Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 14, 1998

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on August 14, 1998



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
Mark one):
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 1998

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-22175

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.)

394 Elizabeth Avenue
Somerset, NJ 08873
(Address of principal executive offices) (zip code)

(732) 271-9090
(Registrant's telephone number, including area code)

NO CHANGE
(Former name or former address, if changed since last report)

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:[ ]

As of August 7, 1998 there were 9,361,120 shares of the registrant's no par
value common stock outstanding.

This quarterly report of Form 10- Q contains 17 pages, of
which this is page 1.


Part I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)




Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
------------------------- ------------------------

Revenue $9,074 $14,106 $35,239 $35,626

Cost of sales 5,448 8,208 19,358 23,787
------------------------- ------------------------

Gross profit $3,626 $5,898 $15,881 $11,839
------------------------- ------------------------

Operating expenses:
Selling, general, and administrative $4,596 $2,573 $10,500 $6,715
Goodwill amortization 284 639
Research and development:
One-time acquired in-process 29,294
Recurring 5,887 2,418 11,612 6,655
------------------------- ------------------------
Total operating expenses $10,767 $4,991 $52,045 $13,370
------------------------- ------------------------

Operating income (loss) ($7,141) $907 ($36,164) ($1,531)
------------------------- ------------------------

Other expense:
Stated interest expense, net $181 ($8) $298 $437
Imputed warrant interest expense, non-cash 94 85 286 3,894
Other expense 30 50
------------------------- ------------------------
Total other expense $305 $77 $634 $4,331
------------------------- ------------------------

Income (loss) before extraordinary item ($7,446) $830 ($36,798) ($5,862)
Extraordinary loss 256
- -
------------------------- ------------------------
Net income (loss) ($7,446) $830 ($36,798) ($6,118)
========================= ========================

Diluted per share data:
Income (loss) before extraordinary item ($0.80) $0.10 ($4.29) ($1.38)
Extraordinary loss (0.06)
- - -
------------------------- ------------------------
Net income (loss) per share ($0.80) $0.10 ($4.29) ($1.44)
========================= ========================

Shares used in per share data calculations 9,349 8,502 8,576 4,242
========================= ========================


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








EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)



At June 30, At September 30,
1998 1997
---- ----
ASSETS (unaudited)

Cash and cash equivalents $1,429 $3,653
Restricted cash 125 313
Accounts receivable, net of allowance for doubtful
accounts of $1,829 and $697 at June 30, 1998 and
September 30, 1997, respectively 10,433 8,439
Accounts receivable, related party 500 2,500
Inventories, net 10,820 7,186
Other current assets 1,147 120
---------------------- ------------------------
Total current assets $24,454 $22,211

Property and equipment, net 25,911 16,798
Goodwill 2,740
Other assets 1,745 454
---------------------- ------------------------
Total assets $54,850 $39,463
====================== ========================

LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable $5,516 $4,050
Accrued expenses 3,606 3,868
Short-term debt 9,950
Advanced billings 2,299 1,998
Capital lease obligations, current portion 654 15
Other current liabilities 105 124
---------------------- ------------------------
Total current liabilities $22,130 $10,055

Subordinated debt 7,713 7,499
Long-term debt 5,000
Capital lease obligation, net of current portion 917 78
---------------------- ------------------------
Total liabilities $35,760 $17,632
---------------------- ------------------------

Shareholders' Equity:
Common stock, no par value, 23,529,411 shares authorized,
9,359,620 shares issued and outstanding June 30, 1998,
6,000,391 shares issued and outstanding September 30, 1997 $87,332 $45,817
Accumulated deficit (60,575) (23,777)
Notes receivable from warrant issuances and stock sales (7,667) (209)
---------------------- ------------------------

Total shareholders' equity $19,090 $21,831
---------------------- ------------------------

Total liabilities and shareholders' equity $54,850 $39,463
====================== ========================


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






EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)





Nine Months Ended
June 30
---------------------------------------------
1998 1997
-------------------- -------------------

Operating activities:
Net loss ($36,798) ($6,118)
-------------------- -------------------
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities
Depreciation and amortization 5,069 2,594
Acquired in-process research and development, non-cash 29,294
Compensatory stock issuances 254
Provision for doubtful accounts 1,220 130
Detachable warrant accretion and valuation 286 3,892
Extraordinary loss on early debt extinguishment 256
Provision for inventory valuation 90 30
Change in assets and liabilities:
Accounts receivable (1,095) (4,762)
Inventories (3,588) 635
Other current assets (131) (66)
Other assets (261) 8
Accounts payable 1,443 (756)
Accrued expenses (1,562) 683
Advanced billings 300 (933)
Other current liabilities (19) 205
-------------------- -------------------
Total adjustments $31,300 $1,916
-------------------- -------------------
Net cash used in operating activities ($5,498) ($4,202)
-------------------- -------------------

Investing activities:
Purchase of property, plant, and equipment (11,805) (10,437)
Acquisition, cash acquired 193
Payments (Funding) of restricted cash 188 (375)
-------------------- -------------------
Net cash used in investing activities ($11,424) ($10,812)
-------------------- -------------------

Financing activities:
Proceeds from short-term debt borrowings 14,950 8,000
Payments on subordinated notes and short-term debt (10,000)
Net proceeds from public offering 22,765
Payments on capital lease obligations (344)
Reduction in subordinated debt and related notes
receivable from shareholders 210
Net proceeds from stock options exercise 69 6
Proceeds from exercise of stock warrants 23
-------------------
--------------------
Net cash provided by financing activities $14,698 $20,981
-------------------- -------------------
Net (decrease) increase in cash and cash equivalents ($2,224) $5,967
Cash and cash equivalents, beginning 3,653 1,367
==================== ===================
Cash and cash equivalents, ending $1,429 $7,334
==================== ===================


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





EMCORE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
for September 30, 1995 through 1997
and June 30, 1998 (unaudited)

(Amounts In Thousands)


Shareholders' Total
Common Stock Accumulated Notes Shareholders'
Shares Amount Deficit Receivable Equity
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1995 2,994 $16,638 ($14,981) ($146) $1,511

Issuance of common stock purchase warrants 2,340 2,340
Notes receivable due from shareholders in
connection with issuance of detachable warrants (152) (152)
Net loss (3,176) (3,176)
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1996 2,994 $18,978 ($18,157) ($298) $523

Issuance of common stock purchase warrants 3,601 3,601
Issuance of common stock from initial public
offering, net of issuance costs of $3,110 2,875 22,765 22,765
Warrant exercise by conversion of sub-debt 94 384 384
Stock option exercise 35 54 54
Redemption of notes receivable from shareholders 32 32
Forgiveness of note receivable from shareholder 57 57
Compensatory stock issuances 2 35 35
Net loss (5,620) (5,620)
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1997 6,000 $45,817 ($23,777) ($209) $21,831

Warrant exercise by conversion of sub-debt 24 95 95
Issuance of common stock purchase warrants 1,310 1,310
Warrant exercise in exchange for note receivable 1,828 7,458 ($7,458) -
Issuance of common stock in connection with
the acquisition of MODE 1,462 32,329 32,329
Compensatory stock issuances 17 254 254
Stock option exercise 29 69 69
Net loss (36,797) (36,797)
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1998 (unaudited) 9,360 $87,332 ($60,575) ($7,667) $19,090
=================================================================================================================================





EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated financial statements of
EMCORE Corporation (the "Company") reflect all adjustments considered necessary
by management to present fairly the Company's consolidated financial position as
of June 30, 1998 and June 30, 1997, and the consolidated results of operations
and the consolidated cash flows for the periods ended June 30, 1998 and June 30,
1997. All adjustments reflected in the accompanying unaudited condensed
consolidated financial statements are of a normal recurring nature unless
otherwise noted. The results of operations for the three months ended June 30,
1998 are not necessarily indicative of the results for the fiscal year ending
September 30, 1998 or any future interim period.

NOTE 2. ACQUISITION

On December 5, 1997, the Company acquired all of the outstanding capital
stock of MicroOptical Devices, Inc. ("MODE") in exchange for 1,461,866 shares of
EMCORE common stock, 200,966 common stock purchase options (exercise prices
ranging from $0.43 to $0.59), and 47,188 common stock purchase warrants
(exercise prices ranging from $4.32 to $5.92). The purchase price was
approximately $32,829,000 including direct acquisition costs of approximately
$500,000. The acquisition of MODE was recorded using the purchase method of
accounting. Accordingly, the results of operations of the acquired business and
the fair values of the acquired tangible and intangible assets and assumed
liabilities are included in the Company's financial statements as of the
effective date. The allocation of the fair value of the net assets acquired is
as follows:

Net tangible assets $ 707,000
Goodwill 2,828,000
Acquired in-process research and development 29,294,000
----------
Total purchase price $32,829,000

The amount allocated to acquired in-process research and development was
determined through an independent valuation. Amounts allocated to acquired
in-process research and development were immediately written off in the period
of acquisition. Goodwill is being amortized over a period of three years.

The following unaudited pro forma basis financial information reflects the
combined results of operations of the Company and MODE, as if MODE had been
acquired as of October 1, 1996 and October 1, 1997. The summary includes the
impact of certain adjustments, such as goodwill amortization and the number of
shares outstanding.


(Unaudited) (Unaudited)
(in thousands): Year ended Nine months ended
September 30, 1997 June 30, 1998
------------------ -------------
Revenue $48,313 $35,339
Net loss before extraordinary item 8,769 8,402
Net loss 9,055 8,402
Net loss, per share $1.35 $0.98

The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if the acquisition had occurred
on October 1, 1996 or October 1, 1997. In addition, the unaudited pro forma
results of operations are not intended to be a projection of future results that
might be achieved from the combined entity. The foregoing pro forma results of
operations does not reflect the non-recurring write-off of acquired in-process
research and development.

NOTE 3. DEBT

On June 22, 1998, the Company entered into an $8.0 million revolving loan
agreement with First Union National Bank (the "1998 Agreement"), which expires
December 31, 1999. The 1998 Agreement bears interest at a rate equal to
one-month LIBOR plus three-quarters of one percent per annum (6.41% at June 30,
1998). The 1998 Agreement is guaranteed by both the Company's Chairman and Chief
Executive Officer. In exchange for guaranteeing the facility, the Chairman and
the Chief Executive Officer were granted an aggregate of 284,684 common stock
purchase warrants exercisable at $11.375 per share until May 1, 2001. These
warrants are callable at the Company's option at $0.85 per warrant. As of June
30, 1998, the Company had borrowed approximately $5.0 million under the 1998
Agreement.

The Company assigned a value of $1,310,000 to the warrants issued to the
guarantors. This valuation was based upon the Company's application of the Black
Scholes Option Pricing Model. This value is accounted for as debt issuance cost
and will be amortized over the eighteen month life of the facility.

On March 31, 1997, the Company entered into a $10.0 million revolving loan
agreement (the "1997 Agreement"). The 1997 Agreement bears interest at the rate
of prime plus 50 basis points (9.0% at June 30, 1998), subject to periodic
quarterly decreases, and has a revolving loan maturity date and expires on
September 30, 1998. As of June 30, 1998, the Company had borrowed approximately
$10.0 million at an interest rate of 8.25% under the 1997 Agreement.

As a result of the net loss for the quarter, the Company was not in
compliance with the fixed charge coverage ratio covenant. The Company has
received a waiver from the bank regarding this non-compliance.

NOTE 4. WARRANT EXERCISE

On December 3, 1997, the holders of 1.8 million common stock purchase
warrants (with an exercise price of $4.08) exercised such warrants with the
Company taking full recourse notes amounting to approximately $7.5 million in
exchange for the issued Common Stock. In addition, the holders are required to
provide collateral at a 2:1 coverage ratio.


NOTE 5. INVENTORIES

The components of inventories consisted of the following (in thousands):

As of As of
June 30, 1998 September 30, 1997
------------- ------------------
Raw materials $10,314 $6,514
Work-in-process 506 672
--------- ---------
Total $10,820 $7,186
========= =========


NOTE 6. EARNINGS PER SHARE

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per share" ("SFAS No. 128") effective with its first
quarter. Basic and diluted earnings per share calculated pursuant to SFAS No.
128 have been restated for all periods presented to give effect to the
Securities and Exchange Commission's Staff Accounting Bulletin No. 98 which
eliminated certain computational requirements of Staff Accounting Bulletin No.
64.

Basic earnings per common share was calculated by dividing net (loss)
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share was calculated by dividing net (loss) income
by the sum of the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued. The following table reconciles the
number of shares utilized in the earnings per share calculations for the
three-month and nine-month periods ending June 30, 1998 and 1997, respectively.




Three Months Nine Months
Ended June 30, Ended June 30,
---------------- ----------------
1998 1997 1998 1997
------- ------- -------- -------

Net income (loss) ($7,446) $830 ($36,798) ($6,118)
======== ===== ========= ========

Earnings per common share - basic ($0.80) $0.14 ($4.29) ($1.44)
======= ===== ======= =======

Earnings per common share - diluted ($0.80) $0.10 ($4.29) ($1.44)
======= ===== ======= =======

Common Share - basic 9,349 5,915 8,576 4,242

Effect of dilutive securities:
Stock options and warrants - 2,587 - -
Other - - - -
------- ----- ------ ------
Common shares - diluted 9,349 8,502 8,576 4,242
======= ===== ====== ======



Reclassifications. Prior period balances have been reclassified to conform
with the current period financial statement presentation.

NOTE 7. RELATED PARTIES

In fiscal 1997, the Company entered into a non-exclusive and non-refundable
technology licensing and royalty agreement with Uniroyal Technology Corporation
("UTC") for the process technology to develop and manufacture of high brightness
light emitting diodes ("LEDs"). Effective January 1998, UTC's chairman and chief
executive officer and his son resigned from the Company's Board of Directors.
During the nine months ended June 30, 1998, the Company recognized $2.5 million
in revenue from UTC.

During the quarter ended March 31, 1998, the Company executed a Memorandum
of Understanding to enter into a distribution agreement with Hakuto & Co., Ltd.
("Hakuto"), with respect to the distribution of additional EMCORE products in
Japan and other Asian countries. The agreement sets forth conditions for fees,
commissions, territories - both exclusive and non-exclusive - and a product
pricing strategy. Hakuto, whose chief executive officer is a member of the
Company's Board of Directors, has distributed the Company's Turbo-Disc products
since 1988.





ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Identifying Important Factors That
Could Cause the Company's Actual Results to Differ From
Those Projected in Forward Looking Statements:


In connection with the safe harbor provisions of the Private Securities
Litigation Perform Act of 1995, readers of this document are advised that it
contains both statements of historical facts and forward looking statements.

Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements that reflect the Company's
current expectations or beliefs concerning future results and events. The words
"expects," "intends," "believes," "anticipates," "likely," "will," and similar
expressions identify forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results and events to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, statements about future financial performance of the
Company and MODE and the effect of the acquisition on the Company's business;
continued acceptance of the Company's MOCVD technologies, as well as the market
success of VCSEL technologies; the Company's ability to achieve and implement
the planned enhancements of products and services on a timely and cost effective
basis and customer acceptance of those product introductions; product
obsolescence due to advances in technology and shifts in market demand;
competition and resulting price pressures; business conditions; economic and
stock market conditions, particularly in the U.S., Europe and Japan, and their
impact on sales of the company's products and services; risks associated with
foreign operations, including currency and political risks; and such other risk
factors as may have been or may be included from time to time in the Company's
reports filed with the Securities and Exchange Commission.

OVERVIEW

EMCORE, founded in 1984, designs and develops compound semiconductor
materials and process technology and is a leading manufacturer of production
systems used to fabricate compound semiconductor wafers. Compound semiconductors
are used in a broad range of applications in wireless communications,
telecommunications, computers, and consumer and automotive electronics. The
Company provides its customers, both in the US and internationally, with
materials science expertise, process technology and compound semiconductor
productions systems that enable the manufacture of commercial volumes of
high-performance electronic and optoelectronic devices. In response to the
growing need of its customers to cost effectively get to market faster with
higher volumes of new and improved high performance products, the Company has
expanded its product offerings to include the design, development and production
of compound semiconductor wafers and package-ready devices.

The Company's product lines (systems/materials) differ significantly.
Systems-related revenues include sales of Turbo-disc(TM) ("T-D") systems as well
as components and services. The book to ship time period on systems is
approximately 4-6 months, while the average selling price is in excess of $1
million. Materials revenues include wafers, devices and product development
technology. The sales cycle is generally shorter than systems and average
selling prices vary significantly based on the products. Historically, the
Company generates a higher gross profit on their materials related product
lines.

As part of the Company's expanded product offerings, on December 5, 1997,
the Company purchased MODE. MODE is one of the market leaders in the design and
development of high-quality optical components and subsystems based on vertical
cavity surface emitting laser ("VCSEL") technology, which offers superior
performance at lower cost over conventional semiconductor laser technologies.
MODE's microlasers and optical subsystems provide design, performance and
significant cost advantages over their technical predecessors such as
edge-emitting solid state lasers. Through the integration of VCSELs with leading
OEM systems design, VCSELs are expected to provide enhanced performance benefits
to market applications such as Internet access, onboard photonics, gigabit
ethernet, local area networks, microarea networks, DVD and fiberoptic switching.
MODE's Gigalese(TM) and Gigaray(TM) technology developments to date are
currently being evaluated by a variety of domestic and international OEM
customers in the areas of data communications, telecommunications,
telecommunications, optical storage and sensing.

As part of the acquisition, the Company incurred a one-time in-process R&D
writeoff of $29.2 million which is reflected in the accompanying financial
statements. The Company also recorded goodwill of approximately $3.2 million.
This is being charged against operations over a 3 year period, and will
therefore, impact financial performance through December 2000.

RESULTS OF OPERATIONS:

REVENUES The Company's third quarter revenue decreased 35.5% from $14.1
million for the quarter ended June 30, 1997, to $9.1 million for the quarter
ended June 30, 1998. The revenue decrease in the three-month period was
attributable to the decreased revenue from both the Company's system-related and
materials-related product lines. Revenues from the system-related product lines
were impacted by the capital equipment market slow-down, particularly the
economic downturn in the Asian economy. Whereas revenues in the
materials-related product lines were impacted primarily by the General Motors
strike. Revenues relating to systems- and materials-related products accounted
for 63.7% and 36.3% for the three months ended June 30, 1998, and 71.9% and
28.1% for the three months ended June 30, 1997. The product mix in favor of
materials-related products has had a beneficial impact on the Company's gross
margin. Revenues relating to systems- and materials-related products accounted
for 57.4% and 42.6% for the nine months ended June 30, 1998, and 80.4% and 19.6%
for the nine months ended June 30, 1997. Systems revenues include production
systems, service and components. Materials revenues include wafers, devices and
product development technology licensing. International sales accounted for
48.0% for the quarter ended and 44.3% for the nine months ended June 30, 1998.

During Fiscal 1997, the Company expanded its product offerings to include
epitaxial wafers and devices. Prior to this, most of the Company's revenues were
derived from sales of its T-D MOCVD equipment. With the economic downturn in the
Asian market, sales of the Company's T-D equipment have decreased during the
first nine months of fiscal 1998 to $15.6 million, a decrease of $10.9 million
from the same period of fiscal 1997.

COST OF SALES/GROSS PROFIT Cost of sales includes direct material and labor
costs, allocated manufacturing and service overhead, and installation and
warranty costs. Gross profit decreased from 41.8% of revenue for the quarter
ended June 30, 1997, to 40.0% of revenue for the quarter ended June 30, 1998.
The gross profit percentage was negatively affected by the General Motors strike
and underabsorbed overhead due to lower revenue volumes. For the nine months
ended June 30, 1998, gross profit increased to 45.1% from 33.2% in the
comparable period in 1997. The increase was primarily attributable to a shift in
the Company's product mix to higher gross profit materials-related revenues.

SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses increased by 76.9% from $2.6 million for the quarter ended June 30,
1997, to $4.6 million in the quarter ended June 30, 1998. A significant portion
of the increase, $1.2 million or 60% was due to the Company reserving certain
Asian accounts receivables during the quarter. During fiscal 1997, the Company
sold equipment and process technology to a customer in Asia, and to date, $1
million, or 40% of the total purchase price remains outstanding. Accordingly,
the Company has reserved for this potential non-payment. The remaining increase
was largely due to increases in sales personnel headcount to support both
domestic and foreign markets and general headcount additions to sustain the
internal administrative support. As a percentage of revenue, selling, general
and administrative expenses increased from 18.2% for the third quarter of the
prior year to 50.7% for the third quarter of the current year.

GOODWILL AMORTIZATION The Company recognized approximately $284,000 of
goodwill amortization for the quarter ended June 30, 1998 in connection with the
acquisition of MODE on December 5, 1997. As of June 30, 1998, the Company has
approximately $2.7 million of goodwill remaining which will be fully amortized
by October 31, 2000.

RESEARCH AND DEVELOPMENT Research and development expenses increased 145.8%
from $2.4 million in the quarter ended June 30, 1997, to $5.9 million in the
quarter ended June 30, 1998. As a percentage of revenue, recurring research and
development expenses increased from 17.1% for the third quarter of the prior
year to 64.8% for the third quarter of the current year. During the nine months
ended, June 30, 1998, the Company recognized a $29.3 million one-time non-cash
charge for acquired in-process research and development relating to the
Company's December 5, 1997 purchase of MODE. To maintain growth and to continue
to pursue market leadership in materials science technology, the Company expects
to continue to invest a significant amount of its resources in research and
development, although below levels of the current quarter. The significant
increase in recurring research and development during the quarter is related to
various R&D projects the Company is working on, particularly advanced solar
cells, sensor technology, HB-LED and VCSEL technology.

OPERATING INCOME (LOSS) The Company reported operating income of $907,000
for the quarter ended June 30, 1997, as compared to a $7.1 million loss for the
quarter ended June 30, 1998. The change in operating income is due to the loss
of gross profit on decreased revenues, coupled with a higher fixed cost
infrastructure to support those revenues. In addition, the Company's operating
loss was impacted by the establishment of a bad debt reserve of $1.2 million
taken during the current quarter, increased R&D spending, and the loss generated
from the operations of MODE, a company acquired in December 1997.

OTHER EXPENSE During fiscal 1996, the Company issued detachable warrants
along with subordinated notes to certain of its existing shareholders. In the
first quarter of fiscal year 1997, the Company also issued detachable warrants
in return for a guarantee $10.0 million demand note facility (the "Facility") by
the Chairman of the company, who provided collateral for the Facility. The
Company subsequently assigned a value to these detachable warrants using the
Black-Scholes Option Pricing Model. The Company recorded the subordinated notes
at a carrying value that is subject to periodic accretions, using the interest
method, and reflected the Facility's detachable warrant value as a debt issuance
cost. The consequent expense of these warrant accretion amounts and the now
terminated Facility debt issuance cost is charged to "Imputed warrant interest,
non-cash" and amounted to approximately $85,000 and $94,000 for the quarters
ended June 30, 1998 and June 30, 1997, respectively.

For the quarter ended, June 30, 1998, stated interest expense, net
increased by $189,000 to $181,000 due to additional borrowing and lower interest
income. In the prior year, the Company was earning interest income on its
initial public offering ("IPD") proceeds. For the nine months ended June 30,
1998, stated interest expense decreased $139,000 to $298,000 when compared to
the prior year. The decrease reflects the interest earnings on the Company's IPO
proceeds in March of 1997.

NET INCOME/LOSS The Company reported net income of $830,000 for the quarter
ended June 30, 1997, as compared to a $7.4 million loss for the quarter ended
June 30, 1998. The year-to-date loss increased $30.7 million from $6.1 million
for the nine months ended 1997 to $36.8 million for 1998. The increase in the
year-to-date loss was attributable to the $29.3 million write-off of acquired
in-process research and development in connection with the acquisition of MODE
on December 5, 1997 combined with this quarter's results as explained above.

BACKLOG:

The Company's order backlog decreased 1.3% from $22.8 million as of June
30, 1997 to $22.5 million as of June 30, 1998. However, since March 31, 1998,
the backlog has increased $7.9 million, or 54.1%, from $14.6 million. The
Company includes in backlog only customer purchase orders which have been
accepted by the Company and for which shipment dates have been assigned within
the 12 months to follow and research contracts that are in process or awarded.
Wafer and device contract agreements extending longer than one year in duration
are included in backlog only for the ensuring 12 months with respect to wafers
and 3 months with respect to the General Motors devices. Some of these
agreements currently extend over 12 months. The Company receives partial advance
payments or irrevocable letters of credit on most production system orders. The
Company has increased its capacity for epitaxial wafers and devices; however,
there can be no assurance that the Company will be consistently able to meet its
production needs, or obtain enough business to cover fixed costs.

YEAR 2000

The Company has evaluated the effect on its information systems, primarily
computer software programs, to properly recognize and process date-sensitive
information related to the Year 2000 and has determined that it is substantially
Year 2000 compliant. The Company is currently inquiring to determine whether its
suppliers, distributors and other customers are Year 2000 compliant.
Non-compliance by the Company's suppliers, distributors and other customers may
cause significant disruption in the Company's operations due to problems with
supplies of raw materials or difficulties in placing orders. There can be no
assurance that the Company's suppliers, distributors and other customers will
become Year 2000 compliant prior to January 1, 2000. Such non-compliance may
have a material adverse effect on the Company's business, financial condition
and results of operations. Because of the many uncertainties associated with
Year 2000 compliance issues, and because the Company's assessment is necessarily
based on information from third-party vendors, payors and suppliers, there can
be no assurance that the Company's assessment is correct or as to the
materiality or effect of any failure of such assessment to be correct.

LIQUIDITY AND CAPITAL RESOURCES:

Cash and cash equivalents decreased by $2.3 million from $3.7 million at
September 30, 1997, to $1.4 million at June 30, 1998. For the nine months ended
June 30, 1998, net cash used by operations amounted to $5.5 million, primarily
due to the Company's net losses excluding one-time charges, increase in
inventories, and decrease in accrued expenses; which was partially offset by the
Company's non-cash depreciation and amortization charges, and its increase in
accounts payable.

For the nine months ended June 30, 1998, net cash used in investment
activities amounted to $11.4 million primarily due to the purchase and
manufacture of new equipment for the facilitation of the Company's wafer and
package ready device product lines and clean room modifications and
enhancements, as well as its purchase of land and construction of a facility in
Albuquerque, New Mexico.

On March 31, 1997, the Company entered into the 1997 Agreement, a $10.0
million revolving loan. The agreement bears interest at the rate of prime plus
50 basis points (9.0% at June 30, 1998), subject to periodic quarterly
decreases, and has a revolving loan maturity date and expires on September 30,
1998. On June 22, 1998, the Company entered into a $8.0 million revolving loan
agreement with First Union National Bank, which expires December 31, 1999. The
1998 Agreement bears interest at a rate equal to one-month LIBOR plus
three-quarters of one percent per annum (6.41% at June 30, 1998). As of June 30,
1998, the Company had borrowed approximately $10.0 million under the 1997
Agreement and approximately $5.0 million under the 1998 Agreement and had
availability of $3.0 million under the 1998 Agreement. Net cash provided by
financing activities for the nine months ended June 30, 1998 amounted to
approximately $14.7 million, primarily due to the Company's proceeds from
borrowings under these Agreements.

The Company believes that its current liquidity, together with the
Company's existing credit facilities, should be sufficient to meet its cash
needs for working capital through fiscal 1998. However, if cash generated from
operations continues to be insufficient to satisfy the Company's liquidity
requirements, the Company may be required to raise funds through equity or debt
offerings or obtain additional credit facilities if possible. Additional funding
may not be available when needed or on terms acceptable to the Company, which
could have a material adverse effect on the Company's business, financial
condition or operations. The Company is in negotiations with several strategic
partners in contemplation of a private placement of convertible preferred stock.

At June 30, 1998, the Company employed 312 full-time employees, up 25.8%
from 248 as of June 30, 1997 and up 69.6% from the 184 employees at June 30,
1996. The increase in the number of employees since 1996 is a direct result of
the Company's increased manufacturing needs to meet the demand for its compound
semiconductor materials and, to a lesser extent, production systems. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with its employees to be good.

OUTLOOK:

Historically the Company has generated significant revenues from its
TurboDiscTM ("T-D") product line from Asian customers. Continued economic and
currency-related uncertainty in the region has impacted the Company's T-D sales
in this market and may continue to do so until such uncertainties are addressed.
Accordingly, T-D backlog has decreased from the backlog at June 30, 1997.
However, total backlog is essentially the same as June 30, 1997; $22.8 million
in 1998 vs. $22.5 million in 1997 due to an increase in materials-related
bookings. The Company expects shipments of T-D systems will continue to trend
lower when compared to comparable periods, for the next two quarters.

On December 5, 1997, the Company purchased MODE. The Company believes MODE
is one of the market leaders in the design and development of high-quality
components and subsystems based on VCSEL technology, which is expected to offer
superior performance and higher efficiency over conventional compound
semiconductor technologies.

MODE's microlasers and optical subsystems provide design, performance and
significant cost advantages over their technical predecessors such as
edge-emitting solid state lasers. Through the integration of VCSELs with leading
OEM systems design, VCSELs are expected to provide enhanced performance benefits
to market applications such as Internet access, onboard photonics, gigabit
ethernet, local area networks, microarea networks such as chip-to-chip and
board-to-board applications, DVD and fiberoptic switching. MODE's GigalaseTM and
GigarayTM technology developments to date are currently being evaluated by a
variety of domestic and international OEM customers in the areas of data
communications, telecommunications, optical storage and sending.

The Company believes that VCSEL technology may address a number of
technical bandwidth challenges applicable to the high-speed computing and
communications markets, allowing optoelectronic applications to perform their
functions at higher speeds with lower costs than traditional optoelectronic
systems. The Company believes that with the acquisition of MODE, it will be well
positioned to actively participate in the development of the next-generation
optoelectronic laser market which is estimated to grow to one billion dollars by
the year 2000.

The Company has initiated efforts to develop high efficiency gallium
arsenide solar cells for use on communications satellites. High efficiency
gallium arsenide based solar cells convert a higher percentage of light into
energy and are more radiation resistant than silicon based solar cells. This
allows satellite manufacture's to increase the useful life and payload
capacities of their satellites.

The Company believes it possesses the technological "know how" to
capitalize on many of these market opportunities. However, there can be no
assurance that the Company will maintain sufficient growth in sales levels to
support the associated labor, equipment and facility cost.




PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITY HOLDERS

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits:
27 - Financial Data Schedule

(b) The Company filed a Currect Report on Form 8-K dated June 22,
1998.






Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

EMCORE CORPORATION


Date: August 14, 1998 By: /s/ Reuben F. Richards, Jr.
-------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer

Date: August 14, 1998 By: /s/ Thomas G. Werthan
-------------------------------------
Thomas G. Werthan
Vice President, Finance and Administration




EXHIBIT INDEX


Exhibit Description
------- -----------

27 Financial Data Schedule