##### 



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 January 31, 2007
 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 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)7444 West Wilson Avenue 
Chicago, Illinois 60706
    
    60706(Address of Principal Executive 
Offices)
    
    (Zip Code)
 
 
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 þ o
  o o þ
 o þ




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##### 



STRATOS INTERNATIONAL, INC.
 INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of January 31, 2007 (unaudited)
and April 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and
nine months ended January 31, 2007 and 2006 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
nine months ended January 31, 2007 and 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Comprehensive Income (Loss) for the
three months and nine months ended January 31, 2007 and 2006 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements
as of January 31, 2007 (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 1. Legal Proceeding
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    30
  2




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##### 



PART
I
 FINANCIAL
INFORMATION
 Item 1. Financial Statements.
 STRATOS
INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 January 31,
    
    
    April 30,2007
    
    
    2006(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    13,111
    
    
    $
    11,742Short-term investments
    
    
    18,150
    
    
    
    19,000Accounts receivable, less allowance ($566 and $575)
    
    
    14,147
    
    
    
    13,606InventoriesFinished products
    
    
    3,888
    
    
    
    3,428Work in process
    
    
    1,300
    
    
    
    954Materials
    
    
    13,805
    
    
    
    11,10018,993
    
    
    
    15,482Refundable income taxes
    
    
    87
    
    
    
    1,837Prepaid expenses and other current assets
    
    
    619
    
    
    
    590Total current assets
    
    
    65,107
    
    
    
    62,257Other assetsGoodwill and other indefinite-lived assets
    
    
    5,664
    
    
    
    5,664Intangible and other assets, net of amortization
    
    
    10,854
    
    
    
    11,832Assets held for sale
    
    
    2,600
    
    
    
    2,864Other Assets
    
    
    100
    
    
    
    10019,218
    
    
    
    20,460Property, plant and equipment
    
    
    94,257
    
    
    
    90,497Less allowance for depreciation
    
    
    81,297
    
    
    
    74,06012,960
    
    
    
    16,437Total assets
    
    $
    97,285
    
    
    $
    99,154Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable
    
    $
    4,543
    
    
    $
    4,724Other current liabilities
    
    
    5,783
    
    
    
    6,028Income taxes payable
    
    
    186
    
    
    
    216Total current liabilities
    
    
    10,512
    
    
    
    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 January 31, 2007 and April 30, 2006 respectively.
    
    
    
    
    
    
    Common stock, $0.01 par value: Authorized 20,000,000 shares; issued
15,077,455, and 14,942,164 shares at January 31, 2007 and April 30, 2006, respectively.
    
    
    151
    
    
    
    149Cost of shares in treasury: 582,808 and 301,521 shares at January 31, 2007 and April 30, 2006 respectively.
    
    
    (3,723
    )
    
    
    (1,871
    )Additional paid-in capital
    
    
    319,437
    
    
    
    322,607Accumulated deficit
    
    
    (229,572
    )
    
    
    (230,269
    )Unearned compensation
    
    
    
    
    
    
    (4,400
    )Accumulated other comprehensive loss
    
    
    (502
    )
    
    
    (9
    )Total shareholders equity
    
    
    85,791
    
    
    
    86,207Total liabilities and shareholders equity
    
    $
    97,285
    
    
    $
    99,154
  3




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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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Net sales
    
    $
    22,101
    
    
    $
    18,993
    
    
    $
    66,202
    
    
    $
    58,422License fees and royalties
    
    
    167
    
    
    
    201
    
    
    
    494
    
    
    
    410Total revenues
    
    
    22,268
    
    
    
    19,194
    
    
    
    66,696
    
    
    
    58,832Cost of revenues
    
    
    13,553
    
    
    
    12,304
    
    
    
    42,660
    
    
    
    37,020Gross profit
    
    
    8,715
    
    
    
    6,890
    
    
    
    24,036
    
    
    
    21,812Operating expenses:Research and development
    
    
    1,939
    
    
    
    2,299
    
    
    
    6,060
    
    
    
    6,142Sales and marketing
    
    
    2,621
    
    
    
    2,389
    
    
    
    7,859
    
    
    
    7,471General and administrative
    
    
    3,741
    
    
    
    3,921
    
    
    
    11,378
    
    
    
    11,787Restructuring and other charges
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    842Litigation settlements, net
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )Total operating expenses
    
    
    8,301
    
    
    
    8,268
    
    
    
    25,297
    
    
    
    25,542Income (loss) from operations
    
    
    414
    
    
    
    (1,378
    )
    
    
    (1,261
    )
    
    
    (3,730
    )Interest income, net
    
    
    713
    
    
    
    340
    
    
    
    1,437
    
    
    
    887Other income
    
    
    405
    
    
    
    16
    
    
    
    867
    
    
    
    397Income (loss) before income taxes
    
    
    1,532
    
    
    
    (1,022
    )
    
    
    1,043
    
    
    
    (2,446
    )Income tax provision
    
    
    (17
    )
    
    
    41
    
    
    
    (17
    )
    
    
    32Net income (loss)
    
    
    1,515
    
    
    
    (981
    )
    
    
    1,026
    
    
    
    (2,414
    )Preferred stock dividend
    
    
    (17
    )
    
    
    (88
    )
    
    
    (329
    )
    
    
    (263
    )Net income (loss) attributable to common shareholders
    
    $
    1,498
    
    
    $
    (1,069
    )
    
    $
    697
    
    
    $
    (2,677
    )Per share data, basic and diluted:Basic earnings per share (weighted average)
    
    $
    0.11
    
    
    $
    (0.08
    )
    
    $
    0.05
    
    
    $
    (0.19
    )Diluted earnings per share (weighted average)
    
    $
    0.10
    
    
    $
    (0.08
    )
    
    $
    0.05
    
    
    $
    (0.19
    )Weighted average number of shares:Basic number of common shares outstanding
    
    
    13,751
    
    
    
    13,876
    
    
    
    13,654
    
    
    
    13,901Diluted number of common shares outstanding
    
    
    14,673
    
    
    
    13,876
    
    
    
    14,580
    
    
    
    13,901
  4




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##### 



STRATOS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 Nine Months EndedJanuary 31,2007
    
    
    2006Operating activities:Net Income (loss)
    
    $
    1,026
    
    
    $
    (2,414
    )Adjustments
to reconcile net loss to net cash provided by (used in) operating activities:Provision for depreciation
    
    
    4,488
    
    
    
    4,359Provision for amortization of intangible assets
    
    
    979
    
    
    
    1,037Provision for amortization of unearned compensation
    
    
    1,084
    
    
    
    702Provision for losses on accounts receivable
    
    
    (2
    )
    
    
    186Provision for obsolete and overstock inventory
    
    
    610
    
    
    
    602Exchange (gain) loss on foreign currency
    
    
    (770
    )
    
    
    739Loss (gain) on sales of assets
    
    
    
    
    
    
    (11
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (361
    )
    
    
    579Inventories
    
    
    (3,927
    )
    
    
    87Prepaid assets
    
    
    (24
    )
    
    
    68Other assets
    
    
    1,750
    
    
    
    7,888Accounts payable and accrued expenses
    
    
    (699
    )
    
    
    (7,390
    )Net cash provided by operating activities
    
    
    4,154
    
    
    
    6,432Investing activities:Purchases of property, plant and equipment
    
    
    (771
    )
    
    
    (696
    )Purchases of short-term investments
    
    
    (2,000
    )
    
    
    (13,895
    )Sales of short-term investments
    
    
    2,850
    
    
    
    10,447Proceeds from sale of assets
    
    
    24
    
    
    
    47Proceeds from sale of assets held for sale
    
    
    
    
    
    
    58Net cash provided by (used in) investing activities
    
    
    103
    
    
    
    (4,039
    )Financing activities:Repayments on long-term borrowings
    
    
    
    
    
    
    (815
    )Dividends on preferred stock
    
    
    (329
    )
    
    
    (263
    )Net proceeds from exercise of stock options
    
    
    151
    
    
    
    177Purchase of shares for treasury
    
    
    (1,852
    )
    
    
    (850
    )Redemption of preferred shares
    
    
    (997
    )
    
    
    Net cash used in financing activities
    
    
    (3,027
    )
    
    
    (1,751
    )Effect of exchange rates on cash
    
    
    139
    
    
    
    (142
    )Net increase in cash and cash equivalents
    
    
    1,369
    
    
    
    500Cash and cash equivalents at beginning of period
    
    
    11,742
    
    
    
    13,276Cash and cash equivalents at end of period
    
    $
    13,111
    
    
    $
    13,776
  5




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##### 



STRATOS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    1,515
    
    
    $
    (981
    )
    
    $
    1,026
    
    
    $
    (2,414
    )Other comprehensive income (loss):Foreign
currency translation adjustments
    
    
    (219
    )
    
    
    (66
    )
    
    
    (493
    )
    
    
    249Comprehensive Income (loss)
    
    $
    1,296
    
    
    $
    (1,047
    )
    
    $
    533
    
    
    $
    (2,165
    )
  6




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##### 



1. Basis of Presentation
   2. Recent Accounting Pronouncements
   7




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##### 



Inventory Costs
 3. Stock-Based Compensation
    8




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##### 



Options outstanding
    
    
    
    
    
    
    Options Exercisableat January 31, 2007
    
    
    
    
    
    
    at January 31, 2007Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Remaining
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life (years)
    
    
    Price
    
    
    Shares
    
    
    Price$2.63 - 7.60
    
    
    190,017
    
    
    
    6.42
    
    
    $
    3.82
    
    
    
    188,174
    
    
    $
    3.79$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
    
    
    244,713
    
    
    
    5.94
    
    
    $
    15.94
    
    
    
    242,807
    
    
    $
    16.02
 Options outstanding
    
    
    Options Exercisableat April 30, 2006
    
    
    at April 30, 2006Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Remaining
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life (years)
    
    
    Price
    
    
    Shares
    
    
    Price$2.63 - 7.60
    
    
    232,830
    
    
    
    6.91
    
    
    $
    3.76
    
    
    
    230,325
    
    
    $
    3.74$27.50 - 59.80
    
    
    51,708
    
    
    
    4.82
    
    
    $
    51.57
    
    
    
    51,645
    
    
    $
    51.60$105.80 - 210.00
    
    
    5,988
    
    
    
    4.25
    
    
    $
    181.77
    
    
    
    5,988
    
    
    $
    181.77Total
    
    
    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
    )
    
    $
    3.42Cancelled
    
    
    (3,000
    )
    
    $
    192.81Balance at July 31, 2006
    
    
    254,350
    
    
    $
    15.49Granted
    
    
    
    
    
    
    Exercised
    
    
    (4,699
    )
    
    $
    3.63Cancelled
    
    
    
    
    
    
    Balance at October 31, 2006
    
    
    249,651
    
    
    $
    15.71Granted
    
    
    
    
    
    
    Exercised
    
    
    (4,938
    )
    
    $
    4.16Cancelled
    
    
    
    
    
    
    Balance at January 31, 2007
    
    
    244,713
    
    
    $
    15.94
 9




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##### 



4. Net
Income (Loss) Per Share
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) attributable to common shareholders
    
    $
    1,498
    
    
    $
    (1,069
    )
    
    $
    697
    
    
    $
    (2,677
    )Weighted average number of shares outstanding:Basic number of common shares outstanding
    
    
    13,751
    
    
    
    13,876
    
    
    
    13,654
    
    
    
    13,901Diluted number of common shares outstanding
    
    
    14,673
    
    
    
    13,876
    
    
    
    14,580
    
    
    
    13,901Basic earnings per share (weighted average)
    
    $
    0.11
    
    
    $
    (0.08
    )
    
    $
    0.05
    
    
    $
    (0.19
    )Diluted earnings per share (weighted average)
    
    $
    0.10
    
    
    $
    (0.08
    )
    
    $
    0.05
    
    
    $
    (0.19
    )
 5. Intangible Assets
  January 31, 2007
    
    
    
    
    
    
    
    
    
    
    April 30, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    Accumulated
    
    
    
    
    
    
    UsefulAmortizable Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    LivesCustomer relationships
    
    $
    10,800
    
    
    $
    (2,807
    )
    
    $
    7,993
    
    
    $
    10,800
    
    
    $
    (2,159
    )
    
    $
    8,641
    
    
    12.50 yrsPatents and related technology
    
    
    4,368
    
    
    
    (1,507
    )
    
    $
    2,861
    
    
    
    4,368
    
    
    
    (1,295
    )
    
    
    3,073
    
    
    14.25 yrsDeveloped software
    
    
    700
    
    
    
    (700
    )
    
    
    
    
    
    
    700
    
    
    
    (582
    )
    
    
    118
    
    
    3.00 yrsTotal amortized intangible assets
    
    $
    15,868
    
    
    $
    (5,014
    )
    
    $
    10,854
    
    
    $
    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




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##### 



6. Assets Held For Sale
   7. Restructuring Charges
   Balance
    
    
    2007
    
    
    Utilized through
    
    
    BalanceApril 30, 2006
    
    
    Charges
    
    
    Jan. 31, 2007
    
    
    Jan. 31, 2007Employee costs
    
    $
    320
    
    
    $
    
    
    
    $
    (214
    )
    
    $
    106Idle facility rental
    
    
    946
    
    
    
    
    
    
    
    (562
    )
    
    
    384Total
    
    $
    1,266
    
    
    $
    
    
    
    $
    (776
    )
    
    $
    490
 8. Income Taxes
   11




---



##### 



9. Other Current Liabilities
  January 31,
    
    
    April 30,Other Current Liabilities
    
    2007
    
    
    2006Employee costs
    
    $
    2,202
    
    
    $
    2,514Deferred Sales and claims
    
    
    830
    
    
    
    536Professional Fees
    
    
    789
    
    
    
    441Commissions
    
    
    650
    
    
    
    801Other
    
    
    544
    
    
    
    456Rent  idle facilities
    
    
    384
    
    
    
    946Real estate and other taxes
    
    
    384
    
    
    
    334Total
    
    $
    5,783
    
    
    $
    6,028
 10. Litigation
    12




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##### 



13




---



##### 



14




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Overview
    Results of Operations
 Three Months Ended January 31, 2007 and 2006
  15




---



##### 



Three Months EndedJanuary 31,2007
    
    
    2006
    
    
    ChangeDollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %Revenues:Net sales
    
    $
    22,101
    
    
    
    99.3
    %
    
    $
    18,993
    
    
    
    99.0
    %
    
    $
    3,108
    
    
    
    16.4
    %License fees and royalties
    
    
    167
    
    
    
    0.7
    %
    
    
    201
    
    
    
    1.0
    %
    
    
    (34
    )
    
    
    (16.9
    %)Total revenues
    
    
    22,268
    
    
    
    100.0
    %
    
    
    19,194
    
    
    
    100.0
    %
    
    
    3,074
    
    
    
    16.0
    %Costs of revenues
    
    
    13,553
    
    
    
    60.9
    %
    
    
    12,304
    
    
    
    64.1
    %
    
    
    1,249
    
    
    
    10.2
    %Gross profit
    
    
    8,715
    
    
    
    39.1
    %
    
    
    6,890
    
    
    
    35.9
    %
    
    
    1,825
    
    
    
    26.5
    %Operating expenses:Research and development
    
    
    1,939
    
    
    
    8.7
    %
    
    
    2,299
    
    
    
    12.0
    %
    
    
    (360
    )
    
    
    (15.7
    %)Sales and marketing
    
    
    2,621
    
    
    
    11.8
    %
    
    
    2,389
    
    
    
    12.4
    %
    
    
    232
    
    
    
    9.7
    %General and administrative
    
    
    3,741
    
    
    
    16.8
    %
    
    
    3,921
    
    
    
    20.4
    %
    
    
    (180
    )
    
    
    (4.6
    %)Restructuring and other charges
    
    
    
    
    
    
    0.0
    %
    
    
    359
    
    
    
    1.9
    %
    
    
    (359
    )
    
    
    (100.0
    %)Litigation settlements, net
    
    
    
    
    
    
    0.0
    %
    
    
    (700
    )
    
    
    -3.6
    %
    
    
    700
    
    
    
    (100.0
    %)Total operating expenses
    
    
    8,301
    
    
    
    37.3
    %
    
    
    8,268
    
    
    
    43.1
    %
    
    
    33
    
    
    
    0.4
    %Income (loss) from operations
    
    
    414
    
    
    
    1.9
    %
    
    
    (1,378
    )
    
    
    (7.2
    %)
    
    
    1,792
    
    
    
    (130.0
    %)Interest income, net
    
    
    713
    
    
    
    3.2
    %
    
    
    340
    
    
    
    1.8
    %
    
    
    373
    
    
    
    109.7
    %Other income
    
    
    405
    
    
    
    1.8
    %
    
    
    16
    
    
    
    0.1
    %
    
    
    389
    
    
    
    2431.3
    %Income (loss) before income taxes
    
    
    1,532
    
    
    
    6.9
    %
    
    
    (1,022
    )
    
    
    (5.3
    %)
    
    
    2,554
    
    
    
    (249.9
    %)Provision for income taxes
    
    
    (17
    )
    
    
    (0.1
    %)
    
    
    41
    
    
    
    0.2
    %
    
    
    (58
    )
    
    
    0.0
    %Net income (loss)
    
    $
    1,515
    
    
    
    6.8
    %
    
    $
    (981
    )
    
    
    (5.1
    %)
    
    $
    2,496
    
    
    
    (254.4
    %)
 Net Sales:
 License Fees and Royalties:
 Backlog:
 16




---



##### 



Cost of Revenues and Gross Margins:
 Research and Development.
 Sales and Marketing
 General and Administrative.
 Restructuring and Other Charges
 Litigation Settlements, net.
 Interest income, net:
 Other income:
 Income Taxes:
 17




---



##### 



Nine Months Ended January 31, 2007 and 2006
 Nine Months EndedJanuary 31,2007
    
    2006
    
    ChangeDollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Revenues:Net sales
    
    $
    66,202
    
    
    
    99.3
    %
    
    $
    58,422
    
    
    
    99.3
    %
    
    $
    7,780
    
    
    
    13.3
    %License fees and royalties
    
    
    494
    
    
    
    0.7
    %
    
    
    410
    
    
    
    0.7
    %
    
    
    84
    
    
    
    20.5
    %Total revenues
    
    
    66,696
    
    
    
    100.0
    %
    
    
    58,832
    
    
    
    100.0
    %
    
    
    7,864
    
    
    
    13.4
    %Costs of revenues
    
    
    42,660
    
    
    
    64.0
    %
    
    
    37,020
    
    
    
    62.9
    %
    
    
    5,640
    
    
    
    15.2
    %Gross profit
    
    
    24,036
    
    
    
    36.0
    %
    
    
    21,812
    
    
    
    37.1
    %
    
    
    2,224
    
    
    
    10.2
    %Operating expenses:Research and development
    
    
    6,060
    
    
    
    9.1
    %
    
    
    6,142
    
    
    
    10.4
    %
    
    
    (82
    )
    
    
    (1.3
    %)Sales and marketing
    
    
    7,859
    
    
    
    11.8
    %
    
    
    7,471
    
    
    
    12.7
    %
    
    
    388
    
    
    
    5.2
    %General and administrative
    
    
    11,378
    
    
    
    17.1
    %
    
    
    11,787
    
    
    
    20.0
    %
    
    
    (409
    )
    
    
    (3.5
    %)Restructuring and other charges
    
    
    
    
    
    
    0.0
    %
    
    
    842
    
    
    
    1.4
    %
    
    
    (842
    )
    
    
    (100.0
    %)Litigation settlements, net
    
    
    
    
    
    
    0.0
    %
    
    
    (700
    )
    
    
    -1.2
    %
    
    
    700
    
    
    
    (100.0
    %)Total operating expenses
    
    
    25,297
    
    
    
    37.9
    %
    
    
    25,542
    
    
    
    43.4
    %
    
    
    (245
    )
    
    
    (1.0
    %)Loss from operations
    
    
    (1,261
    )
    
    
    (1.9
    %)
    
    
    (3,730
    )
    
    
    (6.3
    %)
    
    
    2,469
    
    
    
    (66.2
    %)Interest income, net
    
    
    1,437
    
    
    
    2.2
    %
    
    
    887
    
    
    
    1.5
    %
    
    
    550
    
    
    
    62.0
    %Other income
    
    
    867
    
    
    
    1.3
    %
    
    
    397
    
    
    
    0.7
    %
    
    
    470
    
    
    
    118.4
    %Income (loss) before income taxes
    
    
    1,043
    
    
    
    1.6
    %
    
    
    (2,446
    )
    
    
    (4.2
    %)
    
    
    3,489
    
    
    
    (142.6
    %)Provision for income taxes
    
    
    (17
    )
    
    
    (0.0
    %)
    
    
    32
    
    
    
    0.1
    %
    
    
    (49
    )
    
    
    0.0
    %Net income (loss)
    
    $
    1,026
    
    
    
    1.5
    %
    
    $
    (2,414
    )
    
    
    (4.1
    %)
    
    $
    3,440
    
    
    
    (142.5
    %)
 Net sales
 License Fees and Royalties.
 Backlog:
 18




---



##### 



Cost of Sales and Gross Margins.
 Research and Development.
 Sales and Marketing.
 General and Administrative.
 Restructuring and Other Charges ,
 Litigation Settlements, net.
 Interest Income, net.
 Other income:
 19




---



##### 



Income Taxes
 Liquidity and Capital Resources
        20




---



##### 



Off-Balance Sheet Arrangements
  Critical Accounting Policies
  21




---



##### 



Forward-looking statements
  22




---



##### 



23




---



##### 



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




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   25




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##### 



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




---



##### 



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 David Slack* (incorporated by
reference to Exhibit 10.12 to registrants Quarterly Report on Form 10-Q, filed December 16,
2002)10.10
    
    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)10.11
    
    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)10.12
    
    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)10.13
    
    Amendment to Management Retention Agreement between the registrant and Richard Durrant*
(incorporated by reference to Exhibit 10.15 to registrants Annual Report on Form 10-K, filed
July 29, 2003)10.14
    
    Agreement dated May 3, 2004 concerning expense reimbursement between the registrant and
Richard C.E. Durrant* (incorporated by reference to Exhibit 10.2 on Form 8-K filed on February
1, 2005)10.15
    
    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)10.16
    
    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)
 27




---



##### 



Number
    
    Description of Document10.17
    
    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)10.18
    
    Form of Management Retention Agreement* (incorporated by reference to Exhibit 10.1 on Form
8-K filed May 1, 2006)10.19
    
    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)10.20
    
    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)10.21
    
    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)10.22
    
    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)10.23
    
    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).10.24
    
    Letter agreement between the registrant and Newell V. Starks, dated November 23, 2005, with
respect to severance benefits* (filed herewith)10.25
    
    Schedule of Non-Management Director Fees* (incorporated by reference to Exhibit 10.24 on
Form 10-K filed July 29, 2005)10.26
    
    Summary Schedule of Officer Compensation* (incorporated by reference to Exhibit 10.29 on
Form 10-K filed July 28, 2006)10.27
    
    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)10.28
    
    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 (filed herewith)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)32.1
    
    Section 1350 Certification of Chief Executive Officer (furnished herewith)32.2
    
    Section 1350 Certification of Chief Financial Officer (furnished herewith)
 28




---



##### 



*
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit
to this quarterly report on Form 10-Q. 29




---



##### 



SIGNATURES
  Date: March 13, 2007
    
    Stratos International, Inc.By:
    
    /s/ Barry HollingsworthBarry HollingsworthChief Financial OfficerBy:
    
    /s/ Phillip A. HarrisPhillip A. HarrisPresident and Chief Executive Officer
 30