<PAGE> 1
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 March 31, 1999
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)
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 May 1, 1999 there were 9,500,086 shares of the registrant's no
par value common stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
As restated, As restated,
see Note 9 see Note 9
<S> <C> <C> <C> <C>
Revenues................................................... $16,072 13,808 $26,197 $26,165
Cost of sales.............................................. 9,203 7,534 15,219 13,910
---------------------------------------------------------------
Gross profit............................................... 6,869 6,274 10,978 12,255
---------------------------------------------------------------
Operating expenses:
Selling, general and administrative..................... 3,225 2,901 6,368 5,753
Goodwill amortization................................... 1,098 1,099 2,197 1,442
Research and development:
One-time acquired in-process....................... -- -- -- 19,516
Recurring.......................................... 4,348 2,889 10,272 5,876
---------------------------------------------------------------
Total operating expenses................................... 8,671 6,889 18,837 32,587
---------------------------------------------------------------
Operating loss............................................. (1,802) (615) (7,859) (20,332)
---------------------------------------------------------------
Other expense:
Stated interest expense, net............................. 463 47 693 117
Imputed warrant interest expense, non-cash............... 317 96 633 192
Equity in net loss of unconsolidated affiliates.......... 1,395 -- 1,671 --
Provision for income taxes.......................... -- 20 -- 20
---------------------------------------------------------------
Total other expense........................................ 2,175 163 2,997 329
---------------------------------------------------------------
Net loss................................................... ($3,977) ($778) ($10,856) ($20,661)
===============================================================
PER SHARE DATA:
Net loss per basic share (See Note 7)...................... ($0.44) ($0.08) ($1.17) ($2.52)
===============================================================
Net loss per diluted share (See Note 7).................... ($0.44) ($0.08) ($1.17) ($2.52)
===============================================================
Weighted average shares used in
per share data calculations................................ 9,427 9,328 9,409 8,189
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 3
EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
----------------------------------
1999 1998
----------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,640 $ 4,456
Restricted cash -- 62
Accounts receivable, net of allowance for doubtful accounts
of $577 and $611 at March 31, 1999 and
September 30, 1998, respectively 11,463 7,438
Accounts receivable, related parties 2,746 500
Inventories, net 12,684 12,445
Other current assets 294 208
--------------------------------------
Total current assets 28,827 25,109
Property, plant and equipment, net 43,260 36,210
Goodwill, net 7,322 9,519
Investments in unconsolidated affiliates 4,392 292
Other assets, net 1,270 2,090
--------------------------------------
Total assets $ 85,071 $ 73,220
======================================
LIABILITIES & SHAREHOLDERS' EQUITY
Notes payable - related party $ -- $ 7,000
Accounts payable 9,132 12,023
Accrued expenses 5,457 4,197
Advanced billints 6,682 3,180
Capital lease obligations - current 732 673
Other current liabilities 162 53
--------------------------------------
Total current liabilities 22,165 27,126
Bank loans 23,000 17,950
Subordinated notes, net 8,003 7,809
Capital lease obligation, net of current portion 470 755
Other liabilities 1,097 --
--------------------------------------
Total liabilities 54,735 53,640
--------------------------------------
Mandatorily redeemable, convertible preferred stock,
1,550,000 shares issued and outstanding at March 31,
1999 (redeemable at maturity for $21,700) 21,369 --
SHAREHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 5,882,353 shares
authorized; no shares outstanding -- --
Common stock, no par value, 23,529,411 shares authorized, 9,446,347
shares issued and outstanding March 31, 1999, 9,375,952 shares
issued and outstanding at September 30, 1998 87,855 87,443
Accumulated deficit (71,221) (60,196)
Notes receivable from warrant issuances and stock sales (7,667) (7,667)
--------------------------------------
Total shareholders' equity 8,967 19,580
--------------------------------------
Total shareholders' equity and mandatorily redeemable,
convertible preferred stock 30,336 19,580
--------------------------------------
Total liabilities, shareholders' equity and mandatorily
redeemable, convertible preferred stock $ 85,071 $ 73,220
======================================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------
1999 1998
------------------------------
As restated,
see Note 9
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(10,856) $(20,661)
------------------------------
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Acquired in-process research and development, non-cash -- 19,516
Depreciation and amortization 5,662 4,087
Provision for doubtful accounts 120 (80)
Provision for inventory valuation -- 60
Detachable warrant accretion and debt issuance cost amortization 633 193
Equity in net loss of unconsolidated affiliates 1,671 --
Deferred gain on sales to an unconsolidated affiliate 1,259 --
Compensatory stock issuances 211 170
Change in assets and liabilities:
Accounts receivable - trade (4,145) (2,561)
Accounts receivable - related parties (2,247) --
Inventories (239) (2,637)
Other current assets (86) (278)
Other assets 316 (168)
Accounts payable (2,891) 1,413
Accrued expenses 1,260 (1,255)
Advanced billings 3,502 (1,912)
Other current liabilities (53) (94)
------------------------------
Total asjustments 4,973 16,454
------------------------------
Net cash used for operating activities (5,883) (4,207)
------------------------------
INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (10,449) (4,996)
Acquisition, cash acquired -- 193
Investment in unconsolidated affiliates (5,771) --
Funding of restricted cash 62 125
------------------------------
Net cash used for investing acitivies (16,158) (4,678)
------------------------------
FINANCING ACTIVITIES:
Proceeds from private placement offering, net of $500 issue costs 21,200 --
Payments on short-term notes payable, related party, net (7,000) --
Proceeds from bank loan 5,050 7,950
Payments on capital lease obligations (225) (187)
Net proceeds from stock options exerciase 200 42
Proceeds from exercise of stock warrants -- 19
------------------------------
Net cash provided by financing activites 19,225 7,824
------------------------------
Net decrease in cash and cash equivalents (2,816) (1,061)
Cash and cash equivalents, beginning 4,456 3,653
------------------------------
Cash and cash equivalents, ending $ 1,640 $ 2,592
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 865 $ 315
==============================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Shareholders' Total
------------------- Accumulated Notes Shareholders'
Shares Amount Deficit Receivable Equity
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 2,994 $18,978 ($18,158) $ (298) $522
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
Issuance of common stock on exercise of
warrants 94 384 384
Stock option exercise 35 54 54
Redemption of notes receivable from
shareholders 32 32
Forgiveness of notes receivable from 57 57
shareholder
Compensatory stock issuances 2 35 35
Net loss (5,620) (5,620)
----- ------- -------- ------- --------
BALANCE AT SEPTEMBER 30, 1997 6,000 $45,817 $(23,778) $ (209) $ 21,830
===== ======= ========= ======= ========
Issuance of common stock purchase warrants 1,310 1,310
Issuance of common stock and common stock
purchase warrants in exchange for notes
receivable 1,828 7,458 (7,458) --
Issuance of common stock and common stock
purchase options and warrants in
connection with the acquisition of MODE 1,462 32,329 32,329
Stock option exercise 36 83 83
Stock purchase warrant exercise 6 23 23
Issuance of common stock on exercise of
warrants in exchange for subordinated
notes of sub-debt 18 72 72
Compensatory stock issuances 26 351 351
Net loss (36,418) (36,418)
----- ------- -------- ------- --------
BALANCE AT SEPTEMBER 30, 1998 9,376 $87,443 $(60,196) $(7,667) $ 19,580
===== ======= ========= ======= ========
Warrant exercise by conversion of sub-debt -- 1 -- -- 1
Compensatory stock issuances 14 211 -- -- 211
Stock option exercise 56 200 -- -- 200
Preferred stock dividends -- -- (145) -- (145)
Accretion of redeemable preferred stock
issue cost -- -- (24) -- (24)
Net loss -- -- (10,856) -- (10,856)
----- ------- -------- ------- --------
BALANCE AT MARCH 31, 1999 (unaudited) 9,446 $87,855 $(71,221) $(7,667) $ 8,967
===== ======= ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
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 March 31, 1999, and the consolidated results of operations and the
consolidated cash flows for the six month periods ended March 31, 1999 and March
31, 1998. All adjustments reflected in the accompanying unaudited condensed
consolidated financial statements are of a normal recurring nature unless
otherwise noted. Prior period balances have been reclassified to conform with
the current period financial statement presentation. The results of operations
for the six months ended March 31, 1999 are not necessarily indicative of the
results for the fiscal year ending September 30, 1999 or any future interim
period.
NOTE 2. SECONDARY OFFERING
On February 4, 1999, the Company filed a Registration Statement with the
Securities and Exchange Commission for a public offering of 3.0 million shares
of common stock by the Company and additional shares by certain selling
shareholders. Such Registration Statement has not become effective as of
May 17, 1999.
NOTE 3. JOINT VENTURE
On January 21, 1999, General Electric Lighting and the Company agreed to
form a new joint venture to develop and market "white light" light-emitting
diodes. The new company, GELcore, LLC (the "GELcore venture"), will develop and
market LEDs as replacements for miniature automotive, compact fluorescent,
halogen and traditional incandescent lighting. Under terms of the joint venture
agreement, the Company has a 49% non-controlling interest in the GELcore
venture.
In connection with the GELcore venture, General Electric will fund the
Company's initial capital contribution of $7.8 million into GELcore. The funding
will be in the form of a subordinated debenture (the "Debenture") of an interest
rate of 4.75% and the Debenture will mature in 2006 and is convertible into
common stock of the Company at a conversion price of $22.875 or 340,984 shares.
The Debenture is convertible at any time at the option of General Electric and
may be called by the Company after three years, if the price of the Company's
common stock has traded at or above $34 for at least thirty days. The
Debenture's interest rate will be subject to adjustment in the event the Company
does not complete a public offering by June 30, 1999.
In addition, General Electric will also receive 282,010 warrants to
purchase common stock at $22.875 per share. The warrants are exercisable at any
time and will expire in 2006. For the three months ended March 31, 1999, the
Company recognized a loss of $497,000 related to this venture which has been
recorded as a component of other income and expense. On a fully diluted basis,
General Electric will own approximately 5% of the common stock of the Company.
6
<PAGE> 7
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. DEBT FACILITIES:
On January 15, 1999, the Company borrowed the remaining balance of $2.0
million available under the $10.0 million loan agreement with First Union
National Bank. This agreement bears interest at the rate of Prime plus one-half
percent per annum or 8.25% at March 31, 1999.
On February 1, 1999, the Company entered into a $5.0 million short-term
note (the "Note") with First Union National Bank. The Note is due and payable in
May 1999 (See Note 8). The Note bears interest at a rate equal to one-month
LIBOR plus three-quarters of one percent per annum or 5.7% at March 31, 1999.
NOTE 5. INVENTORIES
The components of inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of As of
March 31, 1999 September 30, 1998
-------------- ------------------
<S> <C> <C>
Raw materials............................. $9,927 $11,346
Work-in-process........................... 2,744 1,092
Finished goods............................ 13 7
------- -------
Total................... $12,684 $12,445
======= =======
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
On November 30, 1998, the Company sold an aggregate of 1,550,000 shares of
Series I Redeemable Convertible Preferred Stock ("the Series I Preferred
Stock") for aggregate consideration of $21.7 million before deducting costs
and expenses, which amounted to approximately $500,000. The Series I Preferred
Stock was recorded net of issuance costs. The excess of the preference amount
over the carrying value is being accreted by periodic charges to accumulated
deficit in the absence of additional paid in capital. The shares of Series I
Preferred Stock are convertible, at any time, at the option of the holders
thereof, unless previously redeemed, into shares of common stock at an initial
conversion price of $14.00 per share of common stock, subject to adjustment in
certain cases. The market price of the Company's common stock was $12.875 on the
date the Series I Preferred Stock was issued. The Series I Preferred Stock is
redeemable, in whole or in part, at the option of the Company at any time the
Company's stock has traded at or above $28.00 per share for 30 consecutive
trading days, at a price of $14.00 per share, plus accrued and unpaid dividends,
if any, to the redemption date. The Series I Preferred Stock carries a dividend
of 2% per annum. Dividends are being charged to accumulated deficit in the
absence of additional paid in capital. In addition, the Series I Preferred Stock
is subject to mandatory redemption by the Company at $14.00 per share plus
accumulated and unpaid dividends, if any, on November 17, 2003.
In February 1998, the Company and a subsidiary of Uniroyal Technology
Corporation formed Uniroyal Optoelectronics LLC, a joint venture, to
manufacture, sell and distribute HB LED wafers and package-ready devices. During
the quarters ended March 31, 1999 and December 31, 1998, the Company sold one
and two compound semiconductor production systems to the venture totaling $2.3
million and $3.0 million in revenues, respectively. The Company eliminated gross
profit of approximately $549,000 and $711,000 for the quarters ended March 31,
1999 and December 31, 1998, respectively, on such sales to the extent of its
minority interest. Such deferred gross profit will be recognized ratably over
the assigned life of the production systems purchased by the joint venture. For
the six months ended March 31, 1999, the Company recognized a loss of $1.0
million related to this venture, which has been recorded as a component of other
income and expense. As of March 31, 1999, the Company's investment in this
venture amounted to $4.3 million.
The President of Hakuto Co. Ltd. ("Hakuto"), the Company's Asian
distributor, is a member of the Company's Board of Directors and Hakuto is a
minority shareholder of the Company. During the quarter and six months ended
March 31, 1999, sales made through Hakuto amounted to approximately $2.0 million
and $5.1 million, respectively.
On January 27, 1999, the Company borrowed $3.0 million from its Chairman.
The interest rate on the loan was 8% per annum. In February 1999, the loan was
repaid from borrowings under the Company's $5.0 million short-term note.
7
<PAGE> 8
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. RELATED PARTY TRANSACTIONS (CONTINUED)
On January 29, 1999, the Company's Chairman committed to provide $30.0
million of long-term financing to the Company through July 1, 2000. The
Chairman's financing commitment terminates if the Company completes a secondary
offering of a specified amount. All bank loans on the accompanying balance sheet
are classified as long-term due to the Chairman's commitment.
NOTE 7. EARNINGS PER SHARE
The Company accounts for earnings per share under the provision of
Statement of Financial Accounting Standards No. 128 "Earnings per share" ("SFAS
No. 128"). Basic earnings per common share was calculated by dividing net loss
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share was calculated by dividing net loss 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 six-month periods
ending March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
----------------------- -------------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net loss............................................ $(3,977) $ (778) $(10,856) $(20,661)
Preferred stock dividends.................. (108) -- (145) --
Periodic accretion of preferred
stock to redemption value................ (18) -- (24) --
------- ------ -------- --------
Net loss available to common
shareholders..................................... $(4,103) $ (778) $(11,025) $(20,661)
======= ====== ======== ========
Earnings per common share - basic................... $ (0.44) $ (0.08) $ (1.17) $ (2.52)
======= ====== ======== ========
Earnings per common share - diluted................. $ (0.44) $ (0.08) $ (1.17) $ (2.52)
======= ====== ======== ========
Common shares - basic............................... 9,427 9,328 9,409 8,189
Effect of dilutive securities:
Stock option and warrants.................. -- -- -- --
Preferred stocks........................... -- -- -- --
Common shares - diluted............................. 9,427 9,328 9,409 8,189
======= ====== ======== ========
</TABLE>
The effect of outstanding common stock purchase options and warrants and
the number of shares available to be issued upon the conversion of the Company's
Series I Preferred Stock have been excluded from its earnings per share
calculation since the effect of such securities is anti-dilutive.
8
<PAGE> 9
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SUBSEQUENT EVENTS:
DEBT FACILITIES:
On April 29, 1999, the Company borrowed $2.5 million from its Chairman. The
loan bears interest at Prime plus two percent per annum or 9.75%. On May 7,
1999, the loan was repaid from borrowings under the Company's $19.0 million
short-term note, discussed below.
On April 29, 1999, the Company entered into a $19.0 million short-term loan
agreement (the "1999 Agreement") with First Union National Bank. The 1999
Agreement represented a consolidation of the $8.0 million and $5.0 million
short-term loan agreements dated June 22, 1998 and February 1, 1999,
respectively, and an additional note of $6.0 million. The 1999 Agreement is due
and payable on October 1, 1999 and bears interest at a rate equal to one-month
LIBOR plus three-quarters of one percent per annum or 5.7%. A portion of the
proceeds from the additional $6.0 million note were used to repay the $2.5
million short-term note from the Company's Chairman.
JOINT VENTURE:
On April 27, 1999, the Company contributed an additional $500,000 as a
capital investment in their joint venture with Uniroyal Technologies
Corporation.
NOTE 9. RESTATEMENT
Subsequent to the issuance of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, the Company revised the amount of the
purchase price which was allocated to in-process research and development in
accounting for the acquisition of MicroOptical Devices, Inc. ("MODE") on
December 5, 1997. The revised allocation is based upon methods prescribed in a
letter from the Securities and Exchange Commission ("SEC") sent to the American
Institute of Certified Public Accountants. The letter sets forth the SEC's
views regarding the valuation methodology to be used in allocating a portion of
the purchase price to acquired in-process research and development at the date
of acquisition.
The revised valuation is based on management's estimates of the net cash
flows associated with expected operations of MODE and gives explicit
consideration to the SEC's views on acquired in-process research and
development as set forth in its letter to the American Institute of Certified
Public Accountants.
As a result of the revised allocation, the amount of the purchase price
allocated to acquired in-process research and development at the date of
acquisition decreased from $29.3 million to $19.5 million, and the amount
ascribed to goodwill increased by $9.8 million which includes approximately $0.5
million related to the value of MODE's workforce. The Company's financial
statements for the three month and six month periods ended March 31, 1998, have
been restated from amounts previously reported. This change had no impact on
net cash flows used for operations.
A summary of the significant effect of the restatement is as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1998
---------------------------
(in thousands)
As previously
Reported As Restated
------------- -------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Goodwill amortization $ 284 $ 1,099
Operating income (loss) $ 200 $ (615)
------------- -------------
Net income (loss) $ 37 $ (778)
------------- -------------
Net income (loss) per common share - basic and diluted $ 0.00 $ (0.08)
============= =============
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
March 31, 1998
---------------------------
(in thousands)
As previously
Reported As Restated
------------- -------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Goodwill amortization $ 355 $ 1,442
Operating loss $(29,023) $(20,332)
------------- -------------
Net loss $(29,352) $(20,661)
------------- -------------
Net loss per common share - basic and diluted $ (3.58) $ (2.52)
============= =============
</TABLE>
9
<PAGE> 10
EMCORE CORPORATION
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 Performance 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 current expectations
or beliefs of EMCORE Corporation 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 that 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 the effect of the acquisition of MicroOptical Devices, Inc. ("MODE")
on the Company's business, the uncertainty of additional funding; continued
acceptance of the Company's MOCVD technologies, as well as the market success of
optical VCSEL technologies; operations and performance of the Company's joint
ventures, 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.
RESTATEMENT
The Company has restated its previously filed condensed consolidated
financial statements for the three month and six month periods ended March 31,
1998 to adjust the allocation of the purchase price related to the acquisition
of MicroOptical Devices, Inc. ("MODE") in December 1997 and the resulting
amortization of goodwill.
The Securities and Exchange Commission ("SEC") issued new guidance on its
views regarding the valuation methodologies used to determine the allocation of
purchase price to acquire in-process research and development ("IPR&D") and
intangible assets in a purchase business combination. Generally accepted
accounting principles require that amounts allocated to IPR&D be expensed upon
consummation of an acquisition. Following discussions between the Company and
the staff of the SEC regarding the application of this guidance, the Company
has modified the methods used to value IPR&D and other intangible assets
acquired in connection with the acquisition of MODE. The revised valuation is
based on management's best estimates at the date of acquisition of the net cash
flows expected to be generated by MODE on a going-forward basis and gives
explicit consideration to the SEC's views on IPR&D as set forth in its letter
to the American Institute of Certified Public Accountants. As a result of this
revised valuation, the amount of the purchase price allocated to IPR&D at the
date of acquisition decreased from $29.3 to $19.5 million. Therefore, the
amount ascribed to goodwill increased by $9.8 million which includes
approximately $0.5 million related to the value of MODE's workforce.
OVERVIEW:
EMCORE designs, develops and manufactures compound semiconductor materials
and is a leading developer and manufacturer of the tools and manufacturing
processes used to fabricate compound semiconductor wafers and devices. Prior to
fiscal 1997, EMCORE's revenues consisted primarily of the sales of compound
semiconductor production systems. In fiscal 1997, EMCORE expanded its product
offerings to include the design and high-volume production of compound
semiconductor wafers and package-ready devices. EMCORE's vertically-integrated
product offering allows it to provide a complete compound semiconductor solution
to its customers. EMCORE assists its customers with device design, process
development and optimal configuration of TurboDisc production systems.
Systems-related revenues include sales of EMCORE's TurboDisc production
systems as well as spare parts and services. The book-to-ship time period on
systems is approximately four to six months, and the average selling price is in
excess of $1.0 million. Materials revenues include wafers, devices and process
development technology. The materials sales cycle is generally shorter than for
systems and average selling prices vary significantly based on the products and
services provided. Generally, EMCORE achieves a higher gross profit on its
materials related products.
EMCORE recognizes revenue upon shipment. For systems, EMCORE incurs certain
installation and warranty costs subsequent to shipment which are estimated and
accrued at the time the sale is recognized. EMCORE reserves for estimated
returns and allowances at the time of shipment. For research contracts with the
U.S. government and commercial enterprises with durations greater than six
months, EMCORE recognizes revenue to the extent of costs incurred plus a pro
rata portion of estimated gross profit as stipulated in these contracts, based
on contract performance. EMCORE's research contracts require the development or
evaluation of new materials applications and have a duration of six to 36
months. Contracts with a duration of six months or less are accounted for on the
completed contract method. A contract is considered complete when all costs have
been incurred and the research reporting requirements to the customer have been
met.
11
<PAGE> 11
EMCORE has recently established a number of strategic relationships through
joint ventures, long-term supply agreements and an acquisition as summarized
below.
0 In January 1999, EMCORE signed an agreement with General Electric
Lighting to form GELcore, a joint venture to develop and market white
light and colored HB LEDs lighting products. GELcore's long-term goal is
to develop HB LED products to replace traditional lighting. We anticipate
investing approximately $7.8 million in GELcore upon formation of the
joint venture and will second various personnel to the joint venture to
assist in the development and marketing of its products. These personnel
and the related costs will be charged to the joint venture. In addition,
GELcore will hire its own administrative and management personnel. As
such, the impact on EMCORE's operations will be limited to the seconded
employees who will continue to be managed by EMCORE personnel.
0 In November 1998, EMCORE signed a long term purchase agreement with Space
Systems/Loral, a wholly owned subsidiary of Loral Space & Communications.
Under this agreement, which is contingent upon EMCORE's compliance with
Loral's product specification requirements, EMCORE will supply compound
semiconductor high-efficiency gallium arsenide solar cells for Loral's
satellites. EMCORE anticipates completing this qualification in June
1999. Subject to the product qualification, EMCORE received an initial
purchase order for $5.25 million of solar cells. EMCORE expects to
service this agreement through our newly completed facility in
Albuquerque, New Mexico. This facility presently employs approximately 40
people, including sales, marketing, administrative and manufacturing
personnel.
0 In November 1998, EMCORE formed UMCore, a joint venture with Union
Miniere Inc., a mining and materials company, to explore and develop
alternate uses for germanium using EMCORE's materials science and
production platform expertise and Union Miniere's access to and
experience with germanium. EMCORE has invested $600,000 in UMCore which,
together with an equal amount funded by Union Miniere, is expected to
fund the operations of UMCore through fiscal 1999. EMCORE will second
various personnel to the joint venture to assist in the development of
products. Thereafter, any additional funding will be contributed equally.
0 In October 1998, EMCORE formed Emtech, a joint venture with Optek
Technology, Inc., a packager and distributor of optoelectronic devices,
to market an expanded line of magneto resistive sensors to the automotive
and related industries. This joint venture combines EMCORE's expertise in
the manufacture of magneto resistive die and Optek's expertise in
packaging these die. This combination will allow us to offer customers
off-the-shelf products. No additional personnel are anticipated to meet
the obligations to the joint venture.
0 In September 1998, EMCORE entered into an agreement with Lockheed Martin
to provide technical management and support for the commercialization of
a new high-efficiency solar cell. It is anticipated that we will provide
high efficiency solar cells to Lockheed Martin upon completion of the
research and development agreement. EMCORE's new facility in Albuquerque,
New Mexico, will provide the support necessary to meet our obligations
under this agreement.
O EMCORE also signed a four-year purchase agreement with AMP Incorporated
to provide high speed VCSELs, for use in transceivers for high speed
networks that link computers. The contract requires AMP to purchase a
minimum of 80% of their VCSEL needs from EMCORE. EMCORE's MODE facility
in Albuquerque, New Mexico, will produce the devices under this contract.
O In February 1998, EMCORE and Uniroyal Technology Corporation formed
Uniroyal Optoelectronics, a joint venture to manufacture, sell and
distribute HB LED wafers and package-ready devices. This joint venture
commenced operations in July 1998. EMCORE has invested $5.5 million in
Uniroyal Optoelectronics. Uniroyal Optoelectronics is hiring its own
administrative and management personnel. The impact on EMCORE's
operations will be limited to a few seconded employees who will continue
to be managed by EMCORE personnel.
12
<PAGE> 12
Because we do not have a controlling economic and voting interest in the
Uniroyal, Union Miniere, Optek and General Electric Lighting joint ventures,
EMCORE will account for these joint ventures under the equity method of
accounting and, as such, our share of profits and losses will be included below
the operating income line in our statement of operations.
To expand its technology base into the data communications and
telecommunications markets, on December 5, 1997, EMCORE acquired MicroOptical
Devices, Inc. ("MODE") in a stock transaction accounted for under the purchase
method of accounting for a purchase price of $32.8 million. EMCORE's acquisition
of MODE, a development stage company, constituted a significant and strategic
investment for EMCORE to acquire and gain access to MODE's in-process research
and development of micro-optical technology. As part of this acquisition, EMCORE
incurred a one-time in-process research and development write-off of $19.5
million. EMCORE also recorded goodwill of approximately $13.2 million. This is
being charged against operations over a three-year period, and will therefore
impact financial results through December 2000. The goodwill of $13.2 million
represents an increase of approximately $9.8 million from the original amount
recorded when the Company purchased MODE in December 1997. This is a result of
an adjustment related to the SEC's new industry wide guidelines for the
determination of writeoffs of acquired in-process research and development
implemented subsequent to the acquisition date.
EMCORE sells its products and has generated a significant portion of its
sales to customers outside the United States. In fiscal 1996, 1997, 1998 and the
first six months of fiscal 1999, international sales constituted 42.5%, 42.0%,
39.1% and 31.0%, respectively, of revenues. In fiscal 1998, the majority of
EMCORE's international sales were made to customers in Asia, particularly in
Japan. EMCORE's sales revenues from Europe have fluctuated because most of our
sales of TurboDisc systems are to a limited number of customers, who do not
purchase these systems regularly. EMCORE anticipates that international sales
will continue to account for a significant portion of revenues. Historically, we
have received all payments for products and services in U.S. dollars. We do not
anticipate that Europe's Euro-currency conversion will have a material effect on
our financial condition or results of operations.
The information below summarizes EMCORE's export sales by geographic area.
EMCORE's export sales to the Far East and Europe are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, ASIA EUROPE TOTAL
- ------------------------ ---- ------ -----
<S> <C> <C> <C>
1996..................................................... $ 8,209,309 $3,588,066 $11,797,375
1997..................................................... 14,583,981 5,478,186 20,062,167
1998..................................................... 15,527,169 1,584,851 17,112,020
1999 (6 months).......................................... 7,967,184 145,919 8,113,103
</TABLE>
As of March 31, 1999, EMCORE had an order backlog of $38.3 million
scheduled to be shipped through September 30, 1999. This represented an increase
of 69% since September 30, 1998 which primarily relates to increased systems
bookings in Asia and an initial order for solar cells from Loral, which is
subject to product qualification. EMCORE includes in backlog only customer
purchase orders that have been accepted by EMCORE 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 agreements extending longer than one
year in duration are included in backlog only for the ensuing 12 months. EMCORE
receives partial advance payments or irrevocable letters of credit on most
production system orders.
On February 4, 1999, the Company filed a Registration Statement with the
Securities and Exchange Commission for a public offering of 3.0 million shares
of common stock. Such Registration Statement has not become effective as of
May 17, 1999.
13
<PAGE> 13
RESULTS OF OPERATIONS:
REVENUES. The Company's revenues increased 16.4% from $13.8 million for the
three months ended March 31, 1998, to $16.1 million for the three months ended
March 31, 1999. For both the six-month periods ended March 31, 1998 and 1999,
revenues were $26.2 million. The revenue increase in the three- and six-month
periods was attributable to increased revenues in the systems-related product
lines. Revenues from systems related sales and materials-related sales were $7.7
million and $6.1 million, respectively, for the three-month ended March 31, 1998
and $13.4 million and $2.7 million, respectively, for the three months ended
March 31, 1999. As a percentage of revenues, production systems and wafers and
devices accounted for 55.2% and 44.8%, respectively, for the six months ended
March 31, 1998 and 78.8% and 21.2%, respectively, for the six months ended March
31, 1999. The Company expects these percentages to approach 50% as the Company's
new products such as solar cells, VCSELS and HBT's are introduced and production
ramps. International sales accounted for 43.5% of revenues for the six months
ended March 31, 1998 and 45.5% of revenues for the six months ended March 31,
1999.
COST OF SALES/GROSS PROFIT. Cost of sales includes direct material and
labor costs, allocated manufacturing and service overhead, and installation and
warranty costs. The Company's gross profit increased 9.5% from $6.3 million for
the three months ended March 31, 1998, to $6.9 million for the three months
ended March 31, 1999. For the six-month period ended, gross profit decreased
from 46.8% of revenue for the six months ended March 31, 1998, to 41.9% of
revenue for the six months ended March 31, 1999. During the six months ended
March 31, 1999, the Company sold three compound semiconductor production systems
for approximately $5.3 million to a joint venture in which it has a 49% minority
interest. The Company eliminated $1.3 million of gross profit on such sales.
Such deferred gross profit will be recognized ratably over the assigned life of
the production systems purchased by the joint venture.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by 11.1% from $2.9 million for the three months ended March
31, 1998, to $3.2 million in the three months ended March 31, 1999. As a
percentage of revenue, selling, general and administrative expenses increased
from 22.0% for the six months ended March 31, 1998 to 24.3% for the six months
ended March 31, 1999. A significant portion of the increase was largely due to
increases in sales personnel headcount to support both domestic and foreign
markets and general headcount additions to sustain internal administrative
support.
GOODWILL AMORTIZATION. The Company recognized approximately $1.1 million of
goodwill amortization for the three months ended March 31, 1999 in connection
with the acquisition of MODE on December 5, 1997. As of March 31, 1999, the
Company has approximately $7.3 million of goodwill remaining, which will be
fully amortized by December 2000.
14
<PAGE> 14
EMCORE CORPORATION
RESULTS OF OPERATIONS (CONTINUED):
RESEARCH AND DEVELOPMENT. Research and development expenses increased 50.5%
from $2.9 million in the three months ended March 31, 1998, to $4.3 million in
the three months ended March 31, 1999. As a percentage of revenue, recurring
research and development expenses increased from 22.5% for the six months ended
March 31, 1998 to 39.2% for the six months ended March 31, 1999. The increase
was primarily attributable to EMCORE's acquisition of MODE, the startup of our
new Albuquerque, New Mexico facility and increased staffing and equipment costs
necessary to enhance current products and develop new product offerings.
Products introduced or under development include HB LEDs, high efficiency solar
cells, new generation TurboDisc production systems, VCSELs, RF Materials and
other optoelectronic devices. During the three-months ended December 31, 1997,
the Company recognized a $19.5 million one-time charge for acquired in-process
research and development relating to the 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.
OPERATING INCOME/LOSS. The Company reported an operating loss of $1.8
million for the three months ended March 31, 1999, as compared to operating loss
of $0.6 million for the three months ended March 31, 1998. The change in
operating income is due to the elimination of $1.3 million of gross profit on
three compound semiconductor production systems sold to a joint venture in which
it has a 49% minority interest. In addition, the Company's operating loss was
impacted by increased research and development spending; the loss generated from
the operations of MODE and the startup expenses associated with the opening of
the Company's new Albuquerque, New Mexico facility.
OTHER EXPENSE. During fiscal 1996, the Company issued detachable warrants
along with subordinated notes to certain of its existing shareholders. The
Company subsequently assigned a value to these detachable warrants issued 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. In June 1998, the Company issued 284,684 warrants to its
Chairman and its Chief Executive Officer for providing a guarantee in connection
with the 1998 Agreement, an 18 month credit facility with First Union National
Bank. The Company assigned a value to these warrants using the Black-Scholes
Option Pricing Model. The consequent expense of these warrant accretion amounts
is charged to "Imputed warrant interest, non-cash" and amount to approximately
$192,000 and $633,000 for the six months ended March 31, 1998 and March 31,
1999, respectively.
For the three months ended, March 31, 1999, stated interest expense, net
increased by $416,000 to $463,000 due to additional borrowing.
Because the Company does not have a controlling economic and voting
interest in the Uniroyal, Union Miniere, and General Electric Lighting joint
ventures, EMCORE accounts for such joint ventures under the equity method of
accounting. For the six months ended March 31, 1999, the Company incurred a net
loss of $1.0 million related to the Uniroyal joint venture, a $497,000 net loss
related to the GELCore joint venture and a $141,000 net loss related to the
UMCore joint venture.
15
<PAGE> 15
EMCORE CORPORATION
RESULTS OF OPERATIONS (CONTINUED):
NET LOSS. The Company reported a net loss of $4.0 million for the three
months ended March 31, 1999, as compared to net loss of $778,000 for the three
months ended March 31, 1998. For the six-month period ended March 31, 1999, the
Company reported a decrease of 47.5% from a $20.7 million net loss for the six
months ended March 31, 1998, to $10.9 million net loss for the six months ended
March 31, 1999. The decrease in the year-to-date loss was attributable to the
$19.5 million write-off of acquired in-process research and development in
connection with the acquisition of MODE on December 5, 1997 offset by the
increase in research and development expenses and the net loss from
unconsolidated affiliates.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents decreased by $2.8 million from $4.5 million at
September 30, 1998, to $1.6 million at March 31, 1999. For the six months ended
March 31, 1999, net cash used for operations amounted to $5.9 million, primarily
due to the Company's net losses and an increase in accounts receivable; which
was partially offset by the Company's non-cash depreciation and amortization
charges and an increase in advance billings.
For the six months ended March 31, 1999, net cash used for investment
activities amounted to $16.2 million, primarily due to the purchase and
manufacture of new equipment for the facilitation of the Company's wafer and
device product lines, and clean room modifications and enhancements of
approximately $10.4 million, as well as investments in unconsolidated affiliates
of approximately $5.8 million.
Net cash provided by financing activities for the six months ended March
31, 1999 amounted to approximately $19.2 million, primarily due to the $21.2
million of net proceeds from the private placement of preferred stock and
short-term related party borrowings of $5.1 million. This was offset by debt
repayments of $7.0 million on short-term related party debt.
EMCORE's Chairman has committed to provide up to $30.0 million of long
term financing to EMCORE through July 1, 2000. This commitment terminates upon
completion of any public offering of EMCORE's common stock, subject to a minimum
offering size requirement.
On January 27, 1999 EMCORE borrowed $3.0 million from its Chairman, Thomas
J. Russell. This loan bears interest at 8% per annum. On February 1, 1999 EMCORE
entered into a $5.0 million short-term note (the "Note") with First Union
National Bank. The loan from Thomas J. Russell was repaid from borrowings under
the Note. The Note is due and payable in May 1999. The Note bears interest at
the rate equal to one month LIBOR plus three quarters of one percent per annum.
On April 29, 1999, the Company borrowed $2.5 million from its Chairman. The
loan bears interest at prime rate plus two percent per annum. On May 7, 1999,
the loan was repaid from borrowings under the Company's $19.0 million short-term
note, as discussed below.
On April 29, 1999, the Company entered into a $19.0 million short-term loan
agreement (the "1999 Agreement") with First Union National Bank. The 1999
Agreement represented a consolidation of the $8.0 million and $5.0 million
short-term loan agreements dated June 22, 1998 and February 1, 1999,
respectively, and an additional note of $6.0 million. The 1999 Agreement is due
and payable on October 1, 1999 and bears interest at a rate equal to one-month
LIBOR plus three-quarters of one percent per annum (5.75% at May 14, 1999). On
May 7, 1999, the Company used borrowings under the 1999 Agreement to repay the
$2.5 million short-term note from the Company's Chairman. As of May 14, 1999,
EMCORE had borrowed approximately $17.5 million under the 1999 Agreement.
16
<PAGE> 16
EMCORE CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
On February 4, 1999, the Company filed a Registration Statement with the
Securities and Exchange Commission for a public offering of 3.0 million shares
of common stock. Such Registration Statement has not become effective as of
May 17, 1999.
EMCORE believes that its current liquidity, together with available credit,
should be sufficient to meet its cash needs for working capital through July
2000. However, if the available credit facilities, cash generated from
operations and cash on hand are not sufficient to satisfy EMCORE's liquidity
requirements, EMCORE will seek to obtain additional equity or debt financing.
Additional funding may not be available when needed or on terms acceptable to
EMCORE. If EMCORE is required to raise additional financing and if adequate
funds are not available or not available on acceptable terms, the ability to
continue to fund expansion, develop and enhance products and services, or
otherwise respond to competitive pressures would be severely limited. Such a
limitation could have a material adverse effect on EMCORE's business, financial
condition or operations.
At March 31, 1999, the Company employed 326 full-time employees. None of
the Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with its employees to be good.
YEAR 2000:
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS. The Company has made a preliminary assessment of the
Year 2000 readiness of its operating financial and administrative systems,
including the hardware and software that support such systems. The Company's
assessment plan consists of (1) quality assurance testing of its internally
developed proprietary software; (2) contacting third-party vendors and licensors
of material hardware, software and services that are both directly and
indirectly related to the Company's business; (3) contacting vendors of
third-party systems; (4) assessing repair or replacement requirements; (5)
implementing repair or replacement; and (6) creating contingency plans in the
event of Year 2000 failures.
Our compound semiconductor wafers and devices are date insensitive and,
therefore, do not have any Year 2000 issues associated with them. Our TurboDisc
production systems have several components that could give rise to Year 2000
compliance concerns. We have preliminarily assessed the Year 2000 issues
associated with these components and have found that they have either been
certified by the vendor to be compliant or are date insensitive.
Our principal concern has been the status of our operating, financial and
administrative systems. These systems include accounting and production control
software at our New Jersey and the two New Mexico facilities. All software has
been certified as Year 2000 compliant by the vendors, except our New Jersey
office's accounting software. The software's manufacturer has a new version of
the accounting software that is Year 2000 compliant and has already been
purchased by the Company. The minor upgrade will be installed and tested by July
1999 and all expected costs have been reflected in the financial statements.
17
<PAGE> 17
EMCORE CORPORATION
YEAR 2000 (CONTINUED):
There are other information technology systems and non-information
technology systems that could give rise to Year 2000 concerns. These include
scientific and engineering applications, desktop applications (such as Microsoft
Word and Excel) and facilities controls such as HVAC and security. A review of
these systems leads us to believe that the systems are Year 2000 compliant, are
not critical to business operations, are used on a limited basis or are date
insensitive.
We are continuing the evaluation of Year 2000 compliance of all our systems
and have developed and implemented enterprise-wide database that we use to
document Year 2000 issues. The Company plans to complete its evaluation by
September 30, 1999 including Year 2000 simulation on its systems during the
second and third quarter of calendar 1999 to test systems readiness.
COSTS. To date, the Company has not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of the Company's expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees in the evaluation process and Year 2000 compliance matters generally.
At this time, the Company does not possess the information necessary to estimate
the potential costs of revisions to its systems should such revisions be
required or the replacement of third-party software, hardware or services that
are determined not to be Year 2000 compliant. Although the Company anticipates
that such expenses will be immaterial, such expenses, if higher than
anticipated, could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS. The Company is not currently aware of any Year 2000 compliance
problems relating to its systems that would have a material adverse effect on
the Company's business, results of operations and financial condition, without
taking into account the Company's efforts to avoid or fix such problems. There
can be no assurance that the Company will not discover Year 2000 compliance
problems in its systems that will require substantial revision. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into the Company material systems will not need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of the
Company to fix or replace its internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material adverse effect on the
Company's business, result of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in its internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend. In addition, the failure of governmental
agencies, utility companies, third-party service providers and others outside of
the Company control to be Year 2000 compliant could result in systemic failure
beyond the Company's control, such as a telecommunications or electrical
failure, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
CONTINGENCY PLAN. As discussed above, the Company is engaged in an ongoing
Year 2000 assessment and has not yet developed any contingency plans. The
results of the Company's Year 2000 simulation testing and the responses received
from third-party vendors and service providers will be taken into account in
determining need, nature and extent of any contingency plans.
18
<PAGE> 18
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 OF SECURITY HOLDERS
The following matters were submitted to a vote of shareholders at the
Company's 1999 Annual Meeting of Shareholders held February 16, 1999.
a. Election of directors Number of Shares
For Withheld
--- --------
Thomas J. Russell 9,678,939 8,622
Reuben F. Richards, Jr. 9,678,939 8,622
Thomas G. Werthan 9,678,939 8,622
Richard A. Stall 9,678,939 8,622
Robert Louis-Dreyfus 9,678,939 8,622
Hugh H. Fenwick 9,678,939 8,622
Shigeo Takayama 9,678,939 8,622
Charles Scott 9,678,939 8,622
John J. Hogan, Jr. 9,678,939 8,622
b. Ratify selection of PricewaterhouseCoopers LLP as independent auditors
of the Company for the fiscal year ended September 30, 1999.
For: 9,682,949 Against: 862 Abstain: 3,750
c. Approval of Fair Price Amendment:
For: 6,717,355 Against: 1,516,584 Abstain: 6,950
d. Approval of amendment to Restated Certificate of Incorporation to
increase the number of authorized shares of common stock.
For: 9,250,881 Against: 426,738 Abstain: 9,942
e. Approval of amendment to the Certificate of Incorporation regarding
classification, removal, filling vacancies and size of the Board of Directors.
For: 6,041,719 Against: 1,580,626 Abstain: 18,524
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
The Company filed a report on Form 8-K dated May 17, 1999.
19
<PAGE> 19
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: May 17, 1999 By: /s/ Reuben F. Richards, Jr.
--------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: May 17, 1999 By: /s/ Thomas G. Werthan
--------------------------------------
Thomas G. Werthan
Vice President, Finance and Administration
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EMCORE CORPORATION FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1998
<CASH> 1,640
<SECURITIES> 0
<RECEIVABLES> 14,786
<ALLOWANCES> (577)
<INVENTORY> 12,684
<CURRENT-ASSETS> 294
<PP&E> 62,558
<DEPRECIATION> (19,298)
<TOTAL-ASSETS> 85,071
<CURRENT-LIABILITIES> 22,165
<BONDS> 0
0
0
<COMMON> 87,855
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 85,071
<SALES> 26,197
<TOTAL-REVENUES> 26,197
<CGS> 15,219
<TOTAL-COSTS> 15,219
<OTHER-EXPENSES> 21,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693
<INCOME-PRETAX> (10,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,856)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
