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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended January 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number 0-30869 STRATOS INTERNATIONAL, INC.    Delaware
    
    36-4360035(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)7444 West Wilson AvenueChicago, Illinois 60706
    
    60706(Address of Principal Executive Offices)
    
    (Zip Code)
 (708) 867-9600
(Registrants Telephone Number, including area code)   Not Applicable 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x As of March 11, 2004, there were 13,512,932 shares of the registrants common
stock, par value $0.01 per share, outstanding.




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STRATOS INTERNATIONAL, INC.  
 INDEX PagePART I FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of April 30, 2003 and January 31, 2004
(unaudited)
    
    
    1Condensed Consolidated Statements of Operations (unaudited) for the
three and nine months ended January 31, 2003 and 2004
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited) for the
nine months ended January 31, 2003 and 2004
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
January 31, 2004
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operation
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 2. Changes in Securities and Use of Proceeds
    
    
    22Item 4. Submission of Matters to Vote of Security Holders
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    24SIGNATURES
    
    
    27INDEX TO EXHIBITS
    
    
    28Certification of Principal Executive OfficerCertification of Principal Financial Officer1350 Certification of Chief Executive Officer1350 Certification of Chief Financial OfficerCautionary Statements
  -i-




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PART I
FINANCIAL INFORMATION 
 Item 1. Financial Statements. STRATOS INTERNATIONAL, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands)
 April 30,
    
    January2003
    
    31, 2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,649
    
    
    $
    18,101Short-term investments
    
    
    17,879
    
    
    
    24,388Accounts receivable, less allowance
    
    
    7,701
    
    
    
    11,499Inventories:Finished products
    
    
    864
    
    
    
    2,318Work in process
    
    
    797
    
    
    
    1,063Materials
    
    
    6,133
    
    
    
    12,0937,794
    
    
    
    15,474Recoverable income taxes
    
    
    2,391
    
    
    
    4,974Prepaid expenses
    
    
    2,083
    
    
    
    1,817Total current assets
    
    
    81,497
    
    
    
    76,253Other assets:Goodwill and other indefinite lived assets
    
    
    
    
    
    
    11,727Intangible assets, net of amortization
    
    
    621
    
    
    
    18,266Deferred income taxes
    
    
    6,437
    
    
    
    8,174Assets held for sale
    
    
    3,484
    
    
    
    842Other
    
    
    6,321
    
    
    
    2,66416,863
    
    
    
    41,673Property, plant and equipment
    
    
    93,667
    
    
    
    103,395Less allowances for depreciation
    
    
    67,415
    
    
    
    70,63126,252
    
    
    
    32,764Total assets
    
    $
    124,612
    
    
    $
    150,690LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,063
    
    
    $
    8,596Other current liabilities
    
    
    5,006
    
    
    
    6,929Current portion of long-term debt
    
    
    6,331
    
    
    
    2,519Total current liabilities
    
    
    16,400
    
    
    
    18,044Long-term debt, less current portion
    
    
    298
    
    
    
    1,313Deferred income taxes
    
    
    6,519
    
    
    
    14,590Minority interest
    
    
    350
    
    
    
    204Redeemable preferred stock
    
    
    
    
    
    
    5,000Stockholders equity:Preferred stock  Series B
    
    
    
    
    
    
    Common stock
    
    
    74
    
    
    
    135Additional paid-in capital
    
    
    284,254
    
    
    
    315,372Accumulated deficit
    
    
    (183,406
    )
    
    
    (203,628
    )Foreign currency translation adjustment
    
    
    154
    
    
    
    (92
    )Cost of common stock in treasury
    
    
    (31
    )
    
    
    (248
    )Total stockholders equity
    
    
    101,045
    
    
    
    111,539Total liabilities and stockholders equity
    
    $
    124,612
    
    
    $
    150,690
 See notes to condensed consolidated financial statements. -1-




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STRATOS INTERNATIONAL,
INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 (in thousands, except per share amounts)
 Three Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2003
    
    2004
    
    2003
    
    2004Revenue:Net sales
    
    $
    8,109
    
    
    $
    16,034
    
    
    $
    29,884
    
    
    $
    29,716License fees and royalties
    
    
    3,269
    
    
    
    396
    
    
    
    3,800
    
    
    
    1,016Total
    
    
    11,378
    
    
    
    16,430
    
    
    
    33,684
    
    
    
    30,732Costs and expenses:Costs of sales
    
    
    11,462
    
    
    
    12,608
    
    
    
    38,664
    
    
    
    28,105Research and development
    
    
    5,265
    
    
    
    2,054
    
    
    
    20,896
    
    
    
    6,754Sales and marketing
    
    
    1,362
    
    
    
    2,429
    
    
    
    5,656
    
    
    
    5,274General and administrative
    
    
    2,920
    
    
    
    4,883
    
    
    
    10,126
    
    
    
    11,356Total costs and expenses
    
    
    21,009
    
    
    
    21,974
    
    
    
    75,342
    
    
    
    51,489Loss from operations
    
    
    (9,631
    )
    
    
    (5,544
    )
    
    
    (41,658
    )
    
    
    (20,757
    )Investment income
    
    
    293
    
    
    
    168
    
    
    
    931
    
    
    
    592Loss before income taxes and cumulative effect of
change in accounting principle
    
    
    (9,338
    )
    
    
    (5,376
    )
    
    
    (40,727
    )
    
    
    (20,165
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    Loss before cumulative effect of a change in accounting
principle
    
    
    (9,338
    )
    
    
    (5,376
    )
    
    
    (40,727
    )
    
    
    (20,165
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (16,982
    )
    
    
    Net loss
    
    
    (9,338
    )
    
    
    (5,376
    )
    
    
    (57,709
    )
    
    
    (20,165
    )Preferred stock dividend requirements
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (55
    )Net loss available to common shareholders
    
    $
    (9,338
    )
    
    $
    (5,431
    )
    
    $
    (57,709
    )
    
    $
    (20,220
    )Net loss per share available to common shareholders,
basic and diluted:Before cumulative effect of a change in accounting
principle
    
    $
    (1.27
    )
    
    $
    (0.40
    )
    
    $
    (5.57
    )
    
    $
    (2.14
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (2.33
    )Net loss
    
    $
    (1.27
    )
    
    $
    (0.40
    )
    
    $
    (7.90
    )
    
    $
    (2.14
    )Preferred stock dividend requirements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net loss per share available to common shareholders
    
    $
    (1.27
    )
    
    $
    (0.40
    )
    
    $
    (7.90
    )
    
    $
    (2.15
    )Weighted average number of common shares outstanding:Basic and diluted
    
    
    7,339
    
    
    
    13,507
    
    
    
    7,309
    
    
    
    9,421
 See notes to condensed consolidated financial statements. -2-




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STRATOS INTERNATIONAL, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (in thousands)
 Nine Months EndedJanuary 31,2003
    
    2004Operating activities:Net loss
    
    $
    (57,709
    )
    
    $
    (20,165
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for depreciation and amortization
    
    
    13,386
    
    
    
    4,325Provision for impairment of goodwill and other assets
    
    
    21,504
    
    
    
    Provision for deferred taxes
    
    
    84
    
    
    
    Provision for losses on accounts receivable
    
    
    209
    
    
    
    Gain on sale of assets held for sale
    
    
    
    
    
    
    (1,305
    )Change in operating assets and liabilities
    
    
    2,335
    
    
    
    3,022Net cash used in operating activities
    
    
    (20,191
    )
    
    
    (14,123
    )Investing activities:Purchases of property, plant and equipment
    
    
    (2,792
    )
    
    
    (2,627
    )Purchases of short-term investment
    
    
    (24,029
    )
    
    
    (31,803
    )Sales of short-term investments
    
    
    23,100
    
    
    
    25,294Acquisition, net of cash acquired
    
    
    (189
    )
    
    
    8,119Proceeds from sale of assets held for sale
    
    
    1,209
    
    
    
    4,381Net cash from (used in) investing activities
    
    
    (2,701
    )
    
    
    3,364Financing activities:Repayment of borrowings
    
    
    (5,435
    )
    
    
    (2,796
    )Distribution to former owners of acquired business
    
    
    
    
    
    
    (12,000
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    223Treasury stock transactions
    
    
    
    
    
    
    (216
    )Net cash used in financing activities
    
    
    (5,435
    )
    
    
    (14,789
    )Net decrease in cash and cash equivalents
    
    
    (28,327
    )
    
    
    (25,548
    )Cash and cash equivalents at beginning of period
    
    
    61,020
    
    
    
    43,649Cash and cash equivalents at end of period
    
    $
    32,693
    
    
    $
    18,101Supplemental schedule of non cash investing and financing activities:Preferred and Common Stock issued in acquisition of subsidiary
    
    
    
    
    
    $
    35,957Issuance of 507,500 shares of restricted Common Stock
    
    $
    432
    
    
    
    
 See notes to condensed consolidated financial statements. -3-




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STRATOS INTERNATIONAL, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) January 31, 2004 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
January 31, 2004 are not necessarily indicative of the results that may be
expected for the fiscal year ending April 30, 2004. This unaudited quarterly
information should be read in conjunction with the audited consolidated
financial statements and related notes for the fiscal year ended April 30, 2003
included in the Companys Annual Report on Form 10-K filed with the Securities
and Exchange Commission. Comprehensive loss consists of net loss and foreign currency translation
adjustments and totaled $9,329,000 and $5,541,000 for the third quarters of
fiscal 2003 and 2004 and $57,136,000 and $20,411,000 for the nine months ended
January 31, 2003 and 2004. Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities,effective for exit or
disposal activities initiated after December 31, 2002. The Companys current
restructuring plan, initiated in fiscal 2003, was not accounted for under SFAS
No. 146. The Company accrued a pre-tax charge of approximately $3.0 million in
the first nine months of fiscal 2003 when Company management approved the
current restructuring plan. If the Company had accounted for this
restructuring plan under SFAS No. 146, $725,000 of the $3.0 million charge
would have been recognized as incurred and not accrued at January 31, 2003. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts. SFAS No.
149 is effective for contracts entered into or modified after June 30, 2003.
The adoption of this statement did not have a material effect on the Companys
financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.The
adoption of this statement did not have a material effect on the Companys
financial statements. -4-




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In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities,an Interpretation of Accounting Research Bulletin
(ARB) No. 51 (FIN 46), which requires variable interest entities (commonly
referred to as SPEs) to be consolidated by the primary beneficiary of the
entity if certain criteria are met. FIN 46 is effective immediately for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 became effective for the Company during its third quarter
2004. The adoption of FIN 46 had no effect on the Company. 2. Goodwill Impairment In fiscal 2003, SFAS No. 142 required the Company to perform an assessment
of whether there was an indication that goodwill was impaired as of the date of
adoption, or step one of the impairment test. To implement SFAS No. 142, the
Company identified reporting units consistent with the way the Company is
managed. The Company then determined the carrying value of each reporting unit
by allocating the assets and liabilities, including the goodwill and intangible
assets, to the units as of the date of adoption. The Company had up to six
months from the date of adoption to determine the fair value of each reporting
unit and compare it to the reporting units carrying value. If a reporting
units carrying value exceeds its fair value, an indication exists that the
reporting units goodwill is impaired, and the Company would be required to
perform the second step of the transitional impairment test. During the second quarter of fiscal 2003, the Company performed its
transitional goodwill impairment test in accordance with SFAS No. 142 which
included step one as described above for each of the reporting units. Results
of step one indicated that impairment existed within the active optical
subsystems reporting unit since the estimated fair value of the assets of this
unit, based on expected future discounted cash flows to be generated by the
unit, was less than their carrying value. Pursuant to the second step of the
test, the Company compared the implied fair value of the units goodwill
(determined by allocating the units fair value based on expected future
discounted cash flows, to all of its assets, recognized and unrecognized, and
liabilities in a manner similar to a purchase price allocation for an acquired
business) to its carrying value. The Company did not obtain independent
valuations of unrecognized intangible assets as well as fixed assets since the
units fair value indicated full impairment of its goodwill. Significant negative industry and economic trends affecting the Companys
current and future operations, and therefore future cash flows, contributed to
the transitional impairment test resulting in an impairment of goodwill related
to the active optical subsystems reporting unit of approximately $17.0 million.
This non-cash charge is reflected as a cumulative effect of a change in
accounting principle in the Statement of Operations for the nine months ended
January 31, 2003. Going forward any additional impairment of goodwill will be
recorded in the period the goodwill is determined to be impaired. 3. Merger In November 2003, the Company acquired Sterling Holding Company
(Sterling), a privately-held company based in Mesa, Arizona that designs and
manufactures Radio Frequency -5-




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##### Table of Contents



(RF) and Microwave interconnect products via its two operating units,
Trompeter Electronics, Inc. and Semflex, Inc. The Company completed this
merger on November 6, 2003, following approval by both Company and Sterling
shareholders. At closing, Sterling became a wholly-owned subsidiary of the
Company, with Sterling shareholders receiving 6,082,000 shares of the Companys
common stock, which represented approximately 82% of the Companys total shares
outstanding immediately prior to the consummation of the merger. Of such
amount, 608,189 shares were placed in escrow to provide indemnification to the
Company with respect to certain matters provided for in the merger agreement.
Company common shares issued in this transaction were valued at $5.09 a share,
the closing price on July 2, 2003, the day the merger was announced. The
Company also issued 50,000 shares of Series B redeemable preferred stock with a
face value of $5.0 million and a contingent value of up to an additional $6.25
million based on certain events, including the future performance of the
Companys share price. The total purchase consideration was $38.8 million,
consisting of common and preferred shares of Company stock valued at $36.0
million and $2.8 million of acquisition related costs. In connection with the transaction, the Company expanded its Board of
Directors to nine members. The new board is comprised of four members of the
Companys Board at the time of the closing of the merger, four members from
Sterlings Board, and an additional director chosen by Sterling. A preliminary allocation of the purchase consideration to tangible and
intangible assets was based upon an estimate of fair value determined by
management and independent valuation specialists. Based on these preliminary
estimates the purchase consideration was allocated as follows (in thousands): Net tangible assets
    
    $
    18,210Intangible assets
    
    
    17,300Net deferred tax liability
    
    
    (5,800
    )Goodwill
    
    
    9,027$
    38,737
 The $18.2 million of net tangible assets consist of the following (in
thousands): Cash and cash equivalents
    
    $
    10,899Accounts receivable
    
    
    5,331Inventory
    
    
    7,785Property, plant and equipment, and other assets
    
    
    13,609Accounts payable and other assumed liabilities.
    
    
    (19,414
    )$
    18,210
 Independent valuation specialists identified $17.3 million of intangible
assets. These intangible assets and their associated useful lives are as
follows (in thousands): -6-




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##### Table of Contents



Amount
    
    Useful LifePatents and related technology
    
    $
    3,100
    
    
    14.25 yearsDeveloped software
    
    
    700
    
    
    5.00 yearsTradenames
    
    
    2,700
    
    
    IndefiniteCustomer relationships
    
    
    10,800
    
    
    12.50 years$
    17,300
 The deferred tax liability of $5.8 million reflects adjustments to record
the difference between the book basis and tax basis of the identifiable
intangible assets at the date of acquisition. The above-described acquisition was accounted for using the purchase
method of accounting. Sterlings results of operations have been included with
the Companys since November 6, 2003. Unaudited pro forma results of
operations, assuming these acquisitions occurred May 1, 2002, are as follows: Pro formaStratos
    
    Sterling
    
    Adjustments
    
    ConsolidatedNet sales:Nine months ended January 31, 2003
    
    $
    29,884
    
    
    $
    30,155
    
    
    $
    
    
    
    $
    60,039Nine months ended January 31, 2004
    
    
    21,050
    
    
    
    26,267
    
    
    
    
    
    
    
    47,317Net profit (loss):Nine months ended January 31, 2003
    
    
    (57,709
    )
    
    
    4,275
    
    
    
    (1,496
    )
    
    
    (54,930
    )Nine months ended January 31, 2004
    
    
    (20,706
    )
    
    
    (6,366
    )
    
    
    (997
    )
    
    
    (28,069
    )Net earnings (loss) per share, basic
and diluted:Nine months ended January 31, 2003
    
    
    (7.90
    )
    
    
    0.59
    
    
    
    (0.20
    )
    
    
    (7.51
    )Nine months ended January 31, 2004
    
    
    (2.20
    )
    
    
    (0.68
    )
    
    
    (0.11
    )
    
    
    (2.99
    )
 The pro forma adjustments represents additional depreciation on the
step-up in value of fixed assets and amortization of intangibles. Because of current tax regulations, the goodwill related to the
acquisition cannot be deducted for federal and state income tax purposes. 4. Restructuring Charges The Company recorded restructuring charges of approximately $3.0 million
relating to employee severance costs in the first nine months of fiscal 2003. Accruals related to the restructuring charges and their utilization are
summarized as follows: Paymentsthrough
    
    BalanceBalance
    
    2004
    
    January 31,
    
    January 31,April 30, 2003
    
    Charges
    
    2004
    
    2004Employee costs
    
    $
    400,000
    
    
    
    
    
    
    $
    151,000
    
    
    $
    249,000
 The Company terminated 190 employees in the nine months ended January 31,
2003 for the restructuring of its operations, including both production and
administrative personnel. -7-




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5. Income Taxes The Company has recorded a valuation allowance against deferred income tax
assets primarily associated with tax loss carry forwards based on the
significant operating losses experienced. As a result, valuation allowances of
$55.2 million were recorded through April 30, 2003, which eliminated the tax
benefit attributable to the losses incurred in fiscal years 2002 and 2003. We
have continued to experience operating losses during the nine months ended
January 31, 2004, and an additional valuation reserve of $7.3 million was
recorded, which eliminated the tax benefit attributable to the net loss
incurred in the first nine months of fiscal 2004. We have net operating loss carry forwards of approximately $140.8 million
that are available to offset taxable income in the future. The net operating
loss carry forwards will expire in 2022 through 2024. 6. Long-Term Debt Long-term debt consists of two notes payable for the purchase of computer
software and hardware in connection with the implementation of a new
information technology system and several equipment financing arrangements. At
January 31, 2004, information relating to these notes and financing
arrangements is as follows: Information Technology
    
    EquipmentNote 1
    
    Note 2
    
    Financing
    
    TotalCurrent portion
    
    $
    1,869,000
    
    
    $
    593,000
    
    
    $
    57,000
    
    
    $
    2,519,000Long-term
    
    
    1,313,000
    
    
    
    
    
    
    
    
    
    
    
    1,313,000$
    3,182,000
    
    
    $
    593,000
    
    
    $
    57,000
    
    
    $
    3,832,000Interest rate
    
    
    5.50
    %
    
    
    3.52
    %
    
    
    13.72
    %Payment terms
    
    Monthly
    
    Quarterly
    
    MonthlyMaturity
    
    
    2006
    
    
    
    2004
    
    
    
    2005
 7. Loss Per Share Three Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2003
    
    2004
    
    2003
    
    2004Numerator  net loss available to common shareholders
    
    $
    (9,338
    )
    
    $
    (5,431
    )
    
    $
    (57,709
    )
    
    $
    (20,220
    )Denominator:Denominator for basic and diluted loss per share
- weighted-average shares outstanding
    
    
    7,339
    
    
    
    13,507
    
    
    
    7,309
    
    
    
    9,421Basic and diluted loss per share
    
    $
    (1.27
    )
    
    $
    (0.40
    )
    
    $
    (7.90
    )
    
    $
    (2.15
    )
 The dilutive effect of outstanding stock options has not been considered in the
determination of weighted average shares outstanding because their effect would
be antidilutive. -8-




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##### Table of Contents



8. Sale of a Business Effective May 23, 2003, the Company sold the assets and business of its
wholly-owned subsidiary, Bandwith Semiconductor LLC, located in Hudson, New
Hampshire. The Company realized a net gain of approximately $1.2 million which
is reflected as a reduction of general and administrative expenses in the
statement of operations for the nine months ended January 31, 2004. 9. Stock-Based Compensation In the first quarter of fiscal year 2004, the Company adopted SFAS No.
148, Accounting for Stock-Based Compensation.The Company will continue to
account for stock-based compensation plans using the intrinsic value method
described in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations.All stock options granted by
the Company are granted at market price and thus no compensation expense is
recorded in the Companys results of operations. Under FASB No. 148, the
Company is required to report quarterly and year to date pro forma net loss and
loss per share as if the Company had accounted for its stock options plans
under the fair value method. The following table shows the Companys pro forma
net loss and loss per share as if the Company had recorded the fair value of
stock options as compensation expense. Three Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,(Dollars in thousands, except per share amounts)
    
    2003
    
    2004
    
    2003
    
    2004Reported net loss available to common shareholders
    
    $
    (9,338
    )
    
    $
    (5,431
    )
    
    $
    (57,709
    )
    
    $
    (20,220
    )Stock-based compensation net of tax
    
    
    (518
    )
    
    
    (486
    )
    
    
    (6,179
    )
    
    
    (1,693
    )Pro forma net loss
    
    
    (9,856
    )
    
    
    (5,917
    )
    
    
    (63,888
    )
    
    
    (21,913
    )Reported basic and diluted net loss per share
available to common shareholders
    
    
    (1.27
    )
    
    
    (0.40
    )
    
    
    (7.90
    )
    
    
    (2.15
    )Pro forma basic and diluted net loss per share
available to common shareholders
    
    
    (1.34
    )
    
    
    (0.44
    )
    
    
    (8.74
    )
    
    
    (2.32
    )
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion 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 and its effect on our
business; (ii) our ability to meet analyst and investor expectations; (iii) the
long-term growth of communications industry and its use of our technologies;
(iv) our ability to develop and market new products and technology and to make
enhancements to existing products and -9-




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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 military/aerospace industry;
(viii) our ability to develop and manage relationships with large customers
that comprise, and will comprise, a significant percentage of our net sales,
respectively; (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; (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; (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; (xxiii) our ability to integrate Stratos and Sterling; (xxiv) the
continued costs associated with the acquisition of Sterling; (xxv) impact on
our earnings of application of the purchase method of accounting in connection
with the Sterling merger; and (xxvi) our ability to realize benefits from
consolidation of Sterling into the Mesa, Arizona facility. 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 Sterling merger or other
matters addressed in this document and attributable to Stratos or any person
acting on either companys 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, Stratos undertakes 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. See the cautionary statements included as Exhibit 99.1 to this quarterly report
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 outlook. Overview In November 2003, the Company acquired Sterling Holding Company
(Sterling), a privately-held company based in Mesa, Arizona that designs and
manufactures Radio Frequency -10-




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(RF) and Microwave interconnect products via its two operating units,
Trompeter Electronics, Inc. and Semflex, Inc. The Company completed this
merger on November 6, 2003, following approval by both Company and Sterling
shareholders. At closing, Sterling became a wholly-owned subsidiary of the
Company, with Sterling shareholders receiving 6,082,000 shares of the Companys
common stock, which represented approximately 82% of the Companys total shares
outstanding immediately prior to the consummation of the merger. Of such
amount, 608,189 shares were placed in escrow to provide indemnification to the
Company with respect to certain matters provided for in the merger agreement.
Company common shares issued in this transaction were valued at $5.09 a share,
the closing price on July 2, 2003, the day the merger was announced. The
Company also issued 50,000 shares of Series B redeemable preferred stock with a
face value of $5.0 million and a contingent value of up to an additional $6.25
million based on certain events, including the future performance of the
Companys share price. The total purchase consideration was $38.8 million,
consisting of common and preferred shares of Company stock valued at $36.0
million and $2.8 million of acquisition related costs. In connection with the transaction, the Company expanded its Board of
Directors to nine members. The new board is comprised of four members of the
Companys Board at the time of the closing of the merger, four members from
Sterlings Board, and an additional director chosen by Sterling. We develop, manufacture and sell optical, RF, and microwave components and
subsystems for various applications and multiple end markets. These subsystems
are designed for use in storage, data networking, metro and wide area telecom
networks, military, aerospace, video, government security, oil and gas, and
other industrial markets and applications. We plan to continue to diversify
our end markets and expand our product offerings through internal and,
possibly, external growth. Our products are compatible with the various
standards used in these applications, including Gigabit Ethernet, Fast
Ethernet, Fibre Channel, and synchronous optical network (SONET), SMPTE 259M,
and other standards dictated by the application of our products. Our net sales are derived from the sale of optical components and
subsystems to original equipment manufacturers (OEMs) and local resellers,
and from the sale of RF and microwave components to telecom service providers,
OEMs, military and government users, and distributors and resellers. Our net
sales have fluctuated from period to period due to customer demand for our
products, the size and timing of customer orders, our ability to deliver in the
relevant period and any canceled, delayed or rescheduled orders in the relevant
period. We determine inventory reserves in light of the rapid technological
change experienced in our industry on a product-by-product basis. While it is
likely that obsolescence due to rapid technological change will continue, the
timing and amount of this obsolescence cannot be predicted with certainty. The average unit prices of many of our products generally decrease as the
products mature in response to factors such as increased competition, the
introduction of new products and increased unit volumes. We anticipate that
average selling prices of many of our products will continue to decline in
future periods, although the timing and degree of the declines cannot be
predicted with any certainty. We must continue to develop and introduce new
products that incorporate features that can be sold at higher average selling
prices, on a timely basis. There -11-




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can be no assurance that we will be able to introduce new products to
offset the anticipated decrease in the average selling prices of our products. License fees and royalties represent payments received from licensees of
our patented technology, which is also used by us in our optical subsystems.
These license agreements generally provide for up-front payments and/or future
fixed payments or ongoing royalty payments based on a percentage of sales of
the licensed products. The timing and amounts of these payments is beyond our
control. Accordingly, the amount received in any given period is expected to
vary significantly. The duration of all of these license agreements extends
until the expiration of the licensed patents which in most cases is greater
than ten years. We will consider entering into similar agreements in the
future, however, we are not able to predict whether we will enter into any
additional licenses in the future and, if so, the amount of any license fees or
royalties. Our cost of sales consists of materials, salaries and related expenses for
manufacturing personnel and manufacturing overhead. We purchase several key
components used in the manufacture of our products from a limited number of
suppliers. We have periodically experienced shortages and delivery delays for
these materials. In some circumstances, we maintain an inventory of limited
source components to decrease the risk of shortage. If we overestimate our
requirements, we may have excess inventory of these components. The majority
of our products are designed and manufactured in our own facilities. In the
future we may expand the volume of products manufactured by third parties. In
order to remain competitive, we must continually reduce our manufacturing costs
through design and engineering innovations and increases in manufacturing
efficiencies. There can be no assurance that we will be able to reduce our
manufacturing costs. Some of our critical components used in production of certain of our
products are purchased from a key supplier which has been acquired by a
competitor of the Company. If this supplier increases prices, reduces
quantities available to us or ceases to supply us, our business and results of
operations may be significantly harmed. Research and development expenses consist primarily of salaries and
related expenses for design engineers, scientists and other technical
personnel, depreciation of test and prototyping equipment, and tooling.
Research and development expenses also consist of materials and operating
expenses related to major product development projects. We charge all research
and development expenses to operations as incurred. We believe that continued
investment in research and development is critical to our long-term business
success. We intend to continue to invest in research and development programs
in future periods in order to enhance performance or reduce the cost of current
optical, RF and microwave products, and develop new optical, RF, and microwave
products. There can be no assurance that these goals will be achieved or that
our levels of spending and project selection will be sufficient and effective. We market and sell our products domestically and internationally through
our direct sales force, local resellers and manufacturers representatives.
Sales and marketing expenses consist primarily of personnel costs, including
sales commissions, travel costs, outside consulting services, and product
marketing and promotion costs. We expect to continue to make significant
expenditures for sales and marketing services. -12-




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General and administrative expenses consist primarily of personnel costs
for our administrative and financial groups, as well as legal, accounting,
information technology and other professional fees. We expect to continue to
make significant expenditures for general and administrative services. Critical Accounting Policies Accounts Receivable We sell products primarily to various OEMs and distributors. Sales to
these customers have varying degrees of collection risk associated with them.
Judgment is required in assessing the realization of these receivables based on
aging, historical experience and customers financial condition. Inventory Reserves It is our policy to reserve 100% of the value of inventory we specifically
identify and consider obsolete or excessive to fulfilling future sales
estimates. We define obsolete inventory as inventory that will no longer be
used in the manufacturing process or items that have potential quality
problems. Excess inventory is defined as inventory in excess of one to two
years projected usage depending upon the product. Excess inventory is
determined using our best estimate of future demand at the time, based upon
information then available to us. In general, our policy is to scrap inventory
determined to be obsolete shortly after the determination is made and to keep
excess inventory for a reasonable amount of time before it is discarded.
Occasionally, changed circumstances in the marketplace present us with an
opportunity to sell inventory that was previously determined to be excessive
and reserved for. If this occurs, we vigorously pursue such opportunities. Impairment of Long-Lived Assets We review the carrying value of our long-lived assets if the facts and
circumstances, such as significant declines in sales, earnings or cash flows or
material adverse changes in the business climate suggest that they may be
impaired. If this review indicates that long-lived assets will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the long-lived asset, impairment is measured by comparing the carrying value of
the long-lived asset to fair value. Fair value is determined based on quoted
market values, discounted cash flows or appraisals. If an asset is considered
held for sale, we adjust the carrying value of the underlying assets to fair
value, as determined based on the estimated net realizable proceeds of the
assets. Revenue Recognition Revenue from product sales, net of trade discounts, is recognized when
title passes, which generally occurs upon shipment. We handle returns by
replacing, repairing or issuing credit for defective products when returned.
We establish a reserve for returns based on any known and anticipated returns. -13-




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Customer Returns It is our policy to establish a reserve for customer returns based on any
known returns and anticipated returns based on past experience. Customer demand is a changing dynamic. Occasionally, we have and will
receive requests from customers to accept the return of merchandise for which
they had previously accepted delivery. Although we have no obligation to do
so, each such request is evaluated in light of contemplated future business
from that customer. We will continue to consider these requests in the future,
however, we are not able to predict that we will enter into any additional such
agreements in the future, and, if so, the amount of any returns. Because we do support several fully franchised distribution agreements
which include provisions for inventory rotation, certain products covered under
these agreements are returned to us from time to time. Such returns could
amount to as much as 6% of the total value of all shipments into the formal
franchised distribution channel over the prior year. Research and Development All expenses relative to the development of a new product, prior to its
introduction into production, are considered research and development expenses.
In addition, the costs of the engineering effort to do significant redesign to
enhance product performance that results essentially in a new product are also
considered to be research and development expenses. Because the true
manufacturability of our products is not obvious until a period of volume
production has occurred, initial production is considered a part of the
development process. During this phase, a portion of the scrap expense and
yield loss is considered development expense. A product continues to be
considered under development until it matures to the point where its production
yields (volumes) are consistent with other mature products and any related
engineering effort is predominately dedicated to customer applications and/or
quality support. Results of Operations The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated: -14-




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Nine Months EndedJanuary 31,2003
    
    2004Revenue:Net sales
    
    
    100.0
    %
    
    
    100
    %License fees and royalties
    
    
    12.7
    
    
    
    3.4Total
    
    
    112.7
    
    
    
    103.4Costs and expenses:Cost of sales
    
    
    129.4
    
    
    
    94.6Research and development
    
    
    69.9
    
    
    
    22.7Sales and marketing
    
    
    18.9
    
    
    
    17.8General and administrative
    
    
    33.9
    
    
    
    38.2Total costs and expenses
    
    
    252.1
    
    
    
    173.3Loss from operations
    
    
    (139.4
    )
    
    
    (69.9
    )Investment income, net
    
    
    3.1
    
    
    
    2.0Loss before income taxes and cumulative effect of change in
accounting principle
    
    
    (136.3
    )
    
    
    (67.9
    )Provision for income taxes
    
    
    
    
    
    
    Loss before cumulative effect of change in accounting principle
    
    
    (136.3
    )
    
    
    (67.9
    )Cumulative effect of change in accounting principle
    
    
    (56.8
    )
    
    
    Net loss
    
    
    (193.1
    )%
    
    
    (67.9
    )%
 Three and Nine Months Ended January 31, 2004 and 2003 Net Sales.Net sales for the third quarter of fiscal 2004 increased to
$16.0 million from $8.1 million a year ago. Net sales for the nine month
period ended January 31, 2004 decreased 1.0% over the same period a year ago to
$29.7 million from $29.9 million. Of the $7.9 million increase in the third
quarter, $600,000 is attributable to an increase in the net sales into the
storage end market, $2.3 million resulted from an increase in the net sales
into the data networking end market, $800,000 is from an increase into the
telecom/metro end market, $3.6 million increase in the net sales into the
military/governmental end market and a $600,000 increase in the net sales into
the other end markets. Included in the amounts above is $8.6 million in sales
from product lines acquired in the merger with Sterling. Net sales decreased $200,000 in the nine months ended January 31, 2004
over the comparable period last year. The decrease represents a $4.6 million
decrease in the net sales into the storage end market and a $1.0 million
decrease in the net sales into the telecom/metro end market. These decreases
were offset in part by a $3.8 million increase in the net sales into the
military/governmental end market, a $800,000 increase in the net sales into the
data networking end market and a $800,000 million increase in net sales into
other end markets. Included in the amounts above is $8.6 million in sales from
product lines acquired in the merger with Sterling. Excluding the sales attributable to the product lines acquired from
Sterling, sales decreased $700,000 and $8.8 million in the three and nine
months ended January 31, 2004, respectively, over the comparable periods last
year. The decrease in sales was primarily due to -15-




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lower customer demand due to the current economic climate and reduced
capital spending for optical networking equipment. Sales were also negatively
impacted by declines in average unit prices for our products resulting from
pricing pressure and changes in product mix. Our total sales order backlog
increased to $12.6 million as of January 31, 2004 from $5.0 million as of April
30, 2003. This increase reflects a significant increase in the backlog in our
military/governmental end market and $4.8 million from the merger with
Sterling. These increases were offset partially by decreases reflecting lower
customer demand for our products, customer push-outs and cancellation of
orders, due in part to delays in the launch of new product programs by our
customers in other end markets we service. License Fees and Royalties. License fees decreased to $400,000 in the
three months ended January 31, 2004 from $3.3 million in the three months ended
January 31, 2003. This decrease is primarily attributable to a $3.0 million
lump sum one-time license payment in fiscal 2003. License fees decreased to
$1.0 million in the nine months ended January 31, 2004 from $3.8 million in the
nine months ended January 31, 2003. The decrease primarily relates to the $3.0
million lump sum payment in fiscal 2003 and was offset in part by receipt of
higher royalties from 2 licensees in fiscal 2004. License fees consist of both
fixed schedule payments and contingent payments based on sales volumes of
licensed products. Cost of Sales and Gross Margins. Cost of sales increased to $12.6 million
in the three months ended January 31, 2004 from $11.5 million in the three
months ended January 31, 2003 and decreased to $28.1 million for the nine
months ended January 31, 2004 compared to $38.7 in the nine months ended
January 31, 2003. Gross margin as a percentage of net sales improved to 21.4%
in the three months ended January 31, 2004 from negative (41.3)% in the three
months ended January 31, 2003. Approximately, 41.9 percentage points of the
62.7% increase was due to the decrease in prime costs and manufacturing costs,
17.4 percentage points from the product lines acquired in the merger with
Sterling, 2.6 percentage points was due to the reduction in the charges for
obsolete and slow moving inventory, and 0.8 percentage points for the sale of
inventory previously considered excess and fully reserved. The gross margin increased to 5.4% for the nine months ended January 31,
2004 from negative (29.4)% in the comparable period last year. Approximately
11.0 percentage points of the 34.8% increase was due to the decrease in prime
costs and manufacturing costs, 9.4 percentage points from the product lines
acquired in the merger with Sterling, 13.6 percentage points was due to the
reduction in the charges for obsolete and slow moving inventory, and 2.0
percentage points for the sale of inventory previously considered excess and
fully reserved. These factors were offset 1.2 percentage points for severance
pay relating to restructuring of operations. Cost of sales was charged approximately $1.7 million and $5.8 million in
the nine months ended January 31, 2004 and 2003, respectively, for obsolete and
excess inventory. Research and Development. Research and development expenses decreased to
$2.1 million in the three months ended January 31, 2004 from $5.3 million in
the three months ended January 31, 2003. The decrease of $3.2 million was due
primarily to a $2.0 million decrease in costs of research and development
facilities, a $1.1 million decrease in costs of personnel dedicated to research
and development and $200,000 decrease in material and overhead cost -16-




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related to major product development. These decreases were partially
offset by $100,000 of research and development expenses attributable to the
product lines acquired from Sterling. Research and development expenses decreased to $6.8 million in the nine
months ended January 31, 2004 from $20.9 million in the nine months ended
January 31, 2003, a $14.1 million reduction. During the nine months ended
January 31, 2003, the Company incurred a $2.1 million charge for the write off
of costs of the acquisitions of Tsunami Optics, Inc. and Paracer, Inc. that was
allocated to intangible in-process research and development, in accordance with
SFAS No. 141. The balance of the decrease of $14.1 million was the result of a
$4.8 million decrease in costs of research and development facilities, $4.3
million decrease in personnel costs dedicated to research and development and
$3.0 million decrease in material and overhead cost related to major product
development. These decreases were offset by $100,000 of research and
development expenses attributable to the product lines acquired from Sterling. Sales and Marketing. Sales and marketing expenses increased to $2.4
million in the three months ended January 31, 2004 from $1.4 million for the
three months ended January 31, 2003. This $1.0 million increase was due to
increases of $800,000 in sales and marketing salaries, fringe benefits, bonuses
and commissions, and $200,000 in field sales operating costs supporting our
sales. The above amounts include $1.1 million of sales and marketing expenses
attributable to the product lines acquired from Sterling. Sales and marketing expenses decreased to $5.3 million in the nine months
ended January 31, 2004 from $5.7 million in the comparable period last year.
This $400,000 decrease was due to a $100,000 decrease in sales and marketing
salaries, fringe benefits, bonuses and commissions and a $300,000 decrease in
field sales operating costs supporting our sales volume. The above amounts
include $1.1 million of sales and marketing expenses attributable to the
product lines acquired from Sterling. General and Administrative. General and administrative expenses increased
to $4.9 million in the three months ended January 31, 2004 from $2.9 million in
the comparable period last year. This $2.0 million increase was due to an
increase of $2.2 million in general and legal expenses offset by a decrease of
$200,000 in salaries, fringe benefits and bonuses. The amounts above include
$1.0 million of general and administrative expenses attributable to the product
lines acquired from Sterling. General and administrative expenses increased to $11.4 million in the nine
months ended January 31, 2004 from $10.1 million in the comparable period last
year. This increase of $1.3 million resulted from an increase of $3.8 million
in general and legal expenses, offset by a reduction of $1.3 million in
salaries, fringe benefits and bonuses and the $1.2 million gain on the sale of
Bandwidth Semiconductor LLC. The amounts above include $1.0 million of general
and administrative expenses attributable to the product lines acquired from
Sterling. We operate in markets that experienced a severe economic downturn that
began late in the third quarter of fiscal 2001 and continued through the third
quarter of fiscal 2004 and, as a result, many of our customers began to stretch
their payment terms. Days sales in accounts receivable increased to 65 days at
January 31, 2004 compared to 50 days at April 30, 2003. -17-




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Investment Income, Net. Investment income, net of investment expense,
decreased to $168,000 in the three months ended January 31, 2004 from $293,000
in the three months ended January 31, 2003 and decreased to $592,000 in the
nine months ended January 31, 2004 from $931,000 in the comparable period last
year. Investment income consists of earnings on the short-term investment of
excess cash balances, and the decreases of this income in the three and nine
months ended January 31, 2004 reflect the reduction of excess cash balances as
well as lower interest rates throughout the market place during these periods. Income Taxes. During fiscal 2002, a valuation allowance was recorded to
offset the carrying value of deferred tax assets primarily associated with tax
loss carry forwards based on the significant operating losses experienced. As
a result, valuation allowances of $55.2 million were recorded through April 30,
2003, which eliminated the tax benefit attributable to the losses incurred in
fiscal years 2002 and 2003. We have continued to experience similar reductions
in business levels during the nine months ended January 31, 2004, and an
additional valuation reserve of $7.3 million was recorded, which eliminated the
tax benefit attributable to the net loss incurred in the first nine months of
fiscal 2004. We have net operating loss carry forwards of approximately $140.8 million
that are available to offset taxable income in the future. The net operating
loss carry forwards will expire in 2022 through 2024. Cumulative Effect of a Change in Accounting Principle.Effective May 1,
2002, the Company has adopted the provisions of SFAS No. 142, and performed a
transitional goodwill impairment test as of that date. As a result, it was
determined that the goodwill of our active optical subsystems reporting unit
had been impaired and recorded a one-time noncash charge of approximately $17.0
million. This charge was recorded as of May 1, 2002 and is reflected as a
cumulative effect of a change in accounting principle in the Statement of
Operations. See Note 2 to the Consolidated Financial Statements located
elsewhere in this filing for further discussion of this item. Liquidity and Capital Resources Net cash used in operating activities totaled $14.1 million for the nine
months ended January 31, 2004. The use of cash in operating activities
resulted primarily from a net loss and the decrease of accounts payable and
accrued expenses, offset in part by decreases in accounts receivable and
inventories. Net cash used in operating activities totaled $20.2 million for
the nine months ended January 31, 2003. The use of cash in operating
activities resulted primarily from a net loss and decrease in accounts payable
and accrued expenses offset in part by decreases in accounts receivable and
inventories. Net cash from investing activities totaled $3.4 million in the nine months
ended January 31, 2004, including $2.6 million for the purchase of equipment
and facilities, a $6.5 million increase in short-term investments, offset by $4.4 million of proceeds from the sale of assets held for sale, and
$8.1 million cash acquired in the merger with Sterling. Net cash used in
investing activities totaled $2.7 million in the nine months ended January 31,
2003, including $2.8 million for the purchase of equipment and facilities, a
$900,000 increase in short- -18-




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term investments, and $200,000 purchase price of Tsunami Optics, Inc. and
Paracer, Inc., partially offset by $1.2 million of proceeds from the sale of
assets held for sale. Net cash used in financing activities was $14.8 million in the nine months
ended January 31, 2004, including a $2.8 million repayment on borrowings, a
$12.0 million distribution to the former owners of Sterling, and $200,000 in
treasury stock transactions, offset in part by $200,000 of proceeds from
exercise of stock options. Net cash used in financing activities was $5.4
million in the nine months ended January 31, 2003, which represents repayments
on borrowings. As of January 31, 2004, our principal source of liquidity was
approximately $42.5 million in cash, cash equivalents and short-term
investments. In connection with the Sterling acquisition, our net current assets
increased approximately $9.6 million. Our future capital requirements will depend on a number of
factors, including our ability to generate increased sales and our ability to
manage operating expenses. The continued diversification of our end markets
and expansion of our product offerings through internal and, possibly, external
growth could materially change our level of cash and cash equivalents. This
diversification may require the Company to seek equity or debt financing. Our
only cash commitments are (i) the repayment of long-term debt of approximately
$3.8 million and (ii) the payment of cumulative cash dividends on the Series B
Preferred Stock on terms specified in the Certificate of Designation for such
stock. We also are obligated to redeem all shares of Series B Preferred Stock
in accordance with the terms of the Certificate of Designation for such stock
no later than 60 days following the occurrence of certain events relating to
the Companys achievement of $250 million in annual revenue or $500 million in
market capitalization. We believe that our current cash balances will be
sufficient to meet our cash needs for working capital, capital expenditures,
the Series B Preferred Stock dividend and repayments of long-term debt for the
next 12 months. The settlement of current and future litigation may, however,
significantly affect our cash position. We operate in markets that
have experienced a severe economic downturn that began late in the
third quarter of fiscal 2001. These conditions continued in the first
nine months of fiscal 2004, during which we experienced significant
decreases in net sales and incurred net losses, offset to a certain
extent by the acquisition of Sterling. We expect the difficult
industry conditions to continue for at least the next 6 to 12 months and
they may continue for a longer period. Any continued or further decline in
demand for our customers' products or in general economic conditions
would likely result in further reduction in demand for our products
and our business, operating results and financial condition would
suffer. Further, in order to propel
overall industry growth and to encourage interoperability of supplier
components, subsystems, systems and networks, various industry
standards have evolved and are evolving which provide customers the
opportunity to choose between vendors who have form, fit and function
compatible products that are essentially interchangeable as second or
third sources. As customers manage their supply chains more
efficiently, pricing pressure increases on vendors, such as Stratos,
reducing gross margins for similar products. In response to these
conditions, we have implemented personnel reductions, shut down
certain facilities, disposed of certain assets and put in place other
cost reduction programs; however, since many of our costs are fixed
in the near term, we expect to continue to incur significant
manufacturing, research and development, sales and marketing and
administrative expenses. Consequently, we will need to generate
higher revenues while containing costs and operating expenses if we
are to return to profitability. If our efforts to increase our
revenues and contain our costs are not successful, we will continue
to incur net losses. We are also examining and
pursing opportunities for improving gross margins and cash flow. The
merger with Sterling combined two companies with brands that are
well-respected by segments of the telecommunications, military, video
and broadcast customer base that seek solutions to difficult problems
at the electrical side of the high-performance, high-bandwidth
interface which are solved by products offered by Stratos. We believe
that these products, when combined with superior customer service,
provide the potential for improving gross margins and cash flows. Accordingly, we are
examining the requirements of our customers and the broader
potential customer base where our core competencies could provide
value to customers in an enduring and profitable way. We are also
focused on improving customer service through better execution of
delivery, support and cycle time, particularly for specialty products
to those customers who value and will pay for this service. We seek
to create a customer-responsive organization which executes on demand
and stands behind its customer's strategy. There is no assurance that
these efforts will be successful. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is subject to certain market risks, including foreign currency
and interest rates. Although certain of our subsidiaries enter into
transactions in currencies other than their functional currency, foreign
currency exposures arising from these transactions are not material to us. The
primary foreign currency exposure arises from the translation of our net equity
investment in our foreign subsidiaries to U.S. dollars. We generally view our
investments in foreign subsidiaries with functional currencies other than the
U.S. dollar as long-term. The primary currencies to which we are exposed are
the pound sterling and Chinese renminbi. The Company does not have exposure to interest rate risk related to its
debt obligations because the interest rates are fixed. The Companys market
risk is the potential loss of income from the reduction in interest rates from
the renewal of short-term investments. The Company has experienced such
reductions in these rates during fiscal year 2003 and the first nine months of
fiscal 2004. -19-




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Item 4. Controls and Procedures. As of the end of the period covered by this report, our management,
including our Chief Executive Officer and Chief Financial Officer, carried out
an evaluation of the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15a-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our filings with the SEC. There has been no change in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the period covered by this quarterly report on Form 10-Q that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. -20-




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PART II
OTHER INFORMATION 
 Item 1. Legal Proceedings. From time to time, we become involved in various lawsuits and legal
proceedings that arise in the normal course of business. Litigation is subject
to inherent uncertainties and an adverse result in a lawsuit may harm our
business, financial condition or results of operations. Our management
believes that the resolution of these lawsuits and legal proceedings will not
have a significant effect on the Companys business, financial condition or
results of operations. The Company and certain of its directors and executive officers have been
named as defendants in purported class action lawsuits filed in the United
States District Court, Southern District of New York. The first of these
lawsuits, filed on July 25, 2001, is captioned Kucera v. Stratos Lightwave,
Inc. et. al., No. 01 CV 6821. Three other similar lawsuits have also been
filed against the Company and certain of its directors and executive officers.
The complaints also name as defendants the underwriters for the Companys
initial public offering. The complaints are substantially identical to
numerous other complaints filed against other companies that went public over
the last several years. The complaints generally allege, among other things,
that the registration statement and prospectus from the Companys June 26, 2000
initial public offering failed to disclose certain alleged actions by the
underwriters for the offering. The complaints charge the Company and two or
three of its directors and executive officers with violations of Sections 11
and 15 of the Securities Act of 1933, as amended, and/or Sections 10(b) and
Section 20(a) of the Securities Exchange Act of 1934, as amended. The
complaints also allege claims solely against the underwriting defendants under
Section 12(a)(2) of the Securities Act of 1933, as amended. In 2003, the Company agreed to a Memorandum of Understanding, which
reflects a settlement of these class actions as between the purported class
action plaintiffs, the Company and the defendant officers and directors, and
the Companys liability insurer. Under the terms of the Memorandum of
Understanding, the Companys liability insurers will pay certain sums to the
plaintiffs, with the amount dependent upon the plaintiffs recovery from the
underwriters in the IPO class actions as a whole. The plaintiffs will dismiss
with prejudice their claims against the Company and its officers and directors,
and the Company will assign to the plaintiffs certain claims that it may have
against the underwriters. In June 2002, Catherine Lego, as representative of the former shareholders
of Tsunami Optics, Inc. (Tsunami) filed a lawsuit against the Company in the
Superior Court of California, City and County of Santa Clara, relating to the
Companys acquisition of Tsunami in February 2002. The Company has removed the
lawsuit to the federal district court for the Northern District of California.
The complaint alleges, among other things, that the Company breached the
acquisition agreement by failing and refusing to allow Tsunami to operate as a
separate subsidiary in the ordinary course and by firing the Tsunami executives
necessary to operate the business in the ordinary course, making it impossible
for Tsunami to achieve the sales targets which were a condition precedent to
plaintiffs entitlement to receive an earnout payment of up to a maximum of $18
million. The complaint also alleges fraud and violations of federal -21-




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securities laws in connection with the acquisition of Tsunami. Plaintiffs
are seeking $38 million in damages or, in the alternative, rescission of the
acquisition agreement. The Company has filed a counterclaim which alleges,
among other things, claims for fraud, breach of contract and violations of
federal securities laws against Lego and several other shareholders and
officers of Tsunami in connection with the acquisition of Tsunami. The
counterclaim seeks compensatory and punitive damages. The Company believes
that the plaintiffs claims in this lawsuit are without merit and intends to
vigorously defend against these claims. In August 2002, James Campbell filed a lawsuit against the Company and
Tsunami alleging breach of an alleged employment contract, fraud, violation of
the implied covenant of good faith and fair dealing, age discrimination and
wrongful termination in violation of public policy. Campbell seeks unspecified
damages, punitive damages and attorneys fees. The Company believes that this
lawsuit is without merit and intends to vigorously defend against these claims. We are plaintiffs in several lawsuits relating to our intellectual
property rights. The defendants in these lawsuits include Infineon
Technologies North America Corp. (Northern District of California), E2O, Inc.
(District of Delaware), and Picolight, Inc. (District of Delaware). In these
actions, the Company alleges that optoelectronic products sold by the
defendants infringe numerous of the Companys patents. We are seeking monetary
damages and injunctive relief. The defendants in these lawsuits have asserted
various affirmative defenses and filed counterclaims and contend that the
patents are invalid, unenforceable and/or not infringed by the products sold by
the defendants. For example, Picolight has asserted an antitrust counterclaim
based on the alleged unenforceability of our patents. If successful,
defendants are seeking attorneys fees and costs in connection with the
lawsuits. We intend to pursue these lawsuits and defend against these
counterclaims vigorously. On November 24, 2003, a jury returned a verdict
finding that Picolight infringed six Stratos patents. The trial is now
proceeding to the patent validity and damages phases. On or about March 6, 2003, Alcatel USA, Inc. (Alcatel), filed suit
(District Court of Dallas County, Texas) against the Company and others,
seeking unspecified damages and alleging breach of contract, breach of
warranty, negligent misrepresentation, fraud and conspiracy on the part of the
defendants in connection with Alcatels purchase of certain goods from the
defendants over a period spanning 2000 and 2001. The Company denies that
Alcatel is entitled to the relief it seeks. To date, this lawsuit has
progressed only through the initial written discovery stage. The Company
intends to defend this claim vigorously. To date, the Company and Alcatel have
exchanged settlement offers and participated in settlement discussions. 
 Item 2. Changes in Securities and Use of Proceeds. (b) With respect to dividend rights and rights on liquidation,
dissolution and winding up, the Series B Preferred Stock ranks senior to the
Companys common stock. (d) Stratos registration statement on Form S-1 filed under the
Securities Act of 1933, Commission File No. 333-34864, was declared effective
by the Commission on June 26, 2000. As adjusted for the 1-for-10 reverse stock
split in October, 2002, a total of 1,006,250 shares of our common stock were
registered pursuant to this registration statement. The managing -22-




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underwriters for the offering were Lehman Brothers, CIBC World Markets,
U.S. Bancorp Piper Jaffray, Robert W. Baird & Co., Tucker Anthony Cleary Gull,
and Fidelity Capital Markets, a division of National Financial Services
Corporation. These shares were sold by Stratos at an initial public offering price of
$210.00 per share. The aggregate underwriting discount paid in connection with
the offering was $14,791,875. The net proceeds from the offering, after deducting the underwriting
discount and the estimated offering expenses to be paid by Stratos, were
approximately $195 million. Uses of proceeds to date include $129.5 million
for general corporate purposes and the purchase of equipment and facilities,
payments of $17.1 million in connection with various acquisitions, repayment of
$2.7 million of advances from a Methode Electronics Inc. (Methode)
subsidiary, and $333,000 for repayment of a note assumed in connection with the
acquisition of our Stratos Ltd. subsidiary. The remainder of the proceeds will
be used for general corporate purposes, including working capital, capital
expenditures, and research and development. Pending these uses, the remaining
net proceeds have been invested in short-term interest bearing, investment
grade marketable securities. Other than the repayment of advances from a Methode subsidiary described
above and the payment of the additional purchase price in connection with our
Stratos Lightwave-Florida acquisition which was paid to two of our officers
(and the payment of salaries and expense reimbursements to employees in the
ordinary course of business), none of the net proceeds of the offering have
been paid, directly or indirectly, to any Stratos director or officer or any of
their associates, to any persons owning 10 percent or more of our common stock,
or to any Stratos affiliate. 
 Item 4. Submission of Matters to a Vote of Security Holders. Our annual meeting of shareholders was held November 6, 2003. At this meeting,
the Company solicited the vote of shareholders on the proposals set forth below
and received for each proposal the votes indicated below:  (i)
    
    To adopt and approve the Agreement and Plan of Merger, dated as of July
2, 2003, among Stratos Lightwave, Inc., Sleeping Bear Merger Corp., a
direct wholly owned subsidiary of Stratos, and Sterling Holding Company,
as amended as of August 19, 2003 and October 31, 2003 (the Merger
Agreement), and the transactions contemplated thereby. The shareholders
elected to adopt the proposal. The votes cast for and against the
proposal were 3,909,816 votes for, 81,843 votes against and 11,673
abstentions.(ii)
    
    To elect two Class III directors, Brian J. Jackman and James W. McGinley,
to hold office for three-year terms expiring at the 2006 annual meeting
(or until either directors successor is elected and qualified). Such
nominees were elected to serve as directors of the Company. The votes
cast for and against such nominees were as follows: (1) Brian J. Jackman,
5,870,027 votes for and 620,763 votes against, and (2) James W. McGinley,
4,828,403 votes for and 1,662,387 votes against. Charles Daniel Nelsen
and Edward J. OConnell continued as directors of the Company after the
meeting. -23-




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(iii)
    
    To adopt an amendment to the restated certificate of incorporation, as
amended, to change the corporate name of the Company to Stratos
International, Inc. The shareholders elected to adopt the amendment. The
votes cast for and against the amendment were 6,440,908 votes for, 42,973
votes against, and 6,909 abstentions.(iv)
    
    To adopt the Stratos Lightwave, Inc. 2003 Stock Plan to permit the grant
of stock options, restricted stock and stock appreciation rights. The
shareholders elected to adopt the plan. The votes cast for and against
the plan were 3,369,856 votes for, 577,661 votes against and 55,815
abstentions.(v)
    
    To adopt the Stratos Lightwave, Inc. 2003 Employee Stock Purchase Plan to
allow eligible employees to be able to purchase shares of the Companys
common stock at a discount from the then current market price, without
commissions or other charges. The shareholders elected to adopt the plan.
The votes cast for and against the plan were 3,771,078 votes for, 173,787
votes against and 58,467 abstentions. 
 Item 6. Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits. ExhibitNumber
    
    Description of Document2.1
    
    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 (12)3.1
    
    Restated Certificate of Incorporation of Registrant (13)3.2
    
    Bylaws of Registrant (1)3.3
    
    Certificate of Designation of Series A Junior Participating Preferred
Stock, included as Exhibit A to Exhibit 4.33.4
    
    Certificate of Designation for Series B Preferred Stock (11)4.1
    
    Specimen certificate representing the common stock (1)4.2
    
    Specimen Certificate representing the Series B Preferred Stock (13)4.3
    
    Rights Agreement, dated as of March 23, 2001, between Stratos
International, Inc. and Mellon Investor Services LLC (2)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. (10)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 (11)4.6
    
    Standstill Agreement, dated as of July 2, 2003, between Stratos Lightwave,
Inc. and Citicorp Venture Capital Ltd. (11)10.1
    
    Form of Indemnity Agreement between Registrant and Registrants directors
and officers (1)10.2
    
    Stratos Lightwave, Inc. 2000 Stock Plan, as amended and restated (3)10.3
    
    Agreement and Plan of Reorganization, dated January 22, 2002, by and among
the Registrant, Tundra Acquisition Corp. and Tsunami Optics, Inc. (4)
 -24-




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ExhibitNumber
    
    Description of Document10.4
    
    Stratos Lightwave, Inc. 2002 Stock Plan for Acquired Companies (5)10.5
    
    Agreement and Plan of Reorganization, dated March 18, 2002, by and among
the Registrant, Polar Acquisition Corp. and Paracer, Inc. (6)10.6
    
    Management Retention Agreement between the Registrant and James McGinley
(7)10.7
    
    Management Retention Agreement between the Registrant and David Slack (7)10.8
    
    Management Retention Agreement between the Registrant and Robert Scharf (7)10.9
    
    Management Retention Agreement between the Registrant and Richard Durrant
(7)10.10
    
    Stratos Lightwave, Inc. Severance Plan (7)10.11
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of
August 19, 2003 and October 31, 2003, among Stratos Lightwave, Inc.,
Sleeping Bear Merger Corp. and Sterling Holding Company (12)10.12
    
    Amendment to Management Retention Agreement between the Registrant and
James McGinley (9)10.13
    
    Amendment to Management Retention Agreement between the Registrant and
David Slack (9)10.14
    
    Amendment to Management Retention Agreement between the Registrant and
Robert Scharf (9)10.15
    
    Amendment to Management Retention Agreement between the Registrant and
Richard Durrant (9)10.16
    
    Amendment to Stratos Lightwave, Inc. Severance Plan (9)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*99.1
    
    Cautionary Statements*
   (1)
    
    Incorporated by reference to the Registrants Registration
Statement on Form S-1 effective June 26, 2000.(2)
    
    Incorporated by reference to the Registrants Form 8-K dated March
22, 2001.(3)
    
    Incorporated by reference to the Registrants Annual Report on
Form 10-K for the year ended April 30, 2001.(4)
    
    Incorporated by reference to the Registrants Form 8-K dated
February 4, 2002.(5)
    
    Incorporated by reference to the Registrants Registration
Statement on Form S-8 dated January 31, 2002.(6)
    
    Incorporated by reference to the Registrants Form 8-K dated March
28, 2002.(7)
    
    Incorporated by reference to the Registrants Quarterly Report on
Form 10-Q for the quarter ended October 31, 2002.(8)
    
    Incorporated by reference to the Registrants Form 8-K dated July
2, 2003.(9)
    
    Incorporated by reference to the Registrants Annual Report on
Form 10-K for the fiscal year ended April 30, 2003.(10)
    
    Incorporated by reference to the Registrants Form 8-A/A filed
August 7, 2003.(11)
    
    Incorporated by reference to the Registrants Form S-4/A effective
September 29, 2003.(12)
    
    Incorporated by reference to the Registrants Form 8-K dated
November 6, 2003.(13)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q for
the quarter ended October 31, 2003.*
    
    Filed herewith  (b)
    
    Reports on Form 8-K. On November 12, 2003, we filed a current report on Form 8-K to: (i)
furnish, under Item 2 of that form, the Agreement and Plan of Merger, dated as
of July 2, 2003, as amended, among Stratos Lightwave, Inc., Sleeping Bear
Merger Corp., a wholly owned subsidiary of Stratos, and Sterling Holding
Company and (ii) furnish, under Item 7 of that form, a press release announcing -25-




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that our shareholders had approved a proposal to adopt the merger agreement and
that, following such approval, the merger had been completed. On December 15, 2003, we filed an amended report on Form 8-K/A which
amended the report on Form 8-K filed on November 12, 2003. -26-




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. Dated: March 15, 2004
    
    Stratos International, Inc.By:
    
    /s/ James W. McGinleyJames W. McGinley
President and Chief Executive OfficerBy:
    
    /s/ David A. SlackDavid A. Slack
Senior Vice President  Finance and
Chief Financial Officer
 -27-




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EXHIBIT INDEX ExhibitNumber
    
    Description of Document2.1
    
    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 (12)3.1
    
    Restated Certificate of Incorporation of Registrant (13)3.2
    
    Bylaws of Registrant (1)3.3
    
    Certificate of Designation of Series A Junior Participating Preferred
Stock, included as Exhibit A to Exhibit 4.33.4
    
    Certificate of Designation for Series B Preferred Stock (11)4.1
    
    Specimen certificate representing the common stock (1)4.2
    
    Specimen Certificate representing the Series B Preferred Stock (13)4.3
    
    Rights Agreement, dated as of March 23, 2001, between Stratos
International, Inc. and Mellon Investor Services LLC (2)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. (10)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 (11)4.6
    
    Standstill Agreement, dated as of July 2, 2003, between Stratos Lightwave,
Inc. and Citicorp Venture Capital Ltd. (11)10.1
    
    Form of Indemnity Agreement between Registrant and Registrants directors
and officers (1)10.2
    
    Stratos Lightwave, Inc. 2000 Stock Plan, as amended and restated (3)10.3
    
    Agreement and Plan of Reorganization, dated January 22, 2002, by and among
the Registrant, Tundra Acquisition Corp. and Tsunami Optics, Inc. (4)10.4
    
    Stratos Lightwave, Inc. 2002 Stock Plan for Acquired Companies (5)10.5
    
    Agreement and Plan of Reorganization, dated March 18, 2002, by and among
the Registrant, Polar Acquisition Corp. and Paracer, Inc. (6)10.6
    
    Management Retention Agreement between the Registrant and James McGinley
(7)10.7
    
    Management Retention Agreement between the Registrant and David Slack (7)10.8
    
    Management Retention Agreement between the Registrant and Robert Scharf (7)10.9
    
    Management Retention Agreement between the Registrant and Richard Durrant
(7)10.10
    
    Stratos Lightwave, Inc. Severance Plan (7)10.11
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of
August 19, 2003 and October 31, 2003, among Stratos
Lightwave, Inc., Sleeping Bear Merger Corp. and Sterling Holding Company (12)10.12
    
    Amendment to Management Retention Agreement between the Registrant and
James McGinley (9)10.13
    
    Amendment to Management Retention Agreement between the Registrant and
David Slack (9)10.14
    
    Amendment to Management Retention Agreement between the Registrant and
Robert Scharf (9)
 -28-




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ExhibitNumber
    
    Description of Document10.15
    
    Amendment to Management Retention Agreement between the Registrant and
Richard Durrant (9)10.16
    
    Amendment to Stratos Lightwave, Inc. Severance Plan (9)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*99.1
    
    Cautionary Statements*
   (1)
    
    Incorporated by reference to the Registrants Registration
Statement on Form S-1 effective June 26, 2000.(2)
    
    Incorporated by reference to the Registrants Form 8-K dated March
22, 2001.(3)
    
    Incorporated by reference to the Registrants Annual Report on
Form 10-K for the year ended April 30, 2001.(4)
    
    Incorporated by reference to the Registrants Form 8-K dated
February 4, 2002.(5)
    
    Incorporated by reference to the Registrants Registration
Statement on Form S-8 dated January 31, 2002.(6)
    
    Incorporated by reference to the Registrants Form 8-K dated March
28, 2002.(7)
    
    Incorporated by reference to the Registrants Quarterly Report on
Form 10-Q for the quarter ended October 31, 2002.(8)
    
    Incorporated by reference to the Registrants Form 8-K dated July
2, 2003.(9)
    
    Incorporated by reference to the Registrants Annual Report on
Form 10-K for the fiscal year ended April 30, 2003.(10)
    
    Incorporated by reference to the Registrants Form 8-A/A filed
August 7, 2003.(11)
    
    Incorporated by reference to the Registrants Form S-4/A effective
September 29, 2003.(12)
    
    Incorporated by reference to the Registrants Form 8-K dated
November 6, 2003.(13)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q for
the quarter ended October 31, 2003.*
    
    Filed herewith -29-