UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 31, 2008
 
Commission File Number:  0-22175
 


 


EMCORE Corporation
(Exact name of Registrant as specified in its charter)

New Jersey
(State or other jurisdiction of incorporation or organization)

22-2746503
(IRS Employer Identification No.)

10420 Research Road SE, Albuquerque, NM  87123
(Address of principal executive offices) (Zip Code)

(505) 332-5000
(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]  No  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
[  ] Large accelerated filer                                                            [X] Accelerated filer                                               [  ] Non-accelerated filer      [  ] Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ]    No [X]

The number of shares outstanding of the registrant’s no par value common stock as of May 5, 2008 was 77,307,704.

 
 

 

EMCORE Corporation
FORM 10-Q
For the Quarterly Period Ended March 31, 2008
TABLE OF CONTENTS


 

 
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PART I.  FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
EMCORE CORPORATION
Condensed Consolidated Statements of Operations
For the three and six months ended March 31, 2008 and 2007
(in thousands, except per share data)
(unaudited)

   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Product revenue
  $ 48,260     $ 33,716     $ 92,761     $ 69,342  
Service revenue
    8,019       5,882       10,405       8,852  
Total revenue
    56,279       39,598       103,166       78,194  
                                 
Cost of product revenue
    42,133       28,170       77,445       59,111  
Cost of service revenue
    7,498       4,459       8,970       6,618  
Total cost of revenue
    49,631       32,629       86,415       65,729  
Gross profit
    6,648       6,969       16,751       12,465  
                                 
Operating expenses:
                               
        Selling, general, and administrative
    10,263       13,143       22,126       25,682  
Research and development
    9,330       7,528       16,750       14,139  
Total operating expenses
    19,593       20,671       38,876       39,821  
                                 
Operating loss
    (12,945 )     (13,702 )     (22,125 )     (27,356 )
                                 
Other expense (income):
                               
       Interest income
    (227 )     (1,169 )     (654 )     (2,820 )
       Interest expense
    375       1,260       1,580       2,522  
Loss from conversion of subordinated notes
    4,658       -       4,658       -  
Stock–based compensation expense from tolled options (income from expired tolled options)
    (58 )     -       4,316       -  
       Gain from insurance proceeds
    -       (357 )     -       (357 )
Loss on disposal of equipment
    -       -       86       -  
       Foreign exchange gain
    (186 )     -       (198 )     -  
Total other expense (income)
    4,562       (266 )     9,788       (655 )
                                 
    Net loss
  $ (17,507 )   $ (13,436 )   $ (31,913 )   $ (26,701 )
                                 
Per share data:
                               
Basic and diluted per share data:
                               
    Net loss
  $ (0.27 )   $ (0.26 )   $ (0.55 )   $ (0.52 )
                                 
Weighted-average number of basic and diluted shares
   Outstanding
    64,560       50,947       57,975       50,911  
                                 

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
 

 

EMCORE CORPORATION
Condensed Consolidated Balance Sheets
As of March 31, 2008 and September 30, 2007
(In thousands)
(unaudited)
  
   
As of
March 31,
2008
   
As of
September 30, 2007
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 22,734     $ 12,151  
Restricted cash
    2,148       1,538  
Short-term investments
    988       29,075  
Accounts receivable, net of allowance of $820 and $802, respectively
    52,801       38,151  
Receivables, related party
    287       332  
Income tax receivable
    130       -  
Inventory, net
    43,521       29,205  
Prepaid expenses and other current assets
    4,948       4,350  
                 
Total current assets
    127,557       114,802  
                 
Property, plant, and equipment, net
    74,165       57,257  
Goodwill
    89,739       40,990  
Other intangible assets, net
    12,753       5,275  
Investments in unconsolidated affiliates
    14,917       14,872  
Long-term investments and restricted cash
    4,655       -  
Other non-current assets, net
    533       1,540  
                 
Total assets
  $ 324,319     $ 234,736  
                 
LIABILITIES and SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 27,943     $ 22,685  
Accrued expenses and other current liabilities
    26,430       28,776  
    Income tax payable
    594       137  
                 
Total current liabilities
    54,967       51,598  
                 
Convertible senior subordinated notes
    -       84,981  
                 
Total liabilities
    54,967       136,579  
                 
Commitments and contingencies (Note 12)
               
                 
Shareholders’ equity:
               
Preferred stock, $0.0001 par, 5,882 shares authorized, no shares outstanding
    -       -  
Common stock, no par value, 100,000 shares authorized, 73,735 shares issued and
73,576 outstanding at March 31, 2008; 51,208 shares issued and 51,049 shares
           outstanding at September 30, 2007
    647,346       443,835  
Accumulated deficit
    (375,817 )     (343,578 )
Accumulated other comprehensive loss
    (94 )     (17 )
Treasury stock, at cost; 159 shares
    (2,083 )     (2,083 )
                 
Total shareholders’ equity
    269,352       98,157  
                 
  Total liabilities and shareholders’ equity
  $ 324,319     $ 234,736  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
 

 

EMCORE CORPORATION
Condensed Consolidated Statements of Cash Flows
 For the six months ended March 31, 2008 and 2007
 (in thousands)
(unaudited)

   
Six Months Ended
March 31, 
 
Cash flows from operating activities:
   
2008
   
2007
 
Net loss
 
$
(31,913
)
$
(26,701
)
Adjustments to reconcile net loss to net cash used for operating activities:
             
Stock-based compensation expense
   
6,964
   
3,670
 
Depreciation and amortization expense
   
4,842
   
4,880
 
Accretion of loss from convertible senior subordinated notes exchange offer
   
41
   
98
 
Provision for doubtful accounts
   
101
   
266
 
Compensatory stock issuances
   
545
   
412
 
Loss from disposal of property, plant and equipment
   
86
   
-
 
Loss from conversion of convertible senior subordinated notes
   
1,169
   
-
 
Forgiveness of shareholders’ note receivable
   
-
   
82
 
Reduction of note receivable due for services received
   
260
   
261
 
Total non-cash adjustments
   
14,008
   
9,669
 
Changes in operating assets and liabilities, net of effect of acquisitions:
             
Accounts receivable
   
(14,714
)
 
(9,323
)
Inventory
   
3,624
   
(3,992
)
Prepaid expenses and other current assets
   
(590
)
 
241
 
Other assets
   
(678
)
 
(281
)
Accounts payable
   
5,258
   
(1,090
Accrued expenses and other current liabilities
   
(4,004
)
 
(644
)
Total change in operating assets and liabilities
   
(11,104
)
 
(15,089
)
               
Net cash used for operating activities
   
(29,009
)
 
(32,121
)
               
Cash flows from investing activities:
             
Purchase of plant and equipment
   
(9,624
)
 
(2,731
)
Proceeds from insurance recovery
   
1,189
   
362
 
Investment in unconsolidated affiliate
   
(45
)
 
(13,873
Proceeds from employee notes receivable
   
-
   
121
 
Purchase of Intel’s Optical Platform Division
   
(75,546
)
 
-
 
Proceeds from notes receivable
   
-
   
1,500
 
Funding of restricted cash
   
(1,153
)
 
(420
)
Purchase of short and long term investments
   
(7,000
)
 
(22,150
)
Sale of short and long term investments
   
30,800
   
75,100
 
               
Net cash (used for) provided by investing activities
   
(61,379
)
 
37,909
 
               
Cash flows from financing activities:
             
Payments on capital lease obligations
   
(10
)
 
(32
 )
Proceeds from exercise of stock options
   
6,800
   
274
 
Proceeds from employee stock purchase plan
   
485
   
202
 
Proceeds from private placement transaction
   
93,773
   
-
 
               
Net cash provided by financing activities
   
101,048
   
444
 
               
Effect of foreign currency
   
(77
)
 
-
 
               
Net increase (decrease) in cash and cash equivalents
   
10,583
   
6,232
 
Cash and cash equivalents, beginning of period
   
12,151
   
22,592
 
               
Cash and cash equivalents, end of period
 
$
22,734
 
$
28,824
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
             
Cash paid during the period for interest
 
$
3,314
 
$
2,421
 
Cash paid for income taxes
 
$
-
 
$
2,351
 
               
NON-CASH DISCLOSURE
             
Issuance of common stock for purchase of Intel Optical Platform Division
 
$
10,000
 
$
-
 
Issuance of common stock for conversion of convertible senior subordinated notes
 
$
85,428
 
$
-
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 



EMCORE Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
 
NOTE 1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of EMCORE Corporation and its subsidiaries (the “Company” or “EMCORE”). All intercompany accounts and transactions have been eliminated in consolidation.

These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all information considered necessary for a fair presentation of the financial statements has been included. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of September 30, 2007 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of the Company’s financial position, operating results, risk factors and other matters, please refer to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Management develops estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available. The Company’s reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

Certain amounts in prior period financial statements have been reclassified to conform to the current year presentation. The reclassification consists of a reduction to revenue of $78,000, a reduction to cost of goods sold of $64,000, and a reduction to research and development expense of $14,000 from the amounts previously recognized in first quarter of fiscal 2007.  This reclassification relates to a cost-sharing R&D arrangement, under which the actual costs of performance are divided between the U.S. Government and the Company, no revenue is recorded and the Company’s R&D expense is reduced for the amount of the cost-sharing receipts.  The Company also reclassed approximately $4.3 million of stock-based compensation expense from tolled options, related to former employees that were incurred in the first quarter of fiscal 2008 from selling, general and administrative expenses to other expense.

For the three and six months ended March 31, 2008, stock options representing 4,674,401 and 4,632,759 shares, respectively, of common stock were excluded from the diluted earnings per share calculations. For the three and six months ended March 31, 2007, stock options representing 2,912,823 and 2,961,337 shares, respectively, of common stock were excluded from the diluted earnings per share calculations. These stock options, and the shares underlying the Company’s convertible senior subordinated notes for the three and six months ended March 31, 2007, were not included in the computation of diluted earnings per share since the Company incurred a net loss for the periods presented and any effect would have been anti-dilutive.


NOTE 2.  Recent Accounting Pronouncements

 
SFAS 141(R) - In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 141(R), Business Combinations. This statement replaces SFAS 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS 142, Goodwill and Other Intangible Assets, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management is currently assessing the potential impact that the adoption of SFAS 141(R) could have on our financial statements.

 
 

 

SFAS 157 - In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, providing a framework for measuring fair value, and expands the disclosures required for fair value measurements. SFAS 157 applies to other accounting pronouncements that require fair value measurements; it does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007.  However, in December 2007, the FASB issued FASB Staff Position FAS 157-b, which deferred the effective date of SFAS No. 157 for one year, as it relates to nonfinancial assets and liabilities. Although the Company continues to evaluate the application of SFAS 157, management does not currently believe adoption of this pronouncement will have a material impact on the Company’s results of operations or financial position.

SFAS 159 - In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. The fair value option permits entities to choose to measure eligible financial instruments at fair value at specified election dates. The entity will report unrealized gains and losses on the items on which it has elected the fair value option in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company on October 1, 2008. Although the Company continues to evaluate the application of SFAS 159, management does not currently believe adoption of this pronouncement will have a material impact on the Company’s results of operations or financial position.

SFAS 160 - In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is currently assessing the potential impact that the adoption of SFAS 160 could have on our financial statements.

SFAS 161 - In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133. SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under Statement 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is intended to enhance the current disclosure framework in SFAS 133 and requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. The provisions of SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management is currently assessing the potential impact that the adoption of SFAS 161 could have on our financial statements.


NOTE 3.  Equity

Stock Options

The Company has stock option plans to provide long-term incentives to eligible employees, officers, and directors in the form of stock options.  Most of the stock options vest and become exercisable over four to five years and have ten-year terms. The Company maintains two incentive stock option plans: the 2000 Stock Option Plan (“2000 Plan”) and the 1995 Incentive and Non-Statutory Stock Option Plan (“1995 Plan” and, together with the 2000 Plan, the “Option Plans”). The 1995 Plan authorizes the grant of stock options to purchase up to 2,744,118 shares of the Company's common stock.  On March 31, 2008, the 2000 Plan was amended to authorize an additional grant of 3,500,000 stock options for a total of 12,850,000 shares of the Company’s common stock.  As of March 31, 2008, no stock options were available for issuance under the 1995 Plan and 3,649,417 stock options were available for issuance under the 2000 Plan. Certain options under the Option Plans are intended to qualify as incentive stock options pursuant to Section 422A of the Internal Revenue Code.
 

 
 

 

The following table summarizes the activity under the Option Plans for the six months ended March 31, 2008:

   
 
 
 
Number of Shares
 
Weighted Average Exercise Price
 
Weighted Average
Remaining Contractual Life
(in years)
Outstanding as of October 1, 2007
   
5,697,766
   
$
5.46
         
Granted
   
1,054,750
     
6.56
         
Exercised
   
(1,559,603
)
   
4.34
         
Tolled
   
658,989
     
5.19
         
Cancelled and expired
   
(185,743
)
   
8.34
         
                         
Outstanding as of March 31, 2008
   
5,666,159
   
$
5.85
     
7.72
 
                         
Vested as of March 31, 2008
   
3,959,717
   
$
5.60
     
7.31
 
                         
Exercisable as of March 31, 2008
   
2,407,102
   
$
5.06
     
6.31
 

The weighted-average grant date fair value of stock options granted during the six months ended March 31, 2008 and 2007 was $4.34 and $3.99, respectively. The total intrinsic value of stock options exercised during the six months ended March 31, 2008 and 2007 was $11.3 million and $0.2 million, respectively.  The total fair value of stock options vested during the six months ended March, 31 2008 and 2007 was $4.6 million and $2.6 million, respectively. The aggregate intrinsic value of fully vested and expected to vest stock options as of March 31, 2008 was $5.0 million.  The aggregate intrinsic value of exercisable stock options as of March 31, 2008 was $4.3 million.

The following table summarizes the Company’s nonvested shares for the six months ended March 31, 2008:

   
 
Number
of Shares
   
Weighted-Average Grant Date
 Fair Value
 
Nonvested as of October 1, 2007
    2,979,486       4.82  
Granted
    1,054,750       4.34  
Vested
    (591,346 )     2.49  
Forfeited
    (183,833 )     6.57  
Nonvested as of March 31, 2008
    3,259,057     $ 4.99  

As of March 31, 2008 there was $7.9 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements granted under the Option Plans. This expense is expected to be recognized over an estimated weighted-average life of 3.0 years.


 
 

 

Stock-based compensation expense is measured at grant date, based on the fair value of the award, over the requisite service period.  As required by SFAS 123(R), Share-Based Payment (revised 2004), management has made an estimate of expected forfeitures and is recognizing compensation expense only for those equity awards expected to vest. The effect of recording stock-based compensation expense during the three and six months ended March 31, 2008 and 2007 was as follows:

(in thousands, except per share data)
 
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Stock-based compensation expense by award type:
                       
     Employee stock options
  $ 1,405     $ 1,344     $ 2,480     $ 3,670  
     Employee stock purchase plan
    168       -       168       -  
     Former employee stock options tolled
    (58 )     -       4,316       -  
Total stock-based compensation expense
  $ 1,515     $ 1,344     $ 6,964     $ 3,670  
                                 
Net effect on net loss per basic and diluted share
  $ (0.02 )   $ (0.02 )   $ (0.12 )   $ (0.07 )

 
Former Employee Stock Options Tolled

Under the terms of stock option agreements issued under the 2000 Plan, terminated employees who have vested and exercisable stock options have 90 days after the date of termination to exercise stock options. In November 2006, the Company announced suspension of reliance on previously issued financial statements, which in turn caused the Company’s Form S-8 registration statements for shares of common stock issuable under the Option Plans not to be available. Therefore, terminated employees were precluded from exercising their stock options during the remaining contractual term (the “Blackout Period”).  To address this issue, the Company’s Board of Directors agreed in April 2007 to approve a stock option grant “modification” for these individuals by extending the normal 90-day exercise period after termination date to a date after which the Company became compliant with its SEC filings and the registration of the stock option shares was once again effective.  The Company communicated the terms of the tolling agreement with its terminated employees in November 2007.  The Company’s Board of Directors approved an extension of the stock option expiration date equal to the number of calendar days during the Blackout Period before such stock option would have otherwise expired (the “Tolling Period”).   Former employees were able to exercise their vested stock options beginning on the first day after the lifting of the Blackout Period for a period equal to the Tolling Period.  The Company accounted for the modification of stock options issued to terminated employees as additional compensation expense in accordance with SFAS 123(R) in the first quarter of fiscal 2008 and adjusted the stock options to market value in the first quarter of 2008 and recognized income on expired options in first and second quarter of 2008.   All tolled options were either exercised or expired by January 29, 2008.  No tolled stock options were outstanding as of March 31, 2008.

Valuation Assumptions

The Company estimated the fair value of stock options using a Black-Scholes model. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach using the following weighted-average assumptions.

Black-Scholes Weighted-Average Assumptions:
 
 
For the
Six Months Ended March 31, 2008
Expected dividend yield
   
0
%
Expected stock price volatility
   
78.5
%
Risk-free interest rate 
   
2.62
%
Expected term (in years)
   
5.40
 
Estimated pre-vesting forfeitures
   
23.3
%


 
 

 

Expected Dividend Yield:  The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company has not issued any dividends.

Expected Stock Price Volatility:  The fair value of stock-based payments were valued using the Black-Scholes valuation method with a volatility factor based on the Company’s historical stock prices.

Risk-Free Interest Rate:  The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Where the expected term of the Company’s stock-based awards do not correspond with the terms for which interest rates are quoted, the Company performed a straight-line interpolation to determine the rate from the available maturities.

Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, the Company considers voluntary termination behavior as well as future workforce reduction programs, if any.

 
Preferred Stock

The Company’s Restated Certificate of Incorporation authorizes the Board of Directors to issue up to 5,882,352 shares of preferred stock of the Company upon such terms and conditions having such rights, privileges and preferences as the Board of Directors may determine.  As of March 31, 2008 and September 30, 2007, no shares of preferred stock are issued or outstanding.


Warrants

As of March 31, 2008, the Company had 1,400,003 warrants outstanding and exercisable.  No warrants were outstanding as of September 30, 2007.

Employee Stock Purchase Plan

In fiscal 2000, the Company adopted an Employee Stock Purchase Plan (the “ESPP”). The ESPP provides employees of the Company an opportunity to purchase common stock through payroll deductions. The ESPP is a 6-month duration plan, with new participation periods beginning the first business day of January and July of each year. The purchase price is set at 85% of the average high and low market price for the Company's common stock on either the first or last day of the participation period, whichever is lower, and annual contributions are limited to the lower of 10% of an employee's compensation or $25,000. In November 2006, the Company suspended the ESPP due to its review of historical stock option granting practices.  The Company reinstated the ESPP on January 1, 2008.  The number of shares of common stock available for issuance under the ESPP is 2,000,000 shares.

The amount of shares issued for the ESPP are as follows: 
   
Number of Common Stock Shares Issued
 
Purchase Price per Common Stock Share
Amount of shares reserved for the ESPP
   
2,000,000
         
                 
Number of shares issued in calendar years 2000 through 2003
   
(398,159
)
  $
1.87 - $40.93
 
Number of shares issued in June 2004 for first half of calendar year 2004
   
(166,507
)
  $
2.73
 
Number of shares issued in December 2004 for second half of calendar year 2004
   
(167,546
)
  $
2.95
 
Number of shares issued in June 2005 for first half of calendar year 2005
   
(174,169
)
  $
2.93
 
Number of shares issued in December 2005 for second half of calendar year 2005
   
(93,619
)
  $
3.48
 
Number of shares issued in June 2006 for first half of calendar year 2006
   
(123,857
)
  $
6.32
 
                 
Remaining shares reserved for the ESPP as of March 31, 2008
   
876,143
         



 
 

 

Future Issuances 
 
As of March 31, 2008, the Company had reserved a total of 12,891,722 shares of its common stock for future issuances as follows:

   
Number of Common Stock Shares Available
For exercise of outstanding common stock options
   
5,666,159
 
For future issuances to employees under the ESPP plan
   
876,143
 
For future common stock option awards
   
3,649,417
 
For future exercise of warrants
   
1,400,003
 
For future issuance in relation to the Intel’s Optical Platform Division Acquisition
   
1,300,000
 
         
Total reserved
   
12,891,722
 


Private Placement of Common Stock and Warrants

On February 20, 2008, the Company consummated the sale of $100 million of restricted common stock and warrants.  In this transaction, investors purchased 8 million shares of our common stock, no par value, and warrants to purchase an additional 1.4 million shares of our common stock.  The purchase price was $12.50 per share, priced at the 20 day volume-weighted average price.  The warrants grant the holder the right to purchase one share of our common stock at a price of $15.06 per share, representing a 20.48% premium over the purchase price.  The warrants are immediately exercisable and remain exercisable until February 20, 2013  In addition, the Company entered into a registration rights agreement with the investors to register for resale the shares of common stock issued in this transaction and the shares of common stock to be issued upon exercise of the warrants.  Beginning two years after their issuance, the warrants may be called by the Company for a price of $0.01 per underlying share if the closing price of its common stock has exceeded 150% of the exercise price for at least 20 trading days within a period of any 30 consecutive trading days and other conditions are met.  Total agent fees incurred were 5.75% of the gross proceeds, or $5.8 million.  The Company used a substantial portion of the net proceeds to acquire the telecom assets of Intel's Optical Platform Division and is using the remainder for working capital requirements.
 
In the registration rights agreement, the Company agreed that if (i) a registration statement covering all of the registrable securities required to be covered thereby and required to be filed by the Company is (A) not filed with the SEC on or before March 22, 2008 (the Company filed a registration statement on March 21, 2008 and has therefore met this deadline)  or (B) not declared effective by the SEC on or before May 21, 2008 (or June 20, 2008 if the SEC elects to review the registration statement)  (ii) on any day after the date such registration statement is declared effective (the “Effective Date”) sales of all of the registrable securities required to be included on such Registration Statement cannot be made; or (iii) after the date six months following the date of the private placement, EMCORE fails to file with the SEC any required reports under Section 13 or 15(d) of the 1934 Act such that it is not in compliance with Rule 144(c)(1) as a result of which holders are unable to sell registrable securities without restriction under Rule 144 then, EMCORE shall pay as liquidated damages to each holder of registrable securities relating an amount in cash equal to one (1) percent (1%) of the aggregate purchase price of such holder’s registrable securities included in such registration statement on  the day that such a failure first occurs and on every thirtieth day thereafter until such failure is cured.   Liquidated damages shall be paid on the earlier of (i) the last day of the calendar month during which such damages are incurred and (ii) the third business day after the event or failure giving rise to the damages is cured.  In the event the Company fails to make such payments in a timely manner, such liquidated damages shall bear simple interest at the rate of four (4) percent (4%) per month until paid in full.  In no event shall the aggregate amount of liquidated damages exceed, in the aggregate, ten (10) percent (10%) of the aggregate purchase price of the common stock sold in the private placement.  The Company also agreed not to issue shares in certain capital raising transactions or file registration statements relating to the same until 45 days after the earlier of the Effective Date and six months after the private placement.
 

The Company accounted for the various components of the private placement transaction using the provisions of EITF Issue No. 00-19 Accounting for Derivative Financial instruments Indexed to, and Potentially Settled in a Company’s Own Stock; and FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements. Warrants issued to the investors were accounted for as an equity transaction with a value of $9.8 million recorded to common stock. The potential future payments to the investors are considered as a contingent liability in accordance with SFAS No. 5 Accounting for Contingencies. As of March 31, 2008, the Company did not record any contingent liability associated with the liquidated damages clause.

The costs associated with this offering were $6.1 million which was recorded as an offset to common stock.


Share Dilution

A following table summarizes the Company’s equity transactions and effect on share dilution for the six months ended March 31, 2008:
   
Number of
Common Stock
Shares Outstanding
Common stock shares outstanding – as of October 1, 2007
   
51,048,481
 
         
Conversion of convertible senior subordinated notes to equity (see Note 11 - Debt)
   
12,186,656
 
Private placement transaction
   
8,000,000
 
Acquisition of Intel’s Optical Platform Division (see Note 4 – Acquisitions)
   
722,688
 
Stock option exercises and other compensatory stock issuances
   
1,617,863
 
         
Common stock shares outstanding – as of March 31, 2008
   
73,575,688
 

See Note 15 – Subsequent Event for further discussion of shares of common stock issued subsequent to March 31, 2008.

On March 31, 2008, the Board of Directors authorized an additional 100,000,000 shares of common stock available for issuance for a total of 200,000,000 shares authorized.


NOTE 4.  Acquisitions

Intel Corporation’s Optical Platform Division

On February 22, 2008, the Company acquired assets of the telecom portion of Intel Corporation’s Optical Platform Division. The telecom assets acquired include inventory, fixed assets, intellectual property, and technology comprised of tunable lasers, tunable transponders, 300-pin transponders, and integrated tunable laser assemblies.  The purchase price was $75 million in cash and $10 million in the Company’s common stock, priced at a volume-weighted average price of $13.84 per share. Under the terms of the asset purchase agreement, the purchase price of $85 million is subject to adjustment based on an inventory true-up, plus specifically assumed liabilities.  Direct transaction costs totaled $0.5 million.  This acquisition was financed through proceeds received from the $100 million private placement of common stock and warrants (see Note 3).

 
The purchase price allocation for the business has been prepared on a preliminary basis and is subject to change as new facts and circumstances emerge.  The Company is currently completing the purchase price allocation and valuation of the acquired assets.  The Company will adjust the preliminary purchase price allocation to reflect changes in the final valuation report, which is expected to be completed by September 2008. Amortization expense totaled $0.1 million for both the three and six months ended March 31, 2008.   Of the total goodwill recognized, approximately $47.9 million is expected to be deductible for tax purposes over a 15 year life.
 


 
The preliminary purchase price was allocated as follows:
 
(in thousands)
Intel Corporation’s Optical Platform Division
   
         
Net purchase price
 
$
85,546
 
Net assets acquired
   
(37,627
)
         
Excess purchase price allocated to goodwill
 
$
47,919
 

Net assets acquired in the acquisition were as follows:
         
Inventory
 
$
17,940
 
Fixed assets
   
11,187
 
Intangible assets
   
8,500
 
         
Net assets acquired
 
$
37,627
 


 
 

 

 
In connection with this acquisition, Intel and the Company entered into a Transition Services Agreement (the “TSA”), which allows Intel to carve-out the business and deliver those assets to the Company. Pursuant to the terms of the TSA, Intel intends to manufacture, assemble, test, and supply products that are sold by the business.  Intel will also provide certain transition services to the Company, including financial services, supply chain support, data extraction, conversion services, facilities and site computing support, and office space services.  The fees associated with the TSA are being expensed as incurred. For the quarter ended March 31, 2008, the Company incurred approximately $1.1 million of expense associated with the TSA.  The TSA is expected to continue through June 2008 or until such time when the Company can arrange its own resources to operate the acquired business.

The following unaudited condensed consolidated pro forma financial data has been prepared to give effect to the Company’s acquisition of certain assets and liabilities of Intel’s Optical Products Division (“OPD”). The pro forma financial information has been developed by the application of pro forma adjustments to the estimated results of operations of OPD, and the historical Condensed Consolidated Statements of Operations of the Company as if OPD had been acquired as of October 1, 2006. The pro forma financial information is based upon available information and assumptions that management believes are reasonable. The pro forma financial information does not purport to represent what our consolidated results of operations would have been had the Company’s acquisition of OPD occurred on the dates indicated, or to project our consolidated financial performance for any future period.

Condensed Consolidated Pro Forma Statement of Operations
(unaudited)

(in thousands, except per share data)
 
 
Three Months Ended
March 31, 2008
   
Three Months Ended
March 31, 2007
 
   
EMCORE
   
PRO FORMA
   
EMCORE
   
PRO FORMA
 
                         
Revenues
  $ 56,279     $ 63,183     $ 39,598     $ 60,998  
Net loss
    (17,507 )     (17,162 )     (13,436 )     (12,366 )
                                 
   Net loss per basic and diluted shares
  $ (0.27 )   $ (0.25 )   $ (0.26 )   $ (0.22 )


(in thousands, except per share data)
 
 
Six Months Ended
March 31, 2008
   
Six Months Ended
March 31, 2007
 
   
EMCORE
   
PRO FORMA
   
EMCORE
   
PRO FORMA
 
                         
Revenues
  $ 103,166     $ 122,270     $ 78,194     $ 111,794  
Net loss
    (31,913     (30,958 )     (26,701 )     (25,021
                                 
   Net loss per basic and diluted shares
  $ (0.55 )   $ (0.50 )   $ (0.52 )   $ (0.45 )

On April 20, 2008, the Company completed its acquisition of the enterprise and storage assets of Intel Corporation’s Optical Platform Division as well as the Intel Connects Cables business (See Note 15 – Subsequent Event).  The above pro forma statements do not include results of this acquisition.


Opticomm Corporation
 
In April 2007, the Company acquired privately-held Opticomm Corporation of San Diego, California, including its fiber optic video, audio and data networking business, technologies, and intellectual property.  Opticomm is one of the leading specialists in the field of fiber optic video, audio and data networking for the commercial, governmental and industrial sectors.  The Company paid $4.2 million initial consideration, less $0.1 million cash received at acquisition, for all of the shares of Opticomm. The Company also agreed to an additional earn-out payment based on Opticomm’s 2007 revenue which amounted to approximately $0.7 million.
 
 
The Company completed the valuation of Opticomm's inventory, property and equipment, and identifiable intangible assets and adjusted the preliminary purchase price allocation in March 2008 to reflect the final valuation of acquired assets.  Goodwill was adjusted by approximately $0.1 million to properly reflect purchased goodwill.  The purchase price allocation identified $2.2 million of intangible assets with a five year weighted average amortization period, which included $1.4 million in customer lists, $0.7 million in patents and $0.1 million in order backlog.  Amortization expense totaled $0.4 million and $0.5 million, for the three and six months ended March 31, 2008, respectively, and $0.1 million and $0.2 million for the three and six months ended March 31, 2007, respectively.
 
 
The final purchase price was allocated as follows:
 

(in thousands)
Opticomm Corporation Acquisition
 
Preliminary
   
Adjustments
   
Final
 
                   
Net purchase price
  $ 4,097     $ 722     $ 4,819  
Net assets acquired
    (3,573 )     103       (3,470 )
                         
Excess purchase price allocated to goodwill
  $ 524     $ 825     $ 1,349  

Net assets acquired in the acquisition were as follows:

Working capital
  $ 1,058     $ 223     $ 1,281  
Fixed assets
    81       -       81  
Intangible assets
    2,504       (326 )     2,178  
Current liabilities
    (70 )     -       (70 )
                         
Net assets acquired
  $ 3,573     $ (103 )   $ 3,470  



All of these transactions were accounted for as purchases in accordance with SFAS 141, Business Combinations; therefore, the tangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results of the businesses acquired are included in the accompanying consolidated statement of operations from the date of acquisition. All of these acquired businesses are part of the Company’s Fiber Optics operating segment.
 
 
 

 
 
 
 

NOTE 5.  Receivables, net

The components of accounts receivable consisted of the following:
(in thousands)
 
As of
March 31, 2008
   
As of
September 30, 2007
 
             
Accounts receivable
  $ 47,234     $ 35,558  
Accounts receivable – unbilled
    6,387       3,395  
                 
Accounts receivable, gross
    53,621       38,953  
                 
Allowance for doubtful accounts
    (820 )     (802 )
                 
Total accounts receivable, net
  $ 52,801     $ 38,151  

Related party receivables consist of amounts owed from Velox Corporation, in which the Company has an insignificant ownership.

NOTE 6.  Inventory, net

Inventory is stated at the lower of cost or market, with cost being determined using the standard cost method that includes material, labor and manufacturing overhead costs.  The components of inventory consisted of the following:
(in thousands)
 
As of
March 31, 2008
   
As of
September 30, 2007
 
             
Raw materials
  $ 22,892     $ 19,884  
Work-in-process
    9,605       6,842  
Finished goods
    26,624       10,891  
Inventory, gross
    59,121       37,617  
                 
Less: provisions for inventory
    (15,600 )     (8,412 )
                 
Total inventory, net
  $ 43,521     $ 29,205  

In February 2008, as part of our asset acquisition of Intel’s Optical Platform Division, the Company acquired inventory of approximately $17.9 million (see Note 4 - Acquisitions).

NOTE 7.  Property, Plant, and Equipment, net

The components of property, plant, and equipment consisted of the following:
(in thousands)
 
As of
March 31, 2008
   
As of
September 30, 2007
 
             
Land
  $ 1,502     $ 1,502  
Building and improvements
    44,423       43,397  
Equipment
    93,113       75,631  
Furniture and fixtures
    5,278       5,643  
Leasehold improvements
    -       2,141  
Construction in progress
    6,144       3,744  
                 
Property, plant and equipment, gross
    150,460       132,058  
                 
Less: accumulated depreciation and amortization
    (76,295 )     (74,801 )
                 
Total property, plant and equipment, net
  $ 74,165     $ 57,257  

In February 2008, as part of our asset acquisition of Intel’s Optical Platform Division, the Company acquired fixed assets of approximately $11.2 million (see Note 4 – Acquisitions).

As of March 31, 2008 and September 30, 2007, the Company did not have any significant capital lease agreements.

Depreciation expense was $2.1 million and $3.8 million for the three and six months ended March 31, 2008, respectively, and $1.8 million and $3.7 million for the three and six months ended March 31, 2007, respectively.


 
 

 

NOTE 8.  Goodwill and Intangible Assets, net

The following table sets forth changes in the carrying value of goodwill by reportable segment during the six months ended March 31, 2008:
 
(in thousands)
 
Fiber Optics
   
Photovoltaics
   
Total
 
                   
Balance as of October 1, 2007
  $ 20,606     $ 20,384     $ 40,990  
                         
Acquisition – earn-out payments
    712       -       712  
Acquisition – Intel’s Optical Platform Division
    47,919       -       47,919  
Final purchase price allocation adjustment: Opticomm acquisition
    118       -       118  
                         
Balance as of March 31, 2008
  $ 69,355     $ 20,384     $ 89,739  


The following table sets forth the carrying value of intangible assets, consisting of patents and acquired intellectual property (“IP”), as of March 31, 2008 and September 30, 2007, by reportable segment:
 
(in thousands) 
 
As of March 31, 2008
   
As of September 30, 2007
 
   
Gross Assets
   
Accumulated
Amortization
   
Net Assets
   
Gross Assets
   
Accumulated
Amortization
   
Net Assets
 
                                     
Fiber Optics:
                                   
Patents
  $ 949     $ (449 )   $ 500     $ 845     $ (358 )   $ 487  
Ortel acquired IP
    3,274       (3,031 )     243       3,274       (2,893 )     381  
JDSU acquired IP
    1,040       (611 )     429       1,040       (512 )     528  
Alvesta acquired IP
    193       (193 )     -       193       (187 )     6  
Molex acquired IP
    558       (502 )     56       558       (446 )     112  
       Phasebridge acquired IP
    603       (388 )     215       603       (347 )     256  
       Force acquired IP
    1,075       (541 )     534       1,075       (443 )     632  
       K2 acquired IP
    583       (299 )     284       583       (248 )     335  
Opticomm acquired IP
    2,178       (478 )     1,700       2,504       (321 )     2,183  
Intel acquired IP
    8,500       (142 )     8,358       -       -       -  
Subtotal
    18,953       (6,634 )     12,319       10,675       (5,755 )     4,920  
                                                 
Photovoltaics:
                                               
Patents
    766       (332 )     434       615       (260 )     355  
Tecstar acquired IP
    1,900       (1,900 )     -       1,900       (1,900 )     -  
Subtotal
    2,666       (2,232 )     434       2,515       (2,160 )     355  
                                                 
Total
  $ 21,619     $ (8,866 )   $ 12,753     $ 13,190     $ (7,915 )   $ 5,275  
 
Amortization expense was $0.4 million and $1.0 million for the three and six months ended March 31, 2008, respectively, and $0.5 million and $1.1 million for the three and six months ended March 31, 2007, respectively.

 
 

 

 
Based on the carrying amount of the intangible assets, and assuming no future impairment of the underlying assets, the estimated future amortization expense is as follows:
 
(in thousands)
       
         
Period ending:
       
Six-month period ended September 30, 2008
 
$
1,617
 
Year ended September 30, 2009
   
2,974
 
Year ended September 30, 2010
   
2,861
 
Year ended September 30, 2011
   
2,400
 
Year ended September 30, 2012
   
2,028
 
Thereafter
   
873
 
Total future amortization expense
 
$
12,753
 


NOTE 9.  Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities consisted of the following:

(in thousands)
 
 
As of
March 31,
2008
 
As of
September 30, 2007
Compensation-related
 
$
7,480
   
$
8,398
 
Interest
   
-
     
1,775
 
Warranty
   
1,579
     
1,310
 
Professional fees
   
4,661
     
6,213
 
Royalty
   
1,385
     
705
 
Self insurance
   
837
     
794
 
Deferred revenue and customer deposits
   
3,221
     
687
 
Tax-related
   
4,016
     
3,460
 
Restructuring accrual
   
502
     
2,112
 
Inventory obligation
   
1,499
     
1,499
 
Other
   
1,250
     
1,823
 
                 
Total accrued expenses and other current liabilities
 
$
26,430
   
$
28,776
 

In the second quarter of fiscal 2008, the Company converted all of its convertible senior subordinated notes into shares of common stock (see Note 11 – Debt).  As of March 31, 2008, the Company did not have any debt or related accrued interest.


The Company entered into two Solar Power System contracts for a total loss accrual of $1.8 million as of March 31, 2008.



NOTE 10.  Restructuring Charges
 
As the Company has historically acquired businesses and consolidated them into its existing operations, the Company has incurred charges associated with the transition and integration of those activities. In accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, expenses recognized as restructuring charges include costs associated with the integration of several business acquisitions and the Company’s overall cost-reduction efforts.   Restructuring charges are included in SG&A.  These charges primarily relate to our Fiber Optics operating segment.  These restructuring efforts are expected to be completed in calendar year 2008.  Costs incurred and expected to be incurred consist of the following:

 (in thousands)
 
 
 
Amount
Incurred in
Period
   
Cumulative
Amount
Incurred
to Date
   
Amount
Expected
in Future
Periods
   
Total
Amount
Expected to
be Incurred
 
                         
One-time termination benefits
 
$
402
   
$
3,581
   
$
-
   
$
3,581
 



 
 

 

The following table sets forth changes in the accrual for restructuring charges during the six months ended March 31, 2008:

(in thousands)
   
     
Balance at October 1, 2007
 
$
2,112
 
Increase in liability due to relocation of corporate headquarters
   
275
 
Costs paid or otherwise settled
   
(1,885
)
         
Balance at March 31, 2008
 
$
502
 


NOTE 11.  Debt

In January 2008, the Company entered into agreements with holders of approximately 97.5%, or approximately $83.3 million of its outstanding 5.50% convertible senior subordinated notes due 2011 (the "Notes") pursuant to which the holders converted their Notes into the Company's common stock.  In addition, the Company called for redemption of all of its remaining outstanding Notes. Upon conversion of the Notes, the Company issued shares of its common stock, based on a conversion price of $7.01, in accordance with the terms of the Notes. To incentivize certain holders to convert their Notes, the Company made cash payments to such holders equal to 4% of the principal amount of the Notes converted, plus accrued interest.   By February 20, 2008, all Notes were redeemed and converted into the Company common stock. As a result of these transactions, 12.2 million shares of the Company common stock were issued.  The Company recognized a loss totaling $4.7 million on the conversion of Notes to equity of which $3.5 million was paid in cash.  Interest expense incurred on the Notes totaled $0.4 million and $1.6 million for the three and six months ended March 31, 2008, respectively, and $1.3 million and $2.5 million for the three and six months ended March 31, 2007, respectively.


NOTE 12.  Commitments and Contingencies

The Company’s contractual obligations and commitments over the next five years are summarized in the table below:

As of March 31, 2008
(in millions)
 
 
Total
   
2008
   
 
2009 to 2010
   
2011 to 2012
   
 
2013
and later
 
                               
Operating lease obligations
  $ 7.1     $ 0.7     $ 2.2     $ 1.3     $ 2.9  
Letters of credit
    2.7       2.7       -       -       -  
Purchase commitments (1)
    259.9       34.3       134.9       90.7       -  
 
Total contractual cash obligations and
Commitments
  $ 269.7     $ 37.7     $ 137.1     $ 92.0     $ 2.9  

_______________
(1)
 
The purchase commitments primarily represent the value of purchase agreements issued for raw materials and services that have been scheduled for fulfillment over the next three to five years.

Operating leases include non-cancelable terms and exclude renewal option periods, property taxes, insurance and maintenance expenses on leased properties.

The Company leases certain land, facilities, and equipment under non-cancelable operating leases. The leases provide for rental adjustments for increases in base rent (up to specific limits), property taxes, insurance and general property maintenance that would be recorded as rent expense. Net facility and equipment rent expense under such leases amounted to approximately $0.3 million and $0.6 million for the three and six months ended March 31, 2008, respectively, and approximately $0.4 million and $0.8 million for the three and six months ended March 31, 2007, respectively.

As of March 31, 2008, the Company had twelve standby letters of credit issued totaling approximately $2.7 million.

 
 

 


Credit Market Conditions

Currently, the U.S. capital markets are experiencing turbulent conditions in the credit markets, as evidenced by tightening of lending standards, reduced availability of credit vehicles, and reduction of certain asset values.  This potentially impacts the Company’s ability to obtain additional funding through financing or asset sales.
 
Auction Rate Securities
 
Historically, the Company has invested in securities with an auction reset feature (“auction rate securities”).  In February 2008, the auction market failed for the Company’s auction rate securities, which meant the Company was unable to sell its investments.  At March 31, 2008, the Company had invested approximately $5.3 million in auction rate securities, of which the underlyings for $4.0 million are currently AAA rated, the highest rating by a rating agency.  The remaining $1.3 million of investments are securities whose underlying assets are primarily student loans which are substantially backed by the federal government.

As of March 31, 2008, approximately $1.0 million of the Company’s auction rate securities are classified as a current asset since the underlying securities are expected to be redeemed at par value within several months.  The remaining $4.3 million of securities are classified as non-current assets.  The Company also recorded a temporary unrealized loss of approximately $0.2 million to accumulated other comprehensive loss, a component of shareholders’ equity, primarily due to these liquidity factors.  Based on expected operating cash flows, and our other sources of cash, the Company does not anticipate the potential lack of liquidity on these investments will affect its ability to execute on its current business plan.

Legal Proceedings

The Company is subject to various legal proceedings and claims that are discussed below. The Company is also subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and which have not been fully adjudicated.  The Company does not believe it has a potential liability related to current legal proceedings and claims that could individually or in the aggregate have a material adverse effect on its financial condition, liquidity or results of operations. However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any legal matters or should several legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Shareholder Derivative Litigation Relating to Historical Stock Option Practices

On February 1, 2007, Plaintiff Lewis Edelstein filed a purported stockholder derivative action (the “Federal Court Action”) on behalf of the Company against certain of its present and former directors and officers (the “Individual Defendants”), as well as the Company as nominal defendant, in the U.S. District Court for the District of New Jersey, Edelstein v. Brodie, et. al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.).   On May 22, 2007, Plaintiffs Kathryn Gabaldon and Michael Sackrison each filed a purported stockholder derivative action against the Individual Defendants, and the Company as nominal defendant, in the Superior Court of New Jersey, Somerset County, Gabaldon v. Brodie, et. al., Case No. 3:07-cv-03185-FLW-JJH (D.N.J.) and Sackrison v. Brodie, et. al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.) (collectively, the “State Court Actions”).

Both the Federal Court Action and the State Court Actions alleged, using essentially identical contentions that the Individual Defendants engaged in improprieties and violations of law in connection with the Company’s historical issuances of stock options.  Each of the actions seeks the same relief on behalf of the Company, including, among other things, damages, equitable relief, corporate governance reforms, an accounting, rescission, restitution and costs and disbursements of the lawsuit.  On July 10, 2007, the State Court Actions were removed to the U.S. District Court for the District of New Jersey.

On September 26, 2007, the plaintiff in the Federal Court Action signed an agreement in principle with the Individual Defendants and the Company to settle that litigation in accordance with the Memorandum of Understanding (the “MOU”) filed as Exhibit 10.10 to the Annual Report on Form 10-K for the year ended September 30, 2006.  That same day, the plaintiffs in the State Court Actions advised the Federal Court that the settlement embodied in the MOU would also constitute the settlement of the State Court Actions.

The MOU provides that the Company will adhere to certain policies and procedures relating to the issuance of stock options, stock trading by directors, officers and employees, the composition of its Board of Directors, and the functioning of the Board’s Audit and Compensation Committees.  The MOU also provides for the payment of $700,000 relating to plaintiff’s attorneys’ fees, costs and expenses, which the Company’s insurance carrier has committed to pay on behalf of the Company.

On November 28, 2007, a Stipulation of Compromise and Settlement (the “Stipulation”) substantially embodying the terms previously contained in the MOU was fully executed by the Company and the other defendants and the plaintiffs in the Federal Court Action and the State Court Actions. The Stipulation was filed as Exhibit 10.19 to the Annual Report on Form 10-K for the year ended September 30, 2007.

The Stipulation provides that the Company will adhere to certain policies and procedures relating to the issuance of stock options, stock trading by directors, officers and employees, the composition of its Board of Directors, and the functioning of the Board’s Audit and Compensation Committees.  The Stipulation also provides for the payment of $700,000 relating to plaintiffs’ attorneys’ fees, costs and expenses, which the Company’s insurance carrier has committed to pay on behalf of the Company.  A motion to approve the settlement reflected in the Stipulation was filed with the U.S. District Court for the District of New Jersey on December 3, 2007.   The Court granted the motion for preliminary approval of the settlement on January 3, 2008, and, at a hearing held on March 28, 2008, the Court issued an order giving final approval to the settlement.   The settlement has become final and effective upon the expiration of the appeal period on April 30, 2008.  Thus, the settlement is now binding on all parties and represents a final settlement of both the Federal Court Action and the State Court Actions.


SEC Investigation

On February 27, 2008, the Company received a letter from the SEC’s Division of Enforcement stating that the staff had completed its informal investigation of EMCORE Corporation regarding the Company’s historical stock option granting practices.   The letter further advised the Company that the staff of the Division of Enforcement did not intend to recommend any enforcement action against the Company.



Indemnification Obligations

Subject to certain limitations, we are obligated to indemnify our current and former directors, officers and employees in connection with the Special Committee’s investigation of our historical stock option practices, the related SEC non-public investigation and shareholder litigation. These obligations arise under the terms of our restated certificate of incorporation, our bylaws, applicable contracts, and New Jersey law. The obligation to indemnify generally means that we are required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. We are currently paying or reimbursing legal expenses being incurred in connection with these matters by a number of our current and former directors, officers and employees. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policies that limits its exposure and enables it to recover a portion of any future amounts paid. 


Intellectual Property Lawsuits

We protect our proprietary technology by applying for patents where appropriate and in other cases by preserving the technology, related know-how and information as trade secrets. The success and competitive position of our product lines is significantly impacted by our ability to obtain intellectual property protection for our R&D efforts.

We have, from time to time, exchanged correspondence with third parties regarding the assertion of patent or other intellectual property rights in connection with certain of our products and processes. Additionally, on September 11, 2006, we filed a lawsuit against Optium Corporation (Optium) in the U.S. District Court for the Western District of Pennsylvania for patent infringement. In the suit, the Company and JDS Uniphase Corporation (JDSU) allege that Optium is infringing on U.S. patents 6,282,003 and 6,490,071 with its Prisma II 1550nm transmitters. On March 14, 2007, following denial of a motion to add additional claims to its existing lawsuit, the Company and JDSU filed a second patent suit in the same court against Optium alleging infringement of JDSU's patent 6,519,374 ("the '374 patent").  On March 15, 2007, Optium filed a declaratory judgment action against the Company and JDSU. Optium sought in this litigation a declaration that certain products of Optium do not infringe the '374 patent and that the patent is invalid, but the District Court dismissed the action on January 3, 2008 without addressing the merits. The '374 patent is assigned to JDSU and licensed to the Company.

On December 20, 2007, the Company was served with a complaint in another declaratory relief action which Optium had filed in the Federal District Court for the Western District of Pennsylvania.  This action seeks to have U.S. patents 6,282,003 and 6,490,071 declared invalid or unenforceable because of certain conduct alleged to have occurred in connection with the grant of these patents.  These allegations are substantially the same as those brought by Optium by motion in the Company’s own case against Optium, which motion had been denied by the Court.  On January 30, 2008, the Company and JDSU moved to dismiss the declaratory judgment action, and the parties are presently awaiting a ruling from the Court on that motion to dismiss.


NOTE 13.  Segment Data and Related Information

The Company has four operating segments: (1) EMCORE Fiber Optics and (2) EMCORE Broadband, which are aggregated as a separate reporting segment, Fiber Optics, and (3) EMCORE Photovoltaics and (4) EMCORE Solar Power, which are aggregated as a separate reporting segment, Photovoltaics.  The Company's Fiber Optics revenue is derived primarily from sales of optical components and subsystems for cable television (“CATV”), fiber to the premise (“FTTP”), enterprise routers and switches, telecom grooming switches, core routers, high performance servers, supercomputers, and satellite communications data links.  The Company's Photovoltaics revenue is derived primarily from the sales of solar power conversion products, including solar cells, covered interconnect solar cells, and solar panels.   The Company evaluates its reportable segments in accordance with SFAS 131, Disclosures About Segments of an Enterprise and Related Information. The Company’s Chief Executive Officer is the Company’s Chief Operating Decision Maker pursuant to SFAS 131, and he allocates resources to segments based on their business prospects, competitive factors, net revenue, operating results and other non-GAAP financial ratios.  The Company’s recent acquisition of assets from Intel will reside in the Company’s Fiber Optics reporting segment.

The following table sets forth the revenue and percentage of total revenue attributable to each of the Company's reporting segments for the three and six months ended March 31, 2008 and 2007.
 
(in thousands)
Segment Revenue
 
Three Months Ended
March 31, 2008
   
Three Months Ended
March 31, 2007
 
   
Revenue
   
% of Revenue
   
Revenue
   
% of Revenue
 
                         
Fiber Optics
  $ 37,630       67 %   $ 26,237       66 %
Photovoltaics
    18,649       33       13,361       34  
Total revenue
  $ 56,279       100 %   $ 39,598       100 %

(in thousands)
Segment Revenue
 
Six Months Ended
March 31, 2008
   
Six Months Ended
March 31, 2007
 
   
Revenue
   
% of Revenue
   
Revenue
   
% of Revenue
 
                         
Fiber Optics
  $ 71,590       69 %   $ 51,560       66 %
Photovoltaics
    31,576       31       26,634       34  
Total revenue
  $ 103,166       100 %   $ 78,194       100 %

 

The following table sets forth the Company's consolidated revenues by geographic region for the three and six months ended March 31, 2008 and 2007.  Revenue was assigned to geographic regions based on the customers’ or contract manufacturers’ billing address.
 
(in thousands)
Geographic Revenue
 
Three Months Ended
March 31, 2008
   
Three Months Ended
March 31, 2007
 
   
Revenue
   
% of Revenue
   
Revenue
   
% of Revenue
 
                         
North America
  $ 40,246       72 %   $ 28,522       72 %
Asia and South America
    8,123       14       8,267       21  
Europe
    7,732       14       2,809       7  
Other
    178       -       -       -  
Total revenue
  $ 56,279       100 %   $ 39,598       100 %
 
(in thousands)
Geographic Revenue
 
Six Months Ended
March 31, 2008
   
Six Months Ended
March 31, 2007
 
   
Revenue
   
% of Revenue
   
Revenue
   
% of Revenue
 
                         
North America
  $ 67,069       65 %   $ 54,268       69 %
Asia and South America
    23,464       23       19,303       25  
Europe
    12,318       12       4,623       6  
Other
    315       -       -       -  
Total revenue
  $ 103,166       100 %   $ 78,194       100 %

The following table sets forth operating losses attributable to each of the Company’s reporting segments and corporate for the three and six months ended March 31, 2008 and 2007.

(in thousands)
Statement of Operations Data
 
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2008
   
2007
   
2008
   
2007
 
Operating loss by segment and corporate:
                       
Fiber Optics
  $ (3,974 )   $ (6,409 )   $ (7,501 )   $ (12,614 )
Photovoltaics
    (9,787 )     (2,381 )     (13,338 )     (6,376 )
Corporate income (loss)
    816       (4,912 )     (1,286 )     (8,366 )
Operating loss
  $ (12,945 )   $ (13,702 )   $ (22,125 )   $ (27,356 )
                                 

 
Long-lived assets (consisting of property, plant and equipment, goodwill and intangible assets) for each reporting segment are as follows: 
(in thousands)
Long-lived Assets
 
As of
March 31, 2008
   
As of
September 30, 2007
 
             
Fiber Optics
  $ 124,612     $ 56,816  
Photovoltaics
    52,045       46,706  
                 
Total
  $ 176,657     $ 103,522  


NOTE 14.  Income Taxes

Effective October 1, 2007, the Company adopted Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB 109.  As a result of the adoption of FIN 48, the Company recorded an increase in accumulated deficit and an increase in the liability for unrecognized state tax benefits of approximately $326,000 (net of the federal benefit for state tax liabilities). All of this amount, if recognized, would reduce future income tax provisions and favorably impact effective tax rates. During the quarter ended March 31, 2008, there were no material increases or decreases in unrecognized tax benefits.  Management expects that over the next twelve months the liability for unrecognized state tax benefits will substantially decrease and does not anticipate any material increases over the next twelve months.

The Company’s historical accounting policy with respect to interest and penalties related to tax uncertainties has been to classify these amounts as income taxes, and the Company continued this classification upon the adoption of FIN 48.  At March 31, 2008, the Company had approximately $117,000 of interest and penalties accrued as tax liabilities in the Condensed Consolidated Balance Sheet.

The Company files income tax returns in the U.S. federal, state and local jurisdictions.  No federal, state and local income tax returns are currently under examination. Certain income tax returns for fiscal years 2004 through 2006 remain open to examination by U.S. federal, state and local tax authorities.

 

 
 

 

NOTE 15.  Subsequent Event

 
On April 20, 2008, the Company completed its acquisition of the enterprise and storage assets of Intel Corporation’s Optical Platform Division as well as the Intel Connects Cables business.  The assets acquired include inventory, fixed assets, intellectual property, and technology relating to optical transceivers for enterprise and storage customers, as well as optical cable interconnects for high-performance computing clusters.
 
As consideration for the purchase of assets, the Company issued 3.7 million restricted shares of the Company’s common stock to Intel.  In addition, the Company may be required to make an additional payment to Intel based on the Company’s stock price twelve months after the closing of the transaction.  In the event that the Company is required to make an additional payment, it has the option to make that payment in cash, common stock or both (but not to exceed the equivalent value of 1.3 million shares).
 
Intel and the Company also entered into a transition services agreement under which Intel will provide selected services to the Company for a limited period after closing.  The parties have also entered into an intellectual property agreement under which Intel will license, subject to certain conditions, certain related intellectual property to the Company in connection with the Company’s use and development of the assets being transferred to it.

 
 

 

 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934. These forward-looking statements are based largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements may be identified by the use of terms and phrases such as "expects," "anticipates,” "intends," "plans," believes," "estimates," “targets,” “can,” “may,” “could,” “will” and variations of these terms and similar phrases. Management cautions that these forward-looking statements are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results to be materially different from those discussed in these forward-looking statements. The cautionary statements made in this Report should be read as being applicable to all forward-looking statements wherever they appear in this Report. This discussion should be read in conjunction with the consolidated financial statements, including the related notes.

These forward-looking statements include, without limitation, any and all statements or implications regarding:

·  
The ability of EMCORE Corporation (the “Company,” “we” or “EMCORE”) to remain competitive and a leader in its industry and the future growth of the company, the industry, and the economy in general;
· Difficulties in integrating recent or future acquisitions into our operations;
·  
The expected level and timing of benefits to the Company from on-going cost reduction efforts, including (i) expected cost reductions and their impact on our financial performance, (ii) our continued leadership in technology and manufacturing in its markets, and (iii) our belief that the cost reduction efforts will not impact product development or manufacturing execution;
· Expected improvements in our product and technology development programs;
·  
Whether our products will (i) be successfully introduced or marketed, (ii) be qualified and purchased by our customers, or (iii) perform to any particular specifications or performance or reliability standards; and/or
·  
Guidance provided by the Company regarding our expected financial performance in current or future periods, including, without limitation, with respect to anticipated revenues, income, or cash flows for any period in fiscal 2008 and subsequent periods.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, including without limitation, the following:

·  
The Company’s cost reduction efforts may not be successful in achieving their expected benefits, or may negatively impact our operations;
·  
The failure of our products (i) to perform as expected without material defects, (ii) to be manufactured at acceptable volumes, yields, and cost, (iii) to be qualified and accepted by our customers, and (iv) to successfully compete with products offered by our competitors; and/or
·  
Other risks and uncertainties described in the Company’s filings with the Securities and Exchange Commission (“SEC”) such as: cancellations, rescheduling, or delays in product shipments; manufacturing capacity constraints; lengthy sales and qualification cycles; difficulties in the production process; changes in semiconductor industry growth; increased competition; delays in developing and commercializing new products; and other factors.

Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We assume no obligation to update the matters discussed in this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.



 
 

 

Business Overview

EMCORE is a leading provider of compound semiconductor-based components and subsystems for the broadband, fiber optic, satellite and terrestrial solar power markets.  We have two reporting segments: Fiber Optics and Photovoltaics.  The Company's Fiber Optics segment offers optical components, subsystems and systems that enable the transmission of video, voice and data over high-capacity fiber optic cables for high-speed data and telecommunications, cable television (“CATV”) and fiber-to-the-premises (“FTTP”) networks.  The Company's Photovoltaics segment provides solar products for satellite and terrestrial applications. For satellite applications, the Company offers high-efficiency compound semiconductor-based gallium arsenide (“GaAs”) solar cells, covered interconnect cells (“CICs”) and fully integrated solar panels.  For terrestrial applications, the Company offers its high-efficiency GaAs solar cells and integrated PV components for use in solar power concentrator systems.  For specific information about our company, our products or the markets we serve, please visit our website at http://www.emcore.com.  The information on our website is not incorporated into this Quarterly Report on Form 10-Q.  We were established in 1984 as a New Jersey corporation.

Our principal objective is to maximize shareholder value by leveraging our expertise in advanced compound semiconductor technologies to be a leading provider of high-performance, cost-effective product solutions in each of the markets we serve.

We target market opportunities that we believe have large potential growth and where the favorable performance characteristics of our products and high volume production efficiencies may give us a competitive advantage over our competitors.  We believe that as compound semiconductor production costs continue to be reduced, existing and new customers will be compelled to increase their use of these products because of their attractive performance characteristics and superior value.

On April 4, 2008, the Company announced that its Board of Directors had authorized management of the Company to prepare a comprehensive operational and strategic plan for the separation of the Company's Fiber Optics and Photovoltaic businesses into separate corporations.


Quarterly Highlights

·  
January 23, 2008 – EMCORE announced that it will supply its solar CPV components and systems to the Spanish market through several agreements.

• EMCORE was awarded a 300–kilowatt (kW) CPV system contract by Spain's Institute of Concentrator Photovoltaics Systems (ISFOC). EMCORE expects to have its CPV systems installed in Castilla–La Mancha, Spain by December 2008.

• EMCORE reached an agreement to construct an 850–kW solar power park in Extremadura, Spain. EMCORE will be utilizing its CPV solar power system and provide a turn–key solution with a scope of work including engineering, procurement, and construction. This project is expected to be completed before July 2008 in order to take advantage of the current high feed–in tariff.

• EMCORE received a purchase order for one million CPV components from a prominent CPV system integrator. This order is expected to be completed by March 2009 with CPV products being deployed in projects within the Spanish market.

·  
January 31, 2008 – EMCORE announced that it has signed a memorandum of understanding for the supply of between 200 megawatts (MW) and 700 MW of solar power systems that are scheduled for deployment in utility scale solar power projects under development in the southwestern region of the United States. EMCORE will supply and install turn–key solar power systems utilizing EMCORE's CPV systems developed at its Albuquerque, NM facility. The project developer, SunPeak Solar, is securing land and grid access throughout 2008 and project construction is expected to begin in early 2009. This agreement is not expected to contribute revenues until 2009 and is dependant on the renewal of the federal investment tax credit (ITC) extending into 2009 and beyond.


 
 

 

·  
February 15, 2008 – EMCORE entered into a securities purchase agreement for the sale of $100 million of restricted common stock and warrants.  Under this agreement, investors purchased 8 million shares of our common stock, no par value, and warrants to purchase an additional 1.4 million shares of our common stock.  The purchase price was $12.50 per share, priced at the 20 day volume-weighted average price.  The warrants grant the holder the right to purchase one share of our common stock at a price of $15.06 per share.  The warrants are immediately exercisable and remain exercisable for a period of 5 years from the closing date.  In addition, EMCORE entered into a registration rights agreement with the investors to register for resale the shares of common stock issued in this transaction and the shares of common stock to be issued upon exercise of the warrants.  Total agent fees incurred were 5.75% of the gross proceeds, or $5.8 million.  EMCORE used the net proceeds to acquire the telecom assets of Intel's Optical Platform Division and for working capital requirements.

·  
February 22, 2008 – EMCORE announced completion of the acquisition of the telecom-related portion of Intel's Optical Platform Division. The telecom assets EMCORE acquired include intellectual property, assets and technology comprised of tunable lasers, tunable transponders, 300-pin transponders, and integrated tunable laser assemblies. The acquisition agreement was signed and announced on December 18, 2007. The purchase price was $75 million in cash and $10 million in the Company’s common stock, priced at a volume-weighted average price of $13.84 per share, or 722,688 shares.   This acquisition enhances EMCORE's presence in the telecommunications market segment and expands its fiber optics product portfolio. The acquired assets will be integrated into EMCORE's Digital Products Division (EDP).

·  
February 26, 2008 – EMCORE announced new features to its 1550nm broadband transmitter and optical amplifier product lines. In order to support the requirements for extended bandwidth CATV systems and RF overlay for PON networks, these new products offer 1GHz RF performance, dual hot swappable power supplies and SNMP management capabilities.

·  
February 27, 2008 – EMCORE announced the introduction of a new line of un-cooled coaxial DFB lasers. EMCORE's 1933 DFB laser family offers a low cost solution for 1310nm linear fiber optic links. With an innovative design, the 1933 series requires no additional cooling since it can maintain performance even with case temperatures ranging from -40°C to +80°C. The 1933 also features exceptionally high slope efficiency and linearity even with optical output powers up to 12dBm.

·  
April 2, 2008 – EMCORE announced that it had been awarded a $4.6 million follow-on production order for solar cell receiver assemblies from Concentration Solar la Mancha of Manzanares (Ciudad Real), Spain. The receivers will be incorporated into CS la Mancha's 500X concentrator photovoltaic (CPV) system and will be deployed throughout Spain and other locations in fully licensed and funded projects. Shipments are scheduled to commence in the September quarter and complete in early 2009. CS la Mancha, part of Renovalia Energy, a renewable energy company in Spain, has been developing the CPV system for nearly two years, and has recently started production and volume deployment.

·  
April 10, 2008 – EMCORE announced that it agreed to supply CPV systems to XinAo Group in China. XinAo Group is one of China's largest energy companies and is well known for its clean-energy technologies. The program will start with the delivery of a 50 kilowatt (kW) concentrator photovoltaic (CPV) system to be installed in Langfang, China. This system will be used for test and evaluation purposes. Once the expected reliability and performance metrics have been demonstrated, XinAo plans to install CPV systems to provide electric power for its innovative coal gasification project, which is estimated to have a requirement of 60 megawatts (MW) of power. XinAo believes that EMCORE's CPV technology will provide a cost-effective solution for its energy needs. In addition, XinAo intends to build a manufacturing plant in China, jointly owned by EMCORE, to manufacture CPV systems designed and certified by EMCORE for the Chinese market.

·  
April 21, 2008 – EMCORE announced completion of the acquisition of the enterprise and storage assets of Intel’s Optical Platform Division (OPD) and the Intel Connects Cable (ICC) business for high-performance computing under the terms signed and announced previously. The assets include intellectual property, inventory, fixed assets and technology relating to XENPAK, X2, SFP, and SFP+ optical transceivers for enterprise and storage customers, as well as the Intel Connects Cables (ICC) active cable interconnects for high-performance computing clusters. This acquisition will further enhance EMCORE’s presence in the local area and storage area network market segments. These assets, along with the Telecom assets acquired in February 2008 from Intel OPD, make EMCORE one of the major companies in the world with the most comprehensive product portfolio, vertically-integrated capability and infrastructure, and strong commitment to Telecom, Datacom, and Broadband fiber optics businesses. The acquired assets will be integrated into the EMCORE Digital Products (EDP) division.

 
With several strategic acquisitions and divestures in the past year, the Company has developed a strong business focus and comprehensive product portfolios in two main sectors: Fiber Optics and Photovoltaics.


Fiber Optics

Our fiber optics products enable information that is encoded on light signals to be transmitted, routed (switched) and received in communication systems and networks.  Our fiber optics products provide our customers with increased capacity to offer more services, at increased data transmission distance, speed and bandwidth with lower noise video receive and lower power consumption.  Our Fiber Optics segment primarily targets the following markets:

·  
Cable Television (CATV) Networks - We are a market leader in providing radio frequency (RF) over fiber products for the CATV industry.  Our products are used in hybrid fiber coaxial (HFC) networks that enable cable service operators to offer multiple advanced services to meet the expanding demand for high-speed Internet, on-demand and interactive video and other advanced services, such as high-definition television (HDTV) and voice over IP (VoIP).

·  
Fiber-to-the-Premises (FTTP) Networks - Telecommunications companies are increasingly extending their optical infrastructure to the customer’s location in order to deliver higher bandwidth services. We have developed and maintain customer qualified FTTP components and subsystem products to support plans by telephone companies to offer voice, video and data services through the deployment of new fiber-based access networks.

·  
Data Communications Networks - We provide leading-edge optical components and modules for data applications that enable switch-to-switch, router-to-router and server-to-server backbone connections at aggregate speeds of 10 gigabits per second (G) and above.

·  
Telecommunications Networks - Our leading-edge optical components and modules enable high-speed (up to an aggregate 40G) optical interconnections that drive advanced architectures in next-generation carrier class switching and routing networks.  Our products are used in equipment in the network core and key metro optical nodes of voice telephony and Internet infrastructures.

·  
Satellite Communications (Satcom) Networks - We are a leading provider of optical components and systems for use in equipment that provides high-performance optical data links for the terrestrial portion of satellite communications networks.

·  
Storage Area Networks - Our high performance optical components are also used in high-end data storage solutions to improve the performance of the storage infrastructure.

·  
Video Transport - Our video transport product line offers solutions for broadcasting, transportation, IP television (IPTV), mobile video and security & surveillance applications over private and public networks. the Company’s video, audio, data and RF transmission systems serve both analog and digital requirements, providing cost-effective, flexible solutions geared for network reconstruction and expansion.

·  
Defense and Homeland Security - Leveraging our expertise in RF module design and high-speed parallel optics, we provide a suite of ruggedized products that meet the reliability and durability requirements of the U.S. Government and defense markets.  Our specialty defense products include fiber optic gyro components used in precision guided munitions, ruggedized parallel optic transmitters and receivers, high-frequency RF fiber optic link components for towed decoy systems, optical delay lines for radar systems, EDFAs, terahertz spectroscopy systems and other products.

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Consumer Products - We intend to extend our optical technology into the consumer market by integrating our Vertical Cavity Surface-Emitting Lasers (“VCSELs”) into optical computer mice and ultra short data links.  We are in production with customers on several products and currently qualifying our products with additional customers.  An optical computer mouse with laser illumination is superior to LED-based illumination in that it reveals surface structures that a LED light source cannot uncover. VCSELs enable computer mice to track with greater accuracy, on more surfaces and with greater responsiveness than existing LED-based solutions.


 
 

 

Photovoltaics

We believe our high-efficiency compound semiconductor-based multi-junction solar cell products provide our customers with compelling cost and performance advantages over traditional silicon-based solutions.  These include higher solar cell efficiency allowing for greater conversion of light into electricity, an increased ability to benefit from use in solar concentrator systems, ability to withstand high heat environments and reduced overall footprint.  Our Photovoltaics segment primarily targets the following markets:

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Satellite Solar Power Generation.  We are a leader in providing solar power generation solutions to the global communications satellite industry and U.S. Government space programs.  A satellite’s operational success and corresponding revenue depend on its available power and its capacity to transmit data. We manufacture advanced compound semiconductor-based solar cell and solar panel products, which are more resistant to radiation levels in space and generate substantially more power from sunlight than silicon-based solutions.  Space power systems using our multi-junction solar cells weigh less per unit of power than traditional silicon-based solar cells. These performance characteristics increase satellite useful life, increase satellites’ transmission capacity and reduce launch costs.  Our products provide our customers with higher sunlight to electrical power conversion efficiency for reduced size and launch costs; higher radiation tolerance; and longer lifetime in harsh space environments.  We design and manufacture multi-junction compound semiconductor-based solar cells for both commercial and military satellite applications. We currently manufacture and sell one of the most efficient and reliable, radiation resistant advanced triple-junction solar cells in the world, with an average "beginning of life" efficiency of 28.5%.  In May 2007, the Company announced that it has attained solar conversion efficiency of 31% for an entirely new class of advanced multi-junction solar cells optimized for space applications.  The Company is also the only manufacturer to supply true monolithic bypass diodes for shadow protection, utilizing several the Company patented methods. The Company also provides covered interconnect cells (CICs) and solar panel lay-down services, giving us the capability to manufacture complete solar panels. We can provide satellite manufacturers with proven integrated satellite power solutions that considerably improve satellite economics. Satellite manufacturers and solar array integrators rely on the Company to meet their satellite power needs with our proven flight heritage.
    
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Terrestrial Solar Power Generation.  Solar power generation systems use photovoltaic cells to convert sunlight to electricity and have been used in space programs and, to a lesser extent, in terrestrial applications for several decades.  The market for terrestrial solar power generation solutions has grown significantly as solar power generation technologies improve in efficiency, as global prices for non-renewable energy sources (i.e., fossil fuels) continue to rise, and as concern has increased regarding the effect of carbon emissions on global warming. Terrestrial solar power generation has emerged as one of the most rapidly expanding renewable energy sources due to certain advantages solar power holds over other energy sources, including reduced environmental impact, elimination of fuel price risk, installation flexibility, scalability, distributed power generation (i.e., electric power is generated at the point of use rather than transmitted from a central station to the user), and reliability. The rapid increase in demand for solar power has created a growing need for highly efficient, reliable and cost-effective solar power concentrator systems.

The Company has adapted its high-efficiency compound semiconductor-based multi-junction solar cell products for terrestrial applications, which ar