##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the Fiscal Year Ended April 30, 2006                                                    
|          
|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)


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o o þ


12b-2 o þ












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##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE


10-K





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 and short
term trends in the communications, aerospace, and military
industries; (iii) our ability to adapt to changing
technologies; (iv) our ability to develop and market new
products and technology and to make enhancements to existing
products and technology on a successful and timely basis;
(v) our and our customers ability to comply with
evolving domestic and international government regulations;
(vi) expenditures associated with redesigning products to
comply with evolving industry standards or alternative
technologies that become the industry standard; (vii) our
dependence on sales to the communications and military/aerospace
industries; (viii) our ability to develop and manage
relationships with large customers that comprise, and will
comprise, a significant percentage of our net sales;
(ix) the length of sales cycles, which vary by product and
customer, and the effect that this length has on net sales and
operating expenses; (x) the lack of long-term customer
contracts and its effect on customers ability to reduce,
cancel and defer orders on short notice without significant
penalty; (xi) the effect on gross margins of an inability
to reduce manufacturing costs or increase sales of higher margin
products; (xii) the impact of competitive products and
competitive pricing pressure; (xiii) our reliance on a
limited number of suppliers and the effect of underestimating or
overestimating the need for certain supplies; (xiv) our
ability to attract and retain qualified personnel; (xv) the
effect of defects in our products; (xvi) the effect of
compliance with environmental laws and other legal requirements;
(xvii) the effect of economic, political and regulatory
risks associated with international operations, including acts
of terrorism directed against the United States or
U.S. affiliated targets; (xviii) our ability to
complete and integrate acquisitions, strategic alliances and
joint ventures, including our ability to complete the
integration of Stratos and Sterling Holding Company;
(xix) our ability to secure and defend intellectual
property rights and, when appropriate, license required
technology; (xx) adverse outcomes of pending, threatened or
future litigation, including suits related to intellectual
property matters; (xxi) volatile market prices for
securities of technology-related companies; (xxii) the
effect of provisions in our organizational documents and
Delaware law that may delay or prevent the acquisition of
Stratos or may decrease the value of Stratos common stock; and
(xxiii) our ability to meet management, analyst and
investor expectations. Because forward-looking statements are
subject to assumptions and 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.


2



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##### 



TABLE OF CONTENTS







|                                                                  |  |                                                                                                                      |    |  |      |  |  | 
|----------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- |  | ---- |  |  | 
|Section                                                           |  |                                                                                                                      |    |  | Page | 
|                                                                  |  |                                                                                                                      |    |  |      | 
|Forward-looking
    statements                                    |  |                                                                                                                      | 2  | 
|PART I                                                           
|Item 1.                                                           |  | Business                                                                                                             |    |  | 4    | 
|Item 1A.                                                          |  | Risk
    Factors                                                                                                     |    |  | 15   | 
|Item 1B.                                                          |  | Unresolved
    Staff Comments                                                                                        |    |  | 22   | 
|Item 2.                                                           |  | Properties                                                                                                           |    |  | 22   | 
|Item 3.                                                           |  | Legal
    Proceedings                                                                                                |    |  | 23   | 
|Item 4.                                                           |  | Submission
    of Matters to a Vote of Security Holders                                                              |    |  | 24   | 
|PART II                                                          
|Item 5.                                                           |  | Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities |    |  | 24   | 
|Item 6.                                                           |  | Selected
    Financial Data                                                                                          |    |  | 25   | 
|Item 7.                                                           |  | Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations                        |    |  | 27   | 
|Item 7A.                                                          |  | Quantitative
    and Qualitative Disclosures About Market Risk                                                       |    |  | 36   | 
|Item 8.                                                           |  | Financial
    Statements and Supplementary Data                                                                      |    |  | 37   | 
|Item 9.                                                           |  | Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure                         |    |  | 65   | 
|Item 9A.                                                          |  | Controls
    and procedures                                                                                          |    |  | 65   | 
|Item 9B.                                                          |  | Other
    Information                                                                                                |    |  | 65   | 
|PART III                                                         
|Item 10.                                                          |  | Directors
    and Executive Officers of the Registrant                                                               |    |  | 65   | 
|Item 11.                                                          |  | Executive
    Compensation                                                                                           |    |  | 66   | 
|Item 12.                                                          |  | Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholders Matters              |    |  | 66   | 
|Item 13.                                                          |  | Certain
    Relationships and Related Transactions                                                                   |    |  | 66   | 
|Item 14.                                                          |  | Principal
    Accountant Fees and Services                                                                           |    |  | 66   | 
|PART IV                                                          
|Item 15.                                                          |  | Exhibits,
    Financial Statement Schedules, and Reports on Form 8-K                                                 |    |  | 66   | 
|Signatures                                                        |  |                                                                                                                      | 67 | 
|Certificate of Amendment of Restated Certificate of Incorporation
|Summary Schedule of Officer Compensation                         
|List of Subsidiaries                                             
|Consent of BDO Seidman, LLP                                      
|Consent of Ernst & Young LLP                                     
|Certification of Principal Executive Officer                     
|Certification of Principal Financial Officer                     
|Section 1350 Certification of Chief Executive Officer            
|Section 1350 Certification of Chief Financial Officer            



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##### Table of Contents






PART I







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

Overview










Industry




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

e-commerce, e-mail,




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


4



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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



5



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





Products






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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Over the years, we have built standardized and custom broadband
    network data communication products through our optoelectronic
    and passive fiber 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

7



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| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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./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 Manufacturer        |              | 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 Dist/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 /Domestic Mfg.      |              | Stock-16 weeks  
|             | Rosa           |                | Offshore /Domestic Mfg.      |              | 8-10 weeks      
|             | Tosa           |                | Offshore/ Domestic Mfg.      |              | 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 branded
    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 to customer needs. We primarily sell our RF
    interconnect products to the telecom, military/aerospace, 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | include MIL-STD-1553 databus couplers, forward battlefield
    command centers, video control rooms, space based 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 re-consolidating RBOCs and most CLEC
    service providers largely due to our commitment to installer
    training, best-in-class
    installation tools, and high quality and service levels for the
    public switched telephone network.
|
| | Within a telecommunications network, a demarcation point is the
    point where the network responsibility transfers from one
    network operator to another. Trompeters interconnect
    modules enable a network access point immediately adjacent to a
    demarcation point, enabling operators to assure a quality
    handoff, and to avoid service calls for network problems beyond
    their control. In addition, these products allow customers to
    access network points without disconnecting, avoiding service
    disruptions.                                                                                                                                                                                                                                                                                                                                                                                
|
| | 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 manufacture coaxial
    and twinax 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 these 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.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 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           
|                             |  |                              |  |                        
|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 Material          |  | Domestic Manufacturer        |  | Manufactured from stock
|Polyurethane Jacket Material |  | 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       

9



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Customers




Backlog




Manufacturing




Chicago, Illinois: chip-to








Mesa, Arizona:






10



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Haverhill, United Kingdom: 2


Research and Development






Technology and Intellectual Property






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







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



11



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



Sales and Technical Support






Marketing




Competition






| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | Data rate, port density, reliability and other performance
    features
|
| |  | Ability to rapidly scale production for high volumes                   
|
| |  | Timeliness of new product introductions                                
|
| |  | Length of product design cycle                                         
|
| |  | Compatibility with emerging industry standards                         

12



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





Regulatory Matters






13



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##### Table of Contents



Employees




Executive Officers of the Registrant




Phillip A. Harris (59):


Barry Hollingsworth (41):


Richard C.E. Durrant (45):


Joe D. Norwood (64):


Geographic Areas


10-K.


Available Information


www.stratosinternational.com 10-K, 10-Q, 8-K, 10-K. 1-800-SEC-0330.


14



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|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Business Risk Factors:




| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have incurred significant net losses, primarily due to
    the 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.







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



15



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







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





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





| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | We are also dependent on sales to the military/aerospace
    industry, including U.S. and foreign government entities.



16



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





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





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





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | The market for our products is highly competitive, which
    may result in lost sales or lower gross margins.





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









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##### Table of Contents







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





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





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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                         

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| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | Longer accounts receivable collection cycles                                                    
|
| |  | Difficulties associated with enforcing agreements through
    foreign legal systems             
|
| |  | Trade protection measures and import and export licensing
    requirements                      
|
| |  | Changes in a specific countrys or regions political
    or economic conditions                
|
| |  | Potentially adverse tax consequences                                                            
|
| |  | The potential difficulty in enforcing intellectual property
    rights in some foreign countries
|
| |  | Acts of terrorism directed against the United States or
    U.S. affiliated targets             





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





| |   |                                                    
| | - | ---------------------------------------------------
| |  | Use of significant amounts of cash                 
|
| |  | The incurrence of debt and contingent liabilities  
|
| |  | Potentially dilutive issuances of equity securities
|
| |  | Large one-time write-offs                          
|
| |  | Amortization expenses related to intangible assets 





| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | Difficulties in integrating operations, products, technologies
    and personnel
|
| |  | Unanticipated costs or write-offs associated with the acquisition               
|
| |  | Diversion of managements attention from other business
    concerns            
|
| |  | Diversion of capital and other resources from our existing
    businesses       
|
| |  | Potential loss of key employees of purchased organizations                      





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



20



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

10-K 10-Q






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,                            
|
| |  | Proposals from our stockholders, and                                                                                              
|
| |  | Strategic moves by us or our competitors, such as acquisitions                                                                    



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








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|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) | 
|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)
|Mountain View, CA   |  | Limited use                                                                                                                                                                          |  |         | 38,000 |              |                    | Leased (2007) $62,000/month       



22



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











23



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






PART II







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



|               |  |                        |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  | Market Price per Share |     
|               |  |                        |     
|               |  | 2006                   |      |  | 2005 |  
|               |  |                        |      |  |      |  
|               |  | High                   |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |                        |      |  |      |   |      |      |  |   |      | 
|First quarter  |  | $                      | 5.71 |  |      | $ | 4.05 |      |  | $ | 5.73 |  |  | $ | 4.14 | 
|Second quarter |  |                        | 6.00 |  |      |   | 5.14 |      |  |   | 4.97 |  |  |   | 3.89 | 
|Third quarter  |  |                        | 6.59 |  |      |   | 5.09 |      |  |   | 5.00 |  |  |   | 3.80 | 
|Fourth quarter |  |                        | 8.11 |  |      |   | 6.44 |      |  |   | 4.64 |  |  |   | 3.56 | 





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|                                   |  |              |        |  |            |              |      |                  |                |  |                |  |  |  |           | 
|---------------------------------- |  | ------------ | ------ |  | ---------- | ------------ | ---- | ---------------- | -------------- |  | -------------- |  |  |  | --------- | 
|                                   |  |              |        |  |            | Total No. of |      |                  |               
|                                   |  |              |        |  |            | Shares       |      |                  | Maximum No. of | 
|                                   |  |              |        |  |            | Purchased as |      |                  | Shares That    | 
|                                   |  | Total No. of |        |  | Average    |              |      | Part of Publicly |                |  | May Yet Be     | 
|                                   |  | Shares       |        |  | Price Paid |              |      | Announced        |                |  | Purchased      | 
|Period                             |  | Purchased    |        |  | per Share  |              |      | Plan             |                |  | Under the Plan | 
|                                   |  |              |        |  |            |              |      |                  |                |  |                | 
|Nov. 1, 2005 through Nov. 30, 2005 |  |              | 51,105 |  |            | $            | 5.51 |                  |                |  | 51,105         |  |  |  | 1,796,784 | 
|Dec. 1, 2005 through Dec. 31, 2005 |  |              | 27,971 |  |            | $            | 6.11 |                  |                |  | 27,971         |  |  |  | 1,768,813 | 
|Jan. 1, 2006 through Jan. 31, 2006 |  |              | 69,394 |  |            | $            | 6.31 |                  |                |  | 69,394         |  |  |  | 1,699,419 | 
|Feb 1, 2006 through Feb 28, 2006   |  |              | 51,493 |  |            | $            | 6.67 |                  |                |  | 51,493         |  |  |  | 1,647,926 | 
|Mar 1, 2006 through Mar 31, 2006   |  |              | 2,700  |  |            | $            | 7.11 |                  |                |  | 2,700          |  |  |  | 1,645,226 | 
|Apr 1, 2006 through Apr 30, 2006   |  |              | 45,373 |  |            | $            | 7.91 |                  |                |  | 45,373         |  |  |  | 1,599,853 | 








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

10-K.


10-K,


|                              |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |        |         |   |   |        |        |  
|----------------------------- | --------------------------------------------- | ---------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | - | ---- | ------ | ------- | - | - | ------ | ------ | -
|                              |                                               | Fiscal Years Ended April 30, |       
|                              |                                               |                              |       
|                              |                                               | 2006                         |        |        | 2005 |   |        | 2004   |   |   | 2003   |        |   | 2002 |       
|                              |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |       
|STATEMENT OF OPERATIONS DATA: |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |        |         |   |   |        |       
|Revenues                      |                                               | $                            | 79,582 |        |      | $ | 80,454 |        |   | $ | 50,369 |        |   | $    | 38,416 |         |   | $ | 58,870 |       
|Cost of revenues              |                                               |                              | 50,090 |        |      |   | 52,642 |        |   |   | 41,954 |        |   |      | 45,809 |         |   |   | 56,413 |       
|                              |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |       
|Gross profit (loss)           |                                               |                              | 29,492 |        |      |   | 27,812 |        |   |   | 8,415  |        |   |      | (7,393 | )       |   |   | 2,457  |       
|Operating expenses:           |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |        |         |   |   |        |       
|                              | Research and development                      |                              |        | 8,270  |      |   |        | 9,518  |   |   |        | 8,800  |   |      |        | 20,138  |   |   |        | 27,587 |  
|                              | Sales and marketing                           |                              |        | 10,212 |      |   |        | 10,467 |   |   |        | 8,225  |   |      |        | 7,063   |   |   |        | 7,999  |  
|                              | General and administrative                    |                              |        | 15,781 |      |   |        | 21,907 |   |   |        | 20,799 |   |      |        | 12,706  |   |   |        | 14,949 |  
|                              | 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               |                              |        | 1,023  |      |   |        | 4,679  |   |   |        | 3,066  |   |      |        | 3,100   |   |   |        | 9,000  |  
|                              | Litigation settlements, net                   |                              |        | (1,100 | )    |   |        | (2,553 | ) |   |        | (454   | ) |      |        | (13,218 | ) |   |        | (1,139 | )
|                              |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |       
|Total operating expenses      |                                               |                              | 34,186 |        |      |   | 44,018 |        |   |   | 40,436 |        |   |      | 97,393 |         |   |   | 80,596 |       
|                              |                                               |                              |        |        |      |   |        |        |   |   |        |        |   |      |       

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|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |          |        |   |   |         |        |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------- | ------ | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | ---- | -------- | ------ | - | - | ------- | ------ | -
|                                                                             |                                                              | Fiscal Years Ended April 30, |       
|                                                                             |                                                              |                              |       
|                                                                             |                                                              | 2006                         |        |       | 2005 |   |         | 2004  |   |   | 2003    |       |   | 2002 |         
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Income (loss) from operations                                                |                                                              |                              | (4,694 | )     |      |   | (16,206 | )     |   |   | (32,021 | )     |   |      | (104,786 | )      |   |   | (78,139 | )     
|Gain on sale of business                                                     |                                                              |                              |       |       |      |   |        |       |   |   | 1,305   |       |   |      |         |        |   |   |        |       
|Investment income, net                                                       |                                                              |                              | 1,219  |       |      |   | 553     |       |   |   | 777     |       |   |      | 1,117    |        |   |   | 3,360   |       
|Other income (expense)                                                       |                                                              |                              | 838    |       |      |   | 464     |       |   |   | 1,057   |       |   |      | 360      |        |   |   | 8       |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Income (loss) before income taxes                                            |                                                              |                              | (2,637 | )     |      |   | (15,189 | )     |   |   | (28,882 | )     |   |      | (103,309 | )      |   |   | (74,771 | )     
|Income tax (provision) credit                                                |                                                              |                              | (194   | )     |      |   | (118    | )     |   |   | 1,797   |       |   |      |         |        |   |   | 2,581   |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Income (loss) before cumulative effect of change in accounting
    principle |                                                              |                              | (2,831 | )     |      |   | (15,307 | )     |   |   | (27,085 | )     |   |      | (103,309 | )      |   |   | (72,190 | )     
|Cumulative effect of change in accounting principle                          |                                                              |                              |       |       |      |   |        |       |   |   |        |       |   |      | (16,982  | )      |   |   |        |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Net loss                                                                     |                                                              |                              | (2,831 | )     |      |   | (15,307 | )     |   |   | (27,085 | )     |   |      | (120,291 | )      |   |   | (72,190 | )     
|Preferred stock dividend requirements                                        |                                                              |                              | (1,147 | )     |      |   | (350    | )     |   |   | (142    | )     |   |      |         |        |   |   |        |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Net loss attributable to common shareholders                                 |                                                              | $                            | (3,978 | )     |      | $ | (15,657 | )     |   | $ | (27,227 | )     |   | $    | (120,291 | )      |   | $ | (72,190 | )     
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Net loss per share, basic and diluted:                                       |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |          |        |   |   |         |       
|                                                                             | Before cumulative effect of a change in accounting principle |                              | $      | (0.20 | )    |   | $       | (1.13 | ) |   | $       | (2.60 | ) |      | $        | (14.12 | ) |   | $       | (11.06 | )
|                                                                             | Cumulative effect of change in accounting principle          |                              |        |      |      |   |         |      |   |   |         |      |   |      |          | (2.32  | ) |   |         |       |  
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Net loss                                                                     |                                                              |                              | (0.20  | )     |      |   | (1.13   | )     |   |   | (2.60   | )     |   |      | (16.44   | )      |   |   | (11.06  | )     
|Preferred stock dividends                                                    |                                                              |                              | (0.08  | )     |      |   | (0.03   | )     |   |   | (0.01   | )     |   |      |         |        |   |   |        |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Net loss attributable to common shareholders                                 |                                                              | $                            | (0.29  | )     |      | $ | (1.16   | )     |   | $ | (2.61   | )     |   | $    | (16.44   | )      |   | $ | (11.06  | )     
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Weighted average common shares outstanding: Basic and diluted                |                                                              |                              | 13,888 |       |      |   | 13,546  |       |   |   | 10,444  |       |   |      | 7,317    |        |   |   | 6,525   |       
|                                                                             |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |         
|Balance Sheet data:                                                          |                                                              |                              |        |       |      |   |         |       |   |   |         |       |   |      |          |        |   |   |         |       
|Cash and short-term investments                                              |                                                              | $                            | 30,742 |       |      | $ | 31,828  |       |   | $ | 36,989  |       |   | $    | 61,528   |        |   | $ | 91,920  |       
|Total assets                                                                 |                                                              |                              | 99,154 |       |      |   | 114,980 |       |   |   | 129,050 |       |   |      | 118,175  |        |   |   | 250,102 |       
|Total liabilities                                                            |                                                              |                              | 12,947 |       |      |   | 24,507  |       |   |   | 24,271  |       |   |      | 17,130   |        |   |   | 29,622  |       
|Working capital (current assets less current liabilities)                    |                                                              |                              | 51,289 |       |      |   | 52,073  |       |   |   | 52,974  |       |   |      | 65,097   |        |   |   | 98,040  |       
|Shareholders equity                                                         |                                                              | $                            | 86,207 |       |      | $ | 90,473  |       |   | $ | 104,779 |       |   | $    | 101,045  |        |   | $ | 220,480 |       

26



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


Organization of Information






| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Overview is a general discussion of our business.                                                                                                                                                                                       
|
| |  | Critical Accounting Policies are the policies we believe are
    important to understanding certain of the material judgments and
    assumptions incorporated in our reported financial results.                                       
|
| |  | Results of Operations include an overview of our consolidated
    2006 results compared to 2005, and 2005 results compared to
    2004. This section also includes a discussion of key actions and
    events that impacted our results.

Overview












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Critical Accounting Policies




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



28



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





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





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





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





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##### Table of Contents



Results of Operations




| |                                           
| | ------------------------------------------
| | Fiscal years ended April 30, 2006 and 2005

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

Net Sales:


License Fees and Royalties:


Cost of Revenues and Gross Margins:




30



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Research and Development:


Sales and Marketing:


General and Administrative:


Restructuring and Other Charges:


Litigation Settlements, Net:


Investment Income, Net:


Other Income:


Income Taxes:




31



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| |                                           
| | ------------------------------------------
| | 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    | )      |      |  | 0   | %       |    |   | 1,797   |        |   |         | 4   | %  |    |   | (1,915 | )      |   |  | (107 | )% 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Net loss                                     |                                 |         | (15,307 | )      |      |  | (18 | )%      |    |   | (27,085 | )      |   |         | (52 | )% |    |   | 11,778 |        |   |  | (43  | )% 
|Preferred stock dividend                     |                                 |         | (350    | )      |      |  | 0   | %       |    |   | (142    | )      |   |         | 0   | %  |    |   | (208   | )      |   |  | 146  | %  
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  
|Net loss attributable to common shareholders |                                 | $       | (15,657 | )      |      |  | (18 | )%      |    | $ | (27,227 | )      |   |         | (52 | )% |    | $ | 11,570 |        |   |  | (42  | )% 
|                                             |                                 |         |         |        |      |  |     |         |    |   |         |        |   |         |     |    |    |  

Net Sales:




License Fees and Royalties:


Cost of Revenues and Gross Margins:


32



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Research and Development:


Sales and Marketing:


General and Administrative:


Restructuring and Other Charges:






Litigation Settlements, Net:


Gain on Sale of Business:


33



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Investment Income, Net:


Other Income:


Income Taxes:


Liquidity and Capital Resources:














34



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|                            |  |                       |       |           |        |   |       |       |  |     |       |  |           |         |     |  |  |   |   | 
|--------------------------- |  | --------------------- | ----- | --------- | ------ | - | ----- | ----- |  | --- | ----- |  | --------- | ------- | --- |  |  | - | - | 
|                            |  | Payment Due by Period
|                            |  |                      
|                            |  |                       |       | Less Than |        |   | 1-3   |       |  | 3-5 |       |  | More Than
|Contractual Obligations     |  | Total                 |       |           | 1 Year |   |       | Years |  |     | Years |  |           | 5 Years
|                            |  |                       |       |           |        |   |       |       |  |     |       |  |           |        
|                            |  | (In thousands)       
|Long-term debt obligations  |  | $                     |      |           |        | $ |      |       |  | $   |      |  |           | $       |    |  |  | $ |  | 
|Operating lease obligations |  |                       | 2,173 |           |        |   | 1,037 |       |  |     | 838   |  |           |         | 298 |  |  |   |  | 
|Purchase obligations        |  |                       | 6,752 |           |        |   | 6,752 |       |  |     |      |  |           |         |    |  |  |   |  | 
|                            |  |                       |       |           |        |   |       |       |  |     |       |  |           |         |    
|Total                       |  | $                     | 8,925 |           |        | $ | 7,789 |       |  | $   | 838   |  |           | $       | 298 |  |  | $ |  | 
|                            |  |                       |       |           |        |   |       |       |  |     |       |  |           |         |    

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Off-Balance Sheet Arrangements:









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





36



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

Index to Financial Statements


|                                                              |                                                           |  |    |    | 
|------------------------------------------------------------- | --------------------------------------------------------- |  | -- | -- | 
|Reports of Independent Registered Public
    Accounting Firms |                                                           |  | 38 |   
|Consolidated Balance Sheets at
    April 30, 2006 and 2005    |                                                           |  | 40 |   
|Consolidated Statements of Operations                         |                                                           |  |    |   
|                                                              | For the fiscal years ended April 30, 2006, 2005, and 2004 |  |    | 41 | 
|Consolidated Statements of
    Shareholders Equity           |                                                           |  |    |   
|                                                              | For the fiscal years ended April 30, 2006, 2005, and 2004 |  |    | 42 | 
|Consolidated Statements of Cash Flows                         |                                                           |  |    |   
|                                                              | For the fiscal years ended April 30, 2006, 2005, and 2004 |  |    | 43 | 
|Consolidated Statements of Comprehensive
    Loss             |                                                           |  |    |   
|                                                              | For the fiscal years ended April 30, 2006, 2005, and 2004 |  |    | 44 | 
|Notes to Consolidated Financial
    Statements                |                                                           |  | 45 |   

37



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                     
| | --------------------
| | /s/ BDO Seidman, LLP





38



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














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





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STRATOS INTERNATIONAL, INC.





CONSOLIDATED BALANCE SHEETS


At April 30, 2006 and 2005


|                                                                                                                                                                                                          |                                           |                           |          |        |      |   |          |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------- | -------- | ------ | ---- | - | -------- | ------ | 
|                                                                                                                                                                                                          |                                           | 2006                      |          |        | 2005 |  
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|                                                                                                                                                                                                          |                                           | (In thousands, except par |         
|                                                                                                                                                                                                          |                                           | value and share amounts)  |         
|ASSETS:                                                                                                                                                                                                  
|Current assets:                                                                                                                                                                                           |                                           |                           |          |        |      |   |          |       
|                                                                                                                                                                                                          | Cash and cash equivalents                 |                           | $        | 11,742 |      |   | $        | 13,276 | 
|                                                                                                                                                                                                          | Short-term investments                    |                           |          | 19,000 |      |   |          | 18,552 | 
|                                                                                                                                                                                                          | Accounts receivable, net                  |                           |          | 13,606 |      |   |          | 12,926 | 
|                                                                                                                                                                                                          | Inventories                               |                           |          | 15,482 |      |   |          | 15,974 | 
|                                                                                                                                                                                                          | Refundable income taxes                   |                           |          | 1,837  |      |   |          | 4,267  | 
|                                                                                                                                                                                                          | Prepaid expenses and other current assets |                           |          | 590    |      |   |          | 6,139  | 
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|Total current assets                                                                                                                                                                                      |                                           |                           | 62,257   |        |      |   | 71,134   |       
|Property, plant and equipment, net                                                                                                                                                                        |                                           |                           | 16,437   |        |      |   | 21,338   |       
|Intangible assets, net                                                                                                                                                                                    |                                           |                           | 11,832   |        |      |   | 13,364   |       
|Goodwill and other indefinite-lived assets                                                                                                                                                                |                                           |                           | 5,664    |        |      |   | 6,110    |       
|Assets held for sale                                                                                                                                                                                      |                                           |                           | 2,864    |        |      |   | 2,936    |       
|Other assets                                                                                                                                                                                              |                                           |                           | 100      |        |      |   | 98       |       
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|Total assets                                                                                                                                                                                              |                                           | $                         | 99,154   |        |      | $ | 114,980  |       
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|                                                                                                                                                                                                         
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                                                                                                                                    
|Current liabilities:                                                                                                                                                                                      |                                           |                           |          |        |      |   |          |       
|                                                                                                                                                                                                          | Accounts payable                          |                           | $        | 4,724  |      |   | $        | 6,987  | 
|                                                                                                                                                                                                          | Accrued expenses                          |                           |          | 6,028  |      |   |          | 11,259 | 
|                                                                                                                                                                                                          | Income taxes payable                      |                           |          | 216    |      |   |          |       | 
|                                                                                                                                                                                                          | Current portion of long term-debt         |                           |          |       |      |   |          | 815    | 
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|Total current liabilities                                                                                                                                                                                 |                                           |                           | 10,968   |        |      |   | 19,061   |       
|Deferred income taxes                                                                                                                                                                                     |                                           |                           |         |        |      |   | 446      |       
|Series B redeemable preferred stock                                                                                                                                                                       |                                           |                           | 1,979    |        |      |   | 5,000    |       
|Shareholders equity:                                                                                                                                                                                     |                                           |                           |          |        |      |   |          |       
|Preferred stock, $0.01 par value: Authorized
    1,000,000 shares; issued and outstanding 19,790 and
    50,000 shares of Series B redeemable preferred stock
    at April 30, 2006 and 2005 respectively |                                           |                           |         |        |      |   |         |       
|Common stock, $0.01 par value: Authorized
    20,000,000 shares; issued and outstanding 14,640,643, and
    14,559,348 shares at April 30, 2006 and 2005,
    respectively                                |                                           |                           | 149      |        |      |   | 146      |       
|Cost of shares in treasury (301,521 and 53,521 shares at
    April 30, 2006 and 2005 respectively.)                                                                                                       |                                           |                           | (1,871   | )      |      |   | (259     | )     
|Additional paid-in capital                                                                                                                                                                                |                                           |                           | 322,607  |        |      |   | 320,410  |       
|Unearned compensation                                                                                                                                                                                     |                                           |                           | (4,400   | )      |      |   | (3,505   | )     
|Accumulated other comprehensive income (loss)                                                                                                                                                             |                                           |                           | (9       | )      |      |   | (29      | )     
|Accumulated deficit                                                                                                                                                                                       |                                           |                           | (230,269 | )      |      |   | (226,290 | )     
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|Total shareholders equity                                                                                                                                                                                |                                           |                           | 86,207   |        |      |   | 90,473   |       
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  
|Total liabilities and shareholders equity                                                                                                                                                                |                                           | $                         | 99,154   |        |      | $ | 114,980  |       
|                                                                                                                                                                                                          |                                           |                           |          |        |      |  



40



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STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF OPERATIONS


For the fiscal years ended April 30, 2006, 2005 and
2004


|                                                     |                                              |                       |        |        |      |   |         |        |   |   |         |        |  
|---------------------------------------------------- | -------------------------------------------- | --------------------- | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                     |                                              | 2006                  |        |        | 2005 |   |         | 2004   |  
|                                                     |                                              |                       |        |        |      |   |         |        |  
|                                                     |                                              | (In thousands, except |       
|                                                     |                                              | per share amounts)    |       
|Revenues:                                            |                                              |                       |        |        |      |   |         |        |   |   |         |       
|                                                     | Net sales                                    |                       | $      | 79,042 |      |   | $       | 79,931 |   |   | $       | 49,379 |  
|                                                     | License fees and royalties                   |                       |        | 540    |      |   |         | 523    |   |   |         | 990    |  
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Total revenues                                       |                                              |                       | 79,582 |        |      |   | 80,454  |        |   |   | 50,369  |       
|Cost of revenues                                     |                                              |                       | 50,090 |        |      |   | 52,642  |        |   |   | 41,954  |       
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Gross profit                                         |                                              |                       | 29,492 |        |      |   | 27,812  |        |   |   | 8,415   |       
|Operating expenses                                   |                                              |                       |        |        |      |   |         |        |   |   |         |       
|                                                     | Research and development                     |                       |        | 8,270  |      |   |         | 9,518  |   |   |         | 8,800  |  
|                                                     | Sales and marketing                          |                       |        | 10,212 |      |   |         | 10,467 |   |   |         | 8,225  |  
|                                                     | General and administrative                   |                       |        | 15,781 |      |   |         | 21,907 |   |   |         | 20,799 |  
|                                                     | Restructuring and other charges              |                       |        | 1,023  |      |   |         | 4,679  |   |   |         | 3,066  |  
|                                                     | Litigation settlements, net                  |                       |        | (1,100 | )    |   |         | (2,553 | ) |   |         | (454   | )
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Total operating expenses                             |                                              |                       | 34,186 |        |      |   | 44,018  |        |   |   | 40,436  |       
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Loss from operations                                 |                                              |                       | (4,694 | )      |      |   | (16,206 | )      |   |   | (32,021 | )     
|Gain on sale of business                             |                                              |                       |       |        |      |   |        |        |   |   | 1,305   |       
|Investment income, net                               |                                              |                       | 1,219  |        |      |   | 553     |        |   |   | 777     |       
|Other income                                         |                                              |                       | 838    |        |      |   | 464     |        |   |   | 1,057   |       
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Loss before income taxes                             |                                              |                       | (2,637 | )      |      |   | (15,189 | )      |   |   | (28,882 | )     
|Income tax (provision) credit                        |                                              |                       | (194   | )      |      |   | (118    | )      |   |   | 1,797   |       
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Net loss                                             |                                              |                       | (2,831 | )      |      |   | (15,307 | )      |   |   | (27,085 | )     
|Preferred stock dividend                             |                                              |                       | (1,147 | )      |      |   | (350    | )      |   |   | (142    | )     
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Net loss attributable to common shareholders         |                                              | $                     | (3,978 | )      |      | $ | (15,657 | )      |   | $ | (27,227 | )     
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Per share data, basic and diluted:                   |                                              |                       |        |        |      |   |         |        |   |   |         |       
|                                                     | Net loss                                     |                       |        | (0.20  | )    |   |         | (1.13  | ) |   |         | (2.60  | )
|                                                     | Preferred stock dividend requirements        |                       |        | (0.08  | )    |   |         | (0.03  | ) |   |         | (0.01  | )
|                                                     |                                              |                       |        |        |      |   |         |        |  
|                                                     | Net loss attributable to common shareholders |                       | $      | (0.29  | )    |   | $       | (1.16  | ) |   | $       | (2.61  | )
|                                                     |                                              |                       |        |        |      |   |         |        |  
|Weighted average number of common shares outstanding |                                              |                       |        |        |      |   |         |        |   |   |         |       
|                                                     | Basic and diluted                            |                       |        | 13,888 |      |   |         | 13,546 |   |   |         | 10,444 |  
|                                                     |                                              |                       |        |        |      |   |         |        |  



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STRATOS INTERNATIONAL, INC





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


For the fiscal years ended April 30, 2006, 2005 and
2004


(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, 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 shares)                        |  |        | 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  |  
|Net loss                                                |  |        |     |   |          |            |        |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   | (2,831   | ) |  |   | (2,831  | )
|Dividends on redeemable preferred stock                 |  |        |     |   |          |            |        |         |  |   |              |   |  |               |        |       |             |   |      |               |  |   | (1,147   | ) |  |   | (1,147  | )
|Foreign currency translation adjustments                |  |        |     |   |          |            |        |         |  |   |              |   |  |               |        |       |             |   | 20   |               |  |   |          |   |  |   | 20      |  
|Issuance of 278,900 shares of restricted common stock   |  |        | 3   |   |          |            |        |         |  |   | 2,020        |   |  |               | (2,023 | )     |             |   |      |               |  |   |          |   |  |   |        |  
|Amortization of restricted stock grants                 |  |        |     |   |          |            |        |         |  |   |              |   |  |               | 987    |       |             |   |      |               |  |   |          |   |  |   | 987     |  
|Forfeiture of 28,871 shares of restricted common stock  |  |        | (1  | ) |          |            |        |         |  |   | (140         | ) |  |               | 141    |       |             |   |      |               |  |   |          |   |  |   |        |  
|Option exercises (80,043 shares)                        |  |        | 1   |   |          |            |        |         |  |   | 317          |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | 318     |  
|Purchase of common stock for treasury                   |  |        |     |   |          |            | (1,612 | )       |  |   |              |   |  |               |        |       |             |   |      |               |  |   |          |   |  |   | (1,612  | )
|                                                        |  |        |     |   |          |            |        |         |  |   |              |   |  |               |        |       |             |   |      |               | 
|Balance at April 30, 2006                               |  | $      | 149 |   |          | $          | (1,871 | )       |  | $ | 322,607      |   |  | $             | (4,400 | )     |             | $ | (9   | )             |  | $ | (230,269 | ) |  | $ | 86,207  |  
|                                                        |  |        |     |   |          |            |        |         |  |   |              |   |  |               |        |       |             |   |      |               | 



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STRATOS INTERNATIONAL, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


For the fiscal years ended April 30, 2006, 2005 and
2004


|                                                                                   |                                                        |                |         |        |      |   |         |       |   |   |         |        |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------ | -------------- | ------- | ------ | ---- | - | ------- | ----- | - | - | ------- | ------ | -
|                                                                                   |                                                        | 2006           |         |        | 2005 |   |         | 2004  |  
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|                                                                                   |                                                        | (In thousands) |        
|Operating activities:                                                              |                                                        |                |         |        |      |   |         |       |   |   |         |       
|Net loss                                                                           |                                                        | $              | (2,831  | )      |      | $ | (15,307 | )     |   | $ | (27,085 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities:    |                                                        |                |         |        |      |   |         |       |   |   |         |       
|                                                                                   | Provision for depreciation                             |                |         | 5,853  |      |   |         | 6,550 |   |   |         | 6,280  |  
|                                                                                   | Provision for amortization of intangible assets        |                |         | 1,532  |      |   |         | 1,630 |   |   |         | 894    |  
|                                                                                   | Provision for amortization of stock based compensation |                |         | 987    |      |   |         | 927   |   |   |         |       |  
|                                                                                   | Provision for impairment of other assets               |                |         |       |      |   |         |      |   |   |         | 910    |  
|                                                                                   | Provision for losses on accounts receivable            |                |         | 320    |      |   |         | 259   |   |   |         | 461    |  
|                                                                                   | Minority interest                                      |                |         |       |      |   |         |      |   |   |         | (350   | )
|                                                                                   | Gain on sale of assets                                 |                |         | (52    | )    |   |         |      |   |   |         | (1,305 | )
|                                                                                   | Provision for excess and obsolete inventory            |                |         | 1,372  |      |   |         | 984   |   |   |         | 1,925  |  
|Changes in operating assets and liabilities:                                       |                                                        |                |         |        |      |   |         |       |   |   |         |       
|                                                                                   | Accounts receivable                                    |                |         | (999   | )    |   |         | (641  | ) |   |         | 27     |  
|                                                                                   | Inventories                                            |                |         | (880   | )    |   |         | (994  | ) |   |         | (2,309 | )
|                                                                                   | Prepaid expenses and other assets                      |                |         | 7,977  |      |   |         | 544   |   |   |         | 1,746  |  
|                                                                                   | Accounts payable and accrued expenses                  |                |         | (7,281 | )    |   |         | 2,276 |   |   |         | 730    |  
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Net cash provided (used) in operating activities                                   |                                                        |                | 5,998   |        |      |   | (3,772  | )     |   |   | (18,076 | )     
|Investing activities:                                                              |                                                        |                |         |        |      |   |         |       |   |   |         |       
|Purchases of property, plant and equipment                                         |                                                        |                | (1,024  | )      |      |   | (1,003  | )     |   |   | (3,268  | )     
|Purchases of short-term investments                                                |                                                        |                | (13,896 | )      |      |   | (9,265  | )     |   |   | (45,896 | )     
|Sale of short-term investments                                                     |                                                        |                | 13,448  |        |      |   | 19,872  |       |   |   | 66,862  |       
|Acquisitions, net of cash acquired                                                 |                                                        |                |        |        |      |   |        |       |   |   | 8,120   |       
|Net proceeds from sale of assets                                                   |                                                        |                | 197     |        |      |   | 1,578   |       |   |   | 4,381   |       
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Net cash provided (used) by investing activities                                   |                                                        |                | (1,275  | )      |      |   | 11,182  |       |   |   | 30,199  |       
|Financing activities:                                                              |                                                        |                |         |        |      |   |         |       |   |   |         |       
|Repayment of long-term borrowings                                                  |                                                        |                | (815    | )      |      |   | (2,216  | )     |   |   | (3,598  | )     
|Dividends paid on preferred stock                                                  |                                                        |                | (1,147  | )      |      |   | (350    | )     |   |   | (142    | )     
|Net proceeds from exercise of stock options                                        |                                                        |                | 318     |        |      |   | 613     |       |   |   | 261     |       
|Purchase of shares for treasury                                                    |                                                        |                | (1,612  | )      |      |   | (11     | )     |   |   | (217    | )     
|Redemption of preferred shares                                                     |                                                        |                | (3,021  | )      |      |   |        |       |   |   |        |       
|Distribution to former owners of acquired company to satisfy
    assumed liability |                                                        |                |        |        |      |   |        |       |   |   | (12,000 | )     
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Net cash used in financing activities                                              |                                                        |                | (6,277  | )      |      |   | (1,964  | )     |   |   | (15,696 | )     
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Effect of exchange rates on cash                                                   |                                                        |                | 20      |        |      |   |        |       |   |   |        |       
|Net increase (decrease) in cash and cash equivalents                               |                                                        |                | (1,534  | )      |      |   | 5,446   |       |   |   | (3,573  | )     
|Cash and cash equivalents at beginning of year                                     |                                                        |                | 13,276  |        |      |   | 7,830   |       |   |   | 11,403  |       
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Cash and cash equivalents at end of year                                           |                                                        | $              | 11,742  |        |      | $ | 13,276  |       |   | $ | 7,830   |       
|                                                                                   |                                                        |                |         |        |      |   |         |       |  
|Supplemental cash flow data                                                        |                                                        |                |         |        |      |   |         |       |   |   |         |       
|Common stock issued in acquisition of company                                      |                                                        |                |        |        |      | $ |        |       |   |   | 30,957  |       
|Issuance of shares of restricted common stock                                      |                                                        | $              | 2,023   |        |      | $ | 1,662   |       |   | $ | 3,809   |       
|Release of income tax valuation allowance to goodwill                              |                                                        | $              | 446     |        |      | $ |        |       |   | $ |        |       



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STRATOS INTERNATIONAL, INC.





CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


For the fiscal years ended April 30, 2006, 2005 and
2004


|                                   |                                         |                |        |    |      |   |         |      |   |   |         |     |  
|---------------------------------- | --------------------------------------- | -------------- | ------ | -- | ---- | - | ------- | ---- | - | - | ------- | --- | -
|                                   |                                         | 2006           |        |    | 2005 |   |         | 2004 |  
|                                   |                                         |                |        |    |      |   |         |      |  
|                                   |                                         | (In thousands) |       
|Net loss                           |                                         | $              | (2,831 | )  |      | $ | (15,307 | )    |   | $ | (27,085 | )  
|Other comprehensive income (loss): |                                         |                |        |    |      |   |         |      |   |   |         |    
|                                   | Foreign currency translation adjustment |                |        | 20 |      |   |         | (143 | ) |   |         | (40 | )
|                                   |                                         |                |        |    |      |   |         |      |  
|Comprehensive loss                 |                                         | $              | (2,811 | )  |      | $ | (15,450 | )    |   | $ | (27,125 | )  
|                                   |                                         |                |        |    |      |   |         |      |  



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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

The Company:


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,


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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.


|                                                                                                                    |  |      |        |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                    |  | 2006 |        |   | 2005 |   |         | 2004 | 
|                                                                                                                    |  |      |        |   |      |   |         |      | 
|Net loss attributable to common shareholders, as reported                                                           |  | $    | (3,978 | ) |      | $ | (15,657 | )    |  | $ | (27,227 | )
|Add: Total stock based compensation recognized under intrinsic
    method for all awards                            |  |      | 987    |   |      |   | 927     |      |  |   |        |  
|Deduct: Total stock based employee compensation expense
    determined under fair value based method for all awards |  |      | (1,001 | ) |      |   | (1,240  | )    |  |   | (2,040  | )
|                                                                                                                    |  |      |        |   |      |   |         |      | 
|Pro forma net loss attributable to common shareholders                                                              |  | $    | (3,992 | ) |      | $ | (15,970 | )    |  | $ | (29,267 | )
|                                                                                                                    |  |      |        |   |      |   |         |      | 
|Reported basic and diluted net loss per share attributable to
    common shareholders                               |  | $    | (0.29  | ) |      | $ | (1.16   | )    |  | $ | (2.61   | )
|Pro forma basic and diluted net loss per share attributable to
    common shareholders                              |  |      | (0.29  | ) |      |   | (1.18   | )    |  |   | (2.80   | )
|Shares outstanding, basic and diluted                                                                               |  |      | 13,888 |   |      |   | 13,546  |      |  |   | 10,444  |  

Income taxes:


Cash and cash equivalents:


Short-term investments:


Financial instruments:


Accounts receivable:


Inventories: (first-in,


Property, plant and equipment:


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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)


Assets held for sale:


Intangible assets:


Goodwill:


Long-lived assets:




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





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Accounting for
Changes and Error Corrections. FAS-3


Exchanges of Nonmonetary Assets. Accounting for Nonmonetary
Transactions


Accounting for
Stock-Based Compensation


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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)




Inventory Costs




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



|                                                                            |  |      |      |   |      |   |     |      |  |   |      |  
|--------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | ---- | -
|Allowance for Doubtful Accounts                                             |  | 2006 |      |   | 2005 |   |     | 2004 | 
|                                                                            |  |      |      |   |      |   |     |      | 
|Beginning balance                                                           |  | $    | 548  |   |      | $ | 358 |      |  | $ | 414  |  
|Charged to expense                                                          |  |      | 320  |   |      |   | 259 |      |  |   | 461  |  
|Write offs of amounts considered to be uncollectible, net of
    recoveries |  |      | (293 | ) |      |   | (69 | )    |  |   | (517 | )
|                                                                            |  |      |      |   |      |   |     |      | 
|Ending balance                                                              |  | $    | 575  |   |      | $ | 548 |      |  | $ | 358  |  
|                                                                            |  |      |      |   |      |   |     |      | 



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



|                 |  |      |        |  |      |   |        | 
|---------------- |  | ---- | ------ |  | ---- | - | ------ | 
|Inventories      |  | 2006 |        |  | 2005 |  
|                 |  |      |        |  |      |  
|Raw materials    |  | $    | 11,100 |  |      | $ | 12,678 | 
|Work in progress |  |      | 954    |  |      |   | 955    | 
|Finished goods   |  |      | 3,428  |  |      |   | 2,341  | 
|                 |  |      |        |  |      |  
|                 |  | $    | 15,482 |  |      | $ | 15,974 | 
|                 |  |      |        |  |      |  

|                              |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|Inventory Reserves            |  | 2006 |        |   | 2005 |   |        | 2004 | 
|                              |  |      |        |   |      |   |        |      | 
|Beginning balance             |  | $    | 6,735  |   |      | $ | 9,083  |      |  | $ | 12,030 |  
|Charged to expense            |  |      | 1,372  |   |      |   | 984    |      |  |   | 1,925  |  
|Write offs, net of recoveries |  |      | (1,370 | ) |      |   | (3,332 | )    |  |   | (4,872 | )
|                              |  |      |        |   |      |   |        |      | 
|Ending balance                |  | $    | 6,737  |   |      | $ | 6,735  |      |  | $ | 9,083  |  
|                              |  |      |        |   |      |   |        |      | 

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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 4. | Prepaid Expenses and Other Current Assets





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



|                                      |  |      |         |   |      |   |         |              |  |  |            | 
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------------ |  |  | ---------- | 
|                                      |  | 2006 |         |   | 2005 |   |         | Useful Lives | 
|                                      |  |      |         |   |      |   |         |              | 
|Land                                  |  | $    | 1,721   |   |      | $ | 1,721   |              |  |  | indefinite | 
|Buildings and building improvements   |  |      | 11,533  |   |      |   | 11,477  |              |  |  | 5-35 years | 
|Machinery and equipment               |  |      | 58,195  |   |      |   | 58,005  |              |  |  | 3-15 years | 
|Furniture and office equipment        |  |      | 19,048  |   |      |   | 18,677  |              |  |  | 5-10 years | 
|                                      |  |      |         |   |      |   |         |              | 
|Property, plant and equipment at cost |  |      | 90,497  |   |      |   | 89,880  |              |  |  |            | 
|Less accumulated depreciation         |  |      | (74,060 | ) |      |   | (68,542 | )            |  |  |            | 
|                                      |  |      |         |   |      |   |         |              | 
|Property, plant and equipment, net    |  | $    | 16,437  |   |      | $ | 21,338  |              |  |  |            | 
|                                      |  |      |         |   |      |   |         |              | 





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



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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)








|                                       |                   |         |        |        |             |  |             |  | 
|-------------------------------------- | ----------------- | ------- | ------ | ------ | ----------- |  | ----------- |  | 
|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 |        |             |  |             | 
|                                       |                   |         |        |        |             | 





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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 7. | Intangible Assets



|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |        |              |  |   |        |  |  |  |             | 
|--------------------------------- |  | -------------- | ------ |  | -------------- | - | ------ | --- |  | -------- | ------ |  | ----------- | ------------ | ------ |  | --- | - | ------ | ------------ |  | - | ------ |  |  |  | ----------- | 
|                                  |  | April 30, 2006 |        |  | April 30, 2005 |   |        |    
|                                  |  |                |        |  |                |   |        |    
|                                  |  | Gross          |        |  |                |   | Gross  |     |  |          |        | 
|                                  |  | Carrying       |        |  | Accumulated    |   |        |     |  | Carrying |        |  | Accumulated |              |        |  |     |  
|Amortizable Intangible Assets     |  | Amount         |        |  | Amortization   |   |        | Net |  |          | Amount |  |             | Amortization |        |  | Net |   |        | Useful Lives | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |        |              | 
|Customer relationships            |  | $              | 10,800 |  |                | $ | (2,159 | )   |  | $        | 8,641  |  |             | $            | 10,800 |  |     | $ | (1,296 | )            |  | $ | 9,504  |  |  |  | 12.50 years | 
|Patents and related technology    |  |                | 4,368  |  |                |   | (1,295 | )   |  |          | 3,073  |  |             |              | 4,368  |  |     |   | (951   | )            |  |   | 3,417  |  |  |  | 14.25 years | 
|Developed software                |  |                | 700    |  |                |   | (582   | )   |  |          | 118    |  |             |              | 700    |  |     |   | (257   | )            |  |   | 443    |  |  |  | 5.00 years  | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |        |              | 
|Total amortized intangible assets |  | $              | 15,868 |  |                | $ | (4,036 | )   |  | $        | 11,832 |  |             | $            | 15,868 |  |     | $ | (2,504 | )            |  | $ | 13,364 |  |  |  |             | 
|                                  |  |                |        |  |                |   |        |     |  |          |        |  |             |              |        |  |     |   |        |              | 



|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |   |  |   |        |  
|------------------- |  | ----------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | - |  | - | ------ | -
|                    |  | Fiscal Year |       
|                    |  |             |       
|                    |  | 2006        |        |   | 2007 |   |        | 2008 |  |   | 2009   |   |  | 2010 |        |   | Thereafter |  
|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |  
|Amortization amount |  | $           | (1,311 | ) |      | $ | (1,311 | )    |  | $ | (1,194 | ) |  | $    | (1,171 | ) |            | $ | (1,171 | ) |  | $ | (5,674 | )
|                    |  |             |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |  



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







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





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





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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)








|                          |  |                |        |   |                 |       |      |             |          |   |      |   |  |       |       |   |  |   |        |  
|------------------------- |  | -------------- | ------ | - | --------------- | ----- | ---- | ----------- | -------- | - | ---- | - |  | ----- | ----- | - |  | - | ------ | -
|                          |  |                |        |   |                 |       |      | Limited-Use |          |   |     
|                          |  |                |        |   |                 | Asset |      |             | Facility |   |      |  
|Restructuring             |  | Employee Costs |        |   | Legal and Other |       |      | Write-Downs |          |   | Rent |   |  | Total |      
|                          |  |                |        |   |                 |       |      |             |          |   |      |   |  |       |      
|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  |  
|2006 charges              |  |                | 627    |   |                 |       | 396  |             |          |   |     |   |  |       |      |   |  |   | 1,023  |  
|Utilized in 2006          |  |                | (584   | ) |                 |       | (396 | )           |          |   |     |   |  |       | (853  | ) |  |   | (1,833 | )
|                          |  |                |        |   |                 |       |      |             |          |   |      |   |  |       |      
|Balance at April 30, 2006 |  | $              | 320    |   |                 | $     |     |             |          | $ |     |   |  | $     | 946   |   |  | $ | 1,266  |  
|                          |  |                |        |   |                 |       |      |             |          |   |      |   |  |       |      





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



|                                  |  |                 |       |  |      |   |        | 
|--------------------------------- |  | --------------- | ----- |  | ---- | - | ------ | 
|                                  |  | As of April 30, |      
|                                  |  |                 |      
|Other Current Liabilities         |  | 2006            |       |  | 2005 |  
|                                  |  |                 |       |  |      |  
|Employee costs                    |  | $               | 2,514 |  |      | $ | 2,598  | 
|Legal fees, litigation and claims |  |                 | 977   |  |      |   | 4,352  | 
|Rent for limited-use facilities   |  |                 | 946   |  |      |   | 1,799  | 
|Commissions                       |  |                 | 801   |  |      |   | 1,037  | 
|Other                             |  |                 | 386   |  |      |   | 663    | 
|Real estate and other taxes       |  |                 | 334   |  |      |   | 386    | 
|Inventory received, not vouchered |  |                 | 70    |  |      |   | 424    | 
|                                  |  |                 |       |  |      |  
|Total                             |  | $               | 6,028 |  |      | $ | 11,259 | 
|                                  |  |                 |       |  |      |  

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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 12. | Long-Term Debt







|         |                                    
|-------- | -----------------------------------
|Note 13. | Redeemable Series B Preferred Stock









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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)






winding-up


winding-up






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

Common and preferred
stock




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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)








| |              
| | -------------
| | Stock options

10-year










|                         |  |                                       |         |                        |                |  |          |          |  |   |           |          |  |          |         |  |  |   |        | 
|------------------------ |  | ------------------------------------- | ------- | ---------------------- | -------------- |  | -------- | -------- |  | - | --------- | -------- |  | -------- | ------- |  |  | - | ------ | 
|                         |  |                                       |         | Options Exercisable at |               
|                         |  | Options Outstanding at April 30, 2006 |         |                        | April 30, 2006 | 
|                         |  |                                       |         |                        |                | 
|                         |  |                                       |         | Weighted               |                |  | Weighted |          |  |   |           | Weighted | 
|                         |  |                                       |         | Average                |                |  | Average  |          |  |   |           | Average  | 
|                         |  | Number of                             |         |                        | Remaining      |  |          | Exercise |  |   | Number of |          |  | Exercise |        
|Range of Exercise Prices |  | Shares                                |         |                        | Life (Years)   |  |          | Price    |  |   | Shares    |          |  | Price    |        
|                         |  |                                       |         |                        |                |  |          |          |  |   |           |          |  |          |        
|$  2.63 -   7.60         |  |                                       | 232,830 |                        |                |  | 6.91     |          |  | $ | 3.76      |          |  |          | 230,325 |  |  | $ | 3.74   | 
|$ 27.50 -  59.80         |  |                                       | 51,708  |                        |                |  | 4.82     |          |  | $ | 51.57     |          |  |          | 51,645  |  |  | $ | 51.60  | 
|$105.80 - 210.00         |  |                                       | 5,988   |                        |                |  | 4.25     |          |  | $ | 181.77    |          |  |          | 5,988   |  |  | $ | 181.77 | 
|                         |  |                                       |         |                        |                |  |          |          |  |   |           |          |  |          |        
|Total                    |  |                                       | 290,526 |                        |                |  | 6.48     |          |  | $ | 15.94     |          |  |          | 287,958 |  |  | $ | 16.03  | 

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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)


|                         |  |                                       |         |                        |                |  |          |          |  |   |           |          |  |          |         |  |  |   |        | 
|------------------------ |  | ------------------------------------- | ------- | ---------------------- | -------------- |  | -------- | -------- |  | - | --------- | -------- |  | -------- | ------- |  |  | - | ------ | 
|                         |  |                                       |         | Options Exercisable at |               
|                         |  | Options Outstanding at April 30, 2005 |         |                        | April 30, 2005 | 
|                         |  |                                       |         |                        |                | 
|                         |  |                                       |         | Weighted               |                |  | Weighted |          |  |   |           | Weighted | 
|                         |  |                                       |         | Average                |                |  | Average  |          |  |   |           | Average  | 
|                         |  | Number of                             |         |                        | Remaining      |  |          | Exercise |  |   | Number of |          |  | Exercise |        
|Range of Exercise Prices |  | Shares                                |         |                        | Life (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  | 



|                          |  |             |          |          |          |   |       | 
|------------------------- |  | ----------- | -------- | -------- | -------- | - | ----- | 
|                          |  |             |          | Weighted |         
|                          |  | Number of   |          |          | Average  |  
|                          |  | Options     |          |          | Exercise |  
|                          |  | Outstanding |          |          | Price    |  
|                          |  |             |          |          |          |  
|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 | 
|Granted                   |  |             |         |          |          |   |      | 
|Exercised                 |  |             | (80,043  | )        |          | $ | 6.17  | 
|Cancelled/ Other          |  |             | 1,866    |          |          | $ | 36.20 | 
|                          |  |             |          |          |          |  
|Balance at April 30, 2006 |  |             | 290,526  |          |          | $ | 15.94 | 
|                          |  |             |          |          |          |  



|                                       |  |      |     |  |      |  |     |      |  |   |        |  
|-------------------------------------- |  | ---- | --- |  | ---- |  | --- | ---- |  | - | ------ | -
|Assumptions                            |  | 2006 |     |  | 2005 |  |     | 2004 | 
|                                       |  |      |     |  |      |  |     |      | 
|Expected dividend yield                |  |      | N/A |  |      |  | N/A |      |  |   | 0.0    | %
|Risk-free interest rate                |  |      | N/A |  |      |  | N/A |      |  |   | 3.3    | %
|Expected stock price volatility        |  |      | N/A |  |      |  | N/A |      |  |   | 118.7% |  
|Expected term until exercise, in years |  |      | N/A |  |      |  | N/A |      |  |   | 6.5    |  
|Weighted average fair value per share  |  |      | N/A |  |      |  | N/A |      |  | $ | 4.22   |  





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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 15. | Employee 401(k) Savings Plan

.




|         |       
|-------- | ------
|Note 16. | Leases





|            |  |   |       | 
|----------- |  | - | ----- | 
|Fiscal 2007 |  | $ | 1,037 | 
|Fiscal 2008 |  |   | 406   | 
|Fiscal 2009 |  |   | 218   | 
|Fiscal 2010 |  |   | 214   | 
|Fiscal 2011 |  |   | 119   | 
|Thereafter  |  |   | 179   | 
|            |  |   |      
|            |  | $ | 2,173 | 
|            |  |   |      



|         |               
|-------- | --------------
|Note 17. | Loss Per Share



|           |                                                                              |                                               |   |        |        |  |   |         |        |  |   |         |        | 
|---------- | ---------------------------------------------------------------------------- | --------------------------------------------- | - | ------ | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|           |                                                                              | Fiscal Years Ended April 30,                  |  
|           |                                                                              |                                               |  
|           |                                                                              | 2006                                          |   |        | 2005   |  |   | 2004    |       
|           |                                                                              |                                               |   |        |        |  |   |         |       
|Numerator: |                                                                              |                                               |   |        |        |  |   |         |        |  |   |        
|           | Net loss                                                                     |                                               | $ | (2,831 | )      |  | $ | (15,307 | )      |  | $ | (27,085 | )     
|           | Preferred stock dividend requirements                                        |                                               |   | (1,147 | )      |  |   | (350    | )      |  |   | (142    | )     
|           |                                                                              |                                               |   |        |        |  |   |         |       
|           | Net loss attributable to common shareholders                                 |                                               | $ | (3,978 | )      |  | $ | (15,657 | )      |  | $ | (27,227 | )     
|           | Denominator for basic and diluted loss per share                            |                                               |   |        |        |  |   |         |        |  |   |         |       
|           |                                                                              | weighted average number of shares outstanding |   |        | 13,888 |  |   |         | 13,546 |  |   |         | 10,444 | 
|           |                                                                              |                                               |   |        |        |  |   |         |       
|           | Basic and diluted net loss per share attributable to common
    shareholders |                                               | $ | (0.29  | )      |  | $ | (1.16   | )      |  | $ | (2.61   | )     
|           |                                                                              |                                               |   |        |        |  |   |         |       





|         |             
|-------- | ------------
|Note 18. | Income Taxes



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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)








|                                    |                                                                                                      |                 |         |        |      |   |         |        |  
|----------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------- | ------- | ------ | ---- | - | ------- | ------ | -
|                                    |                                                                                                      | As of April 30, |        
|                                    |                                                                                                      |                 |        
|Deferred Tax Assets and Liabilities |                                                                                                      | 2006            |         |        | 2005 |  
|                                    |                                                                                                      |                 |         |        |      |  
|Deferred tax assets:                |                                                                                                      |                 |         |        |      |   |         |       
|                                    | Net operating loss carryforwards                                                                     |                 | $       | 73,549 |      |   | $       | 72,662 |  
|                                    | Impairment of long-lived assets                                                                      |                 |         |       |      |   |         | 7,421  |  
|                                    | Inventory reserves                                                                                   |                 |         | 2,922  |      |   |         | 3,450  |  
|                                    | Accrued vacation                                                                                     |                 |         | 244    |      |   |         | 193    |  
|                                    | Deferred compensation                                                                                |                 |         | 258    |      |   |         | 334    |  
|                                    | Allowance for doubtful accounts                                                                      |                 |         | 213    |      |   |         | 201    |  
|                                    | Restructuring reserve                                                                                |                 |         | 378    |      |   |         |       |  
|                                    | Investment basis differences                                                                         |                 |         | 3,350  |      |   |         | 4,686  |  
|                                    | Other                                                                                                |                 |         | 470    |      |   |         | 516    |  
|                                    |                                                                                                      |                 |         |        |      |  
|Total                               |                                                                                                      |                 | 81,384  |        |      |   | 89,463  |       
|Less: Valuation allowance           |                                                                                                      |                 | (79,880 | )      |      |   | (79,445 | )     
|                                    |                                                                                                      |                 |         |        |      |  
|Total deferred tax assets           |                                                                                                      |                 | 1,504   |        |      |   | 10,018  |       
|Deferred tax liabilities:           |                                                                                                      |                 |         |        |      |   |         |       
|                                    | Accelerated tax depreciation                                                                         |                 |         | (664   | )    |   |         | (5,564 | )
|                                    | Additional depreciation and amortization on the step-up in value
    of fixed assets and intangibles |                 |         | (394   | )    |   |         | (4,900 | )
|                                    | Other                                                                                                |                 |         | (446   | )    |   |         |       |  
|                                    |                                                                                                      |                 |         |        |      |  
|Total deferred tax liabilities      |                                                                                                      |                 | (1,504  | )      |      |   | (10,464 | )     
|                                    |                                                                                                      |                 |         |        |      |  
|Net deferred tax liabilities        |                                                                                                      | $               |        |        |      | $ | (446    | )     
|                                    |                                                                                                      |                 |         |        |      |  

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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, |    
|                                    |                |                              |    
|Income Tax Credits                  |                | 2006                         |     |     | 2005 |   |     | 2004 | 
|                                    |                |                              |     |     |      |   |     |      | 
|Current:                            |                |                              |     |     |      |   |     |      |  |   |        |       
|                                    | Federal        |                              | $   | 144 |      |   | $   |     |  |   | $      |       |  
|                                    | Foreign        |                              |     |    |      |   |     |     |  |   |        |       |  
|                                    | State (credit) |                              |     | 50  |      |   |     | 118  |  |   |        | (1,797 | )
|                                    |                |                              |     |     |      |   |     |      | 
|Total current income taxes (credit) |                |                              | 194 |     |      |   | 118 |      |  |   | (1,797 | )     
|Deferred                            |                |                              |    |     |      |   |    |      |  |   |       |       
|                                    |                |                              |     |     |      |   |     |      | 
|Total income taxes (credit)         |                | $                            | 194 |     |      | $ | 118 |      |  | $ | (1,797 | )     
|                                    |                |                              |     |     |      |   |     |      | 





|                                    |                                                          |                              |      |      |      |   |        |       |   |   |         |        |  
|----------------------------------- | -------------------------------------------------------- | ---------------------------- | ---- | ---- | ---- | - | ------ | ----- | - | - | ------- | ------ | -
|                                    |                                                          | Fiscal Years Ended April 30, |     
|                                    |                                                          |                              |     
|Reconciliation                      |                                                          | 2006                         |      |      | 2005 |   |        | 2004  |  
|                                    |                                                          |                              |      |      |      |   |        |       |  
|Income tax credit at statutory rate |                                                          | $                            | (963 | )    |      | $ | (5,358 | )     |   | $ | (10,109 | )     
|                                    | Effect of state income taxes                             |                              |      | (142 | )    |   |        | (578  | ) |   |         | (1,105 | )
|                                    | State income tax carryback                               |                              |      |     |      |   |        |      |   |   |         | (1,797 | )
|                                    | Tax exempt investment income                             |                              |      |     |      |   |        | (53   | ) |   |         | 68     |  
|                                    | Valuation allowance                                      |                              |      | 881  |      |   |        | 6,071 |   |   |         | 9,930  |  
|                                    | Effect of step-up in value of assets of acquired company |                              |      |     |      |   |        |      |   |   |         | 6,313  |  
|                                    | Filing differences from prior years                      |                              |      | 223  |      |   |        | (12   | ) |   |         | (5,284 | )
|                                    | Other, net                                               |                              |      | 194  |      |   |        | 48    |   |   |         | 187    |  
|                                    |                                                          |                              |      |      |      |   |        |       |  
|Income taxes (credit)               |                                                          | $                            | 194  |      |      | $ | 118    |       |   | $ | (1,797  | )     
|                                    |                                                          |                              |      |      |      |   |        |       |  



|                                             |  |                              |        |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | Fiscal Years Ended April 30, |       
|                                             |  |                              |       
|Geographic Distribution of Loss Before Taxes |  | 2006                         |        |   | 2005 |   |         | 2004 | 
|                                             |  |                              |        |   |      |   |         |      | 
|United States                                |  | $                            | 234    |   |      | $ | (15,261 | )    |  | $ | (27,912 | )
|International                                |  |                              | (2,871 | ) |      |   | 72      |      |  |   | (970    | )
|                                             |  |                              |        |   |      |   |         |      | 
|Total loss before taxes                      |  | $                            | (2,637 | ) |      | $ | (15,189 | )    |  | $ | (28,882 | )
|                                             |  |                              |        |   |      |   |         |      | 



|         |                                   
|-------- | ----------------------------------
|Note 19. | Segment and Geographic Information



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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, |       
|                                   |               |                              |       
|                                   |               | 2006                         |        |        | 2005 |   |         | 2004    |  
|                                   |               |                              |        |        |      |   |         |         |  
|Net sales                          |               |                              |        |        |      |   |         |         |   |   |         |        
|                                   | United States |                              | $      | 68,712 |      |   | $       | 67,118  |   |   | $       | 39,994  |  
|                                   | Foreign       |                              |        | 10,330 |      |   |         | 12,813  |   |   |         | 9,385   |  
|                                   |               |                              |        |        |      |   |         |         |  
|                                   |               | $                            | 79,042 |        |      | $ | 79,931  |         |   | $ | 49,379  |        
|                                   |               |                              |        |        |      |   |         |         |  
|Net loss                           |               |                              |        |        |      |   |         |         |   |   |         |        
|                                   | United States |                              | $      | 40     |      |   | $       | (15,445 | ) |   | $       | (25,653 | )
|                                   | Foreign       |                              |        | (2,871 | )    |   |         | 138     |   |   |         | (1,432  | )
|                                   |               |                              |        |        |      |   |         |         |  
|                                   |               | $                            | (2,831 | )      |      | $ | (15,307 | )       |   | $ | (27,085 | )      
|                                   |               |                              |        |        |      |   |         |         |  
|Property, plant and equipment, net |               |                              |        |        |      |   |         |         |   |   |         |        
|                                   | United States |                              | $      | 14,960 |      |   | $       | 19,470  |   |   | $       | 25,055  |  
|                                   | Foreign       |                              |        | 1,477  |      |   |         | 1,868   |   |   |         | 1,901   |  
|                                   |               |                              |        |        |      |   |         |         |  
|                                   |               | $                            | 16,437 |        |      | $ | 21,338  |         |   | $ | 26,956  |        
|                                   |               |                              |        |        |      |   |         |         |  



|         |                                                    
|-------- | ---------------------------------------------------
|Note 20. | Material Customers and Concentration of Credit Risk









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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 21. | Quarterly Results of Operations (Unaudited)



|                                                    |  |                                |        |   |            |   |        |            |  |   |          |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ---------- | - | ------ | ---------- |  | - | -------- | - |  | - | ------ | -
|                                                    |  | Fiscal Year 2006 Quarter Ended |       
|                                                    |  |                                |       
|                                                    |  | July 31                        |        |   | October 31 |   |        | January 31 |  |   | April 30 |  
|                                                    |  |                                |        |   |            |   |        |            |  |   |          |  
|Net sales                                           |  | $                              | 20,480 |   |            | $ | 18,949 |            |  | $ | 18,993   |   |  | $ | 20,620 |  
|Gross profit                                        |  |                                | 8,171  |   |            |   | 6,752  |            |  |   | 6,890    |   |  |   | 7,678  |  
|Loss from operations                                |  |                                | (684   | ) |            |   | (1,668 | )          |  |   | (1,378   | ) |  |   | (964   | )
|Net loss                                            |  |                                | (1,088 | ) |            |   | (346   | )          |  |   | (981     | ) |  |   | (418   | )
|Preferred stock dividend requirements               |  |                                | (87    | ) |            |   | (88    | )          |  |   | (88      | ) |  |   | (884   | )
|Net loss attributable to common shareholders        |  |                                | (1,175 | ) |            |   | (434   | )          |  |   | (1,069   | ) |  |   | (1,302 | )
|Net loss per share available to common shareholders |  | $                              | (0.09  | ) |            | $ | (0.03  | )          |  | $ | (0.08    | ) |  | $ | (0.09  | )

|                                                    |  |                                |        |   |            |   |        |            |  |   |          |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ---------- | - | ------ | ---------- |  | - | -------- | - |  | - | ------ | -
|                                                    |  | 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  | )









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





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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)












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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 23. | Operating Considerations and Management Plans









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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)




64



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##### Table of Contents








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

8-K


S-K, S-K,







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

10-K, 13a-15(e)


13a-15(f)







|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







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





10-K. www.stratosinternational.com


65



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








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

10-K.


Equity Compensation Plan Information




|                                                       |  |                      |         |  |                      |                      |                         |                         |  |  |           | 
|------------------------------------------------------ |  | -------------------- | ------- |  | -------------------- | -------------------- | ----------------------- | ----------------------- |  |  | --------- | 
|                                                       |  |                      |         |  |                      | Number of Securities |                        
|                                                       |  | Number of Securities |         |  |                      |                      | Remaining Available for |                        
|                                                       |  | to be Issued Upon    |         |  | Weighted-Average     |                      |                         | Future Issuance Under   | 
|                                                       |  | Exercise of          |         |  | Exercise Price of    |                      |                         | Equity Compensation     | 
|                                                       |  | Outstanding Options, |         |  | Outstanding Options, |                      |                         | Plans (Excluding        | 
|                                                       |  | Warrants and Rights  |         |  | Warrants and Rights  |                      |                         | Securities Reflected in | 
|Plan Category                                          |  | (a)                  |         |  | (b)                  |                      |                         | Column (a))(c)          | 
|                                                       |  |                      |         |  |                      |                      |                         |                         | 
|Equity compensation plans approved by security holders |  |                      | 290,526 |  |                      | $                    | 15.94                   |                         |  |  | 1,597,860 | 

10-K.







|         |                                               
|-------- | ----------------------------------------------
|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

Financial Statements: 10-K.


Financial Statement Schedules: 10-K.


Exhibits: 10-K.


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SIGNATURES






| |                            
| | ---------------------------
| | STRATOS INTERNATIONAL, INC.



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

| | 
| | 
| | 



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

POWER OF ATTORNEY


attorney-in 10-K attorney-in attorneys-in attorneys-in




|                                               |  |                                                               |  |               |  | 
|---------------------------------------------- |  | ------------------------------------------------------------- |  | ------------- |  | 
|Signature                                      |  | Title                                                         |  | Date         
|                                               |  |                                                               |  |              
|                                              
|/s/ PHILLIP A. HARRISPhillip
    A. Harris     |  | Director, President and CEO
    (Principal Executive Officer) |  | July 28, 2006
|                                              
|/s/ BARRY HOLLINGSWORTHBarry
    Hollingsworth |  | Chief Financial Officer
    (Principal Financial Officer)     |  | July 28, 2006
|                                              
|/s/ REGINALD W. BARRETTReginald
    W. Barrett |  | Chairman of the Board                                         |  | July 28, 2006
|                                              
|Charles
    Daniel Nelsen                      |  | Director                                                      |  | July 28, 2006
|                                              
|/s/ EDWARD J. OCONNELLEdward
    J. OConnell |  | Director                                                      |  | July 28, 2006

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|                                     |  |          |  |               |  | 
|------------------------------------ |  | -------- |  | ------------- |  | 
|Signature                            |  | Title    |  | Date         
|                                     |  |          |  |              
|                                    
|/s/ BRIAN J. STARKBrian
    J. Stark |  | Director |  | July 28, 2006
|                                    
|/s/ DAVID Y. HOWEDavid
    Y. Howe   |  | Director |  | July 28, 2006
|                                    
|Newell
    V. Starks                 |  | Director |  | July 28, 2006
|                                    
|Kenne
    Bristol                    |  | Director |  | July 28, 2006

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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
    (incorporated by reference to Exhibit 3.1 to the
    Registrants Annual Report on Form 10 K for the fiscal
    year ended April 30, 2005)                                                                                                                                                                         
|       
|        | 3  | .2                      |  | Certificate of Amendment of Restated Certificate of
    Incorporation of the Registrant*                                                                                                                                                                                                                                                                                   
|       
|        | 3  | .3                      |  | Bylaws of Registrant (incorporated by reference to
    Exhibit 3.2 to the Registrants Annual Report on
    Form 10 K for the fiscal year ended April 30, 2005)                                                                                                                                                                                                            
|       
|        | 3  | .4                      |  | Certificate of Designation of Series A Junior Participating
    Preferred Stock (incorporated by reference to Exhibit 3.1)                                                                                                                                                                                                                                                 
|       
|        | 3  | .5                      |  | Certificate of Designation for Series B Preferred Stock
    (incorporated by reference to Exhibit 3.1)                                                                                                                                                                                                                                                                     
|       
|        | 4  | .1                      |  | Specimen certificate representing the common stock (incorporated
    by reference to Exhibit 4.1 to registrants Amendment
    No. 2 to Form S-1, filed June 22, 2000)                                                                                                                                                                                                     
|       
|        | 4  | .2                      |  | Specimen Certificate representing the Series B Preferred
    Stock (incorporated by reference to Exhibit 4.2 to
    registrants Quarterly Report on Form 10-Q filed
    December 15, 2003)                                                                                                                                                                                
|       
|        | 4  | .3                      |  | Rights Agreement, dated as of March 23, 2001, between
    Stratos International, Inc. and Mellon Investor Services LLC
    (incorporated by reference to Exhibit 99.2 to
    registrants Current Report on Form 8-K, filed
    March 28, 2001)                                                                                                                            
|       
|        | 4  | .4                      |  | First Amendment, dated as of July 2, 2003, to Rights
    Agreement, dated as of March 23, 2001, between Stratos
    Lightwave, Inc. and Mellon Investor Services LLC, as Rights
    Agent (incorporated by reference to Exhibit 1.2 to
    registrants Form 8-A/ A, filed August 7, 2003)                                                                                 
|       
|        | 4  | .5                      |  | 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                      |  | 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 | .4                      |  | 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 | .5                      |  | Amendment to Stratos Lightwave, Inc. 2003 Stock Plan**
    (incorporated by reference to Appendix B to
    registrants definitive proxy statement filed
    August 8, 2006)                                                                                                                                                                                               
|       
|        | 10 | .6                      |  | 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 | .7                      |  | Form of the Restricted Stock Agreement for Directors of the
    Stratos Lightwave, Inc. 2003 Stock Plan (incorporated by
    reference to Exhibit 99.1 on form 8-K, filed on
    December 6, 2005)                                                                                                                                                                         
|       
|        | 10 | .8                      |  | Form of the Restricted Stock Agreement for Employees of the
    Stratos Lightwave, Inc. 2003 Stock Plan** (incorporated by
    reference to Exhibit 10.3 on Form 8-K filed
    May 1, 2006)                                                                                                                                                                                

69



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|        |    |                         |  |                                                                                                                                                                                                                                                                                          
|------- | -- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .9                      |  | 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 | .10                     |  | 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 | .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 James McGinley** (incorporated by reference to
    Exhibit 99.3 on Form 8-K filed on November 12,
    2004)                                                                                                   
|       
|        | 10 | .13                     |  | Management Retention Agreement between the Registrant and David
    Slack** (incorporated by reference to Exhibit 10.12 to
    registrants Quarterly Report on Form 10-Q, filed
    December 16, 2002)                                                                                  
|       
|        | 10 | .14                     |  | 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 | .15                     |  | Amendment to Management Retention Agreement between the
    Registrant and David A. Slack, dated February 4, 2005**
    (incorporated by reference to Exhibit 99.2 on Form 8-K
    filed on February 9, 2005)                                                                            
|       
|        | 10 | .16                     |  | 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 | .17                     |  | 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 | .18                     |  | 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 | .19                     |  | 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 | .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                     |  | Form of the Option Agreement of the Stratos Lightwave, Inc. 2003
    Stock Plan** (incorporated by reference to Exhibit 10.22 on
    Form 10-K filed July 29, 2005)                                                                                                                      
|       
|        | 10 | .22                     |  | Form of Management Retention Agreement** (incorporated by
    reference to Exhibit 10.1 on Form 8-K filed
    May 1, 2006)                                                                                                                                                               
|       
|        | 10 | .23                     |  | Restricted Stock Agreement between the Registrant and Phillip A.
    Harris, dated December 15, 2004, as amended and restated as
    of September 14, 2005** (incorporated by reference to
    Exhibit 99.4 to the registrants Current Report on
    Form 8-K, filed September 21, 2005)
|       
|        | 10 | .24                     |  | Amendment to Restricted Stock Agreement between the Registrant
    and Phillip A. Harris, dated as of December 6, 2005**
    (incorporated by reference to Exhibit 99.3 to
    registrants Current Report on Form 8-K, filed
    December 8, 2005)                                      
|       
|        | 10 | .25                     |  | Restricted Stock Agreement between the Registrant and Newell V.
    Starks, dated April 29, 2004, as amended and restated as of
    September 14, 2005** (incorporated by reference to
    Exhibit 99.5 to the registrants Current Report on
    Form 8-K, filed September 21, 2005)    
|       
|        | 10 | .26                     |  | Restricted Stock Agreement between the Registrant and Newell V.
    Starks, dated March 9, 2005** (incorporated by reference to
    Exhibit 99.3 to the registrants Current Report on
    Form 8-K, filed September 21, 2005)                                                           
|       
|        | 10 | .27                     |  | Restricted Stock Agreement between the Registrant and Newell V.
    Starks, dated December 6, 2005 (incorporated by reference
    to Exhibit 99.4 to the registrants Current Report on
    Form 8-K, filed December 8, 2005).                                                           

70



---



##### Table of Contents



|        |    |                         |  |                                                                                                                                                                        
|------- | -- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .28                     |  | Schedule of Non-Management Director Fees** (incorporated by
    reference to Exhibit 10.24 on Form 10-K filed
    July 29, 2005)                                       
|       
|        | 10 | .29                     |  | Summary Schedule of Officer Compensation***                                                                                                                            
|       
|        | 10 | .30                     |  | Form of the 2006 Annual Incentive Bonus Plan** (incorporated by
    reference to Exhibit 99.6 to registrants Current
    Report on Form 8-K, filed September 21, 2005)
|       
|        | 10 | .31                     |  | 2007 Annual Incentive Bonus Plan** (incorporated by reference to
    Exhibit 10.1 on Form 8-K filed May 1, 2006)                                                       
|       
|        | 14 |                         |  | Stratos International, Inc. Code of Business Conduct and Ethics
    (posted on registrants website at
    www.stratosinternational.com)                               
|       
|        | 21 |                         |  | List of Subsidiaries*                                                                                                                                                  
|       
|        | 23 | .1                      |  | Consent of BDO Seidman, LLP*                                                                                                                                           
|       
|        | 23 | .2                      |  | Consent of Ernst & Young LLP*                                                                                                                                          
|       
|        | 24 |                         |  | Power of Attorney (contained in the signature page to this
    annual report on Form 10-K)*                                                                            
|       
|        | 31 | .1                      |  | Rule 13a-14(a)/15d-14(a) Certification of Principal
    Executive Officer*                                                                                             
|       
|        | 31 | .2                      |  | Rule 13a-14(a)/15d-14(a) Certification of Principal
    Financial Officer*                                                                                             
|        | 32 | .1                      |  | Section 1350 Certification of Chief Executive Officer                                                                                                                 
|       
|        | 32 | .2                      |  | Section 1350 Certification of Chief Financial Officer                                                                                                                 






|  |                
|- | ---------------
|* | Filed herewith.



|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|** | Management contract or compensatory plan or arrangement required
    to be filed as an exhibit to this annual report on
    Form 10-K.
|  
|  | Furnished as exhibit to this annual report on
    Form 10-K.                                                                          

71