13



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##### 










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings











14



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##### 






















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



15



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##### 





PROPOSAL 1: ELECTION OF DIRECTORS:




|                      |  |           |            |  |                    |  |         | 
|--------------------- |  | --------- | ---------- |  | ------------------ |  | ------- | 
|                      |  | Votes For |            |  | Authority withheld | 
|                      |  |           |            |  |                    | 
|Reginald W. Barrett   |  |           | 13,010,413 |  |                    |  | 407,106 | 
|Phillip A. Harris     |  |           | 13,072,747 |  |                    |  | 334,772 | 
|David Y. Howe         |  |           | 13,011,961 |  |                    |  | 405,558 | 
|Charles Daniel Nelsen |  |           | 13,029,372 |  |                    |  | 388,147 | 
|Edward J. OConnell   |  |           | 12,999,784 |  |                    |  | 417,735 | 
|Newell V. Starks      |  |           | 13,056,441 |  |                    |  | 361,078 | 

PROPOSAL 2: TO APPROVE AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION TO PROVIDE THAT ALL DIRECTORS BE
ELECTED ANNUALLY TO ONE-YEAR TERMS:


|                |  |                    
|--------------- |  | -------------------
|For: 13,129,743 |  | Against: 257,249   
|Abstain: 30,527 |  | Broker non-votes: 0

PROPOSAL 3: TO APPROVE AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION TO PROVIDE THAT STOCKHOLDERS BE
PERMITTED TO TAKE ACTION BY WRITTEN CONSENT:


|                |  |                            
|--------------- |  | ---------------------------
|For: 11,471,361 |  | Against: 72,603            
|Abstain: 96,965 |  | Broker non-votes: 1,806,700

PROPOSAL 4: TO APPROVE AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION TO PROVIDE THAT STOCKHOLDERS BE
PERMITTED TO CALL A SPECIAL MEETING OF STOCKHOLDERS:


|                |  |                            
|--------------- |  | ---------------------------
|For: 11,496,449 |  | Against: 50,096            
|Abstain: 94,384 |  | Broker non-votes: 1,806,700

PROPOSAL 5: TO APPROVE AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION TO PROVIDE THAT THE PERCENTAGE OF
STOCKHOLDERS REQUIRED TO AMEND CERTAIN PROVISIONS OF OUR
RESTATED CERTIFICATE OF INCORPORATION AND OUR BYLAWS BE REDUCED
FROM 80% TO A MAJORITY:


|                |  |                            
|--------------- |  | ---------------------------
|For: 11,430,115 |  | Against: 121,880           
|Abstain: 99,516 |  | Broker non-votes: 2,010,190

PROPOSAL 6: TO APPROVE AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION TO PROVIDE THAT CERTAIN OBSOLETE
PROVISIONS BE DELETED:


|                |  |                     
|--------------- |  | --------------------
|For: 13,279,393 |  | Against: 48,365     
|Abstain: 89,771 |  | Broker non-votes: 60

16



---



##### 






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|               |  |                        |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  | Market price per share |     
|               |  |                        |     
|               |  | 2005                   |      |  | 2004 |  
|               |  |                        |      |  |      |  
|               |  | High                   |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |                        |      |  |      |   |      |      |  |   |      | 
|First quarter  |  | $                      | 5.73 |  |      | $ | 4.14 |      |  | $ | 6.76 |  |  | $ | 4.19 | 
|Second quarter |  |                        | 4.97 |  |      |   | 3.89 |      |  |   | 6.41 |  |  |   | 4.97 | 
|Third quarter  |  |                        | 5.00 |  |      |   | 3.80 |      |  |   | 8.29 |  |  |   | 6.08 | 
|Fourth quarter |  |                        | 4.64 |  |      |   | 3.56 |      |  |   | 7.42 |  |  |   | 4.95 | 





Equity Compensation Plan Information




|                                                           |       |                      |         |         |                      |                         |                       |                      |  |  |         |         | 
|---------------------------------------------------------- | ----- | -------------------- | ------- | ------- | -------------------- | ----------------------- | --------------------- | -------------------- |  |  | ------- | ------- | 
|                                                           |       |                      |         |         |                      | Number of securities    |                      
|                                                           |       |                      |         |         |                      | remaining available for |                      
|                                                           |       | Number of securities |         |         |                      |                         | future issuance under |                     
|                                                           |       | to be issued         |         |         | Weighted-average     |                         |                       | equity compensation  | 
|                                                           |       | upon exercise of     |         |         | exercise price of    |                         |                       | plans (excluding     | 
|                                                           |       | outstanding options, |         |         | outstanding options, |                         |                       | securities reflected | 
|                                                           |       | warrants and rights  |         |         | warrants and rights  |                         |                       | in column (a))       | 
|Plan category                                              |       | (a)                  |         |         | (b)                  |                         |                       | (c)                  | 
|                                                           |       |                      |         |         |                      |                         |                       |                      | 
|Equity compensation plans
    approved by security holders |       |                      | 348,308 |         |                      | $                       | 16.18                 |                      |  |  | 517,889 |        
|Equity compensation plans not approved by security holders |       |                      | 20,395  |         |                      |                         | 2.63                  |                      |  |  |        |        
|                                                           |       |                      |         |         |                      |                         |                       |                      | 
|                                                           | Total |                      |         | 368,703 |                      |                         | $                     | 15.43                |  |  |         | 517,889 | 
|                                                           |       |                      |         |         |                      |                         |                       |                      | 








|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.





17



---



##### 





|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |         |        |   |   |         |        |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | -------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                                             |                                                              | Fiscal years ended April 30, |        
|                                                                             |                                                              |                              |        
|                                                                             |                                                              | 2005                         |         |        | 2004 |   |         | 2003   |   |   | 2002     |         |   | 2001 |        
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Statement of Operations Data:                                                |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |         |        |   |   |         |       
|Revenues                                                                     |                                                              | $                            | 80,454  |        |      | $ | 50,369  |        |   | $ | 38,416   |         |   | $    | 58,870  |        |   | $ | 130,025 |       
|Cost of revenues                                                             |                                                              |                              | 52,642  |        |      |   | 41,954  |        |   |   | 45,809   |         |   |      | 56,413  |        |   |   | 89,617  |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Gross profit (loss)                                                          |                                                              |                              | 27,812  |        |      |   | 8,415   |        |   |   | (7,393   | )       |   |      | 2,457   |        |   |   | 40,408  |       
|Operating expenses:                                                          |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |         |        |   |   |         |       
|                                                                             | Research and development                                     |                              |         | 9,518  |      |   |         | 8,800  |   |   |          | 20,138  |   |      |         | 27,587 |   |   |         | 14,729 |  
|                                                                             | Sales and marketing                                          |                              |         | 10,467 |      |   |         | 8,225  |   |   |          | 7,063   |   |      |         | 7,999  |   |   |         | 9,146  |  
|                                                                             | General and administrative                                   |                              |         | 21,907 |      |   |         | 20,799 |   |   |          | 12,706  |   |      |         | 14,949 |   |   |         | 13,367 |  
|                                                                             | Impairment of goodwill                                       |                              |         |       |      |   |         |       |   |   |          | 28,429  |   |      |         | 8,500  |   |   |         |       |  
|                                                                             | Impairment of other assets                                   |                              |         |       |      |   |         |       |   |   |          | 37,105  |   |      |         | 13,700 |   |   |         |       |  
|                                                                             | Write off in-process research and development                |                              |         |       |      |   |         |       |   |   |          | 2,070   |   |      |         |       |   |   |         |       |  
|                                                                             | Restructuring and other charges                              |                              |         | 4,679  |      |   |         | 3,066  |   |   |          | 3,100   |   |      |         | 9,000  |   |   |         |       |  
|                                                                             | Litigation settlements, net                                  |                              |         | (2,553 | )    |   |         | (454   | ) |   |          | (13,218 | ) |      |         | (1,139 | ) |   |         | (1,750 | )
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Total operating expenses                                                     |                                                              |                              | 44,018  |        |      |   | 40,436  |        |   |   | 97,393   |         |   |      | 80,596  |        |   |   | 35,492  |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Income (loss) from operations                                                |                                                              |                              | (16,206 | )      |      |   | (32,021 | )      |   |   | (104,786 | )       |   |      | (78,139 | )      |   |   | 4,916   |       
|Gain on sale of business                                                     |                                                              |                              |        |        |      |   | 1,305   |        |   |   |         |         |   |      |        |        |   |   |        |       
|Investment income, net                                                       |                                                              |                              | 553     |        |      |   | 777     |        |   |   | 1,117    |         |   |      | 3,360   |        |   |   | 7,832   |       
|Other income (expense)                                                       |                                                              |                              | 464     |        |      |   | 1,057   |        |   |   | 360      |         |   |      | 8       |        |   |   | (62     | )     
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Income (loss) before income taxes                                            |                                                              |                              | (15,189 | )      |      |   | (28,882 | )      |   |   | (103,309 | )       |   |      | (74,771 | )      |   |   | 12,686  |       
|Income tax (provision) credit                                                |                                                              |                              | (118    | )      |      |   | 1,797   |        |   |   |         |         |   |      | 2,581   |        |   |   | (3,510  | )     
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Income (loss) before cumulative effect of change in accounting
    principle |                                                              |                              | (15,307 | )      |      |   | (27,085 | )      |   |   | (103,309 | )       |   |      | (72,190 | )      |   |   | 9,176   |       
|Cumulative effect of change in accounting principle                          |                                                              |                              |        |        |      |   |        |        |   |   | (16,982  | )       |   |      |        |        |   |   |        |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Net income (loss)                                                            |                                                              |                              | (15,307 | )      |      |   | (27,085 | )      |   |   | (120,291 | )       |   |      | (72,190 | )      |   |   | 9,176   |       
|Preferred stock dividend requirements                                        |                                                              |                              | (350    | )      |      |   | (142    | )      |   |   |         |         |   |      |        |        |   |   |        |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Net income (loss) attributable to common shareholders                        |                                                              | $                            | (15,657 | )      |      | $ | (27,227 | )      |   | $ | (120,291 | )       |   | $    | (72,190 | )      |   | $ | 9,176   |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Net income (loss) per share, basic and diluted:                              |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |         |        |   |   |         |       
|                                                                             | Before cumulative effect of a change in accounting principle |                              | $       | (1.13  | )    |   | $       | (2.60  | ) |   | $        | (14.12  | ) |      | $       | (11.06 | ) |   | $       | 1.47   |  
|                                                                             | Cumulative effect of change in accounting principle          |                              |         |       |      |   |         |       |   |   |          | (2.32   | ) |      |         |       |   |   |         |       |  
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Net income (loss)                                                            |                                                              |                              | (1.13   | )      |      |   | (2.60   | )      |   |   | (16.44   | )       |   |      | (11.06  | )      |   |   | 1.47    |       
|Preferred stock dividend requirements                                        |                                                              |                              | (0.03   | )      |      |   | (0.01   | )      |   |   |         |         |   |      |        |        |   |   |        |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        
|Net income (loss) attributable to common shareholders                        |                                                              | $                            | (1.16   | )      |      | $ | (2.61   | )      |   | $ | (16.44   | )       |   | $    | (11.06  | )      |   | $ | 1.47    |       
|                                                                             |                                                              |                              |         |        |      |   |         |        |   |   |          |         |   |      |        

18



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##### 







|                                                          |  |           |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|--------------------------------------------------------- |  | --------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                          |  | April 30, |        
|                                                          |  |           |        
|                                                          |  | 2005      |         |  | 2004 |   |         | 2003 |  |   | 2002    |  |  | 2001 |        
|                                                          |  |           |         |  |      |   |         |      |  |   |         |  |  |      |        
|Balance Sheet Data:                                       |  |           |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash and short-term investments                           |  | $         | 31,828  |  |      | $ | 36,989  |      |  | $ | 61,528  |  |  | $    | 91,920  |  |  | $ | 145,838 | 
|Total assets                                              |  |           | 114,980 |  |      |   | 129,050 |      |  |   | 118,175 |  |  |      | 250,102 |  |  |   | 280,448 | 
|Total liabilities                                         |  |           | 24,507  |  |      |   | 24,271  |      |  |   | 17,130  |  |  |      | 29,622  |  |  |   | 25,549  | 
|Working capital (current assets less current liabilities) |  |           | 52,073  |  |      |   | 52,974  |      |  |   | 65,097  |  |  |      | 98,040  |  |  |   | 178,514 | 
|Shareholders equity                                      |  |           | 90,473  |  |      |   | 104,779 |      |  |   | 101,045 |  |  |      | 220,480 |  |  |   | 254,899 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 of 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.


Overview










19



---



##### 























20



---



##### 











Critical Accounting Policies




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





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





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



21



---



##### 





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





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





Results of Operations


Fiscal years ended
April 30, 2005 and 2004


|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |   |        |        |   |  |      |     |   
|-------------------------------------------- | ------------------------------- | ------- | ------- | ------ | ---- |  | --- | ------- | -- | - | ------- | ------ | - | ------- | --- | -- | -- | - | ------ | ------ | - |  | ---- | --- | --
|                                             |                                 | 2005    |         |        | 2004 |  |     | Change  |   
|                                             |                                 |         |         |        |      |  |     |         |   
|                                             |                                 | Dollars |         |        | %    |  |     | Dollars |    |   | %       |        |   | Dollars |     |    | %  |  
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Revenues:                                    |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |   |        |        |   |  |      |    
|                                             | Net sales                       |         | $       | 79,931 |      |  |     | 99      | %  |   | $       | 49,379 |   |         |     | 98 | %  |   | $      | 30,552 |   |  |      | 62  | % 
|                                             | License fees and royalties      |         |         | 523    |      |  |     | 1       | %  |   |         | 990    |   |         |     | 2  | %  |   |        | (467   | ) |  |      | (47 | )%
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Total revenues                               |                                 |         | 80,454  |        |      |  | 100 | %       |    |   | 50,369  |        |   |         | 100 | %  |    |   | 30,085 |        |   |  | 60   | %  
|Cost of revenues                             |                                 |         | 52,642  |        |      |  | 65  | %       |    |   | 41,954  |        |   |         | 83  | %  |    |   | 10,688 |        |   |  | 25   | %  
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Gross profit                                 |                                 |         | 27,812  |        |      |  | 35  | %       |    |   | 8,415   |        |   |         | 17  | %  |    |   | 19,397 |        |   |  | 231  | %  
|Operating expenses                           |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |   |        |        |   |  |      |    
|                                             | Research and development        |         |         | 9,518  |      |  |     | 12      | %  |   |         | 8,800  |   |         |     | 18 | %  |   |        | 718    |   |  |      | 8   | % 
|                                             | Sales and marketing             |         |         | 10,467 |      |  |     | 13      | %  |   |         | 8,225  |   |         |     | 16 | %  |   |        | 2,242  |   |  |      | 27  | % 
|                                             | General and administrative      |         |         | 21,907 |      |  |     | 27      | %  |   |         | 20,799 |   |         |     | 41 | %  |   |        | 1,108  |   |  |      | 5   | % 
|                                             | Restructuring and other charges |         |         | 4,679  |      |  |     | 6       | %  |   |         | 3,066  |   |         |     | 6  | %  |   |        | 1,613  |   |  |      | 53  | % 
|                                             | Litigation settlements, net     |         |         | (2,553 | )    |  |     | (3      | )% |   |         | (454   | ) |         |     | (1 | )% |   |        | (2,099 | ) |  |      | 462 | % 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Total operating expenses                     |                                 |         | 44,018  |        |      |  | 55  | %       |    |   | 40,436  |        |   |         | 80  | %  |    |   | 3,582  |        |   |  | 9    | %  
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Loss from operations                         |                                 |         | (16,206 | )      |      |  | (20 | )%      |    |   | (32,021 | )      |   |         | (63 | )% |    |   | 15,815 |        |   |  | (49  | )% 
|Gain on sale of business                     |                                 |         |        |        |      |  |    |         |    |   | 1,305   |        |   |         | 3   | %  |    |   | (1,305 | )      |   |  | (100 | )% 
|Investment income, net                       |                                 |         | 553     |        |      |  | 1   | %       |    |   | 777     |        |   |         | 2   | %  |    |   | (224   | )      |   |  | (29  | )% 
|Other income                                 |                                 |         | 464     |        |      |  | 1   | %       |    |   | 1,057   |        |   |         | 2   | %  |    |   | (593   | )      |   |  | (56  | )% 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Loss before income taxes                     |                                 |         | (15,189 | )      |      |  | (18 | )%      |    |   | (28,882 | )      |   |         | (56 | )% |    |   | 13,693 |        |   |  | (47  | )% 
|Income tax (provision) credit                |                                 |         | (118    | )      |      |  |    |         |    |   | 1,797   |        |   |         | 4   | %  |    |   | (1,915 | )      |   |  | (107 | )% 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Net loss                                     |                                 |         | (15,307 | )      |      |  | (18 | )%      |    |   | (27,085 | )      |   |         | (52 | )% |    |   | 11,778 |        |   |  | (43  | )% 
|Preferred stock dividend requirements        |                                 |         | (350    | )      |      |  |    |         |    |   | (142    | )      |   |         | 0   | %  |    |   | (208   | )      |   |  | 146  | %  
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Net loss attributable to common shareholders |                                 | $       | (15,657 | )      |      |  | (18 | )%      |    | $ | (27,227 | )      |   |         | (52 | )% |    | $ | 11,570 |        |   |  | (42  | )% 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  

Net Sales:


22



---



##### 







License Fees and Royalties:


Cost of Revenues and Gross Margins:




Research and Development:


Sales and Marketing:


General and Administrative:


Restructuring and Other Charges:




23



---



##### 







Litigation Settlements, Net:


Gain on Sale of Business:


Investment Income, Net:


Other Income:


Income Taxes:




24



---



##### 



|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |   |         |         |   |  |      |      |   
|--------------------------------------------------------------- | ------------------------------------------------ | ---------------------------- | ------- | ------ | ---- |  | --- | ------- | -- | - | -------- | ------- | - | ------- | ---- | --- | -- | - | ------- | ------- | - |  | ---- | ---- | --
|                                                                |                                                  | Fiscal years ended April 30, |        
|                                                                |                                                  |                              |        
|                                                                |                                                  | 2004                         |         |        | 2003 |  |     | Change  |   
|                                                                |                                                  |                              |         |        |      |  |     |         |   
|                                                                |                                                  | Dollars                      |         |        | %    |  |     | Dollars |    |   | %        |         |   | Dollars |      |     | %  |  
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Revenues:                                                       |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |   |         |         |   |  |      |     
|                                                                | Net sales                                        |                              | $       | 49,379 |      |  |     | 98      | %  |   | $        | 37,236  |   |         |      | 97  | %  |   | $       | 12,143  |   |  |      | 33   | % 
|                                                                | License fees and royalties                       |                              |         | 990    |      |  |     | 2       | %  |   |          | 1,180   |   |         |      | 3   | %  |   |         | (190    | ) |  |      | (16  | )%
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Total revenues                                                  |                                                  |                              | 50,369  |        |      |  | 100 | %       |    |   | 38,416   |         |   |         | 100  | %   |    |   | 11,953  |         |   |  | 31   | %   
|Cost of revenues                                                |                                                  |                              | 41,954  |        |      |  | 83  | %       |    |   | 45,809   |         |   |         | 119  | %   |    |   | (3,855  | )       |   |  | (8   | )%  
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Gross profit (loss)                                             |                                                  |                              | 8,415   |        |      |  | 17  | %       |    |   | (7,393   | )       |   |         | (19  | )%  |    |   | 15,808  |         |   |  | (214 | )%  
|Operating expenses                                              |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |   |         |         |   |  |      |     
|                                                                | Research and development                         |                              |         | 8,800  |      |  |     | 18      | %  |   |          | 20,138  |   |         |      | 53  | %  |   |         | (11,338 | ) |  |      | (56  | )%
|                                                                | Sales and marketing                              |                              |         | 8,225  |      |  |     | 16      | %  |   |          | 7,063   |   |         |      | 18  | %  |   |         | 1,162   |   |  |      | 16   | % 
|                                                                | General and administrative                       |                              |         | 20,799 |      |  |     | 41      | %  |   |          | 12,706  |   |         |      | 33  | %  |   |         | 8,093   |   |  |      | 64   | % 
|                                                                | Impairment of goodwill                           |                              |         |       |      |  |     |        |    |   |          | 28,429  |   |         |      | 74  | %  |   |         | (28,429 | ) |  |      | (100 | )%
|                                                                | Write off of in-process research and development |                              |         |       |      |  |     |        |    |   |          | 2,070   |   |         |      | 5   | %  |   |         | (2,070  | ) |  |      | (100 | )%
|                                                                | Impairment of other assets                       |                              |         |       |      |  |     |        |    |   |          | 37,105  |   |         |      | 97  | %  |   |         | (37,105 | ) |  |      | (100 | )%
|                                                                | Restructuring and other charges                  |                              |         | 3,066  |      |  |     | 6       | %  |   |          | 3,100   |   |         |      | 8   | %  |   |         | (34     | ) |  |      | (1   | )%
|                                                                | Litigation settlements, net                      |                              |         | (454   | )    |  |     | (1      | )% |   |          | (13,218 | ) |         |      | (34 | )% |   |         | 12,764  |   |  |      | (97  | )%
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Total operating expenses                                        |                                                  |                              | 40,436  |        |      |  | 80  | %       |    |   | 97,393   |         |   |         | 254  | %   |    |   | (56,957 | )       |   |  | (58  | )%  
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Loss from operations                                            |                                                  |                              | (32,021 | )      |      |  | (63 | )%      |    |   | (104,786 | )       |   |         | (273 | )%  |    |   | 72,765  |         |   |  | (69  | )%  
|Gain on sale of business                                        |                                                  |                              | 1,305   |        |      |  | 3   | %       |    |   |         |         |   |         |     |     |    |   | 1,305   |         |   |  |      |     
|Investment income, net                                          |                                                  |                              | 777     |        |      |  | 2   | %       |    |   | 1,117    |         |   |         | 3    | %   |    |   | (340    | )       |   |  | (30  | )%  
|Other income                                                    |                                                  |                              | 1,057   |        |      |  | 2   | %       |    |   | 360      |         |   |         | 1    | %   |    |   | 697     |         |   |  | 194  | %   
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Loss before income taxes                                        |                                                  |                              | (28,882 | )      |      |  | (56 | )%      |    |   | (103,309 | )       |   |         | (269 | )%  |    |   | 74,427  |         |   |  | (72  | )%  
|Income tax credit                                               |                                                  |                              | 1,797   |        |      |  | 4   | %       |    |   |         |         |   |         | 0    | %   |    |   | 1,797   |         |   |  |     |     
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Loss before cumulative effect of change in accounting principle |                                                  |                              | (27,085 | )      |      |  | (52 | )%      |    |   | (103,309 | )       |   |         | (269 | )%  |    |   | 76,224  |         |   |  | (74  | )%  
|Cumulative effect of change in accounting principle             |                                                  |                              |        |        |      |  |    |         |    |   | (16,982  | )       |   |         |     |     |    |   | 16,982  |         |   |  | (100 | )%  
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Net loss                                                        |                                                  |                              | (27,085 | )      |      |  | (52 | )%      |    |   | (120,291 | )       |   |         | (269 | )%  |    |   | 93,206  |         |   |  | (77  | )%  
|Preferred stock dividend requirements                           |                                                  |                              | (142    | )      |      |  |    |         |    |   |         |         |   |         |     |     |    |   | (142    | )       |   |  |     |     
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  
|Net loss attributable to common shareholders                    |                                                  | $                            | (27,227 | )      |      |  | (52 | )%      |    | $ | (120,291 | )       |   |         | (269 | )%  |    | $ | 93,064  |         |   |  | (77  | )%  
|                                                                |                                                  |                              |         |        |      |  |     |         |    |   |          |         |   |         |      |     |    |  

Net Sales:




25



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##### 





License Fees and Royalties.


Cost of Revenues and Gross Margins:


Research and Development:


Sales and Marketing:


General and Administrative:


Other Operating Expenses:




| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. A $28.4 million charge for goodwill impairment per
    Stratos annual goodwill impairment review, in accordance
    with the provisions of SFAS No. 142, Goodwill
    and Other Intangible Assets.                                                                               
|
| | b. Write off of $2.1 million of costs of the
    acquisitions of Tsunami Optics, Inc. and Paracer, Inc. that were
    allocated to intangible in-process research and development
    based on the final purchase price allocations associated with
    these fiscal 2002 acquisitions.
|
| | c. A $37.1 million charge for impairment of long-lived
    assets in accordance with provisions of SFAS No. 144,
    Accounting for the Impairment or Disposal of Long Lived
    Assets.                                                                                             

Restructuring and Other Charges:


26



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##### 









Litigation Settlements, Net:




Investment Income, Net:


Other Income:


Income Taxes:




Cumulative Effect of a Change in Accounting Principle:


Liquidity and Capital Resources:




27



---



##### 



















28



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##### 







|                            |  |                                      |        |           |        |   |       |           |           |   |           |  |  |         |     |  |  |   |   | 
|--------------------------- |  | ------------------------------------ | ------ | --------- | ------ | - | ----- | --------- | --------- | - | --------- |  |  | ------- | --- |  |  | - | - | 
|                            |  | Payment due by period (in thousands)
|                            |  |                                     
|                            |  |                                      |        | Less than |        |   |       |           | More than
|Contractual Obligations     |  | Total                                |        |           | 1 Year |   |       | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years
|                            |  |                                      |        |           |        |   |       |           |           |   |           |  |  |        
|Long-term debt obligations  |  | $                                    | 815    |           |        | $ | 815   |           |           | $ |          |  |  | $       |    |  |  | $ |  | 
|Operating lease obligations |  |                                      | 3,290  |           |        |   | 1,215 |           |           |   | 1,575     |  |  |         | 500 |  |  |   |  | 
|Purchase obligations        |  |                                      | 6,782  |           |        |   | 6,782 |           |           |   |          |  |  |         |    |  |  |   |  | 
|                            |  |                                      |        |           |        |   |       |           |           |   |           |  |  |         |    
|Total                       |  | $                                    | 10,887 |           |        | $ | 8,812 |           |           | $ | 1,575     |  |  | $       | 500 |  |  | $ |  | 
|                            |  |                                      |        |           |        |   |       |           |           |   |           |  |  |         |    

Off-Balance Sheet Arrangements:




Business Risk Factors:




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







| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



29



---



##### 







| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | 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





| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



30



---



##### 





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | 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.



31



---



##### 





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





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | The 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.



32



---



##### 











| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



33



---



##### 





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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                                  
|
| |  | Seasonal reductions in business activities in some parts of the
    world, such as during the summer months in Europe
|
| |  | Trade protection measures and import and export licensing
    requirements                                           
|
| |  | Changes in a specific countrys or regions political
    or economic conditions                                     
|
| |  | Potentially adverse tax consequences rights in some foreign
    countries                                            
|
| |  | The potential difficulty in enforcing intellectual property                                                          
|
| |  | 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.





| |   |                                                  
| | - | -------------------------------------------------
| |  | Use of significant amounts of cash               
|
| |  | The incurrence of debt and contingent liabilities

34



---



##### 





| |   |                                                    
| | - | ---------------------------------------------------
| |  | 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.





35



---



##### 







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.





| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | 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                        
|
| |  | Strategic moves by us or our competitors, such as acquisitions                                                                    





| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



36



---



##### 








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk










|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Index to Financial Statements


|                                                            |                                                               |  |    |    | 
|----------------------------------------------------------- | ------------------------------------------------------------- |  | -- | -- | 
|Report of Independent Registered Public
    Accounting Firm |                                                               |  | 39 |   
|Consolidated Balance Sheets at
    April 30, 2005 and 2004  |                                                               |  | 40 |   
|Consolidated Statements of Operations                       |                                                               |  |    |   
|                                                            | For the fiscal years ended April 30,
    2005, 2004, and 2003 |  |    | 41 | 
|Consolidated Statements of Shareholders Equity             |                                                               |  |    |   
|                                                            | For the fiscal years ended April 30,
    2005, 2004, and 2003 |  |    | 42 | 
|Consolidated Statements of Cash Flows                       |                                                               |  |    |   
|                                                            | For the fiscal years ended April 30,
    2005, 2004, and 2003 |  |    | 43 | 
|Consolidated Statements of Comprehensive Loss               |                                                               |  |    |   
|                                                            | For the fiscal years ended April 30,
    2005, 2004, and 2003 |  |    | 44 | 
|Notes to Consolidated Financial
    Statements              |                                                               |  | 45 |   
|Quarterly Results of Operations
    (Unaudited)             |                                                               |  | 61 |   

37



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                          
| | -------------------------
| | /s/ Ernst &
    Young LLP





38



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##### 



STRATOS INTERNATIONAL, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                  |                                           |                           |          |        |      |   |          |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------- | -------- | ------ | ---- | - | -------- | ------ | 
|                                                                                                                                                                                  |                                           | At April 30,              |         
|                                                                                                                                                                                  |                                           |                           |         
|                                                                                                                                                                                  |                                           | 2005                      |          |        | 2004 |  
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|                                                                                                                                                                                  |                                           | (In thousands, except par |         
|                                                                                                                                                                                  |                                           | value and share amounts)  |         
|ASSETS                                                                                                                                                                           
|Current assets:                                                                                                                                                                   |                                           |                           |          |        |      |   |          |       
|                                                                                                                                                                                  | Cash and cash equivalents                 |                           | $        | 13,276 |      |   | $        | 7,830  | 
|                                                                                                                                                                                  | Short-term investments                    |                           |          | 18,552 |      |   |          | 29,159 | 
|                                                                                                                                                                                  | Accounts receivable, net                  |                           |          | 12,926 |      |   |          | 12,544 | 
|                                                                                                                                                                                  | Inventories                               |                           |          | 15,974 |      |   |          | 15,964 | 
|                                                                                                                                                                                  | Refundable income taxes                   |                           |          | 4,267  |      |   |          | 4,176  | 
|                                                                                                                                                                                  | Prepaid expenses and other current assets |                           |          | 6,139  |      |   |          | 1,326  | 
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|Total current assets                                                                                                                                                              |                                           |                           | 71,134   |        |      |   | 70,999   |       
|Property, plant and equipment, net                                                                                                                                                |                                           |                           | 21,338   |        |      |   | 26,956   |       
|Intangible assets, net                                                                                                                                                            |                                           |                           | 13,364   |        |      |   | 14,665   |       
|Goodwill and other indefinite-lived assets                                                                                                                                        |                                           |                           | 6,110    |        |      |   | 6,110    |       
|Assets held for sale                                                                                                                                                              |                                           |                           | 2,936    |        |      |   | 4,441    |       
|Other assets                                                                                                                                                                      |                                           |                           | 98       |        |      |   | 5,879    |       
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|Total assets                                                                                                                                                                      |                                           | $                         | 114,980  |        |      | $ | 129,050  |       
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|                                                                                                                                                                                 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                             
|Current liabilities:                                                                                                                                                              |                                           |                           |          |        |      |   |          |       
|                                                                                                                                                                                  | Accounts payable                          |                           | $        | 6,987  |      |   | $        | 8,422  | 
|                                                                                                                                                                                  | Accrued expenses                          |                           |          | 11,259 |      |   |          | 7,373  | 
|                                                                                                                                                                                  | Current portion of long term-debt         |                           |          | 815    |      |   |          | 2,230  | 
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|Total current liabilities                                                                                                                                                         |                                           |                           | 19,061   |        |      |   | 18,025   |       
|Long-term debt, less current portion                                                                                                                                              |                                           |                           |         |        |      |   | 801      |       
|Deferred income taxes                                                                                                                                                             |                                           |                           | 446      |        |      |   | 445      |       
|Series B redeemable preferred stock                                                                                                                                               |                                           |                           | 5,000    |        |      |   | 5,000    |       
|Shareholders equity:                                                                                                                                                             |                                           |                           |          |        |      |   |          |       
|Preferred stock, $0.01 par value: Authorized
    5,000,000 shares; issued and outstanding 50,000 shares
    of Series B redeemable preferred stock at April 30,
    2005 and 2004 |                                           |                           |         |        |      |   |         |       
|Common stock, $0.01 par value: Authorized
    100,000,000 shares; issued and outstanding 14,559,348, and
    14,265,510 shares at April 30, 2005 and 2004, respectively           |                                           |                           | 146      |        |      |   | 143      |       
|Cost of shares in treasury                                                                                                                                                        |                                           |                           | (259     | )      |      |   | (248     | )     
|Additional paid-in capital                                                                                                                                                        |                                           |                           | 320,410  |        |      |   | 319,212  |       
|Unearned compensation                                                                                                                                                             |                                           |                           | (3,505   | )      |      |   | (3,809   | )     
|Accumulated other comprehensive income (loss)                                                                                                                                     |                                           |                           | (29      | )      |      |   | 114      |       
|Accumulated deficit                                                                                                                                                               |                                           |                           | (226,290 | )      |      |   | (210,633 | )     
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|Total shareholders equity                                                                                                                                                        |                                           |                           | 90,473   |        |      |   | 104,779  |       
|                                                                                                                                                                                  |                                           |                           |          |        |      |  
|Total liabilities and shareholders equity                                                                                                                                        |                                           | $                         | 114,980  |        |      | $ | 129,050  |       
|                                                                                                                                                                                  |                                           |                           |          |        |      |  



39



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##### 



STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                |                                                                 |                                          |         |        |      |   |         |        |   |   |          |         |  
|--------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | -------- | ------- | -
|                                                                |                                                                 | For the fiscal years ended April 30,     |        
|                                                                |                                                                 |                                          |        
|                                                                |                                                                 | 2005                                     |         |        | 2004 |   |         | 2003   |  
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|                                                                |                                                                 | (In thousands, except per share amounts) |        
|Revenues:                                                       |                                                                 |                                          |         |        |      |   |         |        |   |   |          |        
|                                                                | Net sales                                                       |                                          | $       | 79,931 |      |   | $       | 49,379 |   |   | $        | 37,236  |  
|                                                                | License fees and royalties                                      |                                          |         | 523    |      |   |         | 990    |   |   |          | 1,180   |  
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Total revenues                                                  |                                                                 |                                          | 80,454  |        |      |   | 50,369  |        |   |   | 38,416   |        
|Cost of revenues                                                |                                                                 |                                          | 52,642  |        |      |   | 41,954  |        |   |   | 45,809   |        
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Gross profit (loss)                                             |                                                                 |                                          | 27,812  |        |      |   | 8,415   |        |   |   | (7,393   | )      
|Operating expenses                                              |                                                                 |                                          |         |        |      |   |         |        |   |   |          |        
|                                                                | Research and development                                        |                                          |         | 9,518  |      |   |         | 8,800  |   |   |          | 20,138  |  
|                                                                | Sales and marketing                                             |                                          |         | 10,467 |      |   |         | 8,225  |   |   |          | 7,063   |  
|                                                                | General and administrative                                      |                                          |         | 21,907 |      |   |         | 20,799 |   |   |          | 12,706  |  
|                                                                | Impairment of goodwill                                          |                                          |         |       |      |   |         |       |   |   |          | 28,429  |  
|                                                                | Write off of in-process research and development                |                                          |         |       |      |   |         |       |   |   |          | 2,070   |  
|                                                                | Impairment of other assets                                      |                                          |         |       |      |   |         |       |   |   |          | 37,105  |  
|                                                                | Restructuring and other charges                                 |                                          |         | 4,679  |      |   |         | 3,066  |   |   |          | 3,100   |  
|                                                                | Litigation settlements, net                                     |                                          |         | (2,553 | )    |   |         | (454   | ) |   |          | (13,218 | )
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Total operating expenses                                        |                                                                 |                                          | 44,018  |        |      |   | 40,436  |        |   |   | 97,393   |        
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Loss from operations                                            |                                                                 |                                          | (16,206 | )      |      |   | (32,021 | )      |   |   | (104,786 | )      
|Gain on sale of business                                        |                                                                 |                                          |        |        |      |   | 1,305   |        |   |   |         |        
|Investment income, net                                          |                                                                 |                                          | 553     |        |      |   | 777     |        |   |   | 1,117    |        
|Other income                                                    |                                                                 |                                          | 464     |        |      |   | 1,057   |        |   |   | 360      |        
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Loss before income taxes                                        |                                                                 |                                          | (15,189 | )      |      |   | (28,882 | )      |   |   | (103,309 | )      
|Income tax (provision) credit                                   |                                                                 |                                          | (118    | )      |      |   | 1,797   |        |   |   |         |        
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Loss before cumulative effect of change in accounting principle |                                                                 |                                          | (15,307 | )      |      |   | (27,085 | )      |   |   | (103,309 | )      
|Cumulative effect of change in accounting principle             |                                                                 |                                          |        |        |      |   |        |        |   |   | (16,982  | )      
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Net loss                                                        |                                                                 |                                          | (15,307 | )      |      |   | (27,085 | )      |   |   | (120,291 | )      
|Preferred stock dividend requirements                           |                                                                 |                                          | (350    | )      |      |   | (142    | )      |   |   |         |        
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Net loss attributable to common shareholders                    |                                                                 | $                                        | (15,657 | )      |      | $ | (27,227 | )      |   | $ | (120,291 | )      
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Per share data, basic and diluted:                              |                                                                 |                                          |         |        |      |   |         |        |   |   |          |        
|                                                                | Loss before cumulative effect of change in accounting principle |                                          | $       | (1.13  | )    |   | $       | (2.60  | ) |   | $        | (14.12  | )
|                                                                | Cumulative effect of change in accounting principle             |                                          |         |       |      |   |         |       |   |   |          | (2.32   | )
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|                                                                | Net loss                                                        |                                          |         | (1.13  | )    |   |         | (2.60  | ) |   |          | (16.44  | )
|                                                                | Preferred stock dividend requirements                           |                                          |         | (0.03  | )    |   |         | (0.01  | ) |   |          |        |  
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|                                                                | Net loss attributable to common shareholders                    |                                          | $       | (1.16  | )    |   | $       | (2.61  | ) |   | $        | (16.44  | )
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  
|Weighted average number of common shares outstanding            |                                                                 |                                          |         |        |      |   |         |        |   |   |          |        
|                                                                | Basic and diluted                                               |                                          |         | 13,546 |      |   |         | 10,444 |   |   |          | 7,317   |  
|                                                                |                                                                 |                                          |         |        |      |   |         |        |  

40



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##### 



STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


For the fiscal years ended April 30, 2005, 2004 and
2003


(In thousands, except share amounts)


|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   |          |  
|-------------------------------------------------------- |  | ------ | ---- | - | -------- | ---------- | ---- | ------- |  | - | ------------ | - |  | ------------- | ------ | ----- | ----------- | - | ---- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                         |  |        |      |   |          | Additional |      |         |  |   | Accum. Other |   |  |               |        | Total |            
|                                                         |  | Common |      |   | Treasury |            |      | Paid-In |  |   | Unearned     |   |  | Comprehensive |        |       | Accumulated |   |      | Shareholders | 
|                                                         |  | Stock  |      |   | Shares   |            |      | Capital |  |   | Compensation |   |  | Income(Loss)  |        |       | Deficit     |   |      | Equity        | 
|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               | 
|Balance at April 30, 2002                                |  | $      | 728  |   |          |            |      |         |  | $ | 283,162      |   |  | $             |       |       |             | $ | (295 | )             |  | $ | (63,115  | ) |  | $ | 220,480  |  
|Net loss                                                 |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   | (120,291 | ) |  |   | (120,291 | )
|Foreign currency translation adjustments                 |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   | 449  |               |  |   |          |   |  |   | 449      |  
|Issuance of 507,700 shares of restricted common stock    |  |        | 5    |   |          |            |      |         |  |   | 427          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 432      |  
|Option exercises (2,455 shares)                          |  |        |     |   |          |            |      |         |  |   | 6            |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 6        |  
|Purchase of 251, 959 shares of common stock for treasury |  |        |      |   |          |            | (31  | )       |  |   |              |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | (31      | )
|Effect of 1 for 10 reverse stock split                   |  |        | (659 | ) |          |            |      |         |  |   | 659          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   |         |  
|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               | 
|Balance at April 30, 2003                                |  |        | 74   |   |          |            | (31  | )       |  |   | 284,254      |   |  |               |       |       |             |   | 154  |               |  |   | (183,406 | ) |  |   | 101,045  |  
|Net loss                                                 |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   | (27,085  | ) |  |   | (27,085  | )
|Dividends on redeemable preferred stock                  |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   | (142     | ) |  |   | (142     | )
|Foreign currency translation adjustments                 |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   | (40  | )             |  |   |          |   |  |   | (40      | )
|Issuance of 745,351 shares of restricted common stock    |  |        | 7    |   |          |            |      |         |  |   | 3,802        |   |  |               | (3,809 | )     |             |   |      |               |  |   |          |   |  |   |         |  
|Option exercises (98,675)                                |  |        | 1    |   |          |            |      |         |  |   | 260          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 261      |  
|Purchase of common stock for treasury                    |  |        |      |   |          |            | (217 | )       |  |   |              |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | (217     | )
|Consideration for acquisition (6,082,000 shares)         |  |        | 61   |   |          |            |      |         |  |   | 30,896       |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 30,957   |  
|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               | 
|Balance at April 30, 2004                                |  |        | 143  |   |          |            | (248 | )       |  |   | 319,212      |   |  |               | (3,809 | )     |             |   | 114  |               |  |   | (210,633 | ) |  |   | 104,779  |  
|Net 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          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 377      |  
|Amortization of restricted stock grants                  |  |        |      |   |          |            |      |         |  |   |              |   |  |               | 550    |       |             |   |      |               |  |   |          |   |  |   | 550      |  
|Forfeiture of 282,074 shares of restricted common stock  |  |        | (3   | ) |          |            |      |         |  |   | (1,448       | ) |  |               | 1,416  |       |             |   |      |               |  |   |          |   |  |   | (35      | )
|Option exercises (217,749 shares)                        |  |        | 2    |   |          |            |      |         |  |   | 611          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 613      |  
|Purchase of common stock for treasury                    |  |        |      |   |          |            | (11  | )       |  |   |              |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | (11      | )
|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               | 
|Balance at April 30, 2005                                |  | $      | 146  |   |          | $          | (259 | )       |  | $ | 320,410      |   |  | $             | (3,505 | )     |             | $ | (29  | )             |  | $ | (226,290 | ) |  | $ | 90,473   |  
|                                                         |  |        |      |   |          |            |      |         |  |   |              |   |  |               |        |       |             |   |      |               | 



41



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##### 



STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                   |                                                        |                                      |         |       |      |   |         |        |   |   |          |        |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------ | ------- | ----- | ---- | - | ------- | ------ | - | - | -------- | ------ | -
|                                                                                   |                                                        | For the fiscal years ended April 30, |        
|                                                                                   |                                                        |                                      |        
|                                                                                   |                                                        | 2005                                 |         |       | 2004 |   |         | 2003   |  
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|                                                                                   |                                                        | (In thousands)                       |        
|Operating activities:                                                              |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|Net loss                                                                           |                                                        | $                                    | (15,307 | )     |      | $ | (27,085 | )      |   | $ | (120,291 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities:    |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|                                                                                   | Cumulative effect of a change in accounting principle  |                                      |         |      |      |   |         |       |   |   |          | 16,982 |  
|                                                                                   | Provision for Depreciation                             |                                      |         | 6,550 |      |   |         | 6,280  |   |   |          | 13,600 |  
|                                                                                   | Provision for amortization of intangible assets        |                                      |         | 1,630 |      |   |         | 894    |   |   |          | 552    |  
|                                                                                   | Provision for amortization of stock based compensation |                                      |         | 927   |      |   |         |       |   |   |          |       |  
|                                                                                   | Provision for impairment of goodwill                   |                                      |         |      |      |   |         |       |   |   |          | 28,429 |  
|                                                                                   | Provision for impairment of other assets               |                                      |         |      |      |   |         | 910    |   |   |          | 39,175 |  
|                                                                                   | Provision for losses on accounts receivable            |                                      |         | 259   |      |   |         | 461    |   |   |          | 331    |  
|                                                                                   | Minority interest                                      |                                      |         |      |      |   |         | (350   | ) |   |          | (148   | )
|                                                                                   | Gain on sale of business                               |                                      |         |      |      |   |         | (1,305 | ) |   |          |       |  
|                                                                                   | Provision for excess and obsolete inventory            |                                      |         | 984   |      |   |         | 1,925  |   |   |          | 6,805  |  
|Changes in operating assets and liabilities:                                       |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|                                                                                   | Accounts receivable                                    |                                      |         | (641  | )    |   |         | 27     |   |   |          | 213    |  
|                                                                                   | Inventories                                            |                                      |         | (994  | )    |   |         | (2,309 | ) |   |          | 1,222  |  
|                                                                                   | Prepaid expenses and other assets                      |                                      |         | 544   |      |   |         | 1,746  |   |   |          | (4,578 | )
|                                                                                   | Accounts payable and accrued expenses                  |                                      |         | 2,276 |      |   |         | 730    |   |   |          | (5,082 | )
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Net cash used in operating activities                                              |                                                        |                                      | (3,772  | )     |      |   | (18,076 | )      |   |   | (22,790  | )     
|Investing activities:                                                              |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|Purchases of property, plant and equipment                                         |                                                        |                                      | (1,003  | )     |      |   | (3,268  | )      |   |   | (2,126   | )     
|Purchases of short-term investments                                                |                                                        |                                      | (9,265  | )     |      |   | (45,896 | )      |   |   | (30,857  | )     
|Sale of short-term investments                                                     |                                                        |                                      | 19,872  |       |      |   | 66,862  |        |   |   | 63,432   |       
|Acquisitions, net of cash acquired                                                 |                                                        |                                      |        |       |      |   | 8,120   |        |   |   | (189     | )     
|Net proceeds from sale of assets                                                   |                                                        |                                      | 1,578   |       |      |   | 4,381   |        |   |   | 1,209    |       
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Net cash provided by investing activities                                          |                                                        |                                      | 11,182  |       |      |   | 30,199  |        |   |   | 31,469   |       
|Financing activities:                                                              |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|Repayment of long-term borrowings                                                  |                                                        |                                      | (2,216  | )     |      |   | (3,598  | )      |   |   | (6,496   | )     
|Dividends paid on preferred stock                                                  |                                                        |                                      | (350    | )     |      |   | (142    | )      |   |   |         |       
|Net proceeds from exercise of stock options                                        |                                                        |                                      | 613     |       |      |   | 261     |        |   |   |         |       
|Purchase of shares for treasury                                                    |                                                        |                                      | (11     | )     |      |   | (217    | )      |   |   |         |       
|Distribution to former owners of acquired company to satisfy
    assumed liability |                                                        |                                      |        |       |      |   | (12,000 | )      |   |   |         |       
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Net cash used in financing activities                                              |                                                        |                                      | (1,964  | )     |      |   | (15,696 | )      |   |   | (6,496   | )     
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Net increase (decrease) in cash and cash equivalents                               |                                                        |                                      | 5,446   |       |      |   | (3,573  | )      |   |   | 2,183    |       
|Cash and cash equivalents at beginning of year                                     |                                                        |                                      | 7,830   |       |      |   | 11,403  |        |   |   | 9,220    |       
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Cash and cash equivalents at end of year                                           |                                                        | $                                    | 13,276  |       |      | $ | 7,830   |        |   | $ | 11,403   |       
|                                                                                   |                                                        |                                      |         |       |      |   |         |        |  
|Supplemental cash flow data                                                        |                                                        |                                      |         |       |      |   |         |        |   |   |          |       
|Common stock issued in acquisition of company                                      |                                                        | $                                    |        |       |      | $ | 30,957  |        |   | $ |         |       
|Issuance of shares of restricted common stock                                      |                                                        | $                                    | 1,662   |       |      | $ | 3,809   |        |   | $ | 432      |       



42



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##### 



STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


|                                   |                                         |                                      |         |      |      |   |         |      |   |   |          |     | 
|---------------------------------- | --------------------------------------- | ------------------------------------ | ------- | ---- | ---- | - | ------- | ---- | - | - | -------- | --- | 
|                                   |                                         | For the fiscal years ended April 30, |        
|                                   |                                         |                                      |        
|                                   |                                         | 2005                                 |         |      | 2004 |   |         | 2003 |  
|                                   |                                         |                                      |         |      |      |   |         |      |  
|                                   |                                         | (In thousands)                       |        
|Net loss                           |                                         | $                                    | (15,307 | )    |      | $ | (27,085 | )    |   | $ | (120,291 | )  
|Other comprehensive income (loss): |                                         |                                      |         |      |      |   |         |      |   |   |          |    
|                                   | Foreign currency translation adjustment |                                      |         | (143 | )    |   |         | (40  | ) |   |          | 449 | 
|                                   |                                         |                                      |         |      |      |   |         |      |  
|Comprehensive loss                 |                                         | $                                    | (15,450 | )    |      | $ | (27,125 | )    |   | $ | (119,842 | )  
|                                   |                                         |                                      |         |      |      |   |         |      |  



43



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##### 



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

Principles of consolidation:


Foreign currency translation:


Use of estimates:


Revenue recognition:




Shipping and handling fees and costs:


Research and development costs:


Advertising:


Stock-based compensation: Accounting for Stock Issued to
Employees,


44



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


Accounting for
Stock Based Compensation.


|                                                                                                                    |  |      |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                                                    |  | 2005 |         |   | 2004 |   |         | 2003 | 
|                                                                                                                    |  |      |         |   |      |   |         |      | 
|Net loss attributable to common shareholders, as reported                                                           |  | $    | (15,657 | ) |      | $ | (27,227 | )    |  | $ | (120,291 | )
|Add: Total stock based compensation recognized under intrinsic
    method for all awards                            |  |      | 927     |   |      |   |        |      |  |   |         |  
|Deduct: Total stock based employee compensation expense
    determined under fair value based method for all awards |  |      | (1,240  | ) |      |   | (2,040  | )    |  |   | (6,766   | )
|                                                                                                                    |  |      |         |   |      |   |         |      | 
|Pro forma net loss attributable to common shareholders                                                              |  | $    | (15,970 | ) |      | $ | (29,267 | )    |  | $ | (127,057 | )
|                                                                                                                    |  |      |         |   |      |   |         |      | 
|Reported basic and diluted net loss per share attributable to
    common shareholders                               |  | $    | (1.16   | ) |      | $ | (2.61   | )    |  | $ | (16.44   | )
|Pro forma basic and diluted net loss per share attributable to
    common shareholders                              |  |      | (1.18   | ) |      |   | (2.80   | )    |  |   | (17.36   | )
|Shares outstanding, basic and diluted                                                                               |  |      | 13,546  |   |      |   | 10,444  |      |  |   | 7,317    |  

Income taxes:


Cash and cash equivalents:


Short-term investments:


Financial instruments:


Accounts receivable:




Inventories:


Property, plant and equipment:


Assets held for sale:


45



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


Intangible assets:


Goodwill:


Long-lived assets:


Reclassifications:




Recent Accounting Pronouncements: Exchanges of Nonmonetary Assets. Accounting for Nonmonetary Transactions,


Accounting for
Stock-Based Compensation.


Inventory Costs.


46



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




Accounting for Costs Associated with Exit or Disposal
Activities,




|        |                    
|------- | -------------------
|Note 2. | Accounts Receivable



|                                                                            |  |      |     |   |      |   |      |      |  |   |      |  
|--------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | ---- |  | - | ---- | -
|Allowance for doubtful accounts                                             |  | 2005 |     |   | 2004 |   |      | 2003 | 
|                                                                            |  |      |     |   |      |   |      |      | 
|Beginning balance                                                           |  | $    | 358 |   |      | $ | 414  |      |  | $ | 727  |  
|Charged to expense                                                          |  |      | 259 |   |      |   | 461  |      |  |   | 331  |  
|Write offs of amounts considered to be uncollectible, net of
    recoveries |  |      | (69 | ) |      |   | (517 | )    |  |   | (644 | )
|                                                                            |  |      |     |   |      |   |      |      | 
|Ending balance                                                              |  | $    | 548 |   |      |   | 358  |      |  |   | 414  |  
|                                                                            |  |      |     |   |      |   |      |      | 



|        |            
|------- | -----------
|Note 3. | Inventories



|                 |  |      |        |  |      |   |        | 
|---------------- |  | ---- | ------ |  | ---- | - | ------ | 
|Inventories      |  | 2005 |        |  | 2004 |  
|                 |  |      |        |  |      |  
|Raw materials    |  | $    | 12,678 |  |      | $ | 12,091 | 
|Work in progress |  |      | 955    |  |      |   | 1,042  | 
|Finished goods   |  |      | 2,341  |  |      |   | 2,831  | 
|                 |  |      |        |  |      |  
|                 |  | $    | 15,974 |  |      | $ | 15,964 | 
|                 |  |      |        |  |      |  

|                              |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|Inventory reserves            |  | 2005 |        |   | 2004 |   |        | 2003 | 
|                              |  |      |        |   |      |   |        |      | 
|Beginning balance             |  | $    | 9,083  |   |      | $ | 12,030 |      |  | $ | 13,907 |  
|Charged to expense            |  |      | 984    |   |      |   | 1,925  |      |  |   | 6,805  |  
|Write offs, net of recoveries |  |      | (3,332 | ) |      |   | (4,872 | )    |  |   | (8,682 | )
|                              |  |      |        |   |      |   |        |      | 
|Ending balance                |  | $    | 6,735  |   |      | $ | 9,083  |      |  | $ | 12,030 |  
|                              |  |      |        |   |      |   |        |      | 



47



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|        |                                          
|------- | -----------------------------------------
|Note 4. | Prepaid Expenses and Other Current Assets





|        |                              
|------- | -----------------------------
|Note 5. | Property, Plant and Equipment



|                                      |  |      |         |   |      |   |         |              |  |  |            | 
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------------ |  |  | ---------- | 
|                                      |  | 2005 |         |   | 2004 |   |         | Useful lives | 
|                                      |  |      |         |   |      |   |         |              | 
|Land                                  |  | $    | 1,721   |   |      | $ | 1,721   |              |  |  | indefinite | 
|Buildings and building improvements   |  |      | 11,477  |   |      |   | 11,374  |              |  |  | 5-35 years | 
|Machinery and equipment               |  |      | 58,005  |   |      |   | 59,849  |              |  |  | 3-15 years | 
|Furniture and office equipment        |  |      | 18,677  |   |      |   | 18,586  |              |  |  | 5-10 years | 
|                                      |  |      |         |   |      |   |         |              | 
|Property, plant and equipment at cost |  |      | 89,880  |   |      |   | 91,530  |              |  |  |            | 
|Less accumulated depreciation         |  |      | (68,542 | ) |      |   | (64,574 | )            |  |  |            | 
|                                      |  |      |         |   |      |   |         |              | 
|Property, plant and equipment, net    |  | $    | 21,338  |   |      | $ | 26,956  |              |  |  |            | 
|                                      |  |      |         |   |      |   |         |              | 





|        |                      
|------- | ---------------------
|Note 6. | Business Combinations



48



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)








|                                       |                   |         |        |        |             |  |             |  | 
|-------------------------------------- | ----------------- | ------- | ------ | ------ | ----------- |  | ----------- |  | 
|Amount allocated to:                   |                   | Amounts |        |        | Useful life | 
|                                       |                   |         |        |        |             | 
|Assets acquired:                       |                   |         |        |        |             |  |             | 
|Cash                                   |                   | $       | 10,918 |        |             |  |             | 
|Accounts receivable                    |                   |         | 5,312  |        |             |  |             | 
|Inventories                            |                   |         | 7,785  |        |             |  |             | 
|Patents and related technology         |                   |         | 3,185  |        |             |  | 14.25 years | 
|Computer software                      |                   |         | 700    |        |             |  | 5.00 years  | 
|Company trade names                    |                   |         | 2,700  |        |             |  | Indefinite  | 
|Customer relationships                 |                   |         | 10,800 |        |             |  | 12.50 years | 
|Deferred income taxes                  |                   |         | 7,572  |        |             |  |             | 
|Property, plant and equipment          |                   |         | 8,489  |        |             |  |             | 
|Other                                  |                   |         | 3,099  |        |             |  |             | 
|                                       |                   |         |        |        |             | 
|                                       | Total assets      |         |        | 60,560 |             |  |             |  | 
|Liabilities assumed:                   |                   |         |        |        |             |  |             | 
|Accounts payable                       |                   |         | 1,430  |        |             |  |             | 
|Accrued expenses                       |                   |         | 3,673  |        |             |  |             | 
|Dividend payable                       |                   |         | 12,000 |        |             |  |             | 
|Deferred income taxes                  |                   |         | 8,112  |        |             |  |             | 
|                                       |                   |         |        |        |             | 
|                                       | Total liabilities |         |        | 25,215 |             |  |             |  | 
|                                       |                   |         |        |        |             | 
|Net assets acquired                    |                   |         | 35,345 |        |             |  |             | 
|Goodwill                               |                   |         | 3,410  |        |             |  | Indefinite  | 
|                                       |                   |         |        |        |             | 
|Purchase price                         |                   | $       | 38,755 |        |             |  |             | 
|                                       |                   |         |        |        |             | 
|Cash paid, including transaction costs |                   | $       | 2,798  |        |             |  |             | 
|Stock consideration                    |                   |         | 35,957 |        |             |  |             | 
|                                       |                   |         |        |        |             | 
|Total purchase price                   |                   | $       | 38,755 |        |             |  |             | 
|                                       |                   |         |        |        |             | 

49



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                                  |                           |         |   |          |         |  |           |             |   |  |              |        |   |  |   |          |  
|--------------------------------- | ------------------------- | ------- | - | -------- | ------- |  | --------- | ----------- | - |  | ------------ | ------ | - |  | - | -------- | -
|                                  |                           |         |   | Acquired |         |  | Pro Forma |             |   | 
|                                  |                           | Stratos |   |          | Company |  |           | Adjustments |   |  | Consolidated |       
|                                  |                           |         |   |          |         |  |           |             |   |  |              |       
|Net sales                         |                           |         |   |          |         |  |           |             |   |  |              |        |   |  |   |         
|                                  | Year ended April 30, 2004 |         | $ | 49,379   |         |  | $         | 17,601      |   |  | $            |       |   |  | $ | 66,980   |  
|                                  | Year ended April 30, 2003 |         |   | 37,236   |         |  |           | 38,704      |   |  |              |       |   |  |   | 75,940   |  
|Net loss                          |                           |         |   |          |         |  |           |             |   |  |              |        |   |  |   |         
|                                  | Year ended April 30, 2004 |         |   | (27,085  | )       |  |           | (5,825      | ) |  |              | (997   | ) |  |   | (33,907  | )
|                                  | Year ended April 30, 2003 |         |   | (120,291 | )       |  |           | 2,297       |   |  |              | (1,994 | ) |  |   | (119,988 | )
|Loss per share, basic and diluted |                           |         |   |          |         |  |           |             |   |  |              |        |   |  |   |         
|                                  | Year ended April 30, 2004 |         |   | (2.61    | )       |  |           | (0.56       | ) |  |              | (0.09  | ) |  |   | (3.26    | )
|                                  | Year ended April 30, 2003 |         |   | (16.44   | )       |  |           | 0.31        |   |  |              | (0.27  | ) |  |   | (16.40   | )











|        |                  
|------- | -----------------
|Note 7. | Intangible Assets



|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |      |              |  |   |        |  |  |  |             | 
|--------------------------------- |  | -------------- | ------ |  | -------------- | - | ------ | --- |  | -------- | ------ |  | ----------- | ------------ | ------ |  | --- | - | ---- | ------------ |  | - | ------ |  |  |  | ----------- | 
|                                  |  | April 30, 2005 |        |  | April 30, 2004 |  
|                                  |  |                |        |  |                |  
|                                  |  | Gross          |        |  |                |   | Gross  |     |  |         
|                                  |  | Carrying       |        |  | Accumulated    |   |        |     |  | Carrying |        |  | Accumulated |              |        | 
|Amortizable Intangible Assets     |  | Amount         |        |  | Amortization   |   |        | Net |  |          | Amount |  |             | Amortization |        |  | Net |   |      | Useful Lives | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |      |              | 
|Customer relationships            |  | $              | 10,800 |  |                | $ | (1,296 | )   |  | $        | 9,504  |  |             | $            | 10,800 |  |     | $ | (432 | )            |  | $ | 10,368 |  |  |  | 12.50 years | 
|Patents and related technology    |  |                | 4,368  |  |                |   | (951   | )   |  |          | 3,417  |  |             |              | 4,039  |  |     |   | (325 | )            |  |   | 3,714  |  |  |  | 14.25 years | 
|Developed software                |  |                | 700    |  |                |   | (257   | )   |  |          | 443    |  |             |              | 700    |  |     |   | (117 | )            |  |   | 583    |  |  |  | 5.00 years  | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |      |              | 
|Total amortized intangible assets |  | $              | 15,868 |  |                | $ | (2,504 | )   |  | $        | 13,364 |  |             | $            | 15,539 |  |     | $ | (874 | )            |  | $ | 14,665 |  |  |  |             | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |      |              | 

50



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |   |  |   |        |  
|------------------- |  | ----------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | - |  | - | ------ | -
|                    |  | Fiscal Year |       
|                    |  |             |       
|                    |  | 2006        |        |   | 2007 |   |        | 2008 |  |   | 2009   |   |  | 2010 |        |   | Thereafter |  
|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |  
|Amortization amount |  | $           | (1,276 | ) |      | $ | (1,276 | )    |  | $ | (1,276 | ) |  | $    | (1,159 | ) |            | $ | (1,136 | ) |  | $ | (7,241 | )
|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |  



|        |         
|------- | --------
|Note 8. | Goodwill







|        |                                
|------- | -------------------------------
|Note 9. | Impairment of Long-Lived Assets







51



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                                      |                                     |                |        |        |        |   |        |            |  |   |        |        | 
|------------------------------------- | ----------------------------------- | -------------- | ------ | ------ | ------ | - | ------ | ---------- |  | - | ------ | ------ | 
|                                      |                                     | April 30, 2003 |       
|                                      |                                     |                |       
|                                      |                                     |                |        | Fair   |        |   |       
|                                      |                                     | Net book       |        |        | Market |   |        | Impairment | 
|Asset description                     |                                     | value          |        |        | Value  |   |        | Charge     | 
|                                      |                                     |                |        |        |        |   |        |            | 
|Tangible assets:                      |                                     |                |        |        |        |   |        |            |  |   |        |       
|                                      | Machinery and equipment             |                | $      | 26,940 |        |   | $      | 6,377      |  |   | $      | 20,563 | 
|                                      | Furniture and fixtures              |                |        | 2,437  |        |   |        | 235        |  |   |        | 2,202  | 
|                                      | Computers                           |                |        | 1,753  |        |   |        | 138        |  |   |        | 1,615  | 
|                                      | Buildings and building improvements |                |        | 14,558 |        |   |        | 8,318      |  |   |        | 6,240  | 
|                                      |                                     |                |        |        |        |   |        |            | 
|Total tangible assets                 |                                     |                | 45,688 |        |        |   | 15,068 |            |  |   | 30,620 |       
|Intangible assets:                    |                                     |                |        |        |        |   |        |            |  |   |        |       
|                                      | Developed technology                |                |        | 5,854  |        |   |        | 1,304      |  |   |        | 4,550  | 
|                                      | Trade names                         |                |        | 1,200  |        |   |        | 308        |  |   |        | 892    | 
|                                      | Patents                             |                |        | 619    |        |   |        | 178        |  |   |        | 441    | 
|                                      | Computer software                   |                |        | 104    |        |   |        | 27         |  |   |        | 77     | 
|                                      | Other                               |                |        | 687    |        |   |        | 162        |  |   |        | 525    | 
|                                      |                                     |                |        |        |        |   |        |            | 
|Total intangible assets               |                                     |                | 8,464  |        |        |   | 1,979  |            |  |   | 6,485  |       
|                                      |                                     |                |        |        |        |   |        |            | 
|Total assets evaluated for impairment |                                     | $              | 54,152 |        |        | $ | 17,047 |            |  | $ | 37,105 |       
|                                      |                                     |                |        |        |        |   |        |            | 





|         |                                
|-------- | -------------------------------
|Note 10. | Restructuring and Other Charges







52



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |       |   |  |   |        |  
|------------------------- |  | -------- | ------ | - | --------- | - | ------ | ----------- |  | - | ------------- | - |  | ----- | ----- | - |  | - | ------ | -
|                          |  | Employee |        |   | Legal     |   |        | Asset       |  |   | Limited-use   |   |  |      
|Restructuring             |  | costs    |        |   | and other |   |        | write-downs |  |   | facility rent |   |  | Total |      
|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |      
|Balance at April 30, 2002 |  | $        | 850    |   |           | $ | 1,210  |             |  | $ |              |   |  | $     |      |   |  | $ | 2,060  |  
|2003 charges              |  |          | 2,800  |   |           |   | 100    |             |  |   | 200           |   |  |       |      |   |  |   | 3,100  |  
|Utilized in 2003          |  |          | (3,250 | ) |           |   | (1,310 | )           |  |   | (200          | ) |  |       |      |   |  |   | (4,760 | )
|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |      
|Balance at April 30, 2003 |  |          | 400    |   |           |   |       |             |  |   |              |   |  |       |      |   |  |   | 400    |  
|2004 charges              |  |          | 1,026  |   |           |   | 392    |             |  |   | 910           |   |  |       | 738   |   |  |   | 3,066  |  
|Utilized in 2004          |  |          | (1,186 | ) |           |   | (392   | )           |  |   | (910          | ) |  |       |      |   |  |   | (2,488 | )
|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |      
|Balance at April 30, 2004 |  |          | 240    |   |           |   |       |             |  |   |              |   |  |       | 738   |   |  |   | 978    |  
|2005 charges              |  |          | 2,724  |   |           |   |       |             |  |   |              |   |  |       | 1,955 |   |  |   | 4,679  |  
|Utilized in 2005          |  |          | (2,687 | ) |           |   |       |             |  |   |              |   |  |       | (894  | ) |  |   | (3,581 | )
|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |      
|Balance at April 30, 2005 |  | $        | 277    |   |           | $ |       |             |  | $ |              |   |  | $     | 1,799 |   |  | $ | 2,076  |  
|                          |  |          |        |   |           |   |        |             |  |   |               |   |  |       |      





|         |                 
|-------- | ----------------
|Note 11. | Accrued Expenses



|                                  |  |                 |        |  |      |   |       | 
|--------------------------------- |  | --------------- | ------ |  | ---- | - | ----- | 
|                                  |  | As of April 30, |       
|                                  |  |                 |       
|Other Current Liabilities         |  | 2005            |        |  | 2004 |  
|                                  |  |                 |        |  |      |  
|Employee costs                    |  | $               | 2,598  |  |      | $ | 2,674 | 
|Rent for limited-use facilities   |  |                 | 1,799  |  |      |   | 738   | 
|Legal fees, litigation and claims |  |                 | 4,352  |  |      |   | 1,909 | 
|Commissions                       |  |                 | 1,037  |  |      |   | 605   | 
|Inventory received, not vouchered |  |                 | 424    |  |      |   | 305   | 
|Real estate and other taxes       |  |                 | 386    |  |      |   | 361   | 
|Other                             |  |                 | 663    |  |      |   | 781   | 
|                                  |  |                 |        |  |      |  
|Total                             |  | $               | 11,259 |  |      | $ | 7,373 | 
|                                  |  |                 |        |  |      |  



|         |               
|-------- | --------------
|Note 12. | Long-term Debt





53



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


Note 13.     Redeemable
Series B Preferred Stock












54



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)










|         |              
|-------- | -------------
|Note 14. | Capital Stock

Common and preferred
stock






55



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


Stock options












|                         |       |                                       |         |                        |                |  |         |          |          |   |           |         |  |          |         |         |  |   |        |       | 
|------------------------ | ----- | ------------------------------------- | ------- | ---------------------- | -------------- |  | ------- | -------- | -------- | - | --------- | ------- |  | -------- | ------- | ------- |  | - | ------ | ----- | 
|                         |       |                                       |         | Options Exercisable at |               
|                         |       | Options Outstanding at April 30, 2005 |         |                        | April 30, 2005 | 
|                         |       |                                       |         |                        |                | 
|                         |       |                                       |         | Weighted               |                |  |         |          | Weighted |  
|                         |       |                                       |         | Weighted               |                |  | Average |          |          |   |           | Average | 
|                         |       | Number of                             |         |                        | Average        |  |         | Exercise |          |   | Number of |         |  | Exercise |        
|Range of Exercise Prices |       | Shares                                |         |                        | Live (years)   |  |         | Price    |          |   | Shares    |         |  | Price    |        
|                         |       |                                       |         |                        |                |  |         |          |          |   |           |         |  |          |        
|$  2.63  7.60           |       |                                       | 304,841 |                        |                |  | 6.32    |          |          | $ | 3.74      |         |  |          | 288,989 |         |  | $ | 3.67   |      
|$ 27.50  59.80          |       |                                       | 54,317  |                        |                |  | 3.58    |          |          |   | 51.38     |         |  |          | 53,816  |         |  |   | 51.56  |      
|$105.80  210.00         |       |                                       | 9,545   |                        |                |  | 5.09    |          |          |   | 184.11    |         |  |          | 9,545   |         |  |   | 184.11 |      
|                         |       |                                       |         |                        |                |  |         |          |          |   |           |         |  |          |        
|                         | Total |                                       |         | 368,703                |                |  |         | 5.88     |          |   | $         | 15.43   |  |          |         | 352,350 |  |   | $      | 15.87 | 
|                         |       |                                       |         |                        |                |  |         |          |          |   |           |         |  |          |        

56



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                          |  |             |          |          |          |   |        | 
|------------------------- |  | ----------- | -------- | -------- | -------- | - | ------ | 
|                          |  |             |          | Weighted |         
|                          |  | Number of   |          |          | Average  |  
|                          |  | Options     |          |          | Exercise |  
|                          |  | Outstanding |          |          | Price    |  
|                          |  |             |          |          |          |  
|Balance at April 30, 2002 |  |             | 860,117  |          |          | $ | 121.52 | 
|Exchanged                 |  |             | (617,515 | )        |          |   | 127.11 | 
|Granted                   |  |             | 557,905  |          |          |   | 2.68   | 
|Exercised                 |  |             | (2,455   | )        |          |   | 2.63   | 
|Cancelled                 |  |             | (149,578 | )        |          |   | 92.98  | 
|                          |  |             |          |          |          |  
|Balance at April 30, 2003 |  |             | 648,474  |          |          |   | 12.76  | 
|Granted                   |  |             | 175,204  |          |          |   | 5.04   | 
|Exercised                 |  |             | (98,790  | )        |          |   | 2.66   | 
|Cancelled                 |  |             | (79,720  | )        |          |   | 4.45   | 
|                          |  |             |          |          |          |  
|Balance at April 30, 2004 |  |             | 645,168  |          |          |   | 13.05  | 
|Granted                   |  |             |         |          |          |   |       | 
|Exercised                 |  |             | (217,749 | )        |          |   | 2.82   | 
|Cancelled                 |  |             | (58,716  | )        |          |   | 36.08  | 
|                          |  |             |          |          |          |  
|Balance at April 30, 2005 |  |             | 368,703  |          |          | $ | 15.43  | 
|                          |  |             |          |          |          |  



|                                       |  |      |     |  |      |   |       |      |  |   |       |  
|-------------------------------------- |  | ---- | --- |  | ---- | - | ----- | ---- |  | - | ----- | -
|Assumptions                            |  | 2005 |     |  | 2004 |   |       | 2003 | 
|                                       |  |      |     |  |      |   |       |      | 
|Expected dividend yield                |  |      | N/A |  |      |   | 0.0   | %    |  |   | 0.0   | %
|Risk-free interest rate                |  |      | N/A |  |      |   | 3.3   | %    |  |   | 5.0   | %
|Expected stock price volatility        |  |      | N/A |  |      |   | 118.7 | %    |  |   | 124.8 | %
|Expected term until exercise, in years |  |      | N/A |  |      |   | 6.5   |      |  |   | 7     |  
|Weighted average fair value per share  |  |      | N/A |  |      | $ | 4.22  |      |  | $ | 2.47  |  








Note 15. Employee 401(K) Savings Plan




57



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


Note 16.     Leases






|            |  |   |       | 
|----------- |  | - | ----- | 
|Fiscal 2006 |  | $ | 1,215 | 
|Fiscal 2007 |  |   | 1,075 | 
|Fiscal 2008 |  |   | 500   | 
|Fiscal 2009 |  |   | 250   | 
|Fiscal 2010 |  |   | 250   | 
|Thereafter  |  |   |      | 
|            |  |   |      
|            |  | $ | 3,290 | 
|            |  |   |      

Note 17.     Loss Per Share




|           |                                                                                                      |                              |   |         |      |  |   |         |   |  |   |          |  
|---------- | ---------------------------------------------------------------------------------------------------- | ---------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|           |                                                                                                      | Fiscal Years Ended April 30, |  
|           |                                                                                                      |                              |  
|           |                                                                                                      | 2005                         |   |         | 2004 |  |   | 2003    |  
|           |                                                                                                      |                              |   |         |      |  |   |         |  
|Numerator: |                                                                                                      |                              |   |         |      |  |   |         |   |  |   |         
|           | Net loss                                                                                             |                              | $ | (15,307 | )    |  | $ | (27,085 | ) |  | $ | (120,291 | )
|           | Preferred stock dividend requirements                                                                |                              |   | (350    | )    |  |   | (142    | ) |  |   |         |  
|           |                                                                                                      |                              |   |         |      |  |   |         |  
|           | Net loss attributable to common shareholders                                                         |                              | $ | (15,657 | )    |  | $ | (27,227 | ) |  | $ | (120,291 | )
|           | Denominator for basic and diluted loss per share 
    weighted average number of shares outstanding |                              |   | 13,546  |      |  |   | 10,444  |   |  |   | 7,317    |  
|           |                                                                                                      |                              |   |         |      |  |   |         |  
|           | Basic and diluted net loss per share attributable to common
    shareholders                         |                              | $ | (1.16   | )    |  | $ | (2.61   | ) |  | $ | (16.44   | )
|           |                                                                                                      |                              |   |         |      |  |   |         |  



Note 18.     Income Taxes






58



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                                    |                                                                                                      |                 |         |        |      |   |         |        |  
|----------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------- | ------- | ------ | ---- | - | ------- | ------ | -
|                                    |                                                                                                      | As of April 30, |        
|                                    |                                                                                                      |                 |        
|Deferred tax assets and liabilities |                                                                                                      | 2005            |         |        | 2004 |  
|                                    |                                                                                                      |                 |         |        |      |  
|Deferred tax assets:                |                                                                                                      |                 |         |        |      |   |         |       
|                                    | Net operating loss carryforwards                                                                     |                 | $       | 72,662 |      |   | $       | 62,854 |  
|                                    | Impairment of long-lived assets                                                                      |                 |         | 7,421  |      |   |         | 11,131 |  
|                                    | Inventory reserves                                                                                   |                 |         | 3,450  |      |   |         | 4,388  |  
|                                    | Accrued vacation                                                                                     |                 |         | 193    |      |   |         | 332    |  
|                                    | Deferred compensation                                                                                |                 |         | 334    |      |   |         | 238    |  
|                                    | Allowance for doubtful accounts                                                                      |                 |         | 201    |      |   |         | 206    |  
|                                    | Investment basis differences                                                                         |                 |         | 4,686  |      |   |         |       |  
|                                    | Other                                                                                                |                 |         | 516    |      |   |         | 406    |  
|                                    |                                                                                                      |                 |         |        |      |  
|Total                               |                                                                                                      |                 | 89,463  |        |      |   | 79,555  |       
|Less: Valuation allowance           |                                                                                                      |                 | (79,445 | )      |      |   | (65,239 | )     
|                                    |                                                                                                      |                 |         |        |      |  
|Total deferred tax assets           |                                                                                                      |                 | 10,018  |        |      |   | 14,316  |       
|Deferred tax liabilities:           |                                                                                                      |                 |         |        |      |   |         |       
|                                    | Accelerated tax depreciation                                                                         |                 |         | (5,564 | )    |   |         | (8,033 | )
|                                    | Additional depreciation and amortization on the step-up in value
    of fixed assets and intangibles |                 |         | (4,900 | )    |   |         | (5,800 | )
|                                    | Investment basis differences                                                                         |                 |         |       |      |   |         | (928   | )
|                                    |                                                                                                      |                 |         |        |      |  
|Total deferred tax liabilities      |                                                                                                      |                 | (10,464 | )      |      |   | (14,761 | )     
|                                    |                                                                                                      |                 |         |        |      |  
|Net deferred tax liabilities        |                                                                                                      | $               | (446    | )      |      | $ | (445    | )     
|                                    |                                                                                                      |                 |         |        |      |  



|                                    |                |                              |     |     |      |   |        |        |   |   |   |   | 
|----------------------------------- | -------------- | ---------------------------- | --- | --- | ---- | - | ------ | ------ | - | - | - | - | 
|                                    |                | Fiscal Years Ended April 30,
|                                    |                |                             
|Income tax credits                  |                | 2005                         |     |     | 2004 |   |        | 2003  
|                                    |                |                              |     |     |      |   |        |       
|Current:                            |                |                              |     |     |      |   |        |        |   |   |   |  
|                                    | Federal        |                              | $   |    |      |   | $      |       |   |   | $ |  | 
|                                    | Foreign        |                              |     |    |      |   |        |       |   |   |   |  | 
|                                    | State (credit) |                              |     | 118 |      |   |        | (1,797 | ) |   |   |  | 
|                                    |                |                              |     |     |      |   |        |        |  
|Total current income taxes (credit) |                |                              | 118 |     |      |   | (1,797 | )      |   |   |  |  
|Deferred                            |                |                              |    |     |      |   |       |        |   |   |  |  
|                                    |                |                              |     |     |      |   |        |        |  
|Total income taxes (credit)         |                | $                            | 118 |     |      | $ | (1,797 | )      |   | $ |  |  
|                                    |                |                              |     |     |      |   |        |        |  



59



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                                    |                                                          |                              |        |       |      |   |         |        |   |   |         |        |  
|----------------------------------- | -------------------------------------------------------- | ---------------------------- | ------ | ----- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                    |                                                          | Fiscal Years Ended April 30, |       
|                                    |                                                          |                              |       
|Reconciliation                      |                                                          | 2005                         |        |       | 2004 |   |         | 2003   |  
|                                    |                                                          |                              |        |       |      |   |         |        |  
|Income tax credit at statutory rate |                                                          | $                            | (5,358 | )     |      | $ | (10,109 | )      |   | $ | (42,102 | )     
|                                    | Effect of state income taxes                             |                              |        | (578  | )    |   |         | (1,105 | ) |   |         | (3,609 | )
|                                    | State income tax carryback                               |                              |        |      |      |   |         | (1,797 | ) |   |         |       |  
|                                    | Tax exempt investment income                             |                              |        | (53   | )    |   |         | 68     |   |   |         | 217    |  
|                                    | Impairment of goodwill                                   |                              |        |      |      |   |         |       |   |   |         | 14,772 |  
|                                    | Valuation allowance                                      |                              |        | 6,071 |      |   |         | 9,930  |   |   |         | 30,462 |  
|                                    | Effect of step-up in value of assets of acquired company |                              |        |      |      |   |         | 6,313  |   |   |         |       |  
|                                    | Filing differences from prior years                      |                              |        | (12   | )    |   |         | (5,284 | ) |   |         |       |  
|                                    | Other, net                                               |                              |        | 48    |      |   |         | 187    |   |   |         | 260    |  
|                                    |                                                          |                              |        |       |      |   |         |        |  
|Income taxes (credit)               |                                                          | $                            | 118    |       |      | $ | (1,797  | )      |   | $ |        |       
|                                    |                                                          |                              |        |       |      |   |         |        |  



|                                             |  |                              |         |   |      |   |         |      |  |   |          |  
|-------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                             |  | Fiscal years ended April 30, |        
|                                             |  |                              |        
|Geographic distribution of loss before taxes |  | 2005                         |         |   | 2004 |   |         | 2003 | 
|                                             |  |                              |         |   |      |   |         |      | 
|United States                                |  | $                            | (15,261 | ) |      | $ | (27,912 | )    |  | $ | (101,171 | )
|International                                |  |                              | 72      |   |      |   | (970    | )    |  |   | (2,138   | )
|                                             |  |                              |         |   |      |   |         |      | 
|Total loss before taxes                      |  | $                            | (15,189 | ) |      | $ | (28,882 | )    |  | $ | (103,309 | )
|                                             |  |                              |         |   |      |   |         |      | 

Note 19. Segment and Geographic Information




60



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)




|                                   |               |                              |         |         |      |   |         |         |   |   |          |          |  
|---------------------------------- | ------------- | ---------------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | -------- | -------- | -
|                                   |               | Fiscal Years Ended April 30, |        
|                                   |               |                              |        
|                                   |               | 2005                         |         |         | 2004 |   |         | 2003    |  
|                                   |               |                              |         |         |      |   |         |         |  
|Net sales                          |               |                              |         |         |      |   |         |         |   |   |          |         
|                                   | United States |                              | $       | 67,118  |      |   | $       | 39,994  |   |   | $        | 29,418   |  
|                                   | Foreign       |                              |         | 12,813  |      |   |         | 9,385   |   |   |          | 7,818    |  
|                                   |               |                              |         |         |      |   |         |         |  
|                                   |               | $                            | 79,931  |         |      | $ | 49,379  |         |   | $ | 37,236   |         
|                                   |               |                              |         |         |      |   |         |         |  
|Net loss                           |               |                              |         |         |      |   |         |         |   |   |          |         
|                                   | United States |                              | $       | (15,445 | )    |   | $       | (25,653 | ) |   | $        | (115,956 | )
|                                   | Foreign       |                              |         | 138     |      |   |         | (1,432  | ) |   |          | (4,335   | )
|                                   |               |                              |         |         |      |   |         |         |  
|                                   |               | $                            | (15,307 | )       |      | $ | (27,085 | )       |   | $ | (120,291 | )       
|                                   |               |                              |         |         |      |   |         |         |  
|Property, plant and equipment, net |               |                              |         |         |      |   |         |         |   |   |          |         
|                                   | United States |                              | $       | 19,470  |      |   | $       | 25,055  |   |   | $        | 25,400   |  
|                                   | Foreign       |                              |         | 1,868   |      |   |         | 1,901   |   |   |          | 852      |  
|                                   |               |                              |         |         |      |   |         |         |  
|                                   |               | $                            | 21,338  |         |      | $ | 26,956  |         |   | $ | 26,252   |         
|                                   |               |                              |         |         |      |   |         |         |  

Note 20. Material Customers and Concentration of Credit
Risk















| |                                                     
| | ----------------------------------------------------
| | Note 21. Quarterly Results of Operations (Unaudited)



|                                                    |  |                                |        |   |            |   |        |            |  |   |          |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ---------- | - | ------ | ---------- |  | - | -------- | - |  | - | ------ | -
|                                                    |  | Fiscal Year 2005 Quarter Ended |       
|                                                    |  |                                |       
|                                                    |  | July 31                        |        |   | October 31 |   |        | January 31 |  |   | April 30 |  
|                                                    |  |                                |        |   |            |   |        |            |  |   |          |  
|Net sales                                           |  | $                              | 21,023 |   |            | $ | 18,181 |            |  | $ | 19,430   |   |  | $ | 21,297 |  
|Gross profit                                        |  |                                | 7,429  |   |            |   | 5,771  |            |  |   | 6,133    |   |  |   | 8,479  |  
|Loss from operations                                |  |                                | (403   | ) |            |   | (3,995 | )          |  |   | (9,205   | ) |  |   | (2,603 | )
|Net loss                                            |  |                                | (393   | ) |            |   | (3,999 | )          |  |   | (8,565   | ) |  |   | (2,350 | )
|Preferred stock dividend requirements               |  |                                | (87    | ) |            |   | (88    | )          |  |   | (88      | ) |  |   | (87    | )
|Net loss attributable to common shareholders        |  |                                | (480   | ) |            |   | (4,087 | )          |  |   | (8,653   | ) |  |   | (2,437 | )
|Net loss per share available to common shareholders |  | $                              | (0.04  | ) |            | $ | (0.30  | )          |  | $ | (0.64    | ) |  | $ | (0.18  | )

61



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)


|                                                    |  |                                |        |   |            |   |        |            |  |   |          |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ---------- | - | ------ | ---------- |  | - | -------- | - |  | - | ------ | -
|                                                    |  | Fiscal Year 2004 Quarter Ended |       
|                                                    |  |                                |       
|                                                    |  | July 31                        |        |   | October 31 |   |        | January 31 |  |   | April 30 |  
|                                                    |  |                                |        |   |            |   |        |            |  |   |          |  
|Net sales                                           |  | $                              | 6,571  |   |            | $ | 7,111  |            |  | $ | 16,034   |   |  | $ | 19,663 |  
|Gross profit (loss)                                 |  |                                | (464   | ) |            |   | (859   | )          |  |   | 3,759    |   |  |   | 5,979  |  
|Loss from operations                                |  |                                | (9,168 | ) |            |   | (7,756 | )          |  |   | (6,005   | ) |  |   | (9,092 | )
|Net loss                                            |  |                                | (7,268 | ) |            |   | (7,521 | )          |  |   | (5,376   | ) |  |   | (6,920 | )
|Preferred stock dividend requirements               |  |                                |       |   |            |   |       |            |  |   | (55      | ) |  |   | (87    | )
|Net loss attributable to common shareholders        |  |                                | (7,268 | ) |            |   | (7,521 | )          |  |   | (5,431   | ) |  |   | (7,007 | )
|Net loss per share available to common shareholders |  | $                              | (0.99  | ) |            | $ | (1.02  | )          |  | $ | (0.40    | ) |  | $ | (0.52  | )









| |                        
| | -----------------------
| | Note 22.     Litigation







62



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)














63



---



##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)












| |                                                               
| | --------------------------------------------------------------
| | Note 23.     Operating
    Considerations and Management Plans







64



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##### 



STRATOS INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


(all amounts in thousands, except share and per share
data)






65



---



##### 








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








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures








PART III







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












|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



66



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##### 








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








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








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







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







67



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##### 






SIGNATURES






| |                            
| | ---------------------------
| | Stratos International, Inc.



| |     |                      
| | --- | ---------------------
| | By: | /s/ Phillip A. Harris

| |                                      
| | -------------------------------------
| |                                      
| | Phillip A. Harris                    
| | President and Chief Executive Officer

POWER OF ATTORNEY






|                                               |  |                                                               |  |               |  | 
|---------------------------------------------- |  | ------------------------------------------------------------- |  | ------------- |  | 
|Signature                                      |  | Title                                                         |  | Date         
|                                               |  |                                                               |  |              
|                                              
|/s/ Phillip A. HarrisPhillip
    A. Harris     |  | Director, President and CEO
    (Principal Executive Officer) |  | July 29, 2005
|                                              
|/s/ Barry HollingsworthBarry
    Hollingsworth |  | Chief Financial Officer
    (Principal Financial Officer)     |  | July 29, 2005
|                                              
|/s/ Reginald W. BarrettReginald
    W. Barrett |  | Chairman of the Board                                         |  | July 29, 2005

68



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##### 



|                                                       |  |          |  |               |  | 
|------------------------------------------------------ |  | -------- |  | ------------- |  | 
|Signature                                              |  | Title    |  | Date         
|                                                       |  |          |  |              
|                                                      
|/s/ Charles Daniel
    NelsenCharles
    Daniel Nelsen |  | Director |  | July 29, 2005
|                                                      
|/s/ Edward J.
    OConnellEdward
    J. OConnell     |  | Director |  | July 29, 2005
|                                                      
|/s/ David Y. HoweDavid
    Y. Howe                     |  | Director |  | July 29, 2005
|                                                      
|/s/ Newell V. StarksNewell
    V. Starks               |  | Director |  | July 29, 2005

69



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##### 



STRATOS INTERNATIONAL, INC.


EXHIBIT INDEX


|        |      |                         |  |                                                                                                                                                                                                                                                                                                                                                                                
|------- | ---- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 2.1  |                         |  | Agreement and Plan of Merger, dated as of July 2, 2003, as
    amended as of August 19, 2003 and October 31, 2003,
    among Stratos Lightwave, Inc., Sleeping Bear Merger Corp. and
    Sterling Holding Company (incorporated by reference to
    Exhibit 2.1 to the registrants Current Report on
    Form 8-K filed November 12, 2003)                                    
|        | 3.1  |                         |  | Restated Certificate of Incorporation of Registrant*                                                                                                                                                                                                                                                                                                                           
|        | 3.2  |                         |  | Bylaws of Registrant*                                                                                                                                                                                                                                                                                                                                                          
|        | 3.3  |                         |  | Certificate of Designation of Series A Junior Participating
    Preferred Stock (incorporated by reference to Exhibit 3.1
    filed herewith)                                                                                                                                                                                                                                  
|        | 3.4  |                         |  | Certificate of Designation for Series B Preferred Stock
    (incorporated by reference to Exhibit 3.1 filed herewith)                                                                                                                                                                                                                                                          
|        | 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  |                         |  | 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)
|        | 4.6  |                         |  | 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)                                                                                                                                              
|        | 10.1 |                         |  | 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. 2000 Stock Plan, as amended and restated
    (incorporated by reference to Exhibit 10.9 to
    registrants Annual Report on Form 10-K, filed
    July 26, 2001)                                                                                                                                                                                       
|        | 10.3 |                         |  | Agreement and Plan of Reorganization, dated January 22,
    2002, by and among the Registrant, Tundra Acquisition Corp. and
    Tsunami Optics, Inc. (incorporated by reference to
    Exhibit 2.1 to registrants Current Report on
    Form 8-K, filed February 15, 2002)                                                                                                    
|        | 10.4 |                         |  | 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)                                                                                                                                                                                                            
|        | 10.5 |                         |  | Agreement and Plan of Reorganization, dated March 18, 2002,
    by and among the Registrant, Polar Acquisition Corp. and
    Paracer, Inc. (incorporated by reference to Exhibit 99.1 to
    registrants Current Report on Form 8-K, filed
    April 12, 2002)                                                                                                                
|        | 10.6 |                         |  | 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)                                                                                                                                                                     
|        | 10.7 |                         |  | 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)                                                                                                                                                                        

70



---



##### 



|        |       |                         |  |                                                                                                                                                                                                                                                      
|------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.8  |                         |  | Management Retention Agreement between the Registrant and
    Richard Durrant** (incorporated by reference to
    Exhibit 10.14 to registrants Quarterly Report on
    Form 10-Q, filed December 16, 2002)                                          
|        | 10.9  |                         |  | Stratos Lightwave, Inc. Severance Plan** (incorporated by
    reference to Exhibit 10.15 to registrants Quarterly
    Report on Form 10-Q, filed December 16, 2002)                                                                                 
|        | 10.11 |                         |  | 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)                                     
|        | 10.12 |                         |  | 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 Richard Durrant** (incorporated by reference to
    Exhibit 10.15 to registrants Annual Report on
    Form 10-K, filed July 29, 2003)                                    
|        | 10.14 |                         |  | Amendment to Stratos Lightwave, Inc. Severance Plan**
    (incorporated by reference to Exhibit 10.16 to
    registrants Annual Report on Form 10-K, filed
    July 29, 2003)                                                                       
|        | 10.15 |                         |  | Stratos Lightwave, Inc. 2003 Stock Plan** (incorporated by
    reference to Exhibit 10.1 to Amendment No. 1 to
    Form S-4, filed September 29, 2003)                                                                                               
|        | 10.16 |                         |  | 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)                                                                             
|        | 10.17 |                         |  | 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)
|        | 10.18 |                         |  | Salary Continuation Agreement, dated as of October 18,
    2000, by and between Trompeter Electronics, Inc. and Joe
    Norwood** (incorporated by reference to Exhibit 10.18 on
    Form 10-K/A filed on August 30, 2004)                           
|        | 10.19 |                         |  | Amendment to Salary Continuation Agreement, dated as of
    July 26, 2004, by and between Trompeter Electronics, Inc.
    and Joe Norwood ** (incorporated by reference to
    Exhibit 10.19 on Form 10-K/A filed on August 30,
    2004)            
|        | 10.20 |                         |  | 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)                            
|        | 10.21 |                         |  | 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)                                                               
|        | 10.22 |                         |  | Form of the Option Agreement of the Stratos Lightwave, Inc. 2003
    Stock Plan***                                                                                                                                                                   
|        | 10.23 |                         |  | Form of the Restricted Stock Agreement of the Stratos Lightwave,
    Inc. 2003 Stock Plan***                                                                                                                                                         
|        | 10.24 |                         |  | Summary Schedule of Non-Management Director Fees***                                                                                                                                                                                                  
|        | 10.25 |                         |  | Summary Schedule of Officer Compensation***                                                                                                                                                                                                          
|        | 10.26 |                         |  | 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)                                                  
|        | 10.27 |                         |  | Agreement dated May 3, 2004 concerning expense
    reimbursement between the Registrant and Richard C.E.
    Durrant** (incorporated by reference to Exhibit 10.2 on
    Form 8-K filed on February 1, 2005)                                         
|        | 10.28 |                         |  | 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)                                        
|        | 14    |                         |  | Stratos International, Inc. Code of Business Conduct and Ethics
    (posted on registrants website at
    www.stratosinternational.com)                                                                                                             

71



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##### 



|        |      |                         |  |                                                                                            
|------- | ---- | ----------------------- |  | -------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 21   |                         |  | List of Subsidiaries*                                                                      
|        | 23   |                         |  | 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.                                                                              

72