emkr_Current_Folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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 001‑36632

 

Picture 1

 

 EMCORE Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

New Jersey

    

22‑2746503

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

2015 W. Chestnut Street, Alhambra, California, 91803

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:  (626) 293‑3400

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, no par value

EMKR

The Nasdaq Stock Market LLC (Nasdaq Global Market)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes    ◻ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.     ◻ Large accelerated filer       ☑Accelerated filer       ☐ Non-accelerated filer      ☑ Smaller reporting company     ◻ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ◻

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  ◻ Yes  ☑No

 

As of May 4, 2020, the number of shares outstanding of our no par value common stock totaled 29,371,636.

 

 

 

 

 

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CAUTIONARY STATEMENT

REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10‑Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements include, in particular, projections about our future results included in our Exchange Act reports and statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate, including the expected impact of the COVID-19 pandemic on our business and operations. These forward-looking statements may be identified by the use of terms and phrases such as “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will,” “would,” and similar expressions or variations of these terms and similar phrases. Additionally, statements concerning future matters such as our expected liquidity, development of new products, enhancements or technologies, sales levels, expense levels, expectations regarding the outcome of legal proceedings and other statements regarding matters that are not historical are forward-looking statements. Management cautions that these forward-looking statements relate to future events or our future financial performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance, or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation the following: (a)  uncertainties regarding the effects of the COVID-19 pandemic and the impact of measures intended to reduce its spread on our business and operations, which is evolving and beyond our control; (b) the rapidly evolving markets for the Company’s products and uncertainty regarding the development of these markets; (c) the Company’s historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period; (d) delays and other difficulties in commercializing new products; (e) the failure of new products: (i) to perform as expected without material defects, (ii) to be manufactured at acceptable volumes, yields, and cost, (iii) to be qualified and accepted by our customers, and (iv) to successfully compete with products offered by our competitors; (f) uncertainties concerning the availability and cost of commodity materials and specialized product components that we do not make internally; (g) actions by competitors; (h) risks and uncertainties related to applicable laws and regulations, including the impact of changes to applicable tax laws and tariff regulations; (i) acquisition-related risks, including that (1) the revenues and net operating results obtained from the Systron Donner Inertial, Inc. ("SDI") business may not meet our expectations, (2) the costs and cash expenditures for integration of the SDI business operations may be higher than expected, (3) there could be losses and liabilities arising from the acquisition of SDI that we will not be able to recover from any source, and (4) we may not realize sufficient scale in our navigation systems product line from the SDI acquisition and will need to take additional steps, including making additional acquisitions, to achieve our growth objectives for this product line; (j) risks related to our ability to obtain capital; (k) risks related to the transition of certain of our manufacturing operations from our Beijing facility to a contract manufacturer’s facility; and (l) other risks and uncertainties discussed in Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors in our Annual Report on Form 10‑K for the fiscal year ended September 30, 2019, as such risk factors may be amended, supplemented or superseded from time to time by our subsequent periodic reports we file with the Securities and Exchange Commission (“SEC”). These cautionary statements apply to all forward-looking statements wherever they appear in this Quarterly Report.

Forward-looking statements are based on certain assumptions and analysis made in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate under the circumstances. While these statements represent our judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. All forward-looking statements in this Quarterly Report are made as of the date hereof, based on information available to us as of the date hereof, and subsequent facts or circumstances may contradict, obviate, undermine, or otherwise fail to support or substantiate such statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this Quarterly Report on Form 10‑Q and our Annual Report on Form 10‑K for the fiscal year ended September 30, 2019. Certain information included in this Quarterly Report may supersede or supplement forward-looking statements in our other reports filed with the SEC. We assume no obligation to update any forward-looking statement to conform such statements to actual results or to changes in our expectations, except as required by applicable law or regulation.

 

 

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EMCORE Corporation

FORM 10‑Q

For The Quarterly Period Ended March 31, 2020

TABLE OF CONTENTS

 

 

 

 

 

 

 

    

 

    

 

Page

Part I:

 

Financial Information

4

 

 

Item 1.

 

Financial Statements (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended March 31, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and September 30, 2019

5

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended March 31, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and 2019

7

 

 

 

 

Notes to our Condensed Consolidated Financial Statements

8

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

Item 4.

 

Controls and Procedures

35

Part II:

 

Other Information

36

 

 

Item 1.

 

Legal Proceedings

36

 

 

Item 1A.

 

Risk Factors

36

 

 

Item 6.

 

Exhibits

38

 

 

 

 

SIGNATURES

39

 

 

3

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PART I. Financial Information.

ITEM 1.Financial Statements

EMCORE CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

For three and six months ended March 31, 2020 and 2019

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

March 31, 

 

March 31, 

 

    

2020

    

2019

    

2020

    

2019

Revenue

 

$

23,850

 

$

21,745

 

$

49,332

 

$

45,746

Cost of revenue

 

 

17,423

 

 

15,936

 

 

35,431

 

 

34,129

Gross profit

 

 

6,427

 

 

5,809

 

 

13,901

 

 

11,617

Operating expense:

 

 

  

 

 

  

 

 

  

 

 

  

Selling, general, and administrative

 

 

7,139

 

 

6,996

 

 

13,026

 

 

14,589

Research and development

 

 

4,584

 

 

4,360

 

 

9,226

 

 

8,379

Gain from change in estimate on ARO obligation

 

 

 —

 

 

(40)

 

 

 —

 

 

(40)

Gain on sale of assets

 

 

(315)

 

 

 —

 

 

(1,917)

 

 

 —

Total operating expense

 

 

11,408

 

 

11,316

 

 

20,335

 

 

22,928

Operating loss

 

 

(4,981)

 

 

(5,507)

 

 

(6,434)

 

 

(11,311)

Other income:

 

 

  

 

 

  

 

 

  

 

 

  

Interest income (expense), net

 

 

 1

 

 

224

 

 

(14)

 

 

491

Foreign exchange (loss) gain

 

 

(156)

 

 

304

 

 

(9)

 

 

318

Total other (expense) income

 

 

(155)

 

 

528

 

 

(23)

 

 

809

Loss before income tax expense

 

 

(5,136)

 

 

(4,979)

 

 

(6,457)

 

 

(10,502)

Income tax benefit (expense)

 

 

55

 

 

(15)

 

 

41

 

 

(30)

Net loss

 

$

(5,081)

 

$

(4,994)

 

$

(6,416)

 

$

(10,532)

Foreign exchange translation adjustment

 

 

29

 

 

13

 

 

(7)

 

 

27

Comprehensive loss

 

$

(5,052)

 

$

(4,981)

 

$

(6,423)

 

$

(10,505)

Per share data:

 

 

  

 

 

  

 

 

  

 

 

  

Net loss per basic and diluted share

 

$

(0.18)

 

$

(0.18)

 

$

(0.22)

 

$

(0.38)

Weighted-average number of basic and diluted shares outstanding used in computing net loss per share

 

 

29,033

 

 

27,652

 

 

28,931

 

 

27,592

 

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

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EMCORE CORPORATION

Condensed Consolidated Balance Sheets

As of March 31, 2020 and September 30, 2019

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

    

As of

    

As of

 

 

March 31, 

 

September 30, 

 

 

2020

 

2019

ASSETS

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

22,030

 

$

21,574

Restricted cash

 

 

60

 

 

403

Accounts receivable, net of allowance of $249 and $148, respectively

 

 

19,818

 

 

18,497

Contract assets

 

 

1,978

 

 

1,055

Inventory

 

 

23,582

 

 

24,051

Prepaid expenses and other current assets

 

 

5,183

 

 

6,389

Assets held for sale

 

 

1,661

 

 

 —

Total current assets

 

 

74,312

 

 

71,969

Property, plant, and equipment, net

 

 

20,894

 

 

37,223

Goodwill

 

 

69

 

 

69

Operating lease right-of-use assets

 

 

15,202

 

 

 —

Other intangible assets, net

 

 

220

 

 

239

Other non-current assets

 

 

217

 

 

62

Total assets

 

$

110,914

 

$

109,562

LIABILITIES and SHAREHOLDERS’ EQUITY

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Borrowings from credit facility

 

$

 —

 

$

5,497

Accounts payable

 

 

10,422

 

 

10,701

Accrued expenses and other current liabilities

 

 

10,400

 

 

14,521

Operating lease liabilities - current

 

 

1,048

 

 

 —

Total current liabilities

 

 

21,870

 

 

30,719

Operating lease liabilities - non-current

 

 

14,225

 

 

 —

Asset retirement obligations

 

 

2,006

 

 

1,890

Other long-term liabilities

 

 

 —

 

 

207

Total liabilities

 

 

38,101

 

 

32,816

Commitments and contingencies (Note 13)

 

 

  

 

 

  

Shareholders’ equity:

 

 

  

 

 

  

Common stock, no par value, 50,000 shares authorized; 36,201 shares issued and 29,291 shares outstanding as of March 31, 2020; 35,803 shares issued and 28,893 shares outstanding as of September 30, 2019

 

 

742,416

 

 

739,926

Treasury stock at cost; 6,910 shares

 

 

(47,721)

 

 

(47,721)

Accumulated other comprehensive income

 

 

943

 

 

950

Accumulated deficit

 

 

(622,825)

 

 

(616,409)

Total shareholders’ equity

 

 

72,813

 

 

76,746

Total liabilities and shareholders’ equity

 

$

110,914

 

$

109,562

 

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

5

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EMCORE CORPORATION

Condensed Consolidated Statements of Shareholders’ Equity

For the three and six months ended March 31, 2020 and 2019

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

March 31, 

 

March 31, 

 

    

2020

    

2019

    

2020

    

2019

Shares of Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

28,948

 

 

27,668

 

 

28,893

 

 

27,577

Stock-based compensation

 

 

111

 

 

121

 

 

166

 

 

212

Stock option exercises

 

 

 1

 

 

 1

 

 

 1

 

 

 1

Issuance of restricted stock units

 

 

116

 

 

 —

 

 

116

 

 

 —

Issuance of common stock - ESPP

 

 

115

 

 

66

 

 

115

 

 

66

Balance, end of period

 

 

29,291

 

 

27,856

 

 

29,291

 

 

27,856

Value of Common Stock

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

$

740,680

 

$

734,341

 

$

739,926

 

$

734,066

Stock-based compensation

 

 

1,045

 

 

722

 

 

1,846

 

 

1,147

Stock option exercises

 

 

 2

 

 

 1

 

 

 2

 

 

 1

Tax withholding paid on behalf of employees for stock-based awards

 

 

 —

 

 

(44)

 

 

(47)

 

 

(194)

Issuance of restricted stock units

 

 

410

 

 

 —

 

 

410

 

 

 —

Issuance of common stock - ESPP

 

 

279

 

 

237

 

 

279

 

 

237

Balance, end of period

 

 

742,416

 

 

735,257

 

 

742,416

 

 

735,257

Treasury stock, beginning and ending of period

 

 

(47,721)

 

 

(47,721)

 

 

(47,721)

 

 

(47,721)

Accumulated Other Comprehensive Income

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

 

914

 

 

899

 

 

950

 

 

885

Translation adjustment

 

 

29

 

 

13

 

 

(7)

 

 

27

Balance, end of period

 

 

943

 

 

912

 

 

943

 

 

912

Accumulated Deficit

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

 

(617,744)

 

 

(585,963)

 

 

(616,409)

 

 

(580,425)

Net loss

 

 

(5,081)

 

 

(4,994)

 

 

(6,416)

 

 

(10,532)

Balance, end of period

 

 

(622,825)

 

 

(590,957)

 

 

(622,825)

 

 

(590,957)

Total Shareholders’ Equity

 

$

72,813

 

$

97,491

 

$

72,813

 

$

97,491

 

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

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EMCORE CORPORATION

Condensed Consolidated Statements of Cash Flows

For the six months ended March 31, 2020 and 2019

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

For the six months ended March 31, 

 

    

2020

    

2019

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(6,416)

 

$

(10,532)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization expense

 

 

3,313

 

 

3,228

Stock-based compensation expense

 

 

1,846

 

 

1,147

Provision adjustments related to doubtful accounts

 

 

111

 

 

 —

Provision adjustments related to product warranty

 

 

100

 

 

105

Net gain on disposal of property, plant and equipment

 

 

(1,917)

 

 

 —

Other

 

 

(100)

 

 

(316)

Total non-cash adjustments

 

 

3,353

 

 

4,164

Changes in operating assets and liabilities:

 

 

  

 

 

  

Accounts receivable

 

 

(2,353)

 

 

(789)

Inventory

 

 

522

 

 

699

Other assets

 

 

(13,803)

 

 

(3,247)

Accounts payable

 

 

498

 

 

(265)

Accrued expenses and other current liabilities

 

 

10,671

 

 

2,909

Total change in operating assets and liabilities

 

 

(4,465)

 

 

(693)

Net cash used in operating activities

 

 

(7,528)

 

 

(7,061)

Cash flows from investing activities:

 

 

  

 

 

  

Purchase of equipment

 

 

(2,418)

 

 

(5,576)

Proceeds from disposal of property, plant and equipment

 

 

14,904

 

 

 —

Net cash provided by (used in) investing activities

 

 

12,486

 

 

(5,576)

Cash flows from financing activities:

 

 

  

 

 

  

Net payments on credit facilities

 

 

(5,497)

 

 

 —

Proceeds from exercise of equity awards

 

 

281

 

 

238

Issuance of restricted stock units

 

 

410

 

 

 —

Taxes paid related to net share settlement of equity awards

 

 

(47)

 

 

(194)

Net cash (used in) provided by financing activities

 

 

(4,853)

 

 

44

Effect of exchange rate changes provided by foreign currency

 

 

 8

 

 

35

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

113

 

 

(12,558)

Cash, cash equivalents and restricted cash at beginning of period

 

 

21,977

 

 

63,195

Cash, cash equivalents and restricted cash at end of period

 

$

22,090

 

$

50,637

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

  

 

 

  

Cash paid during the period for interest

 

$

83

 

$

56

Cash paid during the period for income taxes

 

$

59

 

$

59

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

  

 

 

  

Changes in accounts payable related to purchases of equipment

 

$

(762)

 

$

481

 

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

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EMCORE Corporation

Notes to our Condensed Consolidated Financial Statements

NOTE 1.            Description of Business

Business Overview

EMCORE Corporation (referred to herein, together with its subsidiaries, as the “Company,” “we,” “our,” or “EMCORE”) was established in 1984 as a New Jersey corporation. The Company became publicly traded in 1997 and is listed on the Nasdaq stock exchange under the ticker symbol EMKR. EMCORE pioneered the linear fiber optic transmission technology that enabled the world’s first delivery of Cable TV (“CATV”) directly on fiber, and today is a leading provider of advanced Mixed-Signal Optics products that enable communications systems and service providers to meet growing demand for increased bandwidth and connectivity. The Mixed-Signal Optics technology at the heart of our broadband communications products is shared with our fiber optic gyros and inertial sensors to provide the aerospace and defense markets with state-of-the-art navigation systems technology. With the acquisition of Systron Donner Inertial, Inc. (“SDI”), a navigation systems provider with a scalable, chip-based platform for higher volume gyro applications utilizing Quartz MEMS technology, in June 2019, EMCORE further expanded its portfolio of gyros and inertial sensors with SDI’s quartz MEMS gyro and accelerometer technology. EMCORE has fully vertically-integrated manufacturing capability through our indium phosphide compound semiconductor wafer fabrication facility at our headquarters in Alhambra, CA, and through our quartz processing and sensor manufacturing facility in Concord, CA. These facilities support EMCORE’s vertically-integrated manufacturing strategy for quartz and fiber optic gyro products, for navigation systems, and for our chip, laser, transmitter, and receiver products for broadband applications.  

Interim Financial Statements

The accompanying unaudited condensed consolidated financial 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 promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In our opinion, the interim financial statements reflect all normal adjustments that are necessary to provide a fair presentation of the financial results for the interim periods presented. 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, 2019 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of our business, financial position, operating results, cash flows, risk factors and other matters, please refer to our Annual Report on Form 10‑K for the fiscal year ended September 30, 2019.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10‑K for the fiscal year ended September 30, 2019. Please refer to Part II, Item 7 of our Annual Report on Form 10‑K for the fiscal year ended September 30, 2019 for a discussion of our critical accounting policies and estimates. 

NOTE 2.            Recent Accounting Pronouncements

(a)

New Accounting Updates Recently Adopted

·

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). ASU 2016-02 introduces a lessee model that requires recognition of assets and liabilities arising from qualified leases on the consolidated balance sheets and disclosure of

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qualitative and quantitative information about lease transactions. The new standard was effective for our fiscal year beginning October 1, 2019. We adopted Topic 842 using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the beginning of the period of adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward the historical lease classification and we elected the hindsight practical expedient to determine the lease term for existing leases. Additionally, the Company elected an accounting policy to not record operating lease right-of-use assets and lease liabilities for leases with an initial term of twelve months or less on its condensed consolidated balance sheet. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Adoption of the new standard resulted in the recording of net operating lease right-of-use assets of $4.8 million and operating lease liabilities of $4.8 million, as of October 1, 2019. The standard did not have an impact on our consolidated results of operations or cash flow.

·

The impact of the adoption of Accounting Standards Codification (“ASC”) 842 on the balance sheet as of October 1, 2019 was: 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

 

 

 

 

Balance

 

 

 

September 30, 2019

 

 

Increase

 

 

October 1, 2019

(in thousands)

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

 -

 

$

4,800

 

$

4,800

Total assets

 

 

109,562

 

 

4,800

 

 

114,362

Operating lease liabilities 

 

 

 -

 

 

800

 

 

800

Total current liabilities

 

 

30,719

 

 

800

 

 

31,519

Operating lease liabilities non-current

 

 

 -

 

 

4,000

 

 

4,000

Total liabilities

 

 

32,816

 

 

4,800

 

 

37,616

Total liabilities and equity

 

 

109,562

 

 

4,800

 

 

114,362

 

In connection with the sale/leaseback of non-residential real estate on February 10, 2020, the Company recorded an additional operating lease right-of-use (“ROU”) assets and operating lease liabilities of $10.8 million during the six months ended March 31, 2020.  See also Note 9 – Property, Plant and Equipment, net in the notes to the condensed consolidated financial statements.

 

(b)

 Recent Accounting Standards or Updates Not Yet Effective

·

In June 2016, the FASB issued ASU 2016‑13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. The new standard will be effective for our fiscal year beginning October 1, 2020 and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements and related disclosures.

 

NOTE 3.            Summary of Significant Accounting Policies

Our significant accounting policies are detailed in “Note 2 - Summary of Significant Accounting Policies” of our Annual Report on Form 10‑K for the year ended September 30, 2019. Significant changes to our accounting policies as a result of adopting Topic 842 are discussed below:

The Company determines if an arrangement is a lease at its inception. ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term

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includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. To the extent that the Company’s agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time. Lease expense for these leases is recognized on a straight-line basis over the lease term. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets, current operating lease liabilities, and non-current operating lease liabilities in the Company's condensed consolidated balance sheet.

The Company’s lease arrangements consist primarily of corporate, manufacturing and other facility agreements as well as various office equipment agreements. The leases expire at various dates through 2035, some of which include options to extend the lease term. The options with the longest potential total lease term consist of options for extension of up to five years following expiration of the original lease term.

During the three and six months ended March 31, 2020, the Company recorded $0.4 million and $0.7 million of operating lease expense, respectively. During the three and six months ended March 31, 2019, the Company recorded $0.3 million and $0.6 million of rent expense, respectively. The Company's finance leases and short-term leases are immaterial.

Supplemental cash information and non-cash activities related to operating leases are as follows (in thousands):

 

 

 

 

 

 

Six Months Ended 

 

    

March 31, 2020

Operating cash outflows from operating leases

 

$

629

Operating lease assets obtained in exchange for new lease liabilities

 

$

10,791

 

Maturities of operating lease liabilities as of March 31, 2020 were as follows (in thousands):

 

 

 

 

 

 

Amount

2020

 

$

1,832

2021

 

 

1,817

2022

 

 

1,835

2023

 

 

1,770

2024

 

 

1,708

Thereafter

 

 

13,238

 Total lease payments

 

 

22,200

Less imputed interest

 

 

(6,927)

 Total 

 

$

15,273

 

The following is a schedule of future minimum operating lease payments as of September 30, 2019 (in thousands):

 

 

 

 

 

 

Amount

2020

 

$

988

2021

 

 

839

2022

 

 

824

2023

 

 

853

2024

 

 

655

Thereafter

 

 

1,350

 Total lease payments

 

$

5,509

 

 

 

 

 

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Weighted-average remaining lease term and discount rate related to operating leases are as follows:

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

Weighted average remaining lease term (years)

 

14.7

 

Weighted average discount rate

 

6.1

%

 

 

 

 

 

Disaggregation of Revenue - Revenue is classified based on the product line of business. For additional information on the disaggregated revenues by geographical region, see Note 15 - Geographical Information in the notes to the condensed consolidated financial statements.

Revenue is also classified by major product category and is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 

 

For the six months ended March 31, 

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

% of

 

(in thousands)

    

2020

    

Revenue

    

2019

    

Revenue

    

2020

    

Revenue

    

2019

    

Revenue

 

Navigation and Inertial Sensing

 

$

8,842

 

37

%  

 

4,094

 

19

%  

$

19,109

 

39

%  

 

6,553

 

14

%

Defense Optoelectronics

 

 

4,171

 

18

%  

 

2,779

 

13

%  

 

7,608

 

15

%  

 

4,460

 

10

%

CA TV Lasers and Transmitters

 

 

8,782

 

37

%  

 

10,762

 

49

%  

 

18,165

 

37

%  

 

25,534

 

56

%

Chip Devices

 

 

1,035

 

 4

%  

 

3,501

 

16

%  

 

2,590

 

 5

%  

 

7,716

 

17

%

Other

 

 

1,020

 

 4

%  

 

609

 

 3

%  

 

1,860

 

 4

%  

 

1,483

 

 3

%

Total revenue

 

$

23,850

 

100

%  

$

21,745

 

100

%  

$

49,332

 

100

%  

$

45,746

 

100

%

 

 

NOTE 4.            Acquisition

On June 7, 2019, we completed the acquisition of Systron Donner Inertial, Inc. (“SDI”), a private-equity backed navigation systems provider with a scalable, chip-based platform for higher volume gyro applications utilizing Quartz MEMS technology. The total purchase price was approximately $25.0 million, consisting of (i) approximately $22.0 million in cash after working capital adjustments and (ii) the issuance of 811,000 shares of common stock with an aggregate value of approximately $3.0 million as of the closing date.

Following the closing, we incorporated SDI’s products into our navigation product line and have included the financial results of SDI in our condensed consolidated financial statements beginning on the acquisition date. Net revenue and net loss of SDI of $6.3 million and $0.9 million, respectively, is included in our condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2020. Net revenue and net loss of SDI of $14.4 million and $0.8 million, respectively, is included in our condensed consolidated statements of operations and comprehensive loss for the six months ended March 31, 2020.

Purchase Price Allocation

The total purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.

The Company finalized the allocation of the purchase price in the quarter ended March 31, 2020, which resulted in no change from the preliminary purchase price recorded at September 30, 2019.

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The table below represents the purchase price allocation to the assets acquired and liabilities assumed of SDI based on their estimated fair values as of the acquisition date. The fair values assigned to assets acquired and liabilities assumed were based on management’s best estimates and assumptions at the acquisition date.

 

 

 

 

 

 

 

    

 

 

    

Weighted

 

 

 

 

 

Average Useful

(in thousands)

 

Amount

 

Life (years)

Purchase price

 

$

24,978

 

 

Developed technology

 

 

250

 

 7

Cash acquired

 

 

541

 

  

Inventories

 

 

8,522

 

  

Accounts receivable

 

 

4,291

 

  

Other assets

 

 

355

 

  

Land and building

 

 

12,890

 

  

Equipment

 

 

2,913

 

  

Net liabilities assumed

 

 

(4,853)

 

  

 

 

 

 

 

 

Goodwill

 

$

69

 

  

 

Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three and six months ended March 31, 2020 and 2019 does not purport to be indicative of the results of operations that would have been achieved had the acquisition been consummated on October 1, 2018, nor of the results which may occur in the future. The pro forma amounts are based upon available information and certain assumptions that the Company believes are reasonable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

March 31, 

 

March 31, 

(in thousands, except per share data)

    

2020

    

2019

    

2020

    

2019

Revenue

 

$

23,850

 

$

28,527

 

$

49,332

 

$

60,922

Net loss

 

$

(5,081)

 

$

(6,355)

 

$

(6,416)

 

$

(13,039)

Net loss per basic and diluted share

 

$

(0.18)

 

$

(0.23)

 

$

(0.22)

 

$

(0.47)

Weighted-average number of basic and diluted shares outstanding

 

 

29,033

 

 

27,652

 

 

28,931

 

 

27,592

 

 

NOTE 5.          Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets that sum to the total of the same amounts shown in the unaudited statements of consolidated cash flows:

 

 

 

 

 

 

 

 

 

 

 

    

As of

    

As of

    

As of

 

 

March 31, 

 

September 30, 

 

March 31, 

(in thousands)

 

2020

 

2019

 

2019

Cash

 

$

2,985

 

$

4,338

 

$

1,944

Cash equivalents

 

 

19,045

 

 

17,236

 

 

48,660

Restricted cash

 

 

60

 

 

403

 

 

33

Total cash, cash equivalents and restricted cash

 

$

22,090

 

 

21,977

 

 

50,637

 

The Company’s restricted cash includes cash balances which are legally or contractually restricted in use. The Company’s restricted cash is included in current assets as of March 31, 2020,  September 30, 2019 and March 31, 2019.

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NOTE 6.            Fair Value Accounting

ASC Topic 820 (“ASC 820”), Fair Value Measurements, establishes a valuation hierarchy for disclosure of the inputs to valuation techniques used to measure fair value. This standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

·

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

·

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly, through market corroboration, for substantially the full term of the financial instrument.

·

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets or liabilities at fair value.

Classification of an asset or liability within this hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs.

Cash consists primarily of bank deposits or highly liquid short-term investments with a maturity of three months or less at the time of purchase. Restricted cash represents temporarily restricted deposits held as compensating balances against short-term borrowing arrangements. Cash, cash equivalents and restricted cash are based on Level 1 measurements.

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, other current assets, and accounts payable approximate fair value because of the short maturity of these instruments.  See Note 4 - Acquisition for discussion of the fair value measurement of assets acquired and liabilities assumed in the SDI acquisition.

NOTE 7.            Accounts Receivable

The components of accounts receivable consisted of the following:

 

 

 

 

 

 

 

 

 

As of

(in thousands)

    

March 31, 2020

    

September 30, 2019

Accounts receivable, gross

 

$

20,067

 

$

18,645

Allowance for doubtful accounts

 

 

(249)

 

 

(148)

Accounts receivable, net

 

$

19,818

 

$

18,497

 

The allowance for doubtful accounts is based on the age of receivables and a specific identification of receivables considered at risk of collection.

 

 

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NOTE 8.            Inventory

The components of inventory consisted of the following:

 

 

 

 

 

 

 

 

 

As of

(in thousands)

    

March 31, 2020

    

September 30, 2019

Raw materials

 

$

12,541

 

$

11,510

Work in-process

 

 

7,874

 

 

8,176

Finished goods

 

 

3,167

 

 

4,365

Inventory balance at end of period

 

$

23,582

 

$

24,051

 

 

NOTE 9.            Property, Plant, and Equipment, net

The components of property, plant, and equipment, net consisted of the following:

 

 

 

 

 

 

 

 

 

As of

(in thousands)

    

March 31, 2020

    

September 30, 2019

Land

 

$

 —

 

$

3,484

Building

 

 

 —

 

 

9,405

Equipment

 

 

26,891

 

 

42,308

Furniture and fixtures

 

 

1,004

 

 

1,109

Computer hardware and software

 

 

3,502

 

 

3,554

Leasehold improvements

 

 

3,019

 

 

2,676

Construction in progress

 

 

8,798

 

 

9,330

Property, plant, and equipment, gross

 

$

43,214

 

$

71,866

Accumulated depreciation

 

 

(22,320)

 

 

(34,643)

Property, plant, and equipment, net

 

$

20,894

 

$

37,223

 

 

During the six months ended March 31, 2020, the Company sold certain equipment and recognized a gain on sale of assets of approximately $1.6 million. In addition, the Company entered into agreements to sell additional equipment and these assets have been reclassified to assets held for sale.

 

On February 10, 2020, SDI completed a sale and leaseback transaction with Eagle Rock Holdings LP (“Buyer”), of non-residential real estate (the “Sale and Leaseback Transaction”). Under the terms of the applicable purchase agreement, SDI sold its property located in Concord, California (the “Concord Real Property”) to Buyer for a total purchase price of $13.2 million. The Company received net proceeds of $12.8 million after reducing for transaction commissions and expenses incurred in connection with the sale. The Company recorded a gain on the sale of assets of approximately $0.3 million in the three and six months ended March 31, 2020 related to this transaction.  

At the consummation of the Sale and Leaseback Transaction, SDI entered into a Single-Tenant Triple Net Lease (the “Lease Agreement”) with Buyer pursuant to which SDI leased back from Buyer the Concord Real Property for a term commencing on the consummation of the Sale and Leaseback Transaction and ending fifteen (15) years after the consummation of the Sale and Leaseback Transaction, unless earlier terminated or extended in accordance with the terms of the Lease Agreement. Under the Lease Agreement, SDI’s financial obligations include base monthly rent of $0.75 per square feet, or approximately $77,500 per month, which rent will increase on an annual basis at three percent (3%) over the life of the lease. SDI is also responsible for all monthly expenses related to the Concord Real Property, including insurance premiums, taxes and other expenses, such as utilities. In connection with the execution of the Lease Agreement, EMCORE executed a Lease Guaranty (the “Guaranty”) with Buyer under which EMCORE guaranteed the payment when due of the monthly rent and all other additional rent, interest and charges to be paid by SDI under the Lease Agreement.

 

As a result of the Lease Agreement entered into on February 10, 2020, the Company recorded net operating lease ROU assets and operating lease liabilities of $10.8 million during the six months ended March 31, 2020.

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NOTE 10.            Accrued Expenses and Other Current Liabilities

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

 

 

 

 

 

 

 

 

 

As of

(in thousands)

    

March 31, 2020

    

September 30, 2019

Compensation

 

$

5,249

 

$

5,185

Warranty

 

 

658

 

 

654

Legal expenses and other professional fees

 

 

405

 

 

4,407

Contract liabilities

 

 

1,107

 

 

541

Income and other taxes

 

 

1,144

 

 

1,135

Severance and restructuring accruals

 

 

252

 

 

172

Other

 

 

1,585

 

 

2,427

Accrued expenses and other current liabilities

 

$

10,400

 

$

14,521

 

 

 

NOTE 11.            Credit Facilities

On November 11, 2010, we entered into a Credit and Security Agreement (as amended to date, the “Credit Facility”) with Wells Fargo Bank, N.A. The Credit Facility is secured by the Company’s assets and is subject to a borrowing base formula based on the Company’s eligible accounts receivable, inventory, and machinery and equipment accounts.

The Credit Facility matures in November 2021 and currently provides us with a revolving credit line of up to $15.0 million, subject to a borrowing base formula, that can be used for working capital requirements, letters of credit, acquisitions, and other general corporate purpose subject to a requirement, for certain specific uses, that the Company have liquidity of at least $25.0 million after such use. The Credit Facility requires us to maintain (a) liquidity of at least $10.0 million and (b) excess availability of at least $1.0 million.

As of March 31, 2020, there was no amount outstanding under this Credit Facility and the Company was in compliance with all financial covenants. Also, as of March 31, 2020, the Credit Facility had approximately $0.5 million reserved for one outstanding stand-by letter of credit and $5.5 million available for borrowing.

NOTE 12.            Income and Other Taxes

For the three months ended March 31, 2020 and 2019, the Company recorded income tax benefit (expense) of approximately $55,000 and $(15,000), respectively. Income tax benefit for the three months ended March 31, 2020 is composed primarily of the reversal of a federal deferred tax liability related to the Concord Real Property partially offset by state minimum tax expense. Income tax expense for the three months ended March 31, 2019 is primarily comprised of state minimum tax expense. 

For the six months ended March 31, 2020 and 2019, the Company recorded income tax benefit (expense) of approximately $41,000 and $(30,000), respectively. Income tax benefit for the six months ended March 31, 2020 is composed primarily of the reversal of a deferred tax liability related to the Concord Real Property partially offset by state minimum tax expense. Income tax expense for the six months ended March 31,  2019 is primarily comprised of state minimum tax expense. 

For the three months ended March 31, 2020 and 2019, the effective tax rate on continuing operations was 0.2% and (0.1)%. The lower tax rate for the three months ended March 31, 2020 is primarily due to the federal income tax benefit associated with the sale of the Concord Real Property.  For the six months ended March 31, 2020 and 2019, the effective tax rate on continuing operations was 0.1% and (0.1)%, respectively. The lower tax rate for the six months ended March 31, 2020 is primarily due to the federal income tax benefit associated with the sale of the Concord Real Property. The Company uses some estimates to forecast permanent differences between book and tax accounting.

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We have not provided for income taxes on non-U.S. subsidiaries’ undistributed earnings as of March 31, 2020 because we plan to indefinitely reinvest the unremitted earnings of our non-U.S. subsidiaries and all of our non-U.S. subsidiaries historically have negative earnings and profits.

All deferred tax assets have a full valuation allowance at March 31, 2020.  On a quarterly basis, the Company evaluates the positive and negative evidence to assess whether the more likely than not criteria has been satisfied in determining whether there will be further adjustments to the valuation allowance.

During the three and six months ended March 31, 2020 and 2019, there were no material increases or decreases in unrecognized tax benefits. As of March 31, 2020 and September 30, 2019, we had approximately $0.5 million of interest and penalties accrued as tax liabilities on our balance sheet. We believe that it is reasonably possible that none of the uncertain tax positions will be paid or settled within the next 12 months. Interest that is accrued on tax liabilities is recorded within interest expense on the condensed consolidated statements of operations.

NOTE 13.            Commitments and Contingencies

Indemnifications:  We have agreed to indemnify certain customers against claims of infringement of intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations. We enter into indemnification agreements with each of our directors and executive officers pursuant to which we agree to indemnify them for certain potential expenses and liabilities arising from their status as a director or executive officer of the Company. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and executive officers in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

Legal Proceedings: We are subject to various legal proceedings, claims, and litigation, either asserted or unasserted, that arise in the ordinary course of business. The outcome of these matters is currently not determinable and we are unable to estimate a range of loss, should a loss occur, from these proceedings. The ultimate outcome of legal proceedings involves judgments, estimates and inherent uncertainties and the results of these matters cannot be predicted with certainty. Professional legal fees are expensed when incurred. We accrue for contingent losses when such losses are probable and reasonably estimable. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. Should we fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially affected.

a)

Intellectual Property Lawsuits

We protect our proprietary technology by applying for patents where appropriate and, in other cases, by preserving the technology, related know-how and information as trade secrets. The success and competitive position of our product lines are impacted by our ability to obtain intellectual property protection for our research and development efforts. We have, from time to time, exchanged correspondence with third parties regarding the assertion of patent or other intellectual property rights in connection with certain of our products and processes.

b)

Phoenix Navigation Components, LLC (“Phoenix”) Legal Proceedings

On June 12, 2018, Phoenix commenced an arbitration against EMCORE with the American Arbitration Association (“AAA”) in New York. On August 31, 2018, Phoenix filed a First Amended Demand for Arbitration, asserting the following claims: breach of contract, breach of the covenant of good faith and fair dealing, misappropriation of trade secrets (under the Defend Trade Secrets Act, 18 U.S.C. § 1836, and New York law), conversion, unjust enrichment, correction of inventorship relating to U.S. Patent No. 8,773,665, and declaratory relief, relating to EMCORE’s termination of certain agreements entered into between EMCORE and Phoenix related to the purported license of certain intellectual property related to fiber optic gyroscope technology and disputed royalty payments related thereto. On September 14, 2018, EMCORE filed an Answering Statement and Counterclaim, denying all of Phoenix’s claims and asserting counterclaims for breach of the implied covenant of good faith and fair dealing and declaratory relief.

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On June 21, 2019, an interim award (the “Interim Award”) was issued in connection with all claims in the AAA proceeding other than the claims related to correction of inventorship and declaratory relief relating to U.S. Patent No. 8,773,665 (the “Patent Claims”). While Phoenix ultimately sought $21.2 million in total damages, plus attorneys’ fees and costs, in the Interim Award, the arbitrator found in the Interim Award that (i) Phoenix's claim for breach of the covenant of good faith and fair dealing was denied; (ii) Phoenix's claim for breach of the agreements entered with EMCORE for failure to provide funding for non-recurring engineering was denied; (iii) Phoenix's claim for unjust enrichment was denied; (iv) Phoenix's claim for conversion was granted, but damages for that claim duplicate the damages on the breach of contract and misappropriation of trade secret claims described below and no incremental damages were awarded based on the granting of this claim; (v) EMCORE's request for a declaration that, as between EMCORE and Phoenix, EMCORE owns its proprietary IOC and transceiver was granted.

The arbitrator also found in the Interim Award that (i) EMCORE breached certain license agreements entered into with Phoenix by failing to make royalty payments due and failing to provide required accountings; (ii) Phoenix and its members are no longer subject to prior exclusivity restrictions; (iii) EMCORE's claim for breach of the covenant of good faith and fair dealing was denied; and (iv) the proceedings for the Patent Claims and EMCORE's counterclaim with respect thereto would be established by a future proceeding.

Further, out of the original 97 trade secret subpart claims by Phoenix, the arbitrator found in the Interim Award that EMCORE had misappropriated a total of five trade secret subparts (the “Deemed Trade Secrets”) and found that at least one Deemed Trade Secret was being used in seven EMCORE products (the “EMCORE Products”). The arbitrator found that as a result of the foregoing, royalties of 7.5% of the sale price are owed, to the extent not previously paid, on (i) sales through July 16, 2018 on all fiber optic gyroscopes sold by EMCORE, and (ii) sales from July 16, 2018 through May 31, 2019 of the EMCORE Products, whether standalone or incorporated into a larger product, in each case together with interest at the New York statutory rate of 9% simple interest. In addition, the arbitrator found in the Interim Award that Phoenix was the prevailing party, and Phoenix was awarded attorneys' fees and costs in the amount of approximately $3.7 million, which amount was reduced 10% from Phoenix’s attorneys’ fees request.

In the Interim Award, the arbitrator further determined that EMCORE shall pay Phoenix a royalty of 7.5% of the sale price on (i) future customer payments for certain EMCORE product contracts previously entered into and (ii) customer payments for future sales of any product using any Deemed Trade Secret, in each case payable in a single lump sum within one month of completion of the calendar quarter in which payment has been received from the customer, and shall concurrently submit to Phoenix a written report that sets forth the calculation of the amount of the royalty payment in a form similar to previous royalty reports, provided that following the first $1 million of royalty payments on the EMP-1 product only, inclusive of payments made to date, EMCORE will pay to Phoenix a royalty of 2.25% of the sale price (net of any warranty work, returns, rebates, discounts or credits). EMCORE is required to continue to make royalty payments in this manner until such time as it has in good faith determined, and can so document, that it has completely ceased use of the Deemed Trade Secrets, and at such time, EMCORE shall provide Phoenix written notice of same by certified letter, return receipt requested.

On October 1, 2019, the arbitrator issued a Modified Partial Final Award, which incorporated by reference the terms of the Interim Award and ordered and awarded, among other items, (i) an award to Phoenix of attorneys’ fees and costs in the amount of approximately $3.8 million, (ii) an award to Phoenix of $1.0 million in damages owing for unpaid royalties through June 30, 2019, of which $0.6 million remained to be paid as of the issuance of the Modified Partial Final Award, (iii) an award to Phoenix of $0.1 million in pre-judgment interest, calculated at the New York statutory rate of 9% simple interest, and (iv) an order that EMCORE make the payments in the foregoing items (i), (ii) and (iii) on or before October 14, 2019. On October 10, 2019, EMCORE made the foregoing payments to Phoenix in an aggregate amount equal to approximately $4.5 million. This amount was accrued as of September 30, 2019.

The Patent Claims were not determined in the Interim Award or the Modified Partial Final Award.  In December 2019, EMCORE and Phoenix entered into a settlement agreement with respect to the Patent Claims pursuant to which EMCORE (i) granted Phoenix a fully paid, perpetual nonexclusive license to the disputed patent and (ii) agreed to pay Phoenix a total of $0.4 million, of which $0.2 million was paid in January 2020,  $0.1 million was paid in April 2020 and $0.1 million is required to be paid in July 2020.

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On June 21, 2018, Phoenix commenced a special proceeding against EMCORE in the New York Supreme Court, Commercial Division (the “Special Proceeding”). As part of the Special Proceeding, Phoenix filed an application for a preliminary injunction in aid of arbitration pursuant to CLPR 7502(c), in connection with the AAA arbitration proceeding in New York. The application resulted in a so-ordered stipulated injunction between EMCORE and Phoenix, which was entered in August 2018. In January 2020, the court granted a motion to confirm the Modified Partial Final Award, vacated the so-ordered stipulated injunction entered in August 2018, and disposed of the Special Proceeding. 

NOTE 14.            Equity

Equity Plans

We provide long-term incentives to eligible officers, directors, and employees in the form of equity-based awards. We maintain four equity incentive compensation plans, collectively described below as our “Equity Plans”:

·

the 2000 Stock Option Plan,

·