10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 1, 2007
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: June 30,
2007
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)
(505)
332-5000
(Registrant's
telephone number)
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 ¨ No
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
¨ Large
accelerated filer
|
x
Accelerated
filer
|
¨
Non-accelerated
filer
|
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
October 19, 2007 was 51,218,629.
EMCORE
Corporation
FORM
10-Q
For
the Quarterly Period Ended June 30, 2007
TABLE
OF CONTENTS
PAGE
|
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PART I. | FINANCIAL INFORMATION | |
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ITEM 1. |
3
|
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ITEM 2. |
31
|
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ITEM 3. |
47
|
|
ITEM 4. |
47
|
|
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PART II. | ||
ITEM 1. |
51
|
|
ITEM 1A. |
54
|
|
ITEM 2. |
54
|
|
ITEM 3. |
54
|
|
ITEM 4. |
54
|
|
ITEM 5. |
54
|
|
ITEM 6. |
54
|
|
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SIGNATURES |
55
|
ITEM
1. FINANCIAL STATEMENTS
EMCORE
CORPORATION
Condensed
Consolidated Statements of Operations
For
the three and nine months ended June 30, 2007 and 2006
(in
thousands, except per share data)
(unaudited)
Three
Months Ended
June
30,
|
Nine
Months Ended
June
30,
|
|||||||||||||||
2007
|
(As
restated)
(1)
2006
|
2007
|
(As
restated)
(1)
2006
|
|||||||||||||
Revenue
|
$ |
44,540
|
$ |
36,323
|
$ |
123,052
|
$ |
108,167
|
||||||||
Cost
of revenue
|
34,772
|
28,778
|
100,652
|
86,407
|
||||||||||||
Gross
profit
|
9,768
|
7,545
|
22,400
|
21,760
|
||||||||||||
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling,
general and administrative
|
15,516
|
7,886
|
41,197
|
25,592
|
||||||||||||
Research
and development
|
7,708
|
5,053
|
21,885
|
14,060
|
||||||||||||
Total
operating expenses
|
23,224
|
12,939
|
63,082
|
39,652
|
||||||||||||
|
||||||||||||||||
Operating
loss
|
(13,456 | ) | (5,394 | ) | (40,682 | ) | (17,892 | ) | ||||||||
|
||||||||||||||||
Other
(income) expenses:
|
||||||||||||||||
Interest
income
|
(723 | ) | (263 | ) | (3,543 | ) | (839 | ) | ||||||||
Interest
expense
|
1,254
|
1,331
|
3,776
|
3,987
|
||||||||||||
Loss
from convertible notes exchange offer
|
-
|
-
|
-
|
1,078
|
||||||||||||
Loss
from early redemption of convertible subordinated
notes
|
561
|
-
|
561
|
-
|
||||||||||||
Gain
from insurance proceeds
|
-
|
-
|
(357 | ) |
-
|
|||||||||||
Equity
in net loss of unconsolidated affiliates
|
-
|
129
|
-
|
311
|
||||||||||||
Foreign
exchange gain
|
(12 | ) |
-
|
(12 | ) |
-
|
||||||||||
Total
other expenses
|
1,080
|
1,197
|
425
|
4,537
|
||||||||||||
|
||||||||||||||||
Loss
from continuing operations
|
(14,536 | ) | (6,591 | ) | (41,107 | ) | (22,429 | ) | ||||||||
|
||||||||||||||||
Discontinued
operations:
|
||||||||||||||||
Income
from discontinued operations
|
-
|
384
|
-
|
340
|
||||||||||||
Gain
on disposal of discontinued operations, net of tax
|
-
|
-
|
-
|
2,012
|
||||||||||||
Income
from discontinued operations
|
-
|
384
|
-
|
2,352
|
||||||||||||
|
||||||||||||||||
Net
loss
|
$ | (14,536 | ) | $ | (6,207 | ) | $ | (41,107 | ) | $ | (20,077 | ) | ||||
|
||||||||||||||||
Per
share data:
|
||||||||||||||||
Basic
and diluted per share data:
|
||||||||||||||||
Loss
from continuing operations
|
$ | (0.28 | ) | $ | (0.13 | ) | $ | (0.81 | ) | $ | (0.45 | ) | ||||
Income
from discontinued operations
|
-
|
0.01
|
-
|
0.05
|
||||||||||||
|
||||||||||||||||
Net
loss
|
$ | (0.28 | ) | $ | (0.12 | ) | $ | (0.81 | ) | $ | (0.40 | ) | ||||
|
||||||||||||||||
Weighted-average
number of basic and diluted shares outstanding
|
51,043
|
50,430
|
50,974
|
49,336
|
___________________
(1)
See Note 18 “Restatement of the Condensed Consolidated Financial Statements” in
Notes to the Condensed Consolidated Financial Statements.
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Balance Sheets
As
of June 30, 2007 and September 30, 2006
(in
thousands)
(unaudited)
As
of June
30, 2007
|
As
of September
30, 2006
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ |
15,361
|
$ |
22,592
|
||||
Restricted
cash
|
1,158
|
738
|
||||||
Marketable
securities
|
32,975
|
101,375
|
||||||
Accounts
receivable, net
|
41,484
|
27,387
|
||||||
Receivables,
related parties
|
332
|
453
|
||||||
Notes
receivable
|
750
|
3,000
|
||||||
Inventory,
net
|
28,517
|
23,252
|
||||||
Prepaid
expenses and other current assets
|
3,876
|
4,518
|
||||||
Total
current assets
|
124,453
|
183,315
|
||||||
Property,
plant and equipment, net
|
55,081
|
55,186
|
||||||
Goodwill
|
40,846
|
40,447
|
||||||
Other
intangible assets, net
|
5,628
|
4,293
|
||||||
Investments
in unconsolidated affiliates
|
14,873
|
981
|
||||||
Long-term
receivables, related parties
|
-
|
82
|
||||||
Other
non-current assets, net
|
2,737
|
3,243
|
||||||
Total
assets
|
$ |
243,618
|
$ |
287,547
|
||||
LIABILITIES
and SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ |
21,047
|
$ |
20,122
|
||||
Accrued
expenses and other current liabilities
|
23,046
|
22,082
|
||||||
Convertible
subordinated notes, current portion
|
-
|
11,428
|
||||||
Total
current liabilities
|
44,093
|
53,632
|
||||||
Convertible
subordinated notes
|
84,951
|
84,516
|
||||||
Deferred
taxes
|
71
|
-
|
||||||
Total
liabilities
|
129,115
|
138,148
|
||||||
Commitments
and contingencies (Note 16)
|
||||||||
Shareholders’
equity:
|
||||||||
Preferred
stock, $0.0001 par, 5,882 shares authorized, no shares
outstanding
|
-
|
-
|
||||||
Common
stock, no par value, 100,000 shares authorized, 51,191 shares issued
and
51,032 outstanding at June 30, 2007; 50,962 shares issued and 50,803
shares outstanding at September 30, 2006
|
442,549
|
436,338
|
||||||
Accumulated
deficit
|
(325,963 | ) | (284,856 | ) | ||||
Treasury
stock, at cost; 159 shares
|
(2,083 | ) | (2,083 | ) | ||||
Total
shareholders’ equity
|
114,503
|
149,399
|
||||||
Total
liabilities and shareholders’ equity
|
$ |
243,618
|
$ |
287,547
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the nine months ended June 30, 2007 and 2006
(in
thousands)
(unaudited)
Nine
Months Ended
June
30,
|
||||||||
2007
|
(As restated) (1)
2006
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (41,107 | ) | (20,077 | ) | |||
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
||||||||
Gain
on disposal of discontinued operations
|
-
|
(2,012 | ) | |||||
Income
from discontinued operations
|
-
|
(340 | ) | |||||
Stock-based
compensation expense
|
4,800
|
3,525
|
||||||
Depreciation
and amortization expense
|
6,903
|
9,625
|
||||||
Loss
on disposal of plant and equipment
|
16
|
-
|
||||||
Accretion
of loss from convertible subordinated notes exchange
offer
|
167
|
116
|
||||||
Loss
from convertible subordinated notes exchange offer
|
-
|
1,078
|
||||||
Loss
from early redemption of convertible subordinated
notes
|
561
|
-
|
||||||
Provision
for doubtful accounts
|
309
|
58
|
||||||
Equity
in net loss of unconsolidated affiliates
|
-
|
311
|
||||||
Compensatory
stock issuances
|
640
|
591
|
||||||
Forgiveness
of shareholders’ notes receivable
|
82
|
2,613
|
||||||
Reduction
of note receivable due for services received
|
391
|
390
|
||||||
Total
non-cash adjustments
|
13,869
|
15,955
|
||||||
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
||||||||
Accounts
receivable
|
(13,556 | ) | (3,652 | ) | ||||
Receivables,
related parties
|
-
|
(49 | ) | |||||
Inventory
|
(4,559 | ) | (5,288 | ) | ||||
Prepaid
expenses and other current assets
|
3,527
|
357
|
||||||
Other
assets
|
(3,540 | ) | (778 | ) | ||||
Accounts
payable
|
687
|
4,025
|
||||||
Accrued
expenses and other current liabilities
|
318
|
(8,211 | ) | |||||
Total
change in operating assets and liabilities
|
(17,123 | ) | (13,596 | ) | ||||
|
||||||||
Net
cash used for operating activities of continuing
operations
|
(3,254 | ) |
2,359
|
|||||
Net
cash used for operating activities of discontinued
operations
|
-
|
(309 | ) | |||||
|
||||||||
Net
cash used for operating activities
|
(44,361 | ) | (18,027 | ) | ||||
|
||||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of plant and equipment
|
(4,810 | ) | (2,547 | ) | ||||
Proceeds
from insurance recovery
|
362
|
-
|
||||||
Proceeds
from K2 Optronics
|
-
|
500
|
||||||
Investment
in unconsolidated affiliate
|
(13,892 | ) |
-
|
|||||
Proceeds
from employee notes receivable
|
121
|
-
|
||||||
Proceeds
from notes receivable
|
2,250
|
-
|
||||||
Purchase
of business, net of cash acquired
|
(3,885 | ) |
610
|
|||||
Funding
of restricted cash
|
(420 | ) | (703 | ) | ||||
Purchase
of marketable securities
|
(22,900 | ) | (350 | ) | ||||
Sale
of marketable securities
|
91,300
|
13,100
|
||||||
Investing
activities of discontinued operations
|
-
|
(1,461 | ) | |||||
Net
cash provided by investing activities
|
48,126
|
9,149
|
______________________
(1)
See
Note 18 “Restatement of the Condensed Consolidated Financial Statements” in
Notes to the Condensed Consolidated Financial Statements.
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the nine months ended June 30, 2007 and 2006
(in
thousands)
(unaudited)
(Continued
from previous page)
|
Nine
Months Ended
|
|||||||
June
30,
|
||||||||
2007
|
(As restated) (1)
2006
|
|||||||
Cash
flows from financing activities:
|
||||||||
Payments
on capital lease obligations
|
$ | (44 | ) | $ | (176 | ) | ||
Proceeds
from exercise of stock options
|
274
|
6,023
|
||||||
Proceeds
from employee stock purchase plan
|
202
|
1,108
|
||||||
Convertible
debt/equity issuance costs
|
-
|
(114 | ) | |||||
Principal
payment on convertible debt obligation
|
(11,428 | ) | (1,350 | ) | ||||
Net
cash (used for) provided by financing activities
|
(10,996 | ) |
5,491
|
|||||
Net
decrease in cash and cash equivalents
|
(7,231 | ) | (3,387 | ) | ||||
Cash
and cash equivalents, beginning of period
|
22,592
|
19,525
|
||||||
Cash
and cash equivalents, end of period
|
$ |
15,361
|
$ |
16,138
|
||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the period for interest
|
$ |
4,836
|
$ |
5,067
|
||||
Cash
paid for income taxes
|
$ |
2,351
|
-
|
|||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Acquisition
of property and equipment under capital leases
|
$ |
-
|
$ |
126
|
||||
Issuance
of common stock in conjunction with acquisitions
|
$ |
-
|
$ |
6,460
|
||||
Manufacturing
equipment received in lieu of earn-out proceeds from disposition
of
discontinued operations
|
$ |
-
|
$ |
2,012
|
______________________
(1)
See
Note 18 “Restatement of the Condensed Consolidated Financial Statements” in
Notes to the Condensed Consolidated Financial Statements.
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 material 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, 2006 has been derived from the audited consolidated
financial statements as of such date. For a more complete understanding of
EMCORE’s financial position, operating results, risk factors and other matters,
please refer to EMCORE's Annual Report on Form 10-K for the fiscal year ended
September 30, 2006.
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. EMCORE’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.
For
the
three and nine-month periods ended June 30, 2007, options representing
3,207,796
shares of common stock were excluded from the diluted earnings per share
calculations. For the three and nine-month periods ended June 30, 2006,
warrants
representing 14,796 shares of common stock and options representing 5,575,292
shares of common stock were excluded from the diluted earnings per share
calculations. These options and warrants, along with the Company’s convertible
subordinated notes, were not included in the computation of diluted earnings
per
share in the periods as the Company incurred a net loss for the period
and any
effect would have been anti-dilutive.
Mr.
Scott
T. Massie, an Executive Vice President and Chief Operating Officer of the
Company, resigned and left the Company on December 29, 2006. Dr. Hong
Q. Hou was appointed as President and Chief Operating Officer and was elected
to
the Company’s Board of Directors. The Company also reported that Mr.
Reuben F. Richards will continue to serve as Chief Executive Officer until
the
Company’s Annual Meeting in 2008, at which time he will become Executive
Chairman of the Board of Directors and Dr. Thomas J. Russell, the current
Chairman, will become Chairman Emeritus and Lead Director. The Board of
Directors has offered Dr. Hong Q. Hou the position of Chief Executive Officer
after Mr. Richards becomes Chairman.
Shortly
after the Company sold both its New Jersey-based Electronic Materials and
Device
(“EMD”) division and its GELcore joint venture, we announced the relocation of
our headquarters to Albuquerque, New Mexico. Three officers of the
Company decided against relocation and resigned.
|
·
|
Mr.
Thomas G. Werthan, an Executive Vice President and Chief Financial
Officer
of the Company, resigned and left the Company on February 19, 2007.
Mr.
Werthan joined the Company in June 1992. Mr. Werthan will
continue to be a member of the Board of Directors, a position he
has held
since joining the Company. In February 2007, Mr. Adam Gushard,
former Vice President of Finance, was appointed Interim Chief Financial
Officer. As discussed in Note 10, Receivables, of the Notes to
Consolidated Financial Statements, in connection with Mr. Werthan’s
resignation and pursuant to the terms of his promissory note, the
Board of
Directors forgave a loan he had with the Company. Mr. Werthan
was responsible for the personal taxes related to the loan
forgiveness.
|
|
·
|
Mr.
Howard W. Brodie, an Executive Vice President, Chief Legal Officer
and
Secretary of the Company, resigned and left the Company on April
27, 2007.
Mr. Brodie joined the Company in 1999. In April 2007, Mr. Keith
Kosco was appointed Chief Legal Officer and Secretary of the
Company.
|
|
·
|
Dr.
Richard A. Stall, Executive Vice President and the Chief Technology
Officer of the Company, resigned and left the Company on June 27,
2007.
Dr. Stall co-founded the Company in 1984. On December 18,
2006, after ten years of service on the Board, Dr. Stall resigned
his seat
on the Board. Dr. John Iannelli, Ph.D. joined the Company in
January 2003 through the acquisition of Ortel from Agere Systems
and was
appointed Chief Technology Officer in June
2007.
|
NOTE
2. Recent Accounting Pronouncements
SAB 108
- In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108
provides guidance on how prior year misstatements should be considered when
quantifying misstatements in current year financial statements for purposes
of
determining whether the current year’s financial statements are materially
misstated. SAB 108 is effective for fiscal years ending after November 15,
2006. Although the Company will continue to evaluate the application
of SAB 108, management does not currently believe that this pronouncement
will
have a material impact on the Company’s results of operations or financial
position.
SFAS
157 - In September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 157,
Fair Value Measurements, which defines fair value, provides 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
and is required to be adopted by the Company on October 1, 2008. Although
the
Company will continue 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. The Company is currently evaluating the effect
of adopting SFAS 159, but does not expect it to have a material impact on
its
consolidated results of operations or financial condition.
FIN
48 - In June 2006, the FASB issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109. FIN 48 clarifies the accounting for income taxes by prescribing
the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also provides guidance
on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 applies to all tax
positions related to income taxes subject to SFAS 109, Accounting for Income
Taxes. Differences between the amounts recognized in the statements of
financial position prior to the adoption of FIN 48 and the amounts reported
after adoption should be accounted for as a cumulative-effect adjustment
recorded to the beginning balance of retained earnings. FIN 48 is effective
for
fiscal years beginning after December 15, 2006 and was required to be adopted
by
the Company on October 1, 2007. EMCORE does not believe the adoption of FIN
48
will have a material impact on its financial statements.
EITF
06-3 - In March 2006, FASB’s Emerging Issues Task Force (“EITF”)
issued No. 06-3, How Taxes Collected from Customers and Remitted
to Governmental Authorities Should Be Presented in the Income
Statement. The pronouncement requires a policy be adopted
to present externally imposed taxes on revenue-producing transactions
on
either a gross or net basis. Gross or net presentation may be elected
for
each different type of tax, but similar taxes should be presented
consistently. Taxes within the scope of this issue would include
taxes
that are imposed on a revenue transaction between a seller and
a
customer. EITF 06-3 is effective for interim and annual
financial periods beginning after December 15, 2006 and was required
to be adopted by the Company on January 1, 2007. We adopted EITF
06-3 by
presenting externally imposed taxes on revenue-producing transactions
on a
net basis, and it has not had a material impact on our financial
statements.
|
NOTE
3. Equity
Stock
Options
EMCORE
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.
EMCORE 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 options to purchase up to 2,744,118 shares of EMCORE's
common stock. The 2000 Plan authorizes the grant of options to purchase up
to
9,350,000 shares of EMCORE's common stock. As of June 30,
2007, no options
were available
for issuance under the 1995 Plan and 1,447,907 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:
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
||||||||||
Outstanding
as of September 30, 2006
|
6,232,535
|
$
|
5.49
|
|||||||||
Granted
|
926,400
|
5.07
|
||||||||||
Exercised
|
(86,484
|
)
|
2.33
|
|||||||||
Expired
|
(13,970
|
)
|
4.75
|
|||||||||
Forfeited
|
(285,000
|
)
|
11.40
|
|||||||||
Cancelled
|
(846,209
|
)
|
5.27
|
|||||||||
|
||||||||||||
Outstanding
as of June 30, 2007
|
5,927,272
|
$
|
5.22
|
7.12
|
||||||||
|
||||||||||||
Expected
to vest as of June 30, 2007
|
2,205,403
|
$
|
5.67
|
8.50
|
||||||||
|
||||||||||||
Exercisable
as of June 30, 2007
|
3,140,171
|
4.84
|
5.90
|
|||||||||
|
||||||||||||
Non-vested
as of June 30, 2007
|
2,787,101
|
5.66
|
8.50
|
As
of
June 30, 2007 there was $9.9 million of total unrecognized compensation expense
related to non-vested share-based compensation arrangements granted under
the
Option Plans. This expense is expected to be recognized over an estimated
weighted-average life of 3.1 years. The total intrinsic value of options
exercised during the three and nine months ended June 30, 2007 was $0 million
and $0.2 million, respectively, and $1.6 million and $7.4 million for the
three
and nine months ended June 30, 2006. The aggregate intrinsic value of
fully vested share options as of June 30, 2007 was $5.5 million.
On
October 1, 2005, EMCORE adopted SFAS 123(R), Share-Based Payment (revised
2004), using the modified prospective application transition method, which
establishes accounting for stock-based awards exchanged for employee services.
Accordingly, 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), 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 nine month periods ended June 30, 2007 and 2006 was as follows (in
thousands, except per share data):
Three
Months Ended
June
30,
|
Nine
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Stock-based
compensation expense by award type:
|
||||||||||||||||
Employee
stock options
|
$ |
1,130
|
$ |
1,199
|
$ |
4,800
|
$ |
3,256
|
||||||||
Employee
stock purchase plan
|
-
|
119
|
-
|
529
|
||||||||||||
Total
stock-based compensation expense
|
$ |
1,130
|
$ |
1,318
|
$ |
4,800
|
$ |
3,785
|
||||||||
Net
effect on net loss per basic and diluted share
|
$ |
(0.02
|
) | $ |
(0.03
|
) | $ |
(0.09
|
) | $ |
(0.08
|
) |
Valuation
Assumptions
EMCORE
estimated the fair value of stock options using a Black-Scholes model. The
fair
value of each 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. The
weighted-average grant-date fair value of stock options granted during the
three
and nine months ended June 30, 2007 was $3.95 and $2.84, respectively, and
$7.89
and $6.33 for the three and nine months ended June 30, 2006,
respectively.
Black-Scholes
Weighted-Average Assumptions
|
For
the nine months ended June 30, 2007
|
|||
Expected
dividend yield
|
0
|
%
|
||
Expected
stock price volatility
|
94.7
|
%
|
||
Risk-free
interest rate
|
4.6
|
%
|
||
Expected
term (in years)
|
8.3
|
|||
Estimated
pre-vesting forfeitures
|
21.3
|
%
|
Expected
Dividend Yield: The Black-Scholes valuation model calls for a
single expected dividend yield as an input. EMCORE has not issued any
dividends.
Expected
Stock Price Volatility: The fair values of stock based payments
were valued using the Black-Scholes valuation method with a volatility factor
based on EMCORE’s historical stock prices.
Risk-Free
Interest Rate: EMCORE 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 EMCORE’s stock-based awards do not correspond with the terms
for which interest rates are quoted, EMCORE performed a straight-line
interpolation to determine the rate from the available maturities.
Expected
Term: EMCORE’s expected term represents the period that EMCORE’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, EMCORE considers
voluntary termination behavior as well as future workforce reduction
programs.
Preferred
Stock
EMCORE’s
certificate of incorporation authorizes the Board of Directors to issue up
to
5,882,352 shares of preferred stock of EMCORE upon such terms and conditions
having such rights, privileges and preferences as the Board of Directors
may
determine.
Warrants
EMCORE
does not have any outstanding warrants as of June 30, 2007.
Employee
Stock Purchase Plan
In
fiscal
2000, EMCORE adopted an Employee Stock Purchase Plan (ESPP). The ESPP provides
employees of EMCORE 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 EMCORE's
common
stock on either the first or last day of the participation period, whichever
is
lower, and 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 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 June 30, 2007
|
876,143
|
Future
Issuances
As
of June 30, 2007, EMCORE has reserved a total of 20,437,979 shares of its
common stock for future issuances as follows:
Number
of Common Stock Shares Available
|
||||
For
exercise of outstanding common stock options
|
5,927,272
|
|||
For
conversion of subordinated notes
|
12,186,657
|
|||
For
future issuances to employees under the ESPP plan
|
876,143
|
|||
For
future common stock option awards
|
1,447,907
|
|||
Total
reserved
|
20,437,979
|
NOTE
4. Sale of GELcore Investment
On
August
31, 2006, EMCORE sold its 49% membership interest in GELcore, LLC for $100.0
million to General Electric Corporation, which prior to the transaction owned
the remaining 51% membership interest in GELcore. For the three
months ended June 30, 2006, EMCORE recognized a loss of $0.1 million related
to
GELcore, which was recorded as a component of other income and
expenses.
NOTE
5. Acquisitions
In
April
2007, EMCORE acquired privately-held Opticomm Corporation of San Diego,
California, including its fiber optic video, audio and data networking business,
technologies, and intellectual property. EMCORE paid $4.0 million initial
consideration, less $0.1 million cash received at acquisition, for all of
the
shares of Opticomm. EMCORE also agreed to an additional earn-out payment
based
on Opticomm’s 2007 revenues. 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
purchase price allocation for the Opticomm acquisition has been prepared
on a
preliminary basis and is subject to change as new facts and circumstances
emerge. We engaged a third-party valuation firm to complete a valuation of
Opticomm's inventory, property and equipment and identifiable intangible
assets.
We will adjust the purchase price allocation to reflect the final values
of
inventory, property and equipment and other intangibles. Intangibles that
are identified in the third party valuation will be amortized over the
identified life. The preliminary purchase price was allocated as
follows:
(in
thousands)
Opticomm
Corporation Acquisition -Preliminary
|
||||
Net
purchase price
|
$
|
3,885
|
||
Historical
net assets acquired
|
(3,502
|
)
|
||
|
||||
Excess
purchase price allocated to goodwill
|
$
|
383
|
Historical
net assets acquired in the acquisition were as follows:
Current
assets
|
$
|
850
|
||
Inventory
|
705
|
|||
Fixed
assets
|
81
|
|||
Intangible
assets
|
2,504
|
|||
Current
liabilities
|
(567
|
)
|
||
Deferred
tax liability
|
(71
|
)
|
||
|
||||
Historical
net assets acquired
|
$
|
3,502
|
K2
Optronics,
Inc.
On
January
12, 2006, EMCORE
entered into an
Agreement and Plan of Merger (“Merger Agreement”) with K2 Optronics, Inc.
(“K2”), a privately-held company located in Sunnyvale,
CA
and EMCORE Optoelectronics
Acquisition Corporation, a wholly owned subsidiary of EMCORE (“Merger
Sub”). Pursuant to the Merger Agreement, EMCORE acquired K2 in a
transaction in which Merger Sub merged with and into K2, with K2
becoming a wholly owned
subsidiary of EMCORE. EMCORE, an investor in K2, paid approximately $4.1
million
in EMCORE common stock, and paid approximately $0.7 million in
transaction-related expenses, to acquire the remaining part of K2
that EMCORE did not already
own. Prior to the transaction EMCORE owned a 13.6% equity interest in K2
as a
result of a $1.0 million investment that EMCORE made in K2 in October 2004.
In
addition, K2
was a supplier to EMCORE of
analog external cavity lasers for CATV applications. In connection with the
merger, EMCORE issued a total of 548,688 shares of EMCORE common stock, no
par
value, (based on a 20-trading day weighted average price), to K2’s
shareholders.
Including EMCORE’s initial $1.0 million investment in K2,
the
purchase price
was allocated as follows:
(in
thousands)
K2
Optronics, Inc. Acquisition
|
||||
Net
purchase price
|
$
|
5,135
|
||
Historical
net liabilities acquired
|
872
|
|||
|
||||
Excess
purchase price allocated to goodwill
|
$
|
6,007
|
Historical
net assets acquired in the acquisition were as follows:
Current
assets
|
$
|
1,374
|
||
Fixed
assets
|
388
|
|||
Intellectual
property
|
583
|
|||
Current
liabilities
|
(2,412
|
)
|
||
Debt
|
(805
|
)
|
||
Historical
net liabilities acquired
|
$
|
(872
|
)
|
Force,
Inc.
On
December 18, 2005, EMCORE entered into an Asset Purchase Agreement with Force,
Inc., a privately held company located in Christiansburg, Virginia. In
connection with the asset purchase, EMCORE issued 240,000 shares of EMCORE
common stock, no par value, with a market value of $1.6 million at the
measurement date and paid $0.5 million in cash. The acquisition included
Force’s
fiber optic transport and video broadcast products, technical and engineering
staff, certain assets and intellectual properties and technologies. The purchase
price was allocated as follows:
(in
thousands)
Force,
Inc. Acquisition
|
||||
Net
purchase price
|
$
|
2,125
|
||
Historical
net assets acquired
|
(985
|
)
|
||
|
||||
Excess
purchase price allocated to goodwill
|
$
|
1,140
|
Historical
net assets acquired in the acquisition were as follows:
Current
assets
|
$
|
450
|
||
Inventory
|
570
|
|||
Fixed
assets
|
60
|
|||
Intellectual
property
|
1,075
|
|||
Current
liabilities
|
(1,170
|
)
|
||
Historical
net assets acquired
|
$
|
985
|
Phasebridge,
Inc.
On
November 8, 2005, EMCORE entered into an Asset Purchase Agreement with
Phasebridge, Inc., a privately-held company located in Pasadena, California.
In
connection with the asset purchase and based on a closing price of $5.46,
EMCORE
issued 128,205 shares of EMCORE common stock, no par value, that were valued
in
the transaction at $0.7 million. The acquisition included Phasebridge’s
products, technical and engineering staff, certain assets, and intellectual
properties and technologies. The purchase price was allocated as
follows:
(in
thousands)
Phasebridge,
Inc. Acquisition
|
||||
Net
purchase price
|
$
|
700
|
||
Historical
net assets acquired
|
(678
|
)
|
||
|
||||
Excess
purchase price allocated to goodwill
|
$
|
22
|
Historical
net assets acquired in the acquisition were as follows:
Current
assets
|
$
|
39
|
||
Fixed
assets
|
127
|
|||
Intangible
assets
|
603
|
|||
Current
liabilities
|
(91
|
)
|
||
Historical
net assets acquired
|
$
|
678
|
All
of
these transactions were accounted for as purchases in accordance with SFAS
141,
Business Combinations; therefore, the tangible assets acquired were
recorded at fair value on the acquisition date. These acquisitions were not
significant on a pro-forma basis, and therefore, pro-forma financial statements
have not been presented. 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 EMCORE's Fiber
Optics operating segment.
NOTE
6. Marketable Securities
Investments
in securities with remaining maturities in excess of three months, which
are
held for purposes of funding our current operations are classified as available
for sale and reported as short-term marketable securities in the condensed
consolidated balance sheets. The investments consist primarily of
auction rate securities, which have interest rates that reset generally every
7
to 35 days. There were no unrealized holding gains or losses on the
marketable securities as of June 30, 2007 and September 30, 2006 and the
fair
value of these securities was $33.0 million and $101.4 million at June 30,
2007
and September 30, 2006, respectively.
NOTE
7. Discontinued Operations and Restructuring Charges
Discontinued
Operations
On
August
18, 2006, EMCORE completed the sale of the assets of its Electronic Materials
& Device (“EMD”) division, including inventory, fixed assets, and
intellectual property, pursuant to an Asset Purchase Agreement, dated July
19,
2006 (“Purchase Agreement:), between EMCORE, IQE, plc, a public limited company
organized under the laws of the United Kingdom, and IQE RF, LLC, a New Jersey
limited liability company and a wholly owned subsidiary of IQE. Under
the terms of the Purchase Agreement, EMCORE sold the EMD division to IQE
for
$16.0 million, consisting of $13.0 million in cash and $3.0 million in the
form
of a secured promissory note of IQE, guaranteed by IQE's affiliates. The
note
was completely repaid in fiscal 2007, via four quarterly installments at
an
annual interest rate of 7.5%. In accordance with the provisions of
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, EMCORE’s financial statements have been reclassified to reflect the
EMD division as a discontinued operation for all prior periods
presented. EMD revenues from operations for the three and nine months
ended June 30, 2006 were $5.6 million and $14.8 million,
respectively. For each of the three and nine months ended June 30,
2006 income from operations related to EMD was $0.4 million.
In
November 2003, EMCORE sold its TurboDisc capital equipment business in an
asset
sale to a subsidiary of Veeco Instruments Inc. (“Veeco”). In March 2006, EMCORE
received manufacturing equipment valued at $2.0 million as a final earn-out
payment from Veeco in connection with Veeco’s second year of net sales of
TurboDisc products, which was recognized as a gain on disposal of discontinued
operations for the nine months ended June 30, 2006.
Restructuring
Charges
As
EMCORE
has acquired businesses and consolidated them into its existing operations,
EMCORE has incurred charges associated with the transition and integration
of
those activities. Expenses recognized as restructuring charges include costs
associated with the integration of several business acquisitions and EMCORE’s
overall cost-reduction efforts. Restructuring charges are
included in SG&A. The charges recognized in fiscal year 2006 were
primarily related to our Photovoltaics operating segment. Fiscal 2007 charges
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 Three Month Period
|
Cumulative
Amount Incurred to Date
|
Amount
Expected in Future Periods
|
Total
Amount Expected to be Incurred
|
||||||||||||
One-time
termination benefits
|
$ |
1,220
|
$ |
2,305
|
$ |
1,133
|
$ |
3,438
|
||||||||
Contract
termination Costs
|
72
|
367
|
272
|
639
|
||||||||||||
Other
associated costs
|
12
|
3,017
|
455
|
3,472
|
||||||||||||
Total
restructuring charges
|
$ |
1,304
|
$ |
5,689
|
$ |
1,860
|
$ |
7,549
|
The
following table sets forth changes in the accrual for restructuring
charges:
(in
thousands)
|
||||
Balance
at September 30, 2006
|
$
|
256
|
||
Increase
in liability due to restructuring of corporate
headquarters
|
1,802
|
|||
Increase
in liability due to restructuring of fiber operating
segment
|
434
|
|||
Costs
paid or otherwise settled
|
(375
|
)
|
||
|
||||
Balance
at June 30, 2007
|
$
|
2,117
|
NOTE
8. Investments
In
April 2005, EMCORE
divested product technology focused on gallium nitride (GaN)-based power
electronic devices for the power device industry. The divesture resulted
in a new company, Velox Semiconductor Corporation (“Velox”) and EMCORE
contributed intellectual property and equipment for a 19.2% ownership stake
in
Velox. During fiscal 2006, EMCORE reduced its voting percentage and
relinquished its Velox Board seat, and its right to a Velox Board seat. As
a result of these modifications, EMCORE reported its investment in Velox
under
the cost method of accounting for the three and nine months ended June 30,
2007.
Previously, under the equity
method of accounting, EMCORE recognized
a loss of
$0.3 million for
the nine months ended June 30,
2006, which
was recorded as a
component of other income and expenses. Under the cost method of
accounting, the Velox investment is carried at cost and adjusted only for
other-than-temporary declines in fair value, distribution of earnings and
additional investments. As of June
30, 2007, EMCORE's
net investment in
Velox amounted to approximately $1.0 million.
On
November 29, 2006, EMCORE invested $13.5 million, and incurred $0.4 million
in
transaction costs, in WorldWater & Solar Technologies Corporation
(“WorldWater”), a leader in solar electric engineering, water management
solutions and solar energy installations and products. This investment
represents EMCORE’s first tranche of its intended $18.0 million investment, in
return for convertible preferred stock and warrants of WorldWater, equivalent
to
approximately 31% equity ownership in WorldWater, or approximately 26.5%
on a
fully-diluted basis. In connection with the investment, EMCORE
received two seats on WorldWater's Board of Directors. EITF 02-14,
Whether an Investor Should Apply the Equity Method of Accounting to
Investments Other Than Common Stock, provides guidance on whether an
investor should apply the equity method of accounting to investments other
than
common stock. In accordance with EITF 02-14, although the investment
in WorldWater gives us the ability to exercise significant influence over
the
operating and financial policies of the investee, since the investment does
not
qualify as in-substance common stock the equity method of accounting is not
appropriate. In-substance common stock is an investment in an entity
that has risk and reward characteristics that are substantially similar to
the
entity’s common stock. The risk and reward characteristics of our
investment are not substantially similar to WorldWater’s common stock because
our investment’s liquidation preference is considered substantive. Therefore,
we are accounting for the investment in WorldWater under the cost method
of
accounting and evaluating it for other-than-temporary impairment each reporting
period. As
of June 30,
2007, our net
investment in WorldWater amounted to approximately $13.9
million.
On
April
9, 2007, EMCORE delivered a letter to WorldWater advising them that subject
to
the matters set forth therein, EMCORE would make additional investments in
WorldWater. Subject to signing definitive agreements, EMCORE intends to (1)
purchase 5,000,000 shares of WorldWater's common stock at $0.50 per share,
with
a five year warrant to purchase 1,250,000 shares of the WorldWater's common
stock at $0.50, under the terms of a Confidential Private Placement Memorandum
prepared by WorldWater and dated as of March 2007 and (2) complete the
$4,500,000 Tranche B investment previously agreed to in the Investment
Agreement, dated November 29, 2006 between EMCORE and WorldWater provided
that
the purchase of shares pursuant to the Tranche B Investment will occur at
a
purchase price of $0.40 per share and EMCORE will be entitled to 25% warrant
coverage at $0.40 per share. The Investment Agreement was filed as an exhibit
with EMCORE's Current Report on Form 8-K filed on December 5,
2006. Subsequent to April 9, 2007, material changes were made to the
terms of the proposed offering discussed in (1) above, and we elected not
to
participate.
NOTE
9. Receivables
The
components of accounts receivable consisted of the following:
(in
thousands)
|
As
of
June
30, 2007
|
As
of
September
30, 2006
|
||||||
Accounts
receivable
|
$ |
37,142
|
$ |
25,597
|
||||
Accounts
receivable – unbilled
|
5,045
|
2,342
|
||||||
Accounts
receivable, gross
|
42,187
|
27,939
|
||||||
Allowance
for doubtful accounts
|
(703 | ) | (552 | ) | ||||
Total
accounts receivable, net
|
$ |
41,484
|
$ |
27,387
|
Receivables
from related parties consisted of the following:
(in
thousands)
|
As
of
June
30, 2007
|
As
of
September
30, 2006
|
||||||
Current
assets:
|
||||||||
Velox
investment-related
|
$ |
332
|
$ |
332
|
||||
Employee
loans
|
-
|
121
|
||||||
Subtotal
|
332
|
453
|
||||||
Long-term
assets:
|
||||||||
Employee
loans
|
-
|
82
|
||||||
Total
receivables from related parties
|
$ |
332
|
$ |
535
|
Employee
Loans
From
time
to time, prior to July 2002, EMCORE loaned money to certain of its executive
officers and directors. Pursuant to due authorization of EMCORE's Board of
Directors, EMCORE loaned $85,000 to Mr. Werthan, the former Chief Financial
Officer in December 1995. This loan does not bear interest and
provided for offset of the loan via bonuses payable to Mr. Werthan over a
period
of up to 25 years. In connection with Mr. Werthan’s resignation in
February 2007 and pursuant to the terms of his promissory note, the Board
of
Directors forgave the remaining portion of his outstanding loan that totaled
$82,000. Mr. Werthan was responsible for the personal taxes related
to the loan forgiveness.
The
remaining related party receivable balance of approximately $121,000 as of
September 30, 2006 relates to multiple interest bearing loans from EMCORE
to an
officer (who is not an executive officer) that were made during 1997 through
2000 and were payable on demand. These loans, including accrued
interest, were paid back to the Company in December 2006.
NOTE
10. 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
June
30,
2007
|
As
of
September
30, 2006
|
||||||
Raw
materials
|
$ |
21,257
|
$ |
14,990
|
||||
Work-in-process
|
6,206
|
6,074
|
||||||
Finished
goods
|
10,053
|
8,660
|
||||||
Inventory,
gross
|
37,516
|
29,724
|
||||||
Less:
reserves
|
(8,999 | ) | (6,472 | ) | ||||
Total
inventory, net
|
$ |
28,517
|
$ |
23,252
|
We
establish provisions for excess and obsolete inventories after evaluation
of
historical sales and usage, current economic trends, market conditions, product
rationalization, forecasted sales, product lifecycles, and current inventory
levels. This evaluation requires us to make estimates regarding future events
in
an industry where rapid technological changes are prevalent. It is possible
that
increases in inventory reserves may be required in the future if there is
a
decline in market conditions or if changes in expected product lifecycles
occur.
Alternatively, if market conditions improve or product lifecycles extend,
we may
have greater success in selling inventory that had previously been written
down.
In either event, the actual value of our inventory may be higher or lower
and
recognition of such difference will affect our cost of sales in a future
period.
NOTE
11. Property, Plant, and Equipment, net
The
components of property, plant, and equipment consisted of the
following:
(in
thousands)
|
As
of
June
30,
2007
|
As
of
September
30, 2006
|
||||||
Land
|
$ |
1,502
|
$ |
1,502
|
||||
Building
and improvements
|
40,268
|
40,035
|
||||||
Equipment
|
74,027
|
64,275
|
||||||
Furniture
and fixtures
|
5,525
|
5,362
|
||||||
Leasehold
improvements
|
2,664
|
2,696
|
||||||
Construction
in progress
|
3,490
|
8,553
|
||||||
Property,
plant and equipment
|
127,476
|
122,423
|
||||||
Less:
accumulated depreciation and amortization
|
(72,395 | ) | (67,237 | ) | ||||
Total
property, plant and equipment
|
$ |
55,081
|
$ |
55,186
|
As
of
June 30, 2007 and September 30, 2006, EMCORE did not have any significant
capital lease agreements.
NOTE
12. Goodwill and Intangible Assets, net
The
following table sets forth changes in the carrying value of goodwill by
reportable segment:
(in
thousands)
|
Fiber
Optics
|
Photovoltaics
|
Total
|
|||||||||
Balance
as of September 30, 2006
|
$ |
20,063
|
$ |
20,384
|
$ |
40,447
|
||||||
Acquisition
– Opticomm Corporation
|
383
|
383
|
||||||||||
Acquisition
– earn-out payments
|
16
|
-
|
16
|
|||||||||
Balance
as of June 30, 2007
|
$ |
20,462
|
$ |
20,384
|
$ |
40,846
|
The
following table sets forth changes in the carrying value of intangible assets
by
reportable segment:
(in
thousands)
|
As
of June 30, 2007
|
As
of September 30, 2006
|
||||||||||||||||||||||
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
Gross
Assets
|
Accumulated
Amortization
|
Net
Assets
|
|||||||||||||||||||
Fiber
Optics:
|
||||||||||||||||||||||||
Patents
|
$ |
759
|
$ | (318 | ) | $ |
441
|
$ |
579
|
$ | (218 | ) | $ |
361
|
||||||||||
Ortel
acquired IP
|
3,274
|
(2,785 | ) |
489
|
3,274
|
(2,394 | ) |
880
|
||||||||||||||||
JDSU
acquired IP
|
1,040
|
(463 | ) |
577
|
1,040
|
(314 | ) |
726
|
||||||||||||||||
Alvesta
acquired IP
|
193
|
(177 | ) |
16
|
193
|
(148 | ) |
45
|
||||||||||||||||
Molex
acquired IP
|
558
|
(419 | ) |
139
|
558
|
(335 | ) |
223
|
||||||||||||||||
Phasebridge
acquired IP
|
603
|
(326 | ) |
277
|
603
|
(244 | ) |
359
|
||||||||||||||||
Force
acquired IP
|
1,075
|
(393 | ) |
682
|
1,075
|
(227 | ) |
848
|
||||||||||||||||
K2
acquired IP
|
583
|
(223 | ) |
360
|
583
|
(126 | ) |
457
|
||||||||||||||||
Opticomm
|
2,504
|
(148 | ) |
2,356
|
-
|
-
|
-
|
|||||||||||||||||
Subtotal
|
10,589
|
(5,252 | ) |
5,337
|
7,905
|
(4,006 | ) |
3,899
|
||||||||||||||||
Photovoltaics:
|
||||||||||||||||||||||||
Patents
|
522
|
(231 | ) |
291
|
382
|
(162 | ) |
220
|
||||||||||||||||
Tecstar
acquired IP
|
1,900
|
(1,900 | ) |
-
|
1,900
|
(1,726 | ) |
174
|
||||||||||||||||
Subtotal
|
2,422
|
(2,131 | ) |
291
|
2,282
|
(1,888 | ) |
394
|
||||||||||||||||
Total
|
$ |
13,011
|
$ | (7,383 | ) | $ |
5,628
|
$ |
10,187
|
$ | (5,894 | ) | $ |
4,293
|
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:
|
||||
Three-month
period ended September 30, 2007
|
$
|
528
|
||
Year
ended September 30, 2008
|
1,667
|
|||
Year
ended September 30, 2009
|
1,232
|
|||
Year
ended September 30, 2010
|
1,120
|
|||
Year
ended September 30, 2011
|
658
|
|||
Thereafter
|
423
|
|||
Total
future amortization expense
|
$
|
5,628
|
Goodwill
represents the excess of the purchase price of an acquired business or assets
over the fair value of the identifiable assets acquired and liabilities assumed.
Intangible assets consist primarily of intellectual property that has been
internally developed or purchased. Purchased intangible assets include existing
and core technology, trademarks and trade names, and customer base and
contracts. Intangible assets are amortized using the straight-lined method
over
estimated useful lives ranging from one to fifteen years.
EMCORE
evaluates its goodwill and intangible assets for impairment on an annual
basis,
or whenever events or changes in circumstances indicate that the carrying
value
may not be recoverable. Circumstances that could trigger an impairment test
include but are not limited to: a significant adverse change in the business
climate or legal factors; an adverse action or assessment by a regulator;
unanticipated competition; loss of key personnel; the likelihood that a
reporting unit or significant portion of a reporting unit will be sold or
otherwise disposed; results of testing for recoverability of a significant
asset
group within a reporting unit; and recognition of a goodwill impairment loss
in
the financial statements of a subsidiary that is a component of a reporting
unit. The determination as to whether a write-down of goodwill or intangible
assets is necessary involves significant judgment based on the short-term
and
long-term projections of the future performance of the operating segment
to
which the goodwill or intangible assets are attributed. As of December 31,
2006,
and 2005, EMCORE tested for impairment of its goodwill and intangible
assets. In accordance with Statement of Financial Accounting Standard
(“SFAS”) No. 142, Goodwill and Other Intangible Assets, the fair
value of the reporting units was determined by using a valuation technique
based
on each reporting unit’s multiples of revenues. Based on that analysis, we
determined that the carrying amount of the reporting units did not exceed
their
fair value.
NOTE
13. Accrued Expenses and Other Current Liabilities
The
components of accrued expenses and other current liabilities consisted of
the
following:
(in
thousands)
|
As
of
June
30,
2007
|
As
of
September
30, 2006
|
||||||
Compensation-related
|
$
|
8,313
|
$
|
6,973
|
||||
Interest
|
600
|
1,830
|
||||||
Warranty
|
1,128
|
1,074
|
||||||
Professional
fees
|
3,674
|
2,529
|
||||||
Royalty
|
597
|
535
|
||||||
Self
insurance
|
776
|
784
|
||||||
Deferred
revenue and customer deposits
|
883
|
324
|
||||||
Tax-related
|
3,704
|
4,418
|
||||||
Litigation-related
|
700
|
700
|
||||||
Other
|
2,671
|
2,915
|
||||||
Total
accrued expenses and other current liabilities
|
$
|
23,046
|
$
|
22,082
|
Product
Warranty Reserves. EMCORE provides its customers with limited rights of
return for non-conforming shipments and warranty claims for certain products.
In
accordance with SFAS 5, Accounting for Contingencies, EMCORE makes
estimates of product warranty expense using historical experience rates as
a
percentage of revenue and accrues estimated warranty expense as a cost of
revenue. We estimate the costs of our warranty obligations based on our
historical experience of known product failure rates, use of materials to
repair
or replace defective products and service delivery costs incurred in correcting
product failures. In addition, from time to time, specific warranty accruals
may
be made if unforeseen technical problems arise. Should our actual experience
relative to these factors differ from our estimates, we may be required to
record additional warranty reserves. Alternatively, if we provide more reserves
than we need, we may reverse a portion of such provisions in future
periods.
NOTE
14. Convertible Subordinated Notes
In
May
2001, EMCORE issued $175.0 million aggregate principal amount of its 5%
convertible subordinated notes due in May 2006 (“2006 Notes”). In December 2002,
EMCORE purchased $13.2 million principal amount of the 2006 Notes at prevailing
market prices for an aggregate of approximately $6.3 million, resulting in
a
gain of approximately $6.6 million after netting unamortized debt issuance
costs
of approximately $0.3 million. In February 2004, EMCORE exchanged approximately
$146.0 million, or 90.2%, of its remaining 2006 Notes for approximately $80.3
million aggregate principal amount of new 5% Convertible Senior Subordinated
Notes due May 15, 2011 (“2011 Notes”) and approximately 7.7 million shares of
EMCORE common stock. Interest on the 2011 Notes is payable in arrears
semiannually on May 15 and November 15 of each year. The notes were convertible
into EMCORE common stock at a conversion price of $8.06 per share, subject
to
adjustment under customary anti-dilutive provisions. They also are redeemable
should EMCORE's common stock price reach $12.09 per share. As a result of
this
transaction, EMCORE reduced debt by approximately $65.7 million, and recorded
a
gain from early debt extinguishment of approximately $12.3
million.
In
November 2005, EMCORE exchanged $14.4 million aggregate principal amount
of the
2006 Notes for $16.6 million aggregate principal amount of newly issued
Convertible Senior Subordinated Notes due May 15, 2011 (“New 2011 Notes”)
pursuant to an Exchange Agreement (“Agreement”) with Alexandra Global Master
Fund Ltd. (“Alexandra”). The terms of the New 2011 Notes
are identical in all material respects to the 2011 Notes. The
New 2011 Notes are ranked pari passu with the existing 2011 Notes. The New
2011 Notes will be convertible at any time prior to maturity, unless previously
redeemed or repurchased by EMCORE, into the shares of EMCORE common stock,
no
par value, at the conversion rate of 124.0695 shares of common stock per
$1,000
principal amount. The effective conversion rate was $8.06 per share of
common stock, subject to adjustment under customary anti-dilutive provisions.
They also are redeemable should EMCORE's common stock price reach $12.09
per
share. As a result of this transaction, EMCORE recognized approximately
$1.1 million of expense in the first quarter of fiscal 2006. EMCORE will
also
incur an additional expense of approximately $1.1 million over the life of
the
subordinated notes issued to Alexandra, which will be charged as interest
expense. Furthermore, the 2006 Notes exchanged by Alexandra represented
approximately 91.4% of the $15.8 million total amount of existing 2006 Notes
outstanding at the time of the transaction. EMCORE paid the remaining $1.4
million of 2006 Notes on the May 15, 2006 maturity date.
On
April
9, 2007, the Company entered into a First Supplemental Indenture (the “2004
Supplemental Indenture”) with Deutsche Bank Trust Company Americas, as trustee
(the “Trustee”), which amends the Indenture, dated as of February 24, 2004 (the
“2004 Indenture”), between the Company and the Trustee, governing the Company’s
5% Convertible Senior Subordinated Notes due 2011 issued thereunder (the
“2004
Notes”). Also on April 9, 2007, the Company entered into a First Supplemental
Indenture (the “2005 Supplemental Indenture” and together with the 2004
Supplemental Indenture, the “Supplemental Indentures”) with the Trustee, which
amends the Indenture, dated as of November 16, 2005 (the “2005 Indenture” and
together with the 2004 Indenture, the “Indentures”), between the Company and the
Trustee, governing the Company’s 5% Convertible Senior Subordinated Notes due
2011 issued thereunder (the “2005 Notes” and together with the 2004 Notes, the
“Notes”).
Each
Supplemental Indenture, among other things, increased the interest rate of
the
applicable Notes to 5.5% from 5.0%, reduced the Conversion Price (as defined
in
the applicable Indenture) from $8.06 to $7.01, provided for an increase in
the
Conversion Rate (as defined in the applicable Supplemental Indenture) in
the
event of a Non-Stock Change of Control (as defined in the applicable
Supplemental Indenture), amended the restriction on payment of dividends,
amended the definition of “Events of Default” and provided for an additional
payment in certain circumstances in which the Company fails to comply with
its
reporting obligations under the applicable Indenture. The Supplemental
Indentures also provided a waiver of the Company’s failure to file certain
reports with the SEC.
In
order
to give effect to the Supplemental Indentures, the Company entered into a
Consent to Amendment and Waiver, dated as of April 9, 2007 (the “2004 Consent”),
with certain holders of the 2004 Notes (the “2004 Consenting Holders”), and a
Consent to Amendment and Waiver, dated as of April 9, 2007 (the “2005 Consent”
and together with the 2004 Consent, the “Consents”), with the holder of the 2005
Notes (together with the 2004 Consenting Holders, the “Consenting Holders”),
pursuant to which holders of at least a majority of the outstanding 2004
Notes
and at least a majority of the 2005 Notes consented to the execution and
delivery of the 2004 Supplemental Indenture and the 2005 Supplemental Indenture,
respectively. The Consenting Holders also waived any and all Defaults (as
defined in the applicable Indenture) and Events of Default (as defined in
the
applicable Indenture) relating to any failure of the Company to observe or
perform any covenant or agreement contained in the Notes or the Indentures
as a
result of the Company’s failure to file with the SEC, or with the Trustee, its
Annual Report on Form 10-K for the year ended September 30, 2006, its Annual
Report on Form 10-Q for the quarter ended December 31, 2006 and/or any other
reports that the Company fails to file in a timely manner for reasons in
whole
or in part directly or indirectly attributable to or arising out of the
Company’s review of its historical stock option grants as initially reported in
the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2006.
The Consenting Holders agree to rescind any notice of acceleration delivered
to
the Company with respect to such failure to file.
The
Consents also provided the Company with the option to repurchase an aggregate
of
$11.4 million of the outstanding principal amount of the Notes held by the
Consenting Holders at a purchase price equal to $1,000 per $1,000 principal
amount of the Notes purchased, plus accrued and unpaid interest, if any,
to but
excluding the date of purchase. The Company exercised this option and
repurchased $11.4 million of its outstanding notes on April 13,
2007. Accordingly, the Company classified the $11.4 million principal
repayment as a current liability as of September 30, 2006.
For
the
three months ended June 30, 2007 and 2006, interest expense relating to the
notes approximated $1.3 million and $1.3 million, respectively, and $3.8
million
and $4.0 million, for the nine months ended June 30, 2007 and 2006,
respectively. The $2.3 million of costs incurred in connection with
the issuance of the 2006 Notes, 2011 Notes and the New 2011 Notes were
capitalized and are being amortized to interest expense on a straight-line
basis
for over the remaining life of the notes which approximates the charge using
the
implied interest method. Issuance costs related to the notes, net of
amortization, was $1.4 million and $1.1 million as of June 30, 2007 and
September 30, 2006, respectively. The unamortized portions of the issuance
costs
are included in “Prepaid expenses and other assets” on the condensed
consolidated balance sheets.
NOTE
15. Employee Benefit Plans
EMCORE
has a Savings Plan that qualifies as a deferred salary arrangement under
Section
401(k) of the Internal Revenue Code. Under the Savings Plan, participating
employees may defer a portion of their pretax earnings, up to the Internal
Revenue Service annual contribution limit. All employer contributions are
made
in EMCORE's common stock. For the three and nine months ended June 30, 2007,
EMCORE contributed approximately $0.2 million and $0.7 million, respectively,
in
common stock to the Savings Plan, compared to $0.2 million and $0.6 million
for
the three and nine months ended June 30, 2006, respectively.
NOTE
16. Commitments and Contingencies
EMCORE
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 $0.5 million and $0.6 million
for
the three months ended June 30, 2007 and 2006 respectively, and $1.2 million
and
$1.7 million for the nine months ended June 30, 2007 and 2006,
respectively.
As
of
June 30, 2007, EMCORE had six standby letters of credit issued totaling
approximately $1.2 million.
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. The Company settled
certain matters during 2007 that did not individually or in the aggregate
have a
material impact on the Company’s results of operations.
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 United States 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 United States 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 this Annual Report on Form 10-K. 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. To be fully implemented, the MOU will be embodied in
a more detailed stipulation of settlement and will be expressly conditioned
on
Court approval following a period for comment by potentially affected
parties.
We
have
recorded $700,000 as a liability for the stipulated settlement as of September
30, 2006 since events that led to the litigation existed as of that
date. Although we anticipate that our insurance carrier will cover
the stipulated settlement, we have not recorded any receivable, or gain
contingency, since the settlement is still contingent upon certain future
events.
NASDAQ
Delisting Proceeding
On
December 18, 2006, EMCORE received a NASDAQ Staff Determination letter stating
that the Company was not in compliance with the filing requirements for
continued listing set forth in NASDAQ Marketplace Rule 4310(c)(14) and that
its
common stock was subject to delisting from The NASDAQ Stock Market. The notice,
which the Company expected, was issued as a result of the Company’s failure to
file its annual report on Form 10-K for the year ended September 30, 2006
with the SEC by the required deadline. The Company had previously filed a
Form
12b-25 with the SEC indicating that the Company would be unable to file its
Form
10-K by the original filing deadline of December 14, 2006 due to the Company’s
ongoing review of its prior stock option grants.
On
February 13, 2007, EMCORE received a NASDAQ Staff Determination letter stating
that the Company was not in compliance with the filing requirements for
continued listing set forth in NASDAQ Marketplace Rule 4310(c)(14) and that
its
common stock was subject to delisting from The NASDAQ Stock Market. The notice,
which the Company expected, was issued as a result of the Company’s failure to
file its report on Form 10-Q for the fiscal quarter ended December 31, 2006
with
the SEC by the required deadline. The Company had previously filed a Form
12b-25
with the SEC indicating that the Company would be unable to file its Form
10-Q
by the original filing deadline of February 9, 2007 due to the Company’s ongoing
review of its prior stock option grants.
The
Company attended a hearing before the NASDAQ Listing Qualifications Panel
(the
“Panel”) on February 15, 2007 to review both the Staff Determination letter
received by the Company on December 18, 2006 as a result of the Company's
inability to file its Form 10-K for the year ended September 30, 2006 by
the
required deadline and the Staff Determination letter received by the Company
on
February 13, 2007 as a result of the Company's inability to file its Form
10-Q
for the quarter ended December 31, 2006 by the required deadline.
On
April
3, 2007, the Company received notice from the NASDAQ Stock Market that the
Panel
granted the Company’s request for continued listing on the NASDAQ Stock Market
subject to the Company filing both its Form 10-K for the fiscal year ended
September 30, 2006 and its Form 10-Q for the quarter ended December 31, 2006
with the SEC by no later than May 10, 2007.
On
May
10, 2007, the Company received notice from the NASDAQ Stock
Market that the Panel had granted the Company’s request for an extension of the
May 10, 2007 deadline. The extension was conditioned on the Company filing
its
Form 10-K for the fiscal year ended September 30, 2006, its Form 10-Q for
the
quarter ended December 31, 2006 and all required restatements with the SEC
by no
later than June 18, 2007.
On
May
14, 2007, the Company received a NASDAQ Staff Determination letter stating
that
the Company was not in compliance with the filing requirements for continued
listing set forth in NASDAQ Marketplace Rule 4310(c)(14) and that its common
stock was subject to delisting from the NASDAQ Stock Market. The notice,
which
the Company expected, was issued as a result of the Company’s failure to file
its report on Form 10-Q for the fiscal quarter ended March 31, 2007 with
the SEC
by the required deadline. The Company had previously filed a Form 12b-25
with
the SEC indicating that the Company would be unable to file its Form 10-Q
by the
original filing deadline of May 10, 2007 due to the Company’s ongoing review of
its prior stock option grants.
On
May
25, 2007, EMCORE filed an appeal of the May 10, 2007 Panel decision to grant
the
Company’s request for an extension through June 18, 2007. EMCORE
appealed the May 25, 2007 decision on the sole ground that the Panel could
not
grant the Company beyond June 18, 2007 to file the missing Form 10-K, Form
10-Qs
and restatements. On June 8, 2007, the Company requested that NASDAQ
stay the Panel’s May 10, 2007 decision pending the Company’s appeal of that
action.
On
June
15, 2007, the Company received a letter from the NASDAQ Stock Market stating
that the NASDAQ Listing and Hearing Review Council (the “Listing Council”) has
stayed the previously reported May 10, 2007 decision of the Panel and any
future
Panel determinations to suspend the Company’s securities from trading on NASDAQ,
pending further review by the Listing Council. Consequently, the Company’s
securities would continue to be listed and tradable on the NASDAQ Global
Market
System until further action by the Listing Council to lift the stay, which
would
not occur prior to August 10, 2007. In addition, the Company was
invited to submit any additional information to the Listing Council for
consideration in its review by no later August 10, 2007.
On
August
10, 2007, the Company submitted a letter, in response to the Listing Council’s
invitation, requesting that the Listing Council exercise its discretionary
authority in favor of granting the Company an additional extension to regain
compliance with NASDAQ’s filing requirement. The Company is awaiting
the Listing Council’s response to this letter.
On
August
13, 2007, the Company received a NASDAQ Staff Determination letter stating
that
the Company was not in compliance with the filing requirements for continued
listing set forth in NASDAQ Marketplace Rule 4310(c)(14) and that its common
stock was subject to delisting from the NASDAQ Stock Market. The
notice, which the Company expected, was issued as a result of the Company’s
failure to file its Quarterly Report on Form 10-Q for the fiscal quarter
ended
June 30, 2007 with the SEC by the required deadline. The Company had
previously filed a Notification of Late Filing on Form 12b-25 with the SEC
indicating that the Company would be unable to file this Quarterly Report
by the
original filing deadline of August 9, 2007 due to the Company’s ongoing review
of its prior stock option grants.
On
October 2, 2007, the Company received a NASDAQ Staff Determination letter
stating that the Company was not in compliance with holding its annual meeting
of shareholders within twelve months of the Company’s fiscal year end, as set
forth in NASDAQ Marketplace Rules 4350(e) and 4350(g) and that its common
stock
was subject to delisting from the NASDAQ Stock Market. The notice,
which the Company expected, was issued as a result of the Company’s failure to
hold its annual shareholder meeting by September 30, 2007.
On
October 5, 2007, the Company has received a decision from the Listing Council
stating that, pursuant to its discretionary authority, it has granted the
Company an exception and allowed the Company until December 4, 2007 to
demonstrate compliance with all of the Global Market continued listing
requirements (the “Decision”). The Decision requires that the Company
file its Form 10-K for the fiscal year ended September 30, 2006 and its Form
10-Q for the quarters ended December 31, 2006, March 31, 2007 and June 30,
2007
with the SEC by the close of business on December 4, 2007. The
Decision also provides that if the Company has not filed these delinquent
reports with the SEC by the close of business on December 4, 2007, the Company’s
securities will be suspended at the opening of business on December 6,
2007.
Although
we believe the filing of our Annual Report on Form 10-K as of September 30,
2006
and our concurrent filings of the Form 10-Qs for the quarters ended December
31,
2006, March 31, 2007, and June 30, 2007 satisfy the Panel’s requirements, we
cannot assure you that the Panel will be satisfied with these
filings. See the Explanatory Note in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2006 for a discussion of stock option
restatements that caused the delay in our SEC filings.
SEC
Investigation
The
Company informed the staff of the SEC of the Special Committee’s investigation
on November 6, 2006. After the Company’s initial contact with the
SEC, the SEC opened a non-public investigation concerning the Company’s historic
option granting practices since the Company’s initial public
offering. The Company has cooperated fully with the SEC’s
investigation. Although we cannot predict the outcome of this matter,
we do not expect that such matter will have a material adverse effect on
our
consolidated financial position or results of operations.
Indemnification
Obligations
Subject
to certain limitations, we are obligated to indemnify our current and former
directors, officers and employees in connection with the investigation of
our
historical stock option practices, related government investigation and
shareholder litigation. These obligations arise under the terms of our
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
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 United States
District Court for the Western District of Pennsylvania for patent infringement.
In the suit, EMCORE 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, EMCORE and JDSU filed a second patent suit
in
the same court against Optium alleging infringement of JDSU's patent
6,519,374. On March 15, 2007, Optium filed a declaratory judgment
action against the Company and JDSU. Optium seeks in this litigation a
declaration that certain products of Optium do not infringe United States
Patent
No. 6,519,374 ("the '374 patent") and that the patent is invalid. The '374
patent is assigned to JDSU and licensed to the Company. Other than the filing
of
a Complaint, Optium has taken no action in this case, and the Company has
not
been served.
NOTE
17. Segment Data and Related Information
EMCORE
has two operating segments: Fiber Optics and Photovoltaics. EMCORE'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. EMCORE's Photovoltaics revenue is derived primarily from the
sales of solar power conversion products, including solar cells, covered
interconnect solar cells, and solar panels. EMCORE evaluates
its reportable segments in accordance with SFAS 131, Disclosures About
Segments of an Enterprise and Related Information. EMCORE’s Chief Executive
Officer is EMCORE’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
following table sets forth the revenue and percentage of total revenue
attributable to each of EMCORE's operating.
(in
thousands)
Segment
Revenue
|
Three
Months Ended
June
30, 2007
|
Three
Months Ended
June
30, 2006
|
||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
|||||||||||||
Fiber
Optics
|
$ |
27,611
|
62 | % | $ |
25,968
|
71 | % | ||||||||
Photovoltaics
|
16,929
|
38
|
10,355
|
29
|
||||||||||||
Total
revenue
|
$ |
44,540
|
100 | % | $ |
36,323
|
100 | % |
(in
thousands)
Segment
Revenue
|
Nine
Months Ended
June
30, 2007
|
Nine
Months Ended
June
30, 2006
|
||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
|||||||||||||
Fiber
Optics
|
$ |
79,170
|
64 | % | $ |
76,825
|
71 | % | ||||||||
Photovoltaics
|
43,882
|
36
|
31,342
|
29
|
||||||||||||
Total
revenue
|
$ |
123,052
|
100 | % | $ |
108,167
|
100 | % |
The
following table sets forth EMCORE's consolidated revenue by geographic region.
Revenue was assigned to geographic regions based on the customers’ or contract
manufacturers’ billing address.
(in
thousands)
Geographic
Revenue
|
Three
Months Ended
June
30, 2007
|
Three
Months Ended
June
30, 2006
|
||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
|||||||||||||
North
America
|
$ |
33,306
|
75 | % | $ |
26,535
|
73 | % | ||||||||
Asia
and South America
|
8,506
|
19
|
8,597
|
24
|
||||||||||||
Europe
|
2,728
|
6
|
1,191
|
3
|
||||||||||||
Total
revenue
|
$ |
44,450
|
100 | % | $ |
36,323
|
100 | % |
(in
thousands)
Geographic
Revenue
|
Nine
Months Ended
June
30, 2007
|
Nine
Months Ended
June
30, 2006
|
||||||||||||||
Revenue
|
%
of Revenue
|
Revenue
|
%
of Revenue
|
|||||||||||||
North
America
|
$ |
87,892
|
71 | % | $ |
85,947
|
79 | % | ||||||||
Asia
and South America
|
27,809
|
23
|
19,282
|
18
|
||||||||||||
Europe
|
7,351
|
6
|
2,938
|
3
|
||||||||||||
Total
revenue
|
$ |
123,052
|
100 | % | $ |
108,167
|
100 | % |
The
following table sets forth operating losses attributable to each EMCORE
operating segment:
(in
thousands)
Statement
of Operations Data
|
Three
Months Ended
June
30,
|
Nine
Months Ended
June
30,
|
||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Operating
loss by segment:
|
||||||||||||||||
Fiber
Optics
|
$ | (5,053 | ) | $ | (3,933 | ) | $ | (17,666 | ) | $ | (9,959 | ) | ||||
Photovoltaics
|
(1,590 | ) | (1,105 | ) | (7,837 | ) | (3,973 | ) | ||||||||
Corporate
|
(6,813 | ) |