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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, 2023
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
https://cdn.kscope.io/11e3f9735c4121065d47e068f9788ee1-a1.jpg
EMCORE Corporation
(Exact name of registrant as specified in its charter)
New Jersey22-2746503
(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 classTrading SymbolName of each exchange on which registered
Common stock, no par valueEMKRThe 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 definitions 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 8, 2023, the number of shares outstanding of no par value common stock totaled 53,933,687.




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EMCORE CORPORATION
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS

Page

3

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CAUTIONARY NOTE 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 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 future results included in our Exchange Act reports and statements about plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. 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 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 the industries in which we operate 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:

any disruptions to our operations as a result of our restructuring activities;
costs and expenses incurred in connection with restructuring activities and anticipated operational costs savings arising from the restructuring actions;
the effects of personnel losses;
risks and uncertainties related to customer and vendor relationships and contractual obligations with respect to the shutdown of the Broadband business segment and the discontinuance of its defense optoelectronics product line;
risks and uncertainties related to the closing of the manufacturing support and engineering center in China;
the effect of component shortages and any alternatives thereto;
the rapidly evolving markets for our products and uncertainty regarding the development of these markets;
our historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period;
delays and other difficulties in commercializing new products;
the failure of new products: (a) to perform as expected without material defects, (b) to be manufactured at acceptable volumes, yields, and cost, (c) to be qualified and accepted by our customers, and (d) to successfully compete with products offered by our competitors;
uncertainties concerning the availability and cost of commodity materials and specialized product components that we do not make internally;
actions by competitors;
risks and uncertainties related to applicable laws and regulations;
acquisition-related risks, including that (a) revenue and net operating results obtained from the Systron Donner Inertial, Inc. (“SDI”) business, the L3Harris Space and Navigation (“S&N”) business, or the Inertial Navigation Systems business (“EMCORE Chicago”) of KVH Industries, Inc. (“KVH”) may not meet our expectations, (b) the costs and cash expenditures for integration of the S&N business operations or EMCORE Chicago may be higher than expected, (c) there could be losses and liabilities arising from the acquisition of SDI, S&N, or EMCORE Chicago that we will not be able to recover from any source, (d) we may not recognize the anticipated synergies from the acquisition of SDI, S&N, or EMCORE Chicago, and (e) we may not realize sufficient scale in our Navigation and Inertial Sensing product line from the SDI acquisition, the S&N acquisition, and the EMCORE Chicago acquisition and will need to take additional steps, including making additional acquisitions, to achieve our growth objectives for this product line;
risks related to our ability to obtain capital;
risks and uncertainties related to manufacturing and production capacity; and
other risks and uncertainties discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, 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 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 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
4

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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, 2022. Certain information included in this Quarterly Report may supersede or supplement forward-looking statements in our other reports filed with the SEC. We do not intend 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.
5

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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)

EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in thousands)March 31, 2023September 30, 2022
ASSETS
Current assets:
Cash and cash equivalents$24,348 $25,625 
Restricted cash495 520 
Accounts receivable, net of credit loss of $396 and $337, respectively
22,579 18,073 
Contract assets7,414 4,560 
Inventory40,086 37,035 
Prepaid expenses3,734 4,061 
Other current assets2,074 3,063 
Total current assets100,730 92,937 
Property, plant, and equipment, net26,325 37,867 
Goodwill16,422 17,894 
Operating lease right-of-use assets27,239 23,243 
Other intangible assets, net14,947 14,790 
Other non-current assets2,408 2,351 
Total assets$188,071 $189,082 
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$14,141 $12,729 
Accrued expenses and other current liabilities11,877 8,124 
Contract liabilities4,247 5,300 
Loan payable - current852 852 
Operating lease liabilities - current2,647 2,213 
Total current liabilities33,764 29,218 
Line of credit6,553 9,599 
Loan payable - non-current4,616 5,042 
Operating lease liabilities - non-current25,434 21,625 
Asset retirement obligations4,091 4,664 
Other long-term liabilities8 106 
Total liabilities74,466 70,254 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, 100,000 shares authorized; 60,790 shares issued and 53,884 shares outstanding as of March 31, 2023; 44,497 shares issued and 37,591 shares outstanding as of September 30, 2022
806,100 787,347 
Treasury stock at cost; 6,906 shares as of December 31, 2022 and September 30, 2022
(47,721)(47,721)
Accumulated other comprehensive income1,246 1,301 
Accumulated deficit(646,020)(622,099)
Total shareholders’ equity113,605 118,828 
Total liabilities and shareholders’ equity$188,071 $189,082 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)

Three Months Ended March 31,Six Months Ended March 31,
(in thousands, except per share data)
2023202220232022
Revenue$26,820 $32,650 $51,773$74,886
Cost of revenue23,109 23,633 45,00350,072
Gross profit3,711 9,017 6,77024,814
Operating expense:
Selling, general, and administrative9,951 7,563 19,89514,750
Research and development5,797 4,535 11,1489,162
Severance(17)20 458 1,318 
Loss (gain) on sale of assets24 (788)(1,147)(601)
Total operating expense15,755 11,330 30,35424,629
Operating (loss) income(12,044)(2,313)(23,584)185
Other (expense) income:
Interest expense, net(222)(12)(463)(23)
Foreign exchange gain (loss)46 (17)121 25
Other income46  153
Total other (expense) income(130)(29)(189)2
(Loss) income before income tax (expense) benefit(12,174)(2,342)(23,773)187
Income tax (expense) benefit(54)117 (148)2 
Net (loss) income$(12,228)$(2,225)$(23,921)$189
Foreign exchange translation adjustment8 2 55 22 
Comprehensive (loss) income$(12,220)$(2,223)$(23,866)$211
Per share data:
Net (loss) income per basic share$(0.27)$(0.06)$(0.58)$0.01 
Weighted-average number of basic shares outstanding45,240 37,217 41,35637,082
Net (loss) income per diluted share$(0.27)$(0.06)$(0.58)$0.01 
Weighted-average number of diluted shares outstanding45,240 37,217 41,35638,384

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)

Three Months Ended March 31,Six Months Ended March 31,
(in thousands)
2023202220232022
Shares of common stock
Balance, beginning of period37,868 37,275 37,591 36,984 
Stock-based compensation561 120 838 405 
Stock option exercises   6 
Sale of common stock15,455  15,455  
Balance, end of period53,884 37,395 53,884 37,395 
Value of common stock
Balance, beginning of period$789,080 $783,329 $787,347 $782,266 
Stock-based compensation1,535 1,144 3,269 2,232 
Stock option exercises   29 
Tax withholding paid on behalf of employees for stock-based awards(143)(102)(144)(156)
Sale of common stock15,628  15,628  
Balance, end of period806,100 784,371 806,100 784,371 
Treasury stock, beginning and end of period(47,721)(47,721)(47,721)(47,721)
Accumulated other comprehensive income
Balance, beginning of period1,254 707 1,301 687 
Translation adjustment(8)2 (55)22 
Balance, end of period1,246 709 1,246 709 
Accumulated deficit
Balance, beginning of period(633,792)(595,352)(622,099)(597,766)
Net (loss) income(12,228)(2,225)(23,921)189 
Balance, end of period(646,020)(597,577)(646,020)(597,577)
Total shareholders’ equity$113,605 $139,782 $113,605 $139,782 

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
(Unaudited)

Six Months Ended March 31,
(in thousands)
20232022
Cash flows from operating activities:
Net (loss) income$(23,921)$189 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense3,661 2,037 
Stock-based compensation expense3,269 2,232 
Provision adjustments related to credit loss59 165 
Provision adjustments related to product warranty9 139 
(Gain) on disposal of property, plant, and equipment(1,147)(601)
Other(158)464 
Total non-cash adjustments5,693 4,436 
Changes in operating assets and liabilities:
Accounts receivable and contract assets(7,419)4,351 
Inventory(2,980)6,663 
Other assets(2,770)(4,857)
Accounts payable1,782 (4,893)
Contract liabilities(1,052)888 
Operating lease liabilities - current434 (260)
Accrued expenses and other liabilities7,423 5,018 
Total change in operating assets and liabilities(4,582)6,910 
Net cash provided by operating activities(22,810)11,535 
Cash flows from investing activities:
Purchase of equipment(1,531)(3,297)
Proceeds from disposal of property, plant, and equipment10,915 1,128 
Acquisition of business, net of cash acquired96  
Net cash used in investing activities9,480 (2,169)
Cash flows from financing activities:
Proceeds from borrowings of credit facilities392  
Payments towards credit facilities(3,865) 
Proceeds from sale of common stock15,628  
Proceeds from employee stock purchase plans and exercise of equity awards 29 
Taxes paid related to net share settlement of equity awards(143)(156)
Net cash (used in) provided by financing activities12,012 (127)
Effect of exchange rate changes provided by foreign currency16 28 
Net (decrease) increase in cash, cash equivalents, and restricted cash(1,302)9,267 
Cash, cash equivalents, and restricted cash at beginning of period26,145 71,682 
Cash, cash equivalents, and restricted cash at end of period$24,843 $80,949 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest$639 $30 
Cash paid during the period for income taxes$64 $361 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment$(373)$(11)

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.    Description of Business

EMCORE Corporation (referred to herein, together with its subsidiaries, as the “Company,” “we,” “our,” or “EMCORE”) is a leading provider of inertial navigation products for the aerospace and defense markets. We leverage industry-leading Photonic Integrated Chip (PIC), Quartz MEMS, and Lithium Niobate chip-level technology to deliver state-of-the-art component and system-level products across our end-market applications. Over the last three years, we have expanded our scale and portfolio of inertial sensor products through the acquisitions of Systron Donner Inertial, Inc. (“SDI”) in June 2019, the Space and Navigation (“S&N”) business of L3Harris Technologies, Inc. (“L3H”) in April 2022, and the FOG and Inertial Navigation Systems business (“EMCORE Chicago”) of KVH Industries, Inc. (“KVH”) in August 2022. We have vertically-integrated manufacturing capability at our headquarters in Alhambra, CA, and at our facilities in Budd Lake, NJ, Concord, CA, and Tinley Park, IL (the “Tinley Park Facility”). Our manufacturing facilities maintain ISO 9001 quality management certification, and we are AS9100 aerospace quality certified at our facilities in Budd Lake and Concord. These facilities support our vertically-integrated manufacturing strategy for quartz, FOG, and Ring Laser Gyro products for navigation systems.

NOTE 2.    Summary of Significant Accounting Policies

Basis of Presentation

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 information and notes required by U.S. GAAP for annual financial statements. In our opinion, the interim financial statements reflect all adjustments, which are all normal recurring 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, 2022 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, 2022.

We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other (“ASC 350”). ASC 350 requires the completion of a goodwill impairment test at least annually based on either an optional qualitative assessment or a quantitative analysis comparing the estimated fair value of a reporting unit to its carrying value as of the test date. In the current interim period ending March 31, 2023, we have elected to change our annual test date from December 31st of each year to July 1st of each year, unless there are indications requiring a more frequent impairment test. Any impairment charges would be based on the quantitative analysis. We performed our last test at December 31, 2022 and will perform our next test on July 1, 2023.

Going Concern

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles assuming we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about our ability to continue as a going concern exists.

We have recently experienced significant losses from our operations and used a significant amount of cash, amounting to a net loss of $23.9 million and net cash outflows from operations of $22.8 million for the six months ended March 31, 2023, and we expect to continue to incur losses and use cash in our operations as we continue to restructure our business. As a result of our recent cash outflows, we have taken actions to manage our liquidity and will need to continue to manage our liquidity as we continue to restructure our operations to focus on our Aerospace & Defense business. As of March 31, 2023, our cash and cash equivalents totaled $24.8 million and we had $13.6 million available under our Credit Agreement (as defined in Note 11 - Credit Agreement in the Notes to Condensed Consolidated Financial Statements).

We are evaluating the sufficiency of our existing balances of cash and cash equivalents, cash flows from operations, and amounts expected to be available under our Credit Agreement, together with additional actions we could take (including those made in connection with our restructuring program announced in April 2023) to further reduce our expenses and/or potentially
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raising capital through additional debt or equity issuances, or from the potential monetization of certain assets. However, we may not be successful in executing on our plans to manage our liquidity, including recognizing the expected benefits from our previously announced restructuring program, or raising additional funds if we elect to do so, and as a result substantial doubt about our ability to continue as a going concern exists.

Use of 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. Such estimates include accounts receivable, inventories, goodwill, long-lived assets, product warranty liabilities, legal contingencies, income taxes, asset retirement obligations, and pension obligation, as well as the evaluation associated with the Company's assessment of its ability to continue as a going concern.

We develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

NOTE 3.    Acquisitions

On April 29, 2022, we completed the acquisition of the L3H S&N business for a total purchase price of approximately $5.0 million in cash, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments, resulting in a final adjusted purchase consideration transferred of $4.9 million. Following the closing, S&N results are included in our Aerospace and Defense (“A&D”) reportable segment and in our consolidated financial statements beginning on the acquisition date. Revenue and net income of S&N of $6.7 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of S&N of $12.3 million and $1.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

On August 9, 2022, we completed the acquisition of EMCORE Chicago pursuant to which we acquired substantially all of KVH's assets and liabilities primarily related to its FOG and Inertial Navigation Systems business, including property interests in the Tinley Park Facility, for aggregate consideration of approximately $55.0 million, exclusive of transaction costs and expenses and subject to certain post-closing working capital adjustments. Following the closing, EMCORE Chicago results are included in our A&D reportable segment and in our consolidated financial statements beginning on the acquisition date. Revenue and net income of EMCORE Chicago of $8.8 million and $0.4 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2023. Revenue and net income of EMCORE Chicago of $16.6 million and $1.7 million, respectively, is included in our condensed consolidated statements of operations and comprehensive (loss) income for the six months ended March 31, 2023.

Final Purchase Price Allocation

The total purchase price for the S&N acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Since the acquisition, the purchase price allocation for S&N changed by a $2.3 million reduction to contract assets and a $0.6 million reduction to asset retirement obligation, resulting in a corresponding increase to intangible assets and goodwill acquired. Goodwill is measured as the excess of the fair value of the purchase consideration transferred over the fair value of the identifiable net assets.

The table below represents the final purchase price allocation to the assets acquired and liabilities assumed of S&N based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:
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(in thousands)Amount
Tangible assets acquired:
Accounts receivable$803 
Inventory370 
Contract assets3,920 
Operating lease right-of-use assets1,529 
Property, plant, and equipment1,996 
Net pension benefit assets1,727 
Intangible assets acquired2,740 
Goodwill3,108 
Liabilities assumed:
Accounts payable(1,226)
Accrued expenses(622)
Contract liabilities(6,024)
Operating lease liabilities(1,565)
Asset retirement obligation(1,895)
Total purchase consideration$4,861 

Preliminary Purchase Price Allocation

The total purchase price for the EMCORE Chicago acquisition was allocated to the assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Due to the fact that such acquisition occurred in the most recent 12-month period, the Company's fair value estimates for the purchase price allocations are preliminary. The final determination of fair value for the assets acquired and liabilities assumed is subject to further change and will be completed as soon as possible, but no later than one year from the applicable acquisition date. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in a material adjustment to goodwill.

The table below represents the preliminary purchase price allocation to the assets acquired and liabilities assumed of EMCORE Chicago based on their estimated fair values as of the acquisition date based on management’s best estimates and assumptions:
(in thousands)Amount
Tangible assets acquired:
Accounts receivable$4,977 
Inventory10,800 
Prepaid expenses and other current assets1,483 
Property, plant, and equipment14,442 
Intangible assets acquired12,770 
Goodwill13,246 
Liabilities assumed:
Accounts payable(1,699)
Accrued expenses(485)
Contract liabilities(637)
Other long-term liabilities(8)
Total purchase consideration$54,889 

Included in intangible assets acquired are customer relationships of $4.0 million, technology of $2.6 million, in-process research and development of $6.7 million, and trademarks of $2.2 million.

For the three and six months ended March 31, 2023, the Company incurred transitional and transaction costs of approximately $1.3 million and $3.3 million, respectively, in connection with the acquisitions, which were expensed as incurred and included in selling, general, and administrative (“SG&A”) expenses within the accompanying condensed consolidated statements of operations and comprehensive (loss) income. Goodwill from these acquisitions totaled $16.4 million, of which 80.7% was the
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result of the EMCORE Chicago acquisition, which expanded EMCORE's competitive position in the Inertial Navigation market.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three and six months ended March 31, 2022 does not purport to be indicative of the results of operations that would have been achieved had the EMCORE Chicago acquisition been consummated on October 1, 2021, 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.


Three Months Ended March 31, 2022
Historical
(in thousands, except per share data)
EMCORE Corporation
(excluding EMCORE Chicago)
EMCORE ChicagoPro Forma AdjustmentsPro Forma Combined
Revenue
$32,650 $7,698 $ $40,348 
Cost of revenue
23,633 5,827 171 (a)29,631 
Gross profit
9,017 1,871 (171)10,717 
Operating expense:
Selling, general, and administrative
7,563 2,905 (1,026)(a)(b)9,442 
Research and development
4,535 1,443 (264)(a)(b)5,714 
Severance
20   20 
(Gain) loss on sale of assets
(788)  (788)
Total operating expense
11,330 4,348 (1,290)14,388 
Operating (loss) income
(2,313)(2,477)1,119 (3,671)
Other (expense) income:
Interest expense, net
(12) 318 (c)306 
Foreign exchange gain
(17)  (17)
Other income 34  34 
Total other (expense) income
(29)34 318 323 
(Loss) income before income tax expense
(2,342)(2,443)1,437 (3,348)
Income tax expense
117 (13)(6)(d)(e)98 
Net (loss) income
(2,225)(2,456)1,431 (3,250)
Foreign exchange translation adjustment
2   2 
Comprehensive (loss) income
$(2,223)$(2,456)1,431 $(3,248)
Per share data:
Net (loss) income per basic share
$0.06 $ $(0.09)
Weighted-average number of basic shares outstanding
37,217 37,217 
Net (loss) income per diluted share
$0.06 $ $(0.09)
Weighted-average number of diluted shares outstanding
37,217  37,217 

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Six Months Ended March 31, 2022
Historical
(in thousands, except per share data)
EMCORE Corporation
(excluding EMCORE Chicago)
EMCORE ChicagoPro Forma AdjustmentsPro Forma Combined
Revenue
$74,886 $15,396 $ $90,282 
Cost of revenue
50,072 11,655 342 (a)62,069 
Gross profit
24,814 3,741 (342)28,213 
Operating expense:
Selling, general, and administrative
14,750 5,589 (2,051)(a)(b)18,288 
Research and development
9,162 2,887 (529)(a)(b)11,520 
Severance
1,318   1,318 
(Gain) loss on sale of assets
(601)  (601)
Total operating expense
24,629 8,476 (2,580)30,525 
Operating (loss) income
185 (4,735)2,238 (2,312)
Other (expense) income:
0
Interest expense, net
(23) 636 (c)613 
Foreign exchange gain
25   25 
Other income 68  68 
Total other (expense) income
2 68 636 706 
(Loss) income before income tax expense
187 (4,667)2,874 (1,606)
Income tax expense
2 (25)(11)(d)(e)(34)
Net (loss) income
189 (4,692)2,863 (1,640)
Foreign exchange translation adjustment
22   22 
Comprehensive (loss) income
$211 $(4,692)2,863 $(1,618)
Per share data:
Net (loss) income per basic share
$0.01 $ $(0.04)
Weighted-average number of basic shares outstanding
37,082 37,082 
Net (loss) income per diluted share
$0.01 $ $(0.04)
Weighted-average number of diluted shares outstanding
38,384  38,384 
(a) Reflects the impact to depreciation expense and amortization expense as a result of the change in fair value of property, plant, and equipment and intangible assets acquired. Adjustment was made to the unaudited pro forma condensed combined statements of operations for the three and six months ended March 31, 2022.

(b) Reflects the deduction of various sales, general, and administrative and research and development expenses allocated from corporate overhead to EMCORE Chicago during the periods presented that will not be incurred on an ongoing basis as a result of existing EMCORE management structures in place, which will provide the same support to EMCORE Chicago upon completion of a transition services agreement entered into between EMCORE and KVH in connection with the EMCORE Chicago acquisition. Amounts were estimated based on historical allocation included in the stand-alone financial statements of EMCORE Chicago. However, actual costs to be incurred associated with corporate support may vary under the EMCORE structure.

(c) Reflects the impact of interest expense related to cash from borrowing facility for funding of the transaction.

(d) Reflects the current tax expense due to additional income and deferred income tax expense related to deferred tax liability generated from annual tax amortization of indefinite-lived assets that were acquired for the periods presented. Such amounts were determined based on the effective tax rate of EMCORE rather than statutory tax rates as a result of a tax valuation allowance covering substantially all deferred tax assets and the existence of tax loss carryforwards present at both entities.

(e) Reflects the deduction of the income tax expense related to the FIN 48 liability of EMCORE Chicago that is not assumed by EMCORE.
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NOTE 4.    Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows:
(in thousands)March 31, 2023September 30, 2022
Cash$18,635 $20,011 
Cash equivalents5,713 5,614 
Restricted cash495 520 
Total cash, cash equivalents, and restricted cash$24,843 $26,145 

NOTE 5.    Accounts Receivable, net

The components of accounts receivable, net consisted of the following:
(in thousands)March 31, 2023September 30, 2022
Accounts receivable, gross$22,975 $18,410 
Allowance for credit loss(396)(337)
Accounts receivable, net$22,579 $18,073 

NOTE 6.    Inventory

The components of inventory consisted of the following:
(in thousands)March 31, 2023September 30, 2022
Raw materials$26,187 $22,927 
Work in-process9,590 9,587
Finished goods4,309 4,521
Inventory$40,086 $37,035 

NOTE 7.    Property, Plant, and Equipment, net

The components of property, plant, and equipment, net consisted of the following:
(in thousands)March 31, 2023September 30, 2022
Land$ $995 
Building 8,805 
Equipment47,284 42,330 
Furniture and fixtures1,571 1,394 
Computer hardware and software3,379 3,378 
Leasehold improvements7,772 7,180 
Construction in progress5,264 9,886 
Property, plant, and equipment, gross$65,270 $73,968 
Accumulated depreciation(38,945)(36,101)
Property, plant, and equipment, net$26,325 $37,867 

Depreciation expense totaled $1.6 million and $3.0 million during the three and six months ended March 31, 2023, respectively and $1.0 million and $2.0 million during the three and six months ended March 31, 2022, respectively. During the six months ended March 31, 2023, the Company consummated the sale of the real property interests in the Tinley Park Facility to 8400 W 185TH STREET INVESTORS, LLC, resulting in net proceeds of approximately $10.3 million and a gain on sale of assets of
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$1.2 million. During the three and six months ended March 31, 2022, we sold certain equipment and incurred a gain on sale of assets of $0.8 million and $0.6 million, respectively.

During the quarter ended September 30, 2022, there was a triggering event of negative cash flows and operating losses at the FOG asset group level within the Inertial Navigation product line of the A&D segment that indicated the carrying amounts of our long-lived assets may not be recoverable. In accordance with ASC 360, with regard to our long-lived assets, we performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable. Accordingly, we then performed an analysis to estimate the fair value of the other long-lived assets and recognized an impairment charge within operating expenses of $3.0 million against the FOG property, plant, and equipment by the amount by which the carrying value of the asset group's other long-lived assets exceeded their estimated fair value for the fiscal year ended September 30, 2022. Key assumptions utilized in the determination of fair value include expected future cash flows and working capital requirements. While we believe the expectations and assumptions about the future are reasonable, they are inherently uncertain.

Geographical Concentrations

Long-lived assets consist of land, building, property, plant, and equipment. As of March 31, 2023 and September 30, 2022, 94.7% and 95.4%, respectively, of our long-lived assets were located in the United States.

NOTE 8.    Intangible Assets and Goodwill

Intangible assets arose from the acquisition of SDI in fiscal year 2019 and the acquisitions of S&N and EMCORE Chicago in fiscal year 2022 and are reported within the A&D segment. Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of: (a) 7.0 years for patents, (b) 8.0 years for customer relationships, and (c) 2.0-8.0 years for technology. In-process research and development (“IPR&D”) is indefinite-lived until completion of the related development project, at which point amortization of the carrying value of the technology will commence. Trademarks are indefinite-lived.

The following table summarizes changes in intangible assets, net:
(in thousands)March 31, 2023September 30, 2022
Balance at beginning of period$14,790 $167 
Changes from acquisition77014,740
Amortization(613)(117)
Balance at end of period$14,947 $14,790 

The weighted average remaining useful lives by definite-lived intangible asset category are as follows:
March 31, 2023
(in thousands, except weighted average remaining life)Weighted Average Remaining Life (in years)Gross Carrying AmountAccumulated AmortizationNet Book Value
Technology3.6$11,001 $(8,587)$2,414 
Customer relationships3.13,990 (337)3,653 
Definite-lived intangible assets total$14,991 $(8,924)$6,067 

As of March 31, 2023, IPR&D and trademarks was approximately $6.7 million and $2.2 million, respectively.

September 30, 2022
(in thousands, except weighted average remaining life)Weighted Average Remaining Life (in years)Gross Carrying AmountAccumulated AmortizationNet Book Value
Technology5.4$10,991 $(8,261)$2,730 
Customer relationships4.63,260 (50)3,210 
Definite-lived intangible assets total$14,251 $(8,311)$5,940 

As of September 30, 2022, IPR&D and trademarks was approximately $6.7 million and $2.2 million, respectively.

Estimated future amortization expense for intangible assets recorded by the Company as of March 31, 2023 is as follows:
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(in thousands)Amount
2023$575 
20241,131 
20251,104 
2026702 
2027679 
Thereafter1,876 
Total amortization expense$6,067 

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. None of the Company's goodwill is deductible for tax purposes. The following table summarizes changes in goodwill:
(in thousands)March 31, 2023September 30, 2022
Balance at beginning of period$17,894 $69 
Adjustments to preliminary purchase price allocation(1,472)17,825
Balance at end of period$16,422 $17,894 

NOTE 9.    Benefit Plans

We assumed a defined benefit pension plan (the “Pension Plan”) on April 29, 2022 as a result of the acquisition of S&N. The Pension Plan was frozen to new hires as of March 31, 2007 and employees hired on or after April 1, 2007 are not eligible to participate in the Pension Plan. On July 1, 2022, the Pension Plan was amended to freeze benefit plan accruals for participants. As a result of the freeze, a curtailment was triggered and a restatement of the benefit obligation and plan assets occurred, although no gain or loss resulted. The annual measurement date for the Pension Plan is September 30. Benefits are based on years of credited service at retirement. Annual contributions to the Pension Plan are not less than the minimum funding standards outlined in the Employee Retirement Income Security Act of 1974, as amended. We maintain the Pension Plan with the goal of ensuring that it is adequately funded to meet its future obligations. We did not make any contributions to the Pension Plan during the three and six months ended March 31, 2023 and do not anticipate making any contributions for the remainder of the fiscal year ending September 30, 2023.

The components of net periodic pension cost are as follows:
(in thousands)Three Months Ended March 31, 2023Six Months Ended March 31, 2023
Service cost$26 $52 
Interest cost93 186 
Expected return on plan assets(84)(168)
Net periodic pension cost$35 $70 
The service cost component of total pension expense is included as a component of SG&A expense on the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended March 31, 2023. The interest cost and expected return on plan assets components of total pension expense are included as components of other (expense) income on the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended March 31, 2023.

Net pension asset is included as a component of other non-current assets on the condensed consolidated balance sheets as of March 31, 2023. As of March 31, 2023, the Pension Plan assets consist of cash and cash equivalents, and we manage a liability driven investment strategy intended to maintain fully-funded status.

401(k) Plan

We have a savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this savings plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. Our matching contribution in cash for the three and six months ended March 31, 2023, was $0.4 million and $0.6 million, respectively. Our matching contribution in cash for the three and six months ended March 31, 2022, was $0.3 million and $0.6 million, respectively.
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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:
(in thousands)March 31, 2023September 30, 2022
Compensation$6,296 $4,213 
Warranty1,544 1,504
Commissions407 228
Consulting315 241
Legal expenses and other professional fees618 275
Auditor fees416 186 
Income and other taxes84  
Severance and restructuring accruals572 423
Litigation settlement658 341
Other967 713
Accrued expenses and other current liabilities$11,877 $8,124 

In an effort to better align business operations related to CATV product lines, we reduced our workforce and recorded $1.4 million in severance expense in the six months ended March 31, 2023. Severance and restructuring-related accruals specifically relate to the reductions in force. Expense related to severance and restructuring accruals is included in SG&A expense on the condensed consolidated statements of operations and comprehensive (loss) income. We expect all severance related to these workforce reductions that occurred in the six months ended March 31, 2023 to be fully paid by the quarter ending December 31, 2023.

NOTE 11.    Credit Agreement

Wingspire Credit Agreement

On August 9, 2022, EMCORE and EMCORE Space & Navigation Corporation, our wholly-owned subsidiary, entered into that certain Credit Agreement with the lenders party thereto and Wingspire Capital LLC (“Wingspire”), as administrative agent for the lenders, as amended pursuant to that First Amendment to Credit Agreement, dated as of October 25, 2022, among EMCORE and EMCORE Space & Navigation Corporation, EMCORE Chicago Inertial Corporation, our wholly-owned subsidiary (together with the Company and S&N, the “Borrowers”), the lenders party thereto and Wingspire, to add EMCORE Chicago as a Borrower and include certain of its assets in the borrowing base (as amended, the “Credit Agreement”). The Credit Agreement provides for two credit facilities: (a) an asset-based revolving credit facility in an aggregate principal amount of up to $40.0 million, subject to a borrowing base consisting of eligible accounts receivable and eligible inventory (subject to certain reserves), and (b) a term loan facility in an aggregate principal amount of approximately $6.0 million.

The proceeds of the loans made under the Credit Agreement may be used for general corporate purposes. Borrowings under the Credit Agreement will mature on August 8, 2025, and bear interest at a rate per annum equal to term SOFR plus a margin of (i) 3.75% or 5.50% in the case of revolving loans, depending on the applicable assets corresponding to the borrowing base pursuant to which the applicable loans are made and (ii) 5.50% in the case of the term loan. In addition, the Borrowers are responsible for Wingspire’s annual collateral monitoring fees as well as the lenders’ fees and expenses, including a closing fee of 1.0% of the aggregate principal amount of the commitments as of the closing with respect to revolving loans and 1.50% of the aggregate principal amount of the term loan. The Borrowers may also be required to pay an unused line fee of 0.50% in respect of the undrawn portion of the revolving commitments, which is generally based on average daily usage of the revolving facility during the immediately preceding month.

The Credit Agreement contains representations and warranties, affirmative and negative covenants that are generally customary for credit facilities of this type. Among others, the Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit the Borrowers’ and their respective subsidiaries’ ability to incur indebtedness, grant liens, enter into sale and leaseback transactions, enter into swap agreements, make loans, acquisitions and investments, change the nature of their business, acquire or sell assets or consolidate or merge with or into other persons or entities, declare or pay dividends or make other restricted payments, enter into transactions with affiliates, enter into burdensome agreements, change fiscal year, amend organizational documents, and use proceeds to fund any activities of or business with any person that is the subject of governmental sanctions. In addition, the Credit Agreement requires that, for any period commencing upon the occurrence of an event of default or excess availability under the Credit Agreement being less than the greater of $5.0 million and 15% of the
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revolving commitments until such time as no event of default shall be continuing and excess availability under the Credit Agreement shall be at least the greater of $5.0 million and 15% of the revolving commitments for a period of 60 consecutive days, the Borrowers satisfy a consolidated fixed charge coverage ratio of not less than 1.10:1.00.

The Credit Agreement also includes customary events of default, the occurrence of which, following any applicable grace period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Borrowers under the Credit Agreement to be immediately due and payable, and exercise rights and remedies available to the lenders under the Credit Agreement or applicable law or equity. In connection with the Credit Agreement, the Borrowers entered into a pledge and security agreement pursuant to which the obligations under the Credit Agreement are secured on a senior secured basis (subject to permitted liens) by substantially all assets of the Borrowers and substantially all assets of any future guarantors.

As of March 31, 2023, an aggregate principal amount of $6.6 million was outstanding pursuant to the revolving credit facility and an aggregate principal amount of 5.5 million was outstanding pursuant to the term loan facility. As of September 30, 2022, an aggregate principal amount of $9.6 million was outstanding pursuant to the revolving credit facility and an aggregate principal amount of $5.9 million was outstanding pursuant to the term loan facility. Also, as of March 31, 2023, the revolving credit facility had approximately $13.6 million available for borrowing. Provided that no event of default has occurred, and subject to availability limitation, loans under the revolving credit facility can continue to be drawn/redrawn/outstanding until expiration in 2025.

Our future term loan repayments as of March 31, 2023 is as follows:
(in thousands)Amount
2023