##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-30869
 STRATOS INTERNATIONAL, INC.
  
 Delaware
    
    36-4360035(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)7444 West Wilson Avenue
    
    60706Chicago, Illinois 60706(Address of Principal Executive
    
    (Zip Code)Offices)
 
 
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
  þ o
  o o þ
  o þ




---



##### 



STRATOS INTERNATIONAL, INC.
 INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of October 31, 2006 (unaudited)
and April 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and
six months ended October 31, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
six months ended October 31, 2006 and 2005 (unaudited)
    
    
    5Condensed Consolidated Statements of Comprehensive Income (Loss) for the
three months and six months ended October 31, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements
as of October 31, 2006 (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    30PART IFINANCIAL INFORMATIONItem 1. Financial Statements.Rule 13a-14(a)/15d-14(a) Certification of Chief Financial OfficerRule 13a-14(a)/15d-14(a) Certification of Principal Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
  2




---



##### Table of Contents



STRATOS INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 October 31,
    
    
    April 30,2006
    
    
    2006(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    7,993
    
    
    $
    11,742Short-term investments
    
    
    18,150
    
    
    
    19,000Accounts receivable, less allowance ($566 and $575)
    
    
    14,724
    
    
    
    13,606InventoriesFinished products
    
    
    3,206
    
    
    
    3,428Work in process
    
    
    942
    
    
    
    954Materials
    
    
    14,142
    
    
    
    11,10018,290
    
    
    
    15,482Refundable income taxes
    
    
    1,837
    
    
    
    1,837Prepaid expenses and other current assets
    
    
    818
    
    
    
    590Total current assets
    
    
    61,812
    
    
    
    62,257Other assetsGoodwill and other indefinite-lived assets
    
    
    5,664
    
    
    
    5,664Intangible and other assets, net of amortization
    
    
    11,141
    
    
    
    11,832Assets held for sale
    
    
    2,600
    
    
    
    2,864Other Assets
    
    
    100
    
    
    
    10019,505
    
    
    
    20,460Property, plant and equipment
    
    
    91,224
    
    
    
    90,497Less allowance for depreciation
    
    
    77,020
    
    
    
    74,06014,204
    
    
    
    16,437Total assets
    
    $
    95,521
    
    
    $
    99,154Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable
    
    $
    4,945
    
    
    $
    4,724Other current liabilities
    
    
    5,279
    
    
    
    6,028Income taxes payable
    
    
    207
    
    
    
    216Total current liabilities
    
    
    10,431
    
    
    
    10,968Series B redeemable preferred stock
    
    
    982
    
    
    
    1,979Shareholders equityPreferred stock, $0.01 par value: Authorized 1,000,000 shares; issued and outstanding 9,820 and 19,790
shares of Series B redeemable preferred stock at October 31, 2006 and April 30, 2006 respectively
    
    
    
    
    
    
    Common stock, $0.01 par value: Authorized 20,000,000 shares; issued
15,072,743, and 14,942,164 shares at October 31, 2006 and April 30, 2006, respectively
    
    
    151
    
    
    
    149Cost of
shares in treasury: 582,818 and 301,521 shares at October 31, 2006 and April 30, 2006 respectively
    
    
    (3,723
    )
    
    
    (1,871
    )Additional paid-in capital
    
    
    319,033
    
    
    
    322,607Accumulated deficit
    
    
    (231,070
    )
    
    
    (230,269
    )Unearned compensation
    
    
    
    
    
    
    (4,400
    )Accumulated other comprehensive loss
    
    
    (283
    )
    
    
    (9
    )Total shareholders equity
    
    
    84,108
    
    
    
    86,207Total liabilities and shareholders equity
    
    $
    95,521
    
    
    $
    99,154
  3




---



##### Table of Contents



STRATOS INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
 Three months ended
    
    
    Six months endedOctober 31,
    
    
    October 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Net sales
    
    $
    23,036
    
    
    $
    18,949
    
    
    $
    44,100
    
    
    $
    39,429License fees and royalties
    
    
    196
    
    
    
    65
    
    
    
    327
    
    
    
    209Total revenues
    
    
    23,232
    
    
    
    19,014
    
    
    
    44,427
    
    
    
    39,638Cost of revenues
    
    
    14,419
    
    
    
    12,262
    
    
    
    29,107
    
    
    
    24,715Gross profit
    
    
    8,813
    
    
    
    6,752
    
    
    
    15,320
    
    
    
    14,923Operating expenses:Research and development
    
    
    2,209
    
    
    
    1,839
    
    
    
    4,121
    
    
    
    3,843Sales and marketing
    
    
    2,697
    
    
    
    2,536
    
    
    
    5,238
    
    
    
    5,083General and administrative
    
    
    3,652
    
    
    
    3,562
    
    
    
    7,637
    
    
    
    7,866Restructuring and other charges
    
    
    
    
    
    
    483
    
    
    
    
    
    
    
    483Total operating expenses
    
    
    8,558
    
    
    
    8,420
    
    
    
    16,996
    
    
    
    17,275Income (loss) from operations
    
    
    255
    
    
    
    (1,668
    )
    
    
    (1,676
    )
    
    
    (2,352
    )Investment income, net
    
    
    362
    
    
    
    295
    
    
    
    725
    
    
    
    547Other income (expense)
    
    
    156
    
    
    
    1,027
    
    
    
    462
    
    
    
    381Income (loss) before income taxes
    
    
    773
    
    
    
    (346
    )
    
    
    (489
    )
    
    
    (1,424
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Net income (loss)
    
    
    773
    
    
    
    (346
    )
    
    
    (489
    )
    
    
    (1,433
    )Preferred stock dividend
    
    
    (25
    )
    
    
    (88
    )
    
    
    (312
    )
    
    
    (175
    )Net income (loss) attributable to common shareholders
    
    $
    748
    
    
    $
    (434
    )
    
    $
    (801
    )
    
    $
    (1,608
    )Per share data, basic and diluted:Basic earnings per share
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )Diluted earnings per share
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )Basic number of common shares outstanding
    
    
    13,658
    
    
    
    13,921
    
    
    
    13,679
    
    
    
    13,913Diluted number of common shares outstanding
    
    
    14,625
    
    
    
    13,921
    
    
    
    13,679
    
    
    
    13,913
  4




---



##### Table of Contents



STRATOS INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 Six Months EndedOctober 31,2006
    
    
    2005Operating activities:Net loss
    
    $
    (489
    )
    
    $
    (1,433
    )Adjustments
to reconcile net loss to net cash provided by (used in) operating activities:Provision for depreciation
    
    
    3,005
    
    
    
    2,910Provision for amortization of intangible assets
    
    
    692
    
    
    
    692Provision for amortization of unearned compensation
    
    
    700
    
    
    
    409Provision for losses on accounts receivable
    
    
    (9
    )
    
    
    89Provison for obsolete and overstock inventory
    
    
    316
    
    
    
    971(Gain) loss on sales of assets
    
    
    28
    
    
    
    (34
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (1,109
    )
    
    
    1,577Inventories
    
    
    (3,124
    )
    
    
    (553
    )Prepaid assets
    
    
    (227
    )
    
    
    (273
    )Other assets
    
    
    
    
    
    
    5,932Accounts payable and accrued expenses
    
    
    (677
    )
    
    
    (7,022
    )Net cash provided by (used in) operating activities
    
    
    (894
    )
    
    
    3,265Investing activities:Purchases of property, plant and equipment
    
    
    (535
    )
    
    
    (585
    )Purchases of short-term investments
    
    
    (2,000
    )
    
    
    (12,895
    )Sales of short-term investments
    
    
    2,850
    
    
    
    6,947Proceeds from sale of assets
    
    
    
    
    
    
    40Proceeds from sale of assets held for sale
    
    
    
    
    
    
    53Net cash provided by (used in) investing activities
    
    
    315
    
    
    
    (6,440
    )Financing activities:Repayments on long-term borrowings
    
    
    
    
    
    
    (815
    )Dividends on preferred stock
    
    
    (312
    )
    
    
    (175
    )Net proceeds from exercise of stock options
    
    
    265
    
    
    
    89Purchase of shares for treasury
    
    
    (1,852
    )
    
    
    Redemption of preferred shares
    
    
    (997
    )
    
    
    Net cash used in financing activities
    
    
    (2,896
    )
    
    
    (901
    )Effect of exchange rates on cash
    
    
    (274
    )
    
    
    315Net decrease in cash and cash equivalents
    
    
    (3,749
    )
    
    
    (3,761
    )Cash and cash equivalents at beginning of period
    
    
    11,742
    
    
    
    13,276Cash and cash equivalents at end of period
    
    $
    7,993
    
    
    $
    9,515
  5




---



##### Table of Contents



STRATOS INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 Three Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005Net income (loss)
    
    $
    773
    
    
    $
    (346
    )
    
    $
    (489
    )
    
    $
    (1,433
    )Other comprehensive income (loss):Foreign currency
translation adjustments
    
    
    (139
    )
    
    
    (89
    )
    
    
    (274
    )
    
    
    315Comprehensive Income (loss)
    
    $
    634
    
    
    $
    (435
    )
    
    $
    (763
    )
    
    $
    (1,118
    )
  6




---



##### Table of Contents



1. Basis of Presentation
   2. Recent Accounting Pronouncements
   Inventory Costs
 7




---



##### Table of Contents



3. Stock-Based Compensation
    8




---



##### Table of Contents



Options outstanding
    
    Options Exercisableat October 31, 2006
    
    at October 31, 2006Weighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Life (years)
    
    Price
    
    Shares
    
    PriceRange of
Exercise Prices$2.63 - 7.60
    
    
    194,955
    
    
    
    6.42
    
    
    $
    3.83
    
    
    
    193,112
    
    
    $
    3.80$27.50 - 59.80
    
    
    51,708
    
    
    
    4.32
    
    
    $
    51.57
    
    
    
    51,645
    
    
    $
    51.60$105.80 - 210.00
    
    
    2,988
    
    
    
    3.84
    
    
    $
    170.68
    
    
    
    2,988
    
    
    $
    170.68Total
    
    
    249,651
    
    
    
    5.95
    
    
    $
    15.71
    
    
    
    247,745
    
    
    $
    15.78
 Options outstanding
    
    Options Exercisableat April 30, 2006
    
    at April 30, 2006Weighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber of
    
    Remaining
    
    Exercise
    
    Number of
    
    ExerciseShares
    
    Life (years)
    
    Price
    
    Shares
    
    PriceRange of
Exercise Prices$2.63 - 7.60
    
    
    232,830
    
    
    
    6.91
    
    
    $
    3.76
    
    
    
    230,325
    
    
    $
    3.74$27.50 - 59.80
    
    
    51,708
    
    
    
    4.82
    
    
    $
    51.57
    
    
    
    51,645
    
    
    $
    51.60$105.80 - 210.00
    
    
    5,988
    
    
    
    4.25
    
    
    $
    181.77
    
    
    
    5,988
    
    
    $
    181.77Total
    
    
    290,526
    
    
    
    6.48
    
    
    $
    15.94
    
    
    
    287,958
    
    
    $
    16.03
  WeightedNumber of
    
    
    AverageOptions
    
    
    ExerciseOutstanding
    
    
    PriceBalance at April 30, 2006
    
    
    290,526
    
    
    $
    15.94Granted
    
    
    
    
    
    
    Exercised
    
    
    (33,176
    )
    
    $
    7.08Cancelled
    
    
    (3,000
    )
    
    $
    192.81Balance at July 31, 2006
    
    
    254,350
    
    
    $
    15.49Granted
    
    
    
    
    
    
    Exercised
    
    
    (4,699
    )
    
    $
    6.46Cancelled
    
    
    
    
    
    
    Balance at October 31, 2006
    
    
    249,651
    
    
    $
    15.71
 9




---



##### Table of Contents



4. Net Income (Loss) Per Share
 Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss) attributable to common shareholders
    
    $
    748
    
    
    $
    (434
    )
    
    $
    (801
    )
    
    $
    (1,608
    )Basic number of common shares outstanding*
    
    
    13,658
    
    
    
    13,921
    
    
    
    13,679
    
    
    
    13,913Diluted number of common shares outstanding*
    
    
    14,625
    
    
    
    13,921
    
    
    
    13,679
    
    
    
    13,913Basic earnings per share
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )Diluted earnings per share
    
    $
    0.05
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.12
    )
 
 *
    
    weighted average 5. Intangible Assets
  October 31, 2006
    
    
    April 30, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    UsefulAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    LivesAmortizable Intangible AssetsCustomer relationships
    
    $
    10,800
    
    
    $
    (2,591
    )
    
    $
    8,209
    
    
    $
    10,800
    
    
    $
    (2,159
    )
    
    $
    8,641
    
    
    12.50 yrsPatents and related technology
    
    
    4,368
    
    
    
    (1,436
    )
    
    $
    2,932
    
    
    
    4,368
    
    
    
    (1,295
    )
    
    
    3,073
    
    
    14.25 yrsDeveloped software
    
    
    700
    
    
    
    (700
    )
    
    
    
    
    
    
    700
    
    
    
    (582
    )
    
    
    118
    
    
    3.00 yrsTotal amortized intangible assets
    
    $
    15,868
    
    
    $
    (4,727
    )
    
    $
    11,141
    
    
    $
    15,868
    
    
    $
    (4,036
    )
    
    $
    11,832
 Fiscal Year2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    ThereafterAmortization amount
    
    $
    (1,266
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (1,148
    )
    
    $
    (5,974
    )
  10




---



##### Table of Contents



6. Assets Held For Sale
   7. Restructuring Charges
   Balance
    
    2007
    
    Utilized through
    
    BalanceApril 30, 2006
    
    Charges
    
    Oct. 31, 2006
    
    Oct. 31, 2006Employee costs
    
    $
    320
    
    
    $
    
    
    
    $
    (195
    )
    
    $
    125Idle facility rental
    
    
    946
    
    
    
    
    
    
    
    (367
    )
    
    
    579Total
    
    $
    1,266
    
    
    $
    
    
    
    $
    (562
    )
    
    $
    704
 8. Income Taxes
   11




---



##### Table of Contents



9. Other Current Liabilities
  October 31,
    
    April 30,2006
    
    2006Other Current LiabilitiesEmployee costs
    
    $
    2,031
    
    
    $
    2,514Commissions
    
    
    659
    
    
    
    801Other
    
    
    591
    
    
    
    456Rent  idle facilities
    
    
    579
    
    
    
    946Deferred Sales and claims
    
    
    536
    
    
    
    536Professional Fees
    
    
    515
    
    
    
    441Real estate and other taxes
    
    
    368
    
    
    
    334Total
    
    $
    5,279
    
    
    $
    6,028
 10. Litigation
    12




---



##### Table of Contents



13




---



##### Table of Contents



14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Overview
    Results of Operations
 Three Months Ended October 31, 2006 and 2005
  15




---



##### Table of Contents



Three Months EndedOctober 31,2006
    
    2005
    
    ChangeDollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Revenues:Net sales
    
    $
    23,036
    
    
    
    99.2
    %
    
    $
    18,949
    
    
    
    99.7
    %
    
    $
    4,087
    
    
    
    21.6
    %License fees and royalties
    
    
    196
    
    
    
    0.8
    %
    
    
    65
    
    
    
    0.3
    %
    
    
    131
    
    
    
    201.5
    %Total revenues
    
    
    23,232
    
    
    
    100.0
    %
    
    
    19,014
    
    
    
    100.0
    %
    
    
    4,218
    
    
    
    22.2
    %Costs of revenues
    
    
    14,419
    
    
    
    62.1
    %
    
    
    12,262
    
    
    
    64.5
    %
    
    
    2,157
    
    
    
    17.6
    %Gross profit
    
    
    8,813
    
    
    
    37.9
    %
    
    
    6,752
    
    
    
    35.5
    %
    
    
    2,061
    
    
    
    30.5
    %Operating expenses:Research and development
    
    
    2,209
    
    
    
    9.5
    %
    
    
    1,839
    
    
    
    9.7
    %
    
    
    370
    
    
    
    20.1
    %Sales and marketing
    
    
    2,697
    
    
    
    11.6
    %
    
    
    2,536
    
    
    
    13.3
    %
    
    
    161
    
    
    
    6.3
    %General and administrative
    
    
    3,652
    
    
    
    15.7
    %
    
    
    3,562
    
    
    
    18.7
    %
    
    
    90
    
    
    
    2.5
    %Restructuring and other charges
    
    
    
    
    
    
    0.0
    %
    
    
    483
    
    
    
    2.5
    %
    
    
    (483
    )Total operating expenses
    
    
    8,558
    
    
    
    36.8
    %
    
    
    8,420
    
    
    
    44.3
    %
    
    
    138
    
    
    
    1.6
    %Income (loss) from operations
    
    
    255
    
    
    
    1.1
    %
    
    
    (1,668
    )
    
    
    (8.8
    %)
    
    
    1,923
    
    
    
    (115.3
    %)Investment income, net
    
    
    362
    
    
    
    1.6
    %
    
    
    295
    
    
    
    1.6
    %
    
    
    67
    
    
    
    22.7
    %Other income (expense)
    
    
    156
    
    
    
    0.7
    %
    
    
    1,027
    
    
    
    5.4
    %
    
    
    (871
    )
    
    
    (84.8
    %)Income (loss) before income taxes
    
    
    773
    
    
    
    3.3
    %
    
    
    (346
    )
    
    
    (1.8
    %)
    
    
    1,119
    
    
    
    (323.4
    %)Provision for income taxes
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Net income
(loss)
    
    $
    773
    
    
    
    3.3
    %
    
    $
    (346
    )
    
    
    (1.8
    %)
    
    $
    1,119
    
    
    
    (323.4
    %)
 Net Sales:
 License Fees and Royalties:
 Backlog:
 16




---



##### Table of Contents



Cost of Revenues and Gross Margins:
 Research and Development.
 Sales and Marketing
 General and Administrative.
 Restructuring and Other Charges
 Investment income, net:
 Other income (expense):
 Income Taxes:
 17




---



##### Table of Contents



Six Months Ended October 31, 2006 and 2005
 Six Months EndedOctober 31,2006
    
    2005
    
    ChangeDollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Revenues:Net sales
    
    $
    44,100
    
    
    
    99.3
    %
    
    $
    39,429
    
    
    
    99.5
    %
    
    $
    4,671
    
    
    
    11.8
    %License fees and royalties
    
    
    327
    
    
    
    0.7
    %
    
    
    209
    
    
    
    0.5
    %
    
    
    118
    
    
    
    56.5
    %Total revenues
    
    
    44,427
    
    
    
    100.0
    %
    
    
    39,638
    
    
    
    100.0
    %
    
    
    4,789
    
    
    
    12.1
    %Costs of revenues
    
    
    29,107
    
    
    
    65.5
    %
    
    
    24,715
    
    
    
    62.4
    %
    
    
    4,392
    
    
    
    17.8
    %Gross profit
    
    
    15,320
    
    
    
    34.5
    %
    
    
    14,923
    
    
    
    37.6
    %
    
    
    397
    
    
    
    2.7
    %Operating expenses:Research and development
    
    
    4,121
    
    
    
    9.3
    %
    
    
    3,843
    
    
    
    9.7
    %
    
    
    278
    
    
    
    7.2
    %Sales and marketing
    
    
    5,238
    
    
    
    11.8
    %
    
    
    5,083
    
    
    
    12.8
    %
    
    
    155
    
    
    
    3.0
    %General and administrative
    
    
    7,637
    
    
    
    17.2
    %
    
    
    7,866
    
    
    
    19.8
    %
    
    
    (229
    )
    
    
    (2.9
    %)Restructuring and other charges
    
    
    
    
    
    
    0.0
    %
    
    
    483
    
    
    
    1.2
    %
    
    
    (483
    )Total operating expenses
    
    
    16,996
    
    
    
    38.3
    %
    
    
    17,275
    
    
    
    43.6
    %
    
    
    (279
    )
    
    
    (1.6
    %)Loss from operations
    
    
    (1,676
    )
    
    
    (3.8
    %)
    
    
    (2,352
    )
    
    
    (5.9
    %)
    
    
    676
    
    
    
    (28.7
    %)Investment income, net
    
    
    725
    
    
    
    1.6
    %
    
    
    547
    
    
    
    1.4
    %
    
    
    178
    
    
    
    32.5
    %Other income (expense)
    
    
    462
    
    
    
    1.0
    %
    
    
    381
    
    
    
    1.0
    %
    
    
    81
    
    
    
    21.3
    %Loss before income taxes
    
    
    (489
    )
    
    
    (1.1
    %)
    
    
    (1,424
    )
    
    
    (3.6
    %)
    
    
    935
    
    
    
    (65.7
    %)Provision for income taxes
    
    
    
    
    
    
    0.0
    %
    
    
    (9
    )
    
    
    (0.0
    %)
    
    
    9
    
    
    
    0.0
    %Net loss
    
    $
    (489
    )
    
    
    (1.1
    %)
    
    $
    (1,433
    )
    
    
    (3.6
    %)
    
    $
    944
    
    
    
    (65.9
    %)
 Net sales
 License Fees and Royalties.
 Backlog:
 18




---



##### Table of Contents



Cost of Sales and Gross Margins.
 Research and Development.
 Sales and Marketing.
 General and Administrative.
 Restructuring and Other Charges ,
 Investment Income, net.
 Other income (expense):
 Income Taxes
 19




---



##### Table of Contents



Liquidity and Capital Resources
          20




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies
  21




---



##### Table of Contents



Forward-looking statements
  22




---



##### Table of Contents



23




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   24




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total No. ofShares Purchased
    
    Maximum No. ofas Part of
    
    Shares that MayTotal No. of
    
    Average Price
    
    Publicly
    
    Yet Be PurchasedPeriod
    
    Shares Purchased
    
    Paid Per Share
    
    Announced Plan
    
    Under the PlanMay 1, 2006 through May 31, 2006
    
    
    60,042
    
    
    $
    6.86
    
    
    
    60,042
    
    
    
    1,539,811June 1, 2006 through June 30, 2006
    
    
    65,458
    
    
    $
    6.74
    
    
    
    65,458
    
    
    
    1,474,353July 1, 2006 through July 31, 2006
    
    
    59,287
    
    
    $
    6.74
    
    
    
    59,287
    
    
    
    1,415,066Aug. 1, 2006 through Aug. 31, 2006
    
    
    58,500
    
    
    $
    6.25
    
    
    
    58,500
    
    
    
    1,356,566Sept. 1, 2006 through Sept. 30, 2006
    
    
    38,000
    
    
    $
    6.14
    
    
    
    38,000
    
    
    
    1,318,566Oct. 1, 2006 through Oct. 31, 2006
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    
    1,318,566
  25




---



##### Table of Contents



Item 6. Exhibits
 Number
    
    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 (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 filed July 29, 2005)3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of the registrant
(incorporated by reference to Exhibit 3.2 to the registrants Annual Report on Form 10-K filed
July 28, 2006)3.3
    
    Bylaws of registrant (incorporated by reference to Exhibit 3.2 to the registrants Annual
Report on Form 10-K filed July 29, 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)
 26




---



##### Table of Contents



Number
    
    Description of Document10.3
    
    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)10.4
    
    Amendment to Stratos Lightwave, Inc. 2003 Stock Plan** (incorporated by reference to Appendix
B to registrants definitive proxy statement filed August 8, 2006)10.5
    
    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)10.6
    
    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)10.7
    
    Form of the Restricted Stock Agreement for Employees of the Stratos Lightwave, Inc. 2003
Stock Plan** (incorporated by reference to Exhibit 10.3 on Form 8-K filed May 1, 2006)10.8
    
    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)10.9
    
    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)10.10
    
    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)10.11
    
    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)10.12
    
    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)10.13
    
    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)10.14
    
    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)10.15
    
    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)10.16
    
    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)10.17
    
    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)
 27




---



##### Table of Contents



Number
    
    Description of Document10.18
    
    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)10.19
    
    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)10.20
    
    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)10.21
    
    Form of Management Retention Agreement** (incorporated by reference to Exhibit 10.1 on Form
8-K filed May 1, 2006)10.22
    
    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)10.23
    
    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)10.24
    
    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)10.25
    
    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)10.26
    
    Restricted Stock Agreement between the registrant and Newell V. Starks, dated December 6,
2005** (incorporated by reference to Exhibit 99.4 to the registrants Current Report on Form
8-K, filed December 8, 2005).10.27
    
    Letter agreement between the registrant and Newell V. Starks, dated November 23, 2005, with
respect to severance benefits***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** (incorporated by reference to Exhibit 10.29 on
Form 10-K filed July 28, 2006)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)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer*
 28




---



##### Table of Contents



Number
    
    Description of Document31.2
    
    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 quarterly report on Form 10-Q. 29




---



##### Table of Contents



SIGNATURES
  Date: December 12, 2006
    
    
    
    Stratos International, Inc.By:
    
    /s/ Barry Hollingsworth

Barry Hollingsworth,
Chief Financial OfficerBy:
    
    /s/ Phillip A. Harris

Phillip A. Harris
President and Chief Executive Officer
 30