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Exhibit 99.1

Risks Relating to Our Business

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

The current economic climate has resulted in reduced capital spending for
networking products from its peak. As a result, many of our customers have
significantly reduced, cancelled or rescheduled orders for our products and
expressed uncertainty as to their future requirements. We experienced
significant decreases in net sales and incurred net losses during fiscal 2003
and the first half of fiscal 2004. We expect difficult industry conditions to
continue for at least the next 6 to 12 months and 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.

Although we have implemented personnel reductions and other cost reduction
programs, many of our costs are fixed in the near term and 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.

Our net sales and operating results vary significantly from quarter to quarter,
and our stock price may fall if our quarterly performance does not meet
analysts or investors expectations.

Our quarterly net sales and operating results have varied significantly in
the past and are likely to vary significantly in the future, which makes it
difficult to predict our future operating results. Accordingly, we believe
that quarter-to-quarter comparisons of our net sales and operating results are
not meaningful and should not be relied upon as an indicator of our future
performance. Some of the factors which cause our net sales and operating
results to vary include:



| |  |  | the timing of customer orders, particularly from our largest customers;
| | - |  | -----------------------------------------------------------------------



| |  |  | the level of demand for our customers products;
| | - |  | ------------------------------------------------



| |  |  | the cancellation or postponement of orders;
| | - |  | -------------------------------------------



| |  |  | our ability to manufacture and ship our products on a timely basis;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in our product mix;
| | - |  | ---------------------------



| |  |  | competitive pressures resulting in lower prices;
| | - |  | ------------------------------------------------



| |  |  | our ability to control costs and expenses;
| | - |  | ------------------------------------------



| |  |  | the introduction of new products or technologies by us or our competitors;
| | - |  | --------------------------------------------------------------------------

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| |  |  | the timing of our receipt of license fees and royalty
payments relating to our intellectual property; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | general economic factors.
| | - |  | -------------------------

Our net sales and operating results have been and in one or more future
quarters will likely be below the expectations of public market analysts and
investors. If this occurs, the price of our common stock would likely decline.

Our success depends on the long-term growth of the communications industry and
its use of our technologies. If these events do not occur, our net sales may
decline and our business would likely be significantly harmed.

Our subsystems and components are used primarily in military, video
broadcast, industrial, enterprise, metropolitan area, wide area and
telecommunication networks. These markets are rapidly evolving and it is
difficult to predict their potential size or future growth rate. In addition,
there is uncertainty as to the extent to which communication technologies will
be used throughout these markets. Our success in generating revenue in these
markets will depend on the long-term growth of these markets and their use of
communication technologies. If these markets do not grow, or if the use of
communication technologies in these markets does not expand, our net sales may
decline and our business would likely be significantly harmed.

The market for communications equipment is changing rapidly and is
dominated by several large manufacturers. Our future growth will depend, in
part, upon (1) our ability to develop and introduce new products for this
market and (2) the growth of the communications equipment market and (3) our
ability to compete successfully in our sales to the communications industry.
The growth in the market for communications equipment products and services is
dependent on a number of factors, including without limitation:



| |  |  | the amount of capital expenditures by network providers;
| | - |  | --------------------------------------------------------



| |  |  | regulatory and legal developments;
| | - |  | ----------------------------------



| |  |  | changes to capital expenditure rates by network providers;
| | - |  | ----------------------------------------------------------



| |  |  | the addition of new customers to the market; and
| | - |  | ------------------------------------------------



| |  |  | end-user demand for integrated Internet, data, video, voice
and other network services.
| | - |  | ---------------------------------------------------------------------------------------

We cannot predict the growth rate of the market for telecommunications
equipment products and services. The current economic climate, changes and
consolidation in the service provider market and constraints on capital
availability have had a material adverse effect on many of our service provider
customers, causing some of these customers to go out of business and a number
of other customers to substantially reduce their expansion plans and purchases.

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

The market for our products and technology is characterized by rapid
technological change, new and improved product introductions, changes in
customer requirements and

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evolving industry standards. Our future success will depend to a
substantial extent on our ability to develop, introduce and support new
products and technology on a successful and timely basis. If we fail to
develop and deploy new products and technologies or enhancements of existing
products on a successful and timely basis or we experience delays in the
development, introduction or enhancement of our products and technologies, our
products will no longer be competitive and our net sales will decline. The
introduction of new and enhanced products may cause our customers to defer or
cancel orders for existing products. In addition, a slowdown in demand for
existing products ahead of a new product introduction could result in a write
down in the value of inventory on hand relating to existing products.

The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. We cannot assure you that we will be able to
identify, develop, manufacture, market or support new or enhanced products
successfully, if at all, or on a timely basis. Further, we cannot assure you
that our new products will gain market acceptance or that we will be able to
respond effectively to product announcements by competitors, technological
changes or emerging industry standards. Any failure to respond to
technological change would significantly harm our business.

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

In the United States, our products are incorporated into larger systems
which must comply with various regulations and standards defined by the Federal
Communications Commission and Underwriters Laboratories. Internationally, our
products are incorporated into larger systems which must also comply with
standards established by local authorities in various countries which may vary
considerably. If the performance of our products contributes to our customers
inability to comply with existing or evolving standards established by
regulatory authorities or to obtain timely domestic or foreign regulatory
approvals we may lose these customers and our net sales will decline.

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

Our products comprise only a part of an entire networking system and must
comply with evolving industry standards in order to gain market acceptance. In
many cases, we introduce a product before an industry standard has become
widely accepted and we depend on the companies that provide other components to
support industry standards as they evolve. Because industry standards do not
exist in some cases at the time we are developing new products, we may develop
products that do not comply with the eventual industry standard. If this
occurs, we would need to redesign our products to comply with adopted industry
standards. In addition, if alternative technologies were adopted as an
industry standard within our target markets, we would have to dedicate
significant time and resources to redesign our products to meet this new
industry standard. If we are required to redesign our products, we may incur
significant

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expenses and losses due to lack of customer demand, unusable purchased
components for these products and the diversion of our engineers from future
product development efforts. If we are not successful in redesigning our
products or developing new products to meet new standards or any other standard
that may emerge, our net sales will decline.

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

Approximately 19.1% of our sales for the period ended October 31, 2003
came from direct and indirect sales to the military/aerospace industry, which
is heavily dependent on sales to U.S. and foreign government entities, either
directly through contracts with such entities or indirectly through
distributors and to prime contractors or subcontractors who are building
systems or subsystems for them. A significant decline in U.S. and foreign
government expenditures could have a material adverse effect on our sales.

We may continue to derive a significant portion of our net sales from a few
large customers, and our net sales may decline significantly if any of these
customers cancels, reduces or delays purchases of our products.

Our success will depend on our continued ability to develop and manage
relationships with significant customers. For the six months ended October 31,
2003, our two largest customers and their respective contract manufacturers
accounted for 11% of our net sales, with General Dyamics UK Ltd. and
Connectivity Technologies accounting for 7% and 4% of our net sales,
respectively. For the six months ended October 31, 2002, our two largest
customers and their respective contract manufacturers accounted for 17% of our
net sales, with Redfern Broadband and QLogic accounting for 9% and 8% of our
net sales, respectively. We expect our dependence on sales to a small number
of large customers to continue.

Certain markets in which we sell our products are dominated by a
relatively small number of systems manufacturers, thereby limiting the number
of our potential customers. As a result, our relationships with these
customers are critically important to our business. We cannot assure you that
we will be able to retain our largest customers, that we will be able to
attract additional customers or that our customers will be successful in
selling their products that incorporate our products. Our customers have in
the past sought price concessions from us and will continue to do so in the
future. Also, many of our customers have canceled, reduced or delayed
purchases of our products. Further, some of our customers may in the future
shift their purchases of products from us to our competitors or to joint
ventures between these customers and our competitors. The loss of or a
significant reduction in orders from one or more of our largest customers, our
inability to successfully develop relationships with additional customers or
future price concessions that we may make could cause our net sales to
significantly decline.

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

We cannot predict the timing of our sales accurately because of the length
of our sales cycles. As a result, if sales forecasts from specific customers
are not realized, we may be unable

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to compensate for the sales shortfall and our net sales may decline. The
period of time between our initial contact with a customer and the receipt of a
purchase order may span up to a year or more, and varies by product and
customer. During this time, customers may perform, or require us to perform,
extensive evaluation and qualification testing of our products. Generally,
they consider a wide range of issues before committing to purchase our
products, including ability to interoperate with other subsystems and
components, product performance and reliability. We may incur substantial
sales and marketing expenses and expend significant management effort while our
potential customers are qualifying our products. Even after incurring these
costs, we ultimately may not sell any or only small amounts of our products to
these potential customers. Consequently, if new sales do not result from our
efforts to qualify our products, our operating expenses will increase.

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

We generally do not have long-term contracts with our customers. Sales
are typically made pursuant to individual purchase orders, often with extremely
short lead times, that may be canceled or deferred by customers on short notice
without significant penalty. Our customers base their orders for our products
on the forecasted sales and manufacturing schedules for their own products.
Our customers have in the past significantly accelerated, canceled or delayed
orders for our products in response to unanticipated changes in the
manufacturing schedules for their own products, and will likely do so again in
the future. During the last twelve months, our customers have cancelled a
significant number of orders. The reduction, cancellation or delay of
individual customer purchase orders has caused and could continue to cause our
net sales to decline. Moreover, these uncertainties complicate our ability to
accurately plan our manufacturing schedule and may increase our operating
expenses.

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

The average unit prices of our products generally decrease as the products
mature in response to increased competition, the introduction of new products
and increased unit volumes. Most of our products are designed and
manufactured in our own facilities. Accordingly, a significant portion of our
cost of sales is fixed over the near term. In order to remain competitive, we
must continually reduce our manufacturing costs through design and engineering
changes and increases in manufacturing efficiencies. We must also continue to
develop and introduce on a timely basis new products that incorporate features
that can be sold at higher average selling prices. Our inability to reduce
manufacturing costs or introduce new products with higher average selling
prices will cause our gross margins to decline, which would significantly harm
our operating results.

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

The markets for optical subsystems and components is highly competitive
and are expected to intensify in the future. In these market, we compete
primarily with Agilent

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Technologies, Inc., Finisar Corporation, Infineon Technologies Corp,
Intel, JDS Uniphase Corporation, , Molex, Inc., Optical Communications
Products, Inc., Tyco International, Ltd. and a number of other smaller
companies.

The electronic interconnect components and assemblies industries are also
highly competitive. In that market, we compete primarily with Tyco
International Ltd., Amphenol Corporation, Kings Electronics Co., Inc., ITT
Cannon (a subsidiary of ITT Industries), ADC Telecommunications, Inc., Radiall,
S.A., Switchcraft, Inc., Canare Electric Co., Ltd. and numerous other companies
globally.

Many of these companies have substantially greater financial, technical,
marketing and distribution resources and brand name recognition than we have.
As a result, these competitors are able to devote greater resources than we can
to the development, promotion, sale and support of their products. In
addition, several of our competitors have large market capitalizations or cash
reserves and are much better positioned than we are to acquire other companies
in our consolidating industry in order to gain new technologies or products.
Many of our competitors have much greater name recognition, more extensive
customer bases, better-developed distribution channels and broader product
offerings than we do. These companies can leverage their customer bases and
broader product offerings and adopt aggressive pricing policies to gain market
share. In addition, companies with diversified product offerings can better
sustain an economic downturn.

We expect that more companies, including some of our customers, will enter
the markets for our products. We may not be able to compete successfully
against either current or future competitors. Competitive pressures, combined
with weakening demand, may result in further price reductions, lower margins
and loss of market share. In addition, some of our current and potential
customers are attempting to integrate their operations by producing their own
subsystems or components or acquiring one or more of our competitors which may
eliminate the need to purchase our products. Furthermore, larger companies in
other related industries are developing and acquiring technologies and applying
their significant resources, including their distribution channels and brand
name recognition, in an effort to capture significant market share. While this
trend has not historically impacted our competitive position, it may result in
future decreases in our net sales.

Further, we manufacture many of our products in the United States and the
United Kingdom . Our manufacturing costs are higher than the manufacturing
costs of some of our competitors, particularly those located in foreign
countries that benefit from lower-priced labor and government subsidies. If
our current or potential future customers decide to purchase products from
these lower-cost competitors, we could suffer a significant decline in our
sales, which could have a material adverse effect on our business, operating
results and financial condition.

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

We purchase several key components that are incorporated into our products
from a limited number of suppliers. We have experienced shortages and delays
in obtaining key

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components in the past and expect to experience shortages and delays in
the future. These shortages and delays have typically occurred when demand
within the industry has increased rapidly and exceeds the capacity of suppliers
of key components in the short term. Delays and shortages also often occur in
the early stages of a products life cycle. The length of shortages and delays
in the past has varied from several days to a month. We are unable to predict
the length of any future shortages or delays.

The inability to obtain sufficient quantities of these components that
meet our quality requirements may interrupt and delay the manufacturing of our
products or result in the cancellation of orders for our products. In
addition, our suppliers could discontinue the manufacture or supply of these
components at any time. We may not be able to identify and integrate
alternative sources of supply in a timely fashion, or at all. Any transition
to alternative suppliers may result in delays in shipment and increased
expenses and may limit our ability to deliver products to our customers.
Furthermore, if we are unable to identify an alternative source of supply, we
may have to redesign or modify our products, which may cause delays in
shipments, increased design and manufacturing costs and increased prices for
our products.

We make forecasts for our component requirements based on anticipated
product orders. Although we enter into long-term agreements for the purchase
of key components from time to time, our purchases of key components are
generally made on a purchase order basis. We may also maintain an inventory of
limited source components to limit the potential impact of a component
shortage. We may not accurately predict the demand for our products and the
lead-time required to obtain key components. If we overestimate our
requirements, we may have excess inventory, which may become obsolete and would
increase our costs. If we underestimate our requirements, we may have
inadequate inventory, which could interrupt our manufacturing and delay
delivery of our products to our customers. Either of these occurrences would
significantly harm our business.

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

Our products require sophisticated manufacturing, research and
development, marketing and sales, and technical support. Our success depends
on our ability to attract, train and retain qualified technical personnel in
each of these areas. Competition for personnel in all of these areas is
intense and we may not be able to hire or retain sufficient personnel to
achieve our goals or support the anticipated growth in our business. The
market for the highly-trained personnel we require is very competitive, due to
the limited number of people available with the necessary technical skills and
understanding of our products and technology. If we fail to hire and retain
qualified personnel, our product development efforts and customer relations
will suffer.

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

Our products are complex and may contain defects, particularly when first
introduced or as new versions are released. Our customers integrate our
subsystems and components into systems and products that they develop
themselves or acquire from other vendors. As a result, when problems occur in
equipment or a system into which our products have been incorporated,

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it may be difficult to identify the source of the problem. We may be
subject to liability claims for damages related to product defects or
experience manufacturing delays as a result of these defects in the future, any
or all of which could be substantial. The length of any future manufacturing
delays in connection with a product defect will depend on the nature of the
defect and whether we or one of our component suppliers was the source of the
defect. Moreover, the occurrence of defects, whether caused by our products or
technology or the products of another vendor, may result in significant
customer relations problems and injury to our reputation and may impair the
market acceptance of our products and technology.

We are subject to environmental laws and other legal requirements that have the
potential to subject us to substantial liability and increase our costs of
doing business.

Our properties and business operations are subject to a wide variety of
federal, state, and local environmental, health and safety laws and other legal
requirements, including those relating to the storage, use, discharge and
disposal of toxic, volatile or otherwise hazardous substances used in our
manufacturing processes. We cannot assure you that these legal requirements
will not impose on us the need for additional capital expenditures or other
requirements. If we fail to obtain required permits or otherwise fail to
operate within these or future legal requirements, we may be required to pay
substantial penalties, suspend our operations or make costly changes to our
manufacturing processes or facilities. Although we believe that we are in
compliance and have complied with all applicable legal requirements, we may
also be required to incur additional costs to comply with current or future
legal requirements.

Economic, political and regulatory risks associated with international
operations may limit our sales and increase our costs of doing business abroad.

A significant portion of our sales are generated from customers located
outside the United States, principally in Europe. We also operate
manufacturing facilities in China and the United Kingdom. Sales to customers
located outside of the United States were approximately 41.3% of our net sales
during the six months ended October 31, 2003 and approximately 42.3% of our net
sales during the six months ended October 31, 2002. Our international
operations are subject to a number of risks and uncertainties, including:



| |  |  | difficulties in managing operations in different locations;
| | - |  | -----------------------------------------------------------



| |  |  | changes in foreign currency rates;
| | - |  | ----------------------------------



| |  |  | longer accounts receivable collection cycles;
| | - |  | ---------------------------------------------



| |  |  | difficulties associated with enforcing agreements through foreign legal systems;
| | - |  | --------------------------------------------------------------------------------



| |  |  | seasonal reductions in business activities in some parts of
the world, such as during the summer months in Europe;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | trade protection measures and import and export licensing requirements;
| | - |  | -----------------------------------------------------------------------



| |  |  | changes in a specific countrys or regions political or economic conditions;
| | - |  | -----------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | the potential difficulty in enforcing intellectual property
rights in some foreign countries; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | acts of terrorism directed against the United States or U.S.
affiliated targets.
| | - |  | --------------------------------------------------------------------------------

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These factors could adversely impact our international sales or increase
our costs of doing business abroad or impair our ability to expand into
international markets, and therefore could significantly harm our business.

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

As part of our strategy, we may pursue opportunities to buy other
businesses or technologies that would complement our current products, expand
our markets or enhance our technical capabilities, or that may otherwise offer
growth opportunities. Our experience in acquiring other businesses and
technologies is limited. Acquisitions could result in a number of financial
consequences, including:



| |  |  | use of significant amounts of cash;
| | - |  | -----------------------------------



| |  |  | the incurrence of debt and contingent liabilities;
| | - |  | --------------------------------------------------



| |  |  | potentially dilutive issuances of equity securities;
| | - |  | ----------------------------------------------------



| |  |  | large one-time write-offs; and
| | - |  | ------------------------------



| |  |  | amortization expenses related to goodwill and other intangible assets.
| | - |  | ----------------------------------------------------------------------

Acquisitions also involve numerous operational risks, including:



| |  |  | difficulties in integrating operations, products, technologies and personnel;
| | - |  | -----------------------------------------------------------------------------



| |  |  | unanticipated costs or write-offs associated with the acquisition;
| | - |  | ------------------------------------------------------------------



| |  |  | diversion of managements attention from other business concerns;
| | - |  | -----------------------------------------------------------------



| |  |  | diversion of capital and other resources from our existing businesses; and
| | - |  | --------------------------------------------------------------------------



| |  |  | potential loss of key employees of purchased organizations.
| | - |  | -----------------------------------------------------------

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

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

We rely on a combination of patent, copyright, trademark and trade secret
laws, as well as confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. Although we have numerous issued
patents and pending patent applications, we cannot assure you that any patents
will issue as a result of our pending patent applications or, if issued, that
any patent claim allowed will be sufficiently broad to protect our technology.
In addition, we cannot assure you that any existing or future patents will not
be challenged, invalidated or circumvented, or that any right granted
thereunder would provide us with meaningful protection of our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology. We may
be unable to detect the unauthorized use of our intellectual property or to
take appropriate steps to enforce our intellectual property rights. Policing
unauthorized use of our products and technology is

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difficult. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States.
Further, enforcing our intellectual property rights could result in the
expenditure of significant financial and managerial resources and the success
of these efforts cannot be predicted with certainty. Litigation has been
necessary and may continue to be necessary in the future to enforce our
intellectual property rights. This litigation could be costly and its outcome
cannot be predicted with certainty. Our inability to adequately protect
against unauthorized use of our intellectual property would significantly
impair its value and our competitive position.

We are currently involved in pending patent litigation which, if decided
against us, could impair our ability to prevent others from using our
technology, result in the loss of future royalty income and require us to pay
significant monetary damages.

We are plaintiffs in several lawsuits relating to our intellectual
property rights. The defendants in these lawsuits include Infineon
Technologies Corp., E20, Inc. and Picolight, Inc. In these actions, we allege
that optoelectronic products sold by the defendants infringe upon certain of
our patents. The defendants in these lawsuits have filed various affirmative
defenses.

These lawsuits are in the preliminary stage, and we cannot predict their
outcome with certainty. If one or more of these patents were found to be
invalid or unenforceable, we would lose the ability to prevent others from
using the technologies covered by the invalidated patents. This could result
in significant decreases in our sales and gross margins for our products that
use these technologies. In addition, we would lose the future royalty payments
from our current licensees of these patents. We could also be required to pay
significant monetary damages to one or more of the defendants or be required to
reimburse them for their legal fees. Accordingly, if one or more of these
patents were found to be invalid or unenforceable, our business would be
significantly harmed.

Various litigation matters, in which we are a defendant could result in
significant monetary damages and expenses or restrictions on our ability to
sell our products.

We are involved in various litigation matters that arise from time to time
in the ordinary course of business. We are a defendant in several lawsuits
that are described in our Annual Reports on Form 10-K and quarterly reports on
Form 10-Q.

In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. From time to
time, third parties may assert patent, copyright and other intellectual
property rights to technologies used in our business. In addition, our rights
to use our name or other trademarks are subject to challenge by others. Any
claims, with or without merit, could be time-consuming, result in costly
litigation, and divert the efforts of our technical and management personnel.
Sterling is a defendant in a lawsuit filed in the United States District Court
for the Eastern District of Washington by Telect, Inc., in which Telect claims
that our DSX Cross Connect Bay, Panel and Module infringe one of Telects
patents. We believe that Telects claim is without merit and are defending the
lawsuit vigorously. If we are unsuccessful in defending ourselves against this
and other similar types of claims, we could be subject to significant monetary
damages and may be required to do one or more of the following: (1) stop using
the challenged technology or selling our products that use

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or incorporate such technology, (2) attempt to obtain a license to sell or
use the relevant technology, which license may not be available on reasonable
terms or at all, (3) attempt to license a substitute technology on reasonable
terms or (4) redesign the applicable products to avoid infringement.

In the event a claim against us was successful and we could not obtain a
license to the relevant technology on acceptable terms or license a substitute
technology or redesign our products to avoid infringement, our business would
be significantly harmed.

Risks Relating to the Securities Markets and Ownership of Our Common Stock

The market prices for securities of technology related companies have been
volatile in recent years and our stock price could fluctuate significantly.

Our common stock has been publicly traded only since June 27, 2000. The
market price of our common stock has been subject to significant fluctuations
since the date of our initial public offering. These fluctuations could
continue. Factors that could affect our stock price include:



| |  |  | economic and stock market conditions generally and
specifically as they may impact participants in the communication
industry;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | earnings and other announcements by, and changes in market
evaluations of, participants in the optical communication industry;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in financial estimates and recommendations by
securities analysts following our stock;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | announcements or implementation by us or our competitors of
technical innovations or new products; and
| | - |  | ------------------------------------------------------------------------------------------------------



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

In addition, the securities of many companies have experienced extreme
price and volume fluctuations in recent years, often unrelated to the
companies operating performance. Specifically, market prices for securities
of technology related companies have frequently reached elevated levels, often
following their initial public offerings. These levels may not be sustainable
and may not bear any relationship to these companies operating performances.

Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company, which could decrease the value of your shares.

Our restated certificate of incorporation and bylaws and Delaware law
contain provisions that could make it more difficult for a third party to
acquire us without the consent of our board of directors. These provisions
include a classified board of directors and limitations on actions by our
shareholders by written consent. In addition, our board of directors has the
right to issue preferred stock without shareholder approval, which could be
used to dilute the stock ownership of a potential hostile acquiror. Delaware
law also imposes some restrictions on mergers and business combinations between
us and any holder of 15% or more of our outstanding common stock. These
provisions apply even if the offer may be considered beneficial by some
shareholders.

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Risks Relating to the Merger with Sterling

We may be unable to successfully integrate the operations of Stratos and
Sterling and realize the full cost savings we anticipate.

The merger involves the integration of two companies that previously
operated independently. The difficulties of combining the companies
operations include:



| |  |  | the necessity of coordinating geographically separated
organizations, systems and facilities; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | integrating personnel with diverse business backgrounds and
organizational cultures.
| | - |  | ------------------------------------------------------------------------------------

The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined companys
business and the possible loss of key personnel. The diversion of managements
attention and any delays or difficulties encountered in connection with the
merger and the integration of the two companies operations could have an
adverse effect on the business, results of operations, financial condition or
prospects of the combined company after the merger.

Among the other factors considered by the Stratos and the Sterling boards
of directors in connection with their respective approvals of the merger
agreement were the opportunities for operating efficiencies that could result
from the merger. We cannot give any assurance that these savings will be
realized within the time periods contemplated or even that they will be
realized at all.

We have incurred and will incur significant transaction, merger-related and
restructuring costs in connection with the merger.

Stratos has incurred and will incur costs associated with combining the
operations of the two companies, transaction fees and other costs related to
the merger. Although Stratos expects that the elimination of duplicative
costs, as well as the realization of other efficiencies related to the
integration of the businesses, may offset incremental transaction,
merger-related and restructuring costs over time, we cannot give any assurance
that this net benefit will be achieved in the near term, or at all.

Charges to earnings resulting from the application of the purchase method of
accounting may adversely affect the market value of Stratos common stock
following the merger.

In accordance with generally accepted accounting principles in the United
States, the merger will be accounted for using the purchase method of
accounting, which will result in charges to earnings that could have an adverse
impact on the market value of Stratos common stock following completion of the
merger. Under the purchase method of accounting, the total purchase price will
be allocated to Sterlings net tangible assets and identifiable intangible
assets based on their fair values as of the date of completion of the merger.
The excess of the purchase price over those fair values will be recorded as
goodwill. The combined company will incur additional amortization expense
based on the identifiable intangible assets acquired in connection with the
merger. Additionally, to the extent the value of goodwill becomes impaired,

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the combined company may be required to incur material charges relating to
such impairment. These amortization and potential impairment charges could
have a material impact on the combined companys results of operations.

Stratos estimates the annual amortization expense for these identifiable
intangible assets will approximate $1,331,000. Based on Sterlings
amortization expense of approximately $12,000 related to identifiable
intangible assets for the year ended December 31, 2002, Stratos expects to
incur approximately $1,343,000 of annual amortization. Changes in earnings per
share, including as a result of this incremental expense, could adversely
affect the trading price of the Stratos common stock.

We may not realize expected benefits from the consolidation of certain Sterling
operations into the Mesa, Arizona facility.

We currently are engaged in a consolidation of the manufacturing
operations associated with our electronic interconnect components and
assemblies business, and a relocation of the manufacturing operations of our
Trompeter subsidiary from Westlake Village, California to Mesa, Arizona.
Although we anticipate synergies and improved operating performance to result
from this consolidation, we cannot guarantee any such benefits. In addition,
this consolidation may affect adversely our ability to retain key employees,
which could affect adversely our operating results.

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