2015 W. Chestnut Street, Alhambra, California, 91803

(Address of principal executive offices) (Zip Code)

~~Registrant's~~Registrant’s telephone number, including area code: (626) ~~293-3400~~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. ☑þ Yes ~~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 during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). þ☑ 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~~12b‑2 of the Exchange Act. ¨◻ Large accelerated filer ☑þAccelerated filer¨◻Non-accelerated filer ☑ þSmaller 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~~12b‑2 of the Exchange Act). ◻ Yes ☑¨ ~~Yes~~ þNo

As of ~~May 6, 2019,~~February 3, 2020, the number of shares outstanding of our no par value common stock totaled ~~27,856,061.~~29,078,804.

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



~~Title of Each Class~~	~~Name of Each Exchange on Which Registered~~
~~Common stock, no par value~~	~~The Nasdaq Stock Market LLC (Nasdaq Global Market)~~

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CAUTIONARY STATEMENT

REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form ~~10-Q~~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. 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) the rapidly evolving markets for the ~~Company's~~Company’s products and uncertainty regarding the development of these markets; (b) the ~~Company's~~Company’s historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period; (c) delays and other difficulties in commercializing new products; (d) 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; (e) uncertainties concerning the availability and cost of commodity materials and specialized product components that we do not make internally; (f) actions by competitors; (g) risks and uncertainties related to applicable laws and regulations, including the impact of changes to applicable tax laws and tariff ~~regulations~~regulations; (h) acquisition-related risks, including that (i) the revenues and ~~(h)~~net operating results obtained from the Systron Donner Inertial, Inc. ("SDI") business may not meet our expectations, (ii) the costs and cash expenditures for integration of the SDI business operations may be higher than expected, (iii) there could be losses and liabilities arising from the acquisition of SDI that we will not be able to recover from any source, and (iv) 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; (i) risks related to our ability to obtain capital; (j) risks related to the transition of certain of our manufacturing operations from our Beijing facility to a contract manufacturer’s facility; and (k) other risks and uncertainties discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended September 30, ~~2018,~~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~~10‑Q and our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended September 30, ~~2018.~~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~~

10‑Q

For The Quarterly Period Ended ~~March~~December 31, 2019

TABLE OF CONTENTS


					Page
Part I:		Financial Information			~~Page~~ 4
~~Part I:~~	~~Financial Information~~
	Item 1.		Financial Statements (Unaudited)	4
				Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and six~~ months ended ~~March~~December 31, 2019 and 2018	4
				Condensed Consolidated Balance Sheets as of ~~March~~December 31, 2019 and September 30, ~~2018~~2019	5
				Condensed Consolidated Statements of ~~Shareholders'~~Shareholders’ Equity for the three months ended December 31, 2019 and 2018	6
				Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~March~~December 31, 2019 and 2018	7
				Notes to our Condensed Consolidated Financial Statements	8
		Item 2.		~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations	22 21
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk	31 29
		Item 4.		Controls and Procedures	32 30
Part ~~II:~~II :		Other Information			30
		Item 1.		Legal Proceedings	33 30
		Item 1A.		Risk Factors	33 30
		Item 6.		Exhibits	~~Exhibits~~	33 31
				SIGNATURES	~~SIGNATURES~~	34 32

Table of Contents

PART I. Financial Information.

ITEM ~~1. Financial~~1.Financial Statements

EMCORE CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the three ~~and six~~ months ended ~~March~~December 31, 2019 and 2018

(in thousands, except per share data)

(unaudited)


	For the three months ended
	December 31,
	2019		2018
Revenue	$	25,482	$	24,001
Cost of revenue		18,008		18,193
Gross profit		7,474		5,808
Operating expense:
Selling, general, and administrative		5,887		7,593
Research and development		4,642		4,019
Gain on sale of assets		(1,602)		—
Total operating expense		8,927		11,612
Operating loss		(1,453)		(5,804)
Other income:
Interest (expense) income, net		(15)		267
Foreign exchange gain		147		14
Total other income		132		281
Loss before income tax expense		(1,321)		(5,523)
Income tax expense		(14)		(15)
Net loss	$	(1,335)	$	(5,538)
Foreign exchange translation adjustment		(36)		14
Comprehensive loss	$	(1,371)	$	(5,524)
Per share data:
Net loss per basic and diluted share	$	(0.05)	$	(0.20)
Weighted-average number of basic and diluted shares outstanding		28,832		27,534

~~(unaudited)~~

For the three months ended March 31, For the six months ended March 31,
2019 2018 2019 2018
Revenue $ 21,745
$ 18,623
$ 45,746
$ 42,659
Cost of revenue 15,936
13,676
34,129
29,798
Gross profit 5,809
4,947
11,617
12,861
Operating expense:
Selling, general, and administrative 6,996
5,644
14,589
10,463
Research and development 4,360
3,300
8,379
7,100
Gain from change in estimate on ARO obligation (40 ) —
(40 ) —
(Gain) loss on sale of assets —
(68 ) —
39
Total operating expense 11,316
8,876
22,928
17,602
Operating loss (5,507 ) (3,929 ) (11,311 ) (4,741 )
Other income:
Interest income, net 224
163
491
274
Foreign exchange gain 304
526
318
812
Total other income 528
689
809
1,086
Loss before income tax (expense) benefit (4,979 ) (3,240 ) (10,502 ) (3,655 )
Income tax (expense) benefit (15 ) 169
(30 ) 502
Net loss $ (4,994 ) $ (3,071 ) $ (10,532 ) $ (3,153 )
Foreign exchange translation adjustment 13
121
27
374
Comprehensive (loss) income $ (4,981 ) $ (2,950 ) $ (10,505 ) $ (2,779 )
Per share data:

Net loss per basic and diluted share $ (0.18 ) $ (0.11 ) $ (0.38 ) $ (0.12 )
Weighted-average number of basic and diluted shares outstanding 27,652
27,197
27,592
27,113

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~~December 31, 2019 and September 30, ~~2018~~

2019

(in thousands)

(unaudited)


	As of		As of
	December 31,		September 30,
	2019		2019
ASSETS
Current assets:
Cash and cash equivalents	$	15,356	$	21,574
Restricted cash		30		403
Accounts receivable, net of allowance of $258 and $148, respectively		19,279		18,497
Contract assets		1,625		1,055
Inventory		25,095		24,051
Prepaid expenses and other current assets		4,984		6,389
Assets held for sale		1,678		—
Total current assets		68,047		71,969
Property, plant, and equipment, net		33,996		37,223
Goodwill		69		69
Operating lease right-of-use assets		4,586		—
Other intangible assets, net		229		239
Other non-current assets		62		62
Total assets	$	106,989	$	109,562
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Borrowings from credit facility	$	4,459	$	5,497
Accounts payable		10,796		10,701
Accrued expenses and other current liabilities		8,929		14,521
Operating lease liabilities - current		823		—
Total current liabilities		25,007		30,719
Operating lease liabilities - non-current		3,882		—
Asset retirement obligations		1,898		1,890
Other long-term liabilities		73		207
Total liabilities		30,860		32,816
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized; 35,858 shares issued and 28,948 shares outstanding as of December 31, 2019; 35,803 shares issued and 28,893 shares outstanding as of September 30, 2019		740,680		739,926
Treasury stock at cost; 6,910 shares		(47,721)		(47,721)
Accumulated other comprehensive income		914		950
Accumulated deficit		(617,744)		(616,409)
Total shareholders’ equity		76,129		76,746
Total liabilities and shareholders’ equity	$	106,989	$	109,562

~~(unaudited)~~

As of As of
March 31,
2019 September 30,
2018
ASSETS
Current assets:
Cash and cash equivalents $ 50,604
$ 63,117
Restricted cash 33
78
Accounts receivable, net of allowance of $267 and $548, respectively 20,131
19,275
Inventory 20,672
20,850
Prepaid expenses and other current assets 16,392
12,730
Total current assets 107,832
116,050
Property, plant, and equipment, net 21,095
18,216
Non-current inventory 1,114
1,433
Other non-current assets 84
199
Total assets $ 130,125
$ 135,898
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 13,321
$ 12,997
Accrued expenses and other current liabilities 17,381
14,205
Total current liabilities 30,702
27,202
Asset retirement obligations 1,836
1,809
Other long-term liabilities 96
82
Total liabilities 32,634
29,093
Commitments and contingencies (Note 12)

Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized; 34,766 shares issued and 27,856 shares outstanding as of March 31, 2019; 34,487 shares issued and 27,577 shares outstanding as of September 30, 2018 735,257
734,066
Treasury stock at cost; 6,910 shares (47,721 ) (47,721 )
Accumulated other comprehensive income 912
885
Accumulated deficit (590,957 ) (580,425 )
Total shareholders’ equity 97,491
106,805
Total liabilities and shareholders’ equity $ 130,125
$ 135,898

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

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EMCORE CORPORATION

Condensed Consolidated Statements of ~~Shareholders'~~Shareholders’ Equity

For the three ~~and six~~ monthsended ~~March~~December 31, 2019 and 2018

(in thousands)

(unaudited)


	For the three months
	ended December 31,
	2019		2018
Shares of Common Stock
Balance, beginning of period		28,893		27,577
Stock-based compensation		55		91
Stock option exercises		—		—
Balance, end of period		28,948		27,668
Value of Common Stock
Balance, beginning of period	$	739,926	$	734,066
Stock-based compensation		801		425
Stock option exercises		—		—
Tax withholding paid on behalf of employees for stock-based awards		(47)		(150)
Balance, end of period		740,680		734,341
Treasury stock, beginning and ending of period		(47,721)		(47,721)
Accumulated Other Comprehensive Income
Balance, beginning of period		950		885
Translation adjustment		(36)		14
Balance, end of period		914		899
Accumulated Deficit
Balance, beginning of period		(616,409)		(580,425)
Net loss		(1,335)		(5,538)
Balance, end of period		(617,744)		(585,963)
Total Shareholders’ Equity	$	76,129	$	101,556

~~(unaudited)~~

For the three months ended March 31, For the six months ended March 31,
2019 2018 2019 2018
Shares of Common Stock
Balance, beginning of period 27,668
27,152
27,577
27,028
Stock-based compensation 121
212
212
333
Stock option exercises 1
1
1
4
Issuance of common stock - ESPP 66
93
66
93
Balance, end of period 27,856
27,458
27,856
27,458
Value of Common Stock
Balance, beginning of period $ 734,341
$ 731,112
$ 734,066
$ 730,906
Stock-based compensation 722
933
1,147
1,848
Stock option exercises 1
1
1
17
Tax withholding paid on behalf of employees for stock-based awards (44 ) (414 ) (194 ) (1,139 )
Issuance of common stock - ESPP 237
423
237
423
Balance, end of period 735,257
732,055
735,257
732,055
Treasury stock, beginning and ending of period (47,721 ) (47,721 ) (47,721 ) (47,721 )
Accumulated Other Comprehensive Income
Balance, beginning of period 899
814
885
561
Translation adjustment 13
121
27
374
Balance, end of period 912
935
912
935
Accumulated Deficit
Balance, beginning of period (585,963 ) (563,054 ) (580,425 ) (562,972 )
Net loss (4,994 ) (3,071 ) (10,532 ) (3,153 )
Balance, end of period (590,957 ) (566,125 ) (590,957 ) (566,125 )
Total Shareholders' Equity $ 97,491
$ 119,144
$ 97,491
$ 119,144

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~~three months ended ~~March~~December 31, 2019 and 2018

(in thousands)

(unaudited)


	For the three months ended December 31,
	2019		2018
Cash flows from operating activities:
Net loss	$	(1,335)	$	(5,538)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense		1,981		1,594
Stock-based compensation expense		801		425
Provision adjustments related to doubtful accounts		111		—
Provision adjustments related to product warranty		49		56
Net gain on disposal of equipment		(1,602)		—
Other		(259)		28
Total non-cash adjustments		1,081		2,103
Changes in operating assets and liabilities:
Accounts receivable		(1,450)		911
Inventory		(902)		392
Other assets		(2,809)		(436)
Accounts payable		794		(2,064)
Accrued expenses and other current liabilities		(1,358)		1,763
Total change in operating assets and liabilities		(5,725)		566
Net cash used in operating activities		(5,979)		(2,869)
Cash flows from investing activities:
Purchase of equipment		(1,506)		(2,878)
Proceeds from disposal of property, plant and equipment		1,947		—
Net cash provided by (used in) investing activities		441		(2,878)
Cash flows from financing activities:
Net payments on credit facilities		(1,038)		—
Taxes paid related to net share settlement of equity awards		(47)		(150)
Net cash used in financing activities		(1,085)		(150)
Effect of exchange rate changes provided by foreign currency		32		(3)
Net decrease in cash, cash equivalents and restricted cash		(6,591)		(5,900)
Cash, cash equivalents and restricted cash at beginning of period		21,977		63,195
Cash, cash equivalents and restricted cash at end of period	$	15,386	$	57,295

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	47	$	25
Cash paid during the period for income taxes	$	—	$	2
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment	$	(725)	$	(410)

~~(unaudited)~~

For the six months ended March 31,
2019 2018
Cash flows from operating activities:
Net loss $ (10,532 ) $ (3,153 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 3,228
2,605
Stock-based compensation expense 1,147
1,848
Provision adjustments related to doubtful accounts —
75
Provision adjustments related to product warranty 105
282
Net loss on disposal of equipment —
39
Other (316 ) (643 )
Total non-cash adjustments 4,164
4,206
Changes in operating assets and liabilities:
Accounts receivable (789 ) 4,422
Inventory 699
2,041
Other assets (3,247 ) (2,812 )
Accounts payable (265 ) (4,923 )
Accrued expenses and other current liabilities 2,909
304
Total change in operating assets and liabilities (693 ) (968 )
Net cash (used in) provided by operating activities (7,061 ) 85
Cash flows from investing activities:
Purchase of equipment (5,576 ) (2,735 )
Proceeds from disposal of property, plant and equipment —
77
Net cash used in investing activities (5,576 ) (2,658 )
Cash flows from financing activities:
Proceeds from stock plans 238
442
Tax withholding paid on behalf of employees for stock-based awards

(194 ) (1,139 )
Net cash provided by (used in) financing activities 44
(697 )
Effect of exchange rate changes (used in) provided by foreign currency 35
45
Net decrease in cash, cash equivalents and restricted cash (12,558 ) (3,225 )
Cash, cash equivalents and restricted cash at beginning of period 63,195
68,754
Cash, cash equivalents and restricted cash at end of period $ 50,637
$ 65,529

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 56
$ 31
Cash paid during the period for income taxes $ 59
$ 130
NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in accounts payable related to purchases of equipment $ 481
$ (235 )

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~~

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 ~~both analog~~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 ~~digital circuits on multiple chips, or even a single chip, the value of~~ ~~Mixed-Signal~~ ~~device solutions are often far greater than traditional digital applications~~inertial sensors with SDI’s quartz MEMS gyro and ~~requires a specialized expertise held by~~accelerometer technology. EMCORE ~~which is unique~~has fully vertically-integrated manufacturing capability through our indium phosphide compound semiconductor wafer fabrication facility at our headquarters in ~~the optics industry.~~

~~We currently have one reporting segment: Fiber Optics. This segment is comprised of three product lines: Broadband (which includes Cable TV (“CATV”)~~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 ~~components, radio frequency over glass (“RFoG”)~~for our chip, laser, transmitter, and receiver products ~~satellite/microwave communications products and wireless communication products), Chip Devices and Navigation Systems.~~

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~~10‑Q and Rule ~~10-01~~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, ~~2018~~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~~10‑K for the fiscal year ended September 30, ~~2018.~~

2019.

NOTE 2. Recent Accounting Pronouncements


~~NOTE 2.~~ (a)	~~Recent~~	New Accounting ~~Pronouncements~~Updates Recently Adopted

~~(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 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.

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. Under

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Adoption of the new standard ~~recognition~~resulted in the recording of revenue occurs when the seller satisfies a performance obligation by transferring to the customer promised goods or services in an amount that reflects the consideration the entity expects to receive for those goods or services. In July 2015, the FASB approved the deferralnet operating lease right-of-use assets of ~~the new standard's effective date by one year. The new standard was effective for our fiscal year beginning~~$4.8 million and operating lease liabilities of $4.8 million, as of October 1, ~~2018.~~

~~Effective October 1, 2018, we adopted the requirements of Topic 606using the modified retrospective method.~~2019. The ~~adoption of Topic 606 did not have an impact on the Company’s condensed consolidated financial statements.~~

~~In May 2017, the~~ ~~FASB~~ ~~issued~~ ~~ASU~~ ~~2017-09,~~ ~~Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting~~. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is intended to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The new standard ~~was effective for our fiscal year beginning October 1, 2018. The adoption of ASU 2017-09 did not have an impact on the Company’s condensed consolidated financial statements.~~

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments-Overall (Topic 825):Recognition and Measurement of Financial Assets and Financial Liabilitie~~s. This ASU amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, and supersedes the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. This new standard was effective for our fiscal year beginning October 1, 2018. The adoption of ASU 2016-01 did not have an impact on our ~~condensed~~ consolidated ~~financial statements and related disclosures.~~

results of operations or cash flow.

The impact of the adoption of 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

(b)

Recent Accounting Standards or Updates Not Yet Effective

~~(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.

~~In June 2016, the FASB issued ASU 2016-13~~ ~~Financial Instruments - Credit Losses, 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. We are continuing to evaluate the impact the adoption of the new standard will have on our consolidated financial statements and related disclosures.

I~~n February 2016, the FASB issued 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 qualitative and quantitative information about lease transactions. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. We are in the process of implementing changes to our systems and processes in conjunction with our review of lease agreements. Topic 842 will be effective for our fiscal year beginning October 1, 2019 and we expect to elect certain available transitional practical expedients.

As currently issued, entities are required to use a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. There are additional optional practical expedients that an entity may elect to apply. The Company is continuing to evaluate the effect of this update on its consolidated financial statements and related disclosures.


~~NOTE 3.~~	~~Summary of Significant Accounting Policies~~

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~~10‑K for the year ended September 30, ~~2018.~~2019. Significant changes to our accounting policies as a result of adopting Topic ~~606~~842 are discussed below:

~~Revenue Recognition -~~ ~~To determine~~

The Company determines if an arrangement is a lease at its inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized at the ~~proper revenue recognition, we perform~~lease commencement date based on the ~~following five steps: (i) identify~~present value of lease payments over the ~~contract(s) with a customer; (ii) identify~~lease term. The Company uses its estimated incremental borrowing rate in determining the ~~performance obligations in~~present value of lease payments considering the ~~contract; (iii) determine~~term of the ~~transaction price; (iv) allocate~~lease, which is derived from information available at the ~~transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts~~lease commencement date. The lease term includes renewal options when it is ~~probable~~reasonably certain that wethe option will ~~collect~~be exercised, and excludes termination options. To the ~~consideration we are entitled to in exchange~~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 ~~goods or services we transfer to the customer.~~

The vast majority of our revenues are from product sales to our customers, pursuant to purchase orders with short lead times. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time.lease term. The Company has elected not to ~~account~~recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for ~~shipping~~any class of underlying asset. Operating leases are included in operating lease ROU assets, current operating lease liabilities, and ~~handling activities~~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 ~~a fulfillment cost~~well as ~~permitted by~~various office equipment agreements. The leases expire at various dates through 2026, some of which include options to extend the ~~standard. When we perform shipping and handling activities after~~lease term. The options with the ~~transfer~~longest potential total lease term consist of ~~control~~options for extension of up to the customer (e.g. when control transfers prior to delivery), they are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization periodthree years following expiration of the ~~asset that we would have recognized is one year or less.~~

~~In certain instances, inventory is maintained by our customers at consigned locations. Revenues from consigned sales are recognized when~~original lease term.

During the ~~customer obtains control of our product, which occurs at a point in time. This is typically when the customer pulls product for use.~~

We use a number of wholesale distributors around the world and recognize revenue when the wholesale distributor obtains control of our product, which occurs at a point in time, typically upon shipment. Our wholesale distributors are contractually obligated to pay us on standard commercial terms, consistent with our end-use customers. We do not sell to wholesale distributors on consignment and do not give wholesale distributors a right of return.

In certain instances, prior to customers accepting product that is manufactured at one of our contract manufacturers, these customers require that they first qualify the product and manufacturing processes at our contract manufacturer (e.g. customer acceptance clause). The customers’ qualification process determines whether the product manufactured at our contract manufacturer achieves their quality, performance, and reliability standards. After a customer completes the initial qualification process, we receive approval to ship qualified product to that customer. Revenues are recognized when the customer obtains control of the qualified product, which occurs at a point in time, typically upon shipment.

To a lesser extent, we enter into other types of contracts including non-recurring engineering contracts. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. For contracts that include multiple performance obligations, we allocate revenue to each performance obligation based on estimates of the relative standalone selling price that we would charge the customer for each promised product or service.

~~Receivables, Net~~ - Receivables, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Payments are generally due within 90 days or less of invoicing and do not include a significant financing component. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. Receivables, net, totaled $20.1 million and $19.3 million at March 31, 2019 and September 30, 2018, respectively.

~~Remaining Performance Obligations -~~ ~~Remaining performance obligations represent the transaction price of firm orders for long-term contracts which control has not transferred to the customer. As of March~~three months ended December 31, 2019, the ~~aggregate amount~~Company recorded $0.3 million of operating lease expense. During the ~~transaction price allocated~~three months ended December 31, 2018, the Company recorded $0.3 million of rent expense. The Company's finance leases and short-term leases are immaterial.

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Maturities of operating lease liabilities as of December 31, 2019 were as follows:


		(In Thousands)
2020	$	951
2021		854
2022		841
2023		804
2024		658
Thereafter		1,183
Total lease payments		5,291
Less imputed interest		(586)
Total	$	4,705

The following is a schedule of future minimum lease payments as of September 30, 2019:


		Operating Leases
		(In thousands)
2020	$	988
2021		839
2022		824
2023		853
2024		655
Thereafter		1,350
Total lease payments	$	5,509

Weighted-average remaining lease term and discount rate related to ~~remaining performance obligations was $3.2 million. The Company expects to recognize revenue on approximately 100% of the remaining performance obligations over the next year.~~

~~Product Warranty Reserves~~ ~~- We provide our customers with warranty claims for certain products and warranty-related services~~operating leases are ~~not considered a separate performance obligation. Pursuant to Accounting Standards Codification (“ASC”) 450,~~ ~~Contingencies, we make estimates of product warranty expense using historical experience rates and accrue estimated warranty expense~~ as a cost of revenue. We estimate the costs of our warranty obligations based on historical experience of known product failure rates and anticipated rates of warranty claims, use of materials to repair or replace defective products, and service delivery costs incurred in correcting the product issues. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.follows



	December 31, 2019
Weighted average remaining lease term (years)	6.2
Weighted average discount rate	3.8	%

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 1415 - 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 December 31,
			% of				% of
(in thousands)	2019		Revenue		2018		Revenue
Navigation and Inertial Sensing	$	10,267	40	%		2,459	10	%
Defense Optoelectronics		3,437	13	%		1,681	7	%
CA TV Lasers and Transmitters		9,383	37	%		14,772	62	%
Chip Devices		1,555	6	%		4,215	18	%
Other		840	4	%		874	3	%
Total revenue	$	25,482	100	%	$	24,001	100	%

For the three months ended March 31, For the six months ended March 31,
(in thousands) 2019 % of Revenue 2018 % of Revenue 2019 % of Revenue 2018 % of Revenue
Broadband $ 14,150
65 % $ 13,679
73 % $ 31,477
69 % 34,545
81 %
Chips 3,501
16 % 2,895
16 % 7,716
17 % 5,046
12 %
Navigation 4,094
19 % 2,049
11 % 6,553
14 % 3,068
7 %
Total revenue $ 21,745
100 % $ 18,623
100 % $ 45,746
100 % $ 42,659
100 %

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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 thousand 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 income of SDI of $8.1 million and $0.1 million, respectively, is included in our condensed consolidated statements of operations and comprehensive loss for the three months ended December 31, 2019.

Preliminary 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.

As the Company finalizes the fair values of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period (a period not to exceed 12 months from the date of acquisition). As of December 31, 2019, the Company had not finalized the determination of values allocated to equipment, deferred taxes and goodwill. 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.

Pro Forma Financial Information

The following unaudited pro forma financial information presented for the three months ended December 31, 2019 and 2018 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
	December 31,
(in thousands, except per share data)	2019		2018
Revenue	$	25,482	$	32,395
Net loss	$	(1,335)	$	(6,684)
Net loss per basic and diluted share	$	(0.05)	$	(0.24)
Weighted-average number of basic and diluted shares outstanding		28,832		27,534


~~NOTE 4.~~	~~Cash, Cash Equivalents and Restricted Cash~~

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
	December 31,		September 30,		December 31,
(in thousands)	2019		2019		2018
Cash	$	4,356	$	4,338	$	2,619
Cash equivalents	$	11,000	$	17,236	$	54,665
Restricted cash		30		403		11
Total cash, cash equivalents and restricted cash	$	15,386		21,977		57,295

As of As of As of
(in thousands) March 31, 2019 September 30, 2018 March 31, 2018
Cash $ 1,944
$ 2,965
$ 4,854
Cash equivalents $ 48,660
$ 60,152
$ 60,623
Restricted cash 33
78
52
Total cash, cash equivalents and restricted cash $ 50,637
63,195
65,529

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The ~~Company's~~Company’s restricted cash includes cash balances which are legally or contractually restricted to use. The ~~Company's~~Company’s restricted cash is included in current assets as of ~~March~~December 31, 2019, September 30, ~~2018~~2019 and ~~March~~December 31, 2018.


~~NOTE 5.~~	~~Fair Value Accounting~~

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

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

~~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 6.~~	~~Accounts Receivable~~

NOTE 7. Accounts Receivable

The components of accounts receivable consisted of the following:


	As of
(in thousands)	December 31, 2019		September 30, 2019
Accounts receivable, gross	$	19,537	$	18,645
Allowance for doubtful accounts		(258)		(148)
Accounts receivable, net	$	19,279	$	18,497

As of
(in thousands) March 31, 2019
September 30, 2018
Accounts receivable, gross $ 20,398
$ 19,823
Allowance for doubtful accounts (267 ) (548 )
Accounts receivable, net $ 20,131
$ 19,275

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

~~The following table summarizes changes in the allowance for doubtful accounts for the three and six months ended March 31, 2019 and 2018.~~

Allowance for Doubtful Accounts
(in thousands)
For the three months ended March 31, For the six months ended March 31,
2019 2018 2019 2018
Balance at beginning of period $ 322
$ 39
$ 548
$ 22
Provision adjustment - expense, net of recoveries —
58
—
75
Write-offs and other adjustments - deductions to receivable balances (55 ) (2 ) (281 ) (2 )
Balance at end of period $ 267
$ 95
$ 267
$ 95

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~~NOTE 7.~~	~~Inventory~~

NOTE 8. Inventory

The components of inventory consisted of the following:


	As of
(in thousands)	December 31, 2019		September 30, 2019
Raw materials	$	13,046	$	11,510
Work in-process		7,838		8,176
Finished goods		4,211		4,365
Inventory balance at end of period	$	25,095	$	24,051

As of
(in thousands) March 31, 2019 September 30, 2018
Raw materials $ 12,462
$ 11,857
Work in-process 5,523
5,402
Finished goods 3,801
5,024
Inventory balance at end of period $ 21,786
$ 22,283
Current portion $ 20,672
$ 20,850
Non-Current portion $ 1,114
$ 1,433

The non-current inventory balance of $1.1 million and $1.4 million as of March 31, 2019 and September 30, 2018, respectively, is comprised entirely of raw materials which we acquired as part of a last time purchase as a result of the vendor announcing it would cease manufacturing a part. During the three and six months ended March 31, 2019, we recorded a $0.1 million and $0.5 million reserve, respectively, on non-current inventory due to the decline in sales and future demand of the inventory.


~~NOTE 8.~~	~~Property, Plant, and Equipment, net~~

NOTE 9. Property, Plant, and Equipment, net

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


	As of
(in thousands)	December 31, 2019		September 30, 2019
Land	$	3,484	$	3,484
Building		9,405		9,405
Equipment		33,374		42,308
Furniture and fixtures		1,109		1,109
Computer hardware and software		3,629		3,554
Leasehold improvements		2,688		2,676
Construction in progress		9,639		9,330
Property, plant, and equipment, gross	$	63,328	$	71,866
Accumulated depreciation		(29,332)		(34,643)
Property, plant, and equipment, net	$	33,996	$	37,223

As of
(in thousands) March 31, 2019 September 30, 2018
Equipment $ 37,838
$ 36,625
Furniture and fixtures 1,109
1,109
Computer hardware and software 3,065
2,928
Leasehold improvements 2,294
2,049
Construction in progress 8,153
3,648
Property, plant, and equipment, gross $ 52,459
46,359
Accumulated depreciation (31,364 ) (28,143 )
Property, plant, and equipment, net $ 21,095
$ 18,216

During the quarter ended December 31, 2019, the Company sold certain equipment and recognized a gain on sale 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. See Note 16 – Subsequent Event

s for additional information related to the agreement to sell the Company’s land and building.


~~NOTE 9.~~	~~Accrued Expenses and Other Current Liabilities~~

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)	December 31, 2019		September 30, 2019
Compensation	$	4,478	$	5,185
Warranty		673		654
Legal expenses and other professional fees		611		4,407
Contract liabilities		524		541
Income and other taxes		1,170		1,135
Severance and restructuring accruals		78		172
Other		1,395		2,427
Accrued expenses and other current liabilities	$	8,929	$	14,521

As of
(in thousands) March 31, 2019
September 30, 2018
Compensation $ 3,159
$ 3,065
Warranty 599
642
Professional fees 1,376
604
Customer deposits 259
22
Deferred revenue 83
368
Income and other taxes 10,511
7,593
Severance and restructuring accruals —
82
Other 1,394
1,829
Accrued expenses and other current liabilities $ 17,381
$ 14,205

~~Compensation: Compensation is primarily comprised~~

Table of ~~accrued employee salaries, taxes and benefits.~~

~~Severance and restructuring accruals~~: On December 4, 2018, the Company and Jikun Kim, the Company's former Chief Financial Officer, entered into a Separation and General Release Agreement (the “Separation Agreement”) pursuant to which the Company and Mr. Kim agreed that he would cease service with the Company effective as of December 31, 2018 (the “Separation Date”). The Separation Agreement provided for, among other things, the continuation of his base salary for a period of two months following the Separation Date and a lump sum payment of $22,875 in lieu of any cash bonus payment under the Company’s Fiscal Year 2018 Bonus Plan, in each case subject to his execution and non-revocation of a general release agreement releasing the Company from any liability or obligation to him and compliance with certain confidentiality, non-solicitation and other restrictive covenants as provided in the Separation Agreement. Mr. Kim’s outstanding equity awards that remained unvested as of the Separation Date were cancelled and terminated. The Company recorded a charge of approximately $0.1 million in the six months ended March 31, 2019 related to this Separation Agreement.

Our severance and restructuring-related accruals specifically relate to the separation agreement discussed above and non-cancelable obligations associated with an abandoned leased facility. Expense related to severance and restructuring accruals is included in selling, general, and administrative expense on our statements of operations and comprehensive income. The following table summarizes the changes in the severance and restructuring accrual account:

Contents

(in thousands) Severance-related accruals Restructuring- related accruals Total
Balance as of September 30, 2018 7
75
82
Expense - charged to accrual 57
—
57
Payments and accrual adjustments (64 ) (75 ) (139 )
Balance as of March 31, 2019 $ —
$ —
$ —

~~Warranty:~~ ~~The following table summarizes the changes in our product warranty accrual accounts:~~

Product Warranty Accruals For the three months ended March 31, For the six months ended March 31,
(in thousands) 2019 2018 2019 2018
Balance at beginning of period $ 652
$ 713
$ 642
$ 684
Provision for product warranty - expense 49
224
105
282
Adjustments and utilization of warranty accrual (102 ) (100 ) (148 ) (129 )
Balance at end of period $ 599
$ 837
$ 599
$ 837


~~NOTE 10.~~	~~Credit Facilities~~

NOTE 11. Credit Facilities

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

~~On July 27, 2017, we entered into a Ninth Amendment of the~~

The Credit Facility ~~which adjusted the interest rate to LIBOR plus 1.75%. On~~matures in November ~~7, 2018, we entered into a Tenth Amendment of the Credit Facility which extended the maturity date of the facility to November 2021. The Credit Facility~~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 $7.5 million, which amount shall automatically increase to at least $10.0 million on March 1, 2020 and (b) excess availability of at least $1.0 million.

As of ~~March~~December 31, 2019, there ~~were no amounts~~was $4.5 million outstanding under this Credit Facility and the Company was in compliance with all financial covenants. Also, as of ~~March~~December 31, 2019, the Credit Facility had approximately $0.5 million reserved for one outstanding stand-by letter of credit and ~~$5.0 million~~$0 available for borrowing. ~~As of May 6, 2019, there was no outstanding balance under this Credit Facility and $0.5 million reserved for one outstanding stand-by letter of credit.~~


~~NOTE 11.~~	~~Income and Other Taxes~~

NOTE 12. Income and Other Taxes

For the three months ended ~~March~~December 31, 2019 and 2018, the Company recorded income tax ~~(expense) benefit~~expense of approximately ~~$(15,000)~~$14,000 and ~~$0.2 million,~~$15,000, respectively. Income tax expense for the three months ended ~~March~~December 31, 2019 and 2018 is primarily comprised of state minimum tax expense. Income tax benefit for the three months ended March 31, 2018 is primarily comprised of the effect of the December 22, 2017 Tax Cuts and Jobs Act (the “Tax Act”) which eliminated Alternative Minimum Taxes (“AMT”) and resulted in a refund to the Company of amounts paid in prior fiscal years, state minimum tax expense, and foreign tax expense included within continuing operations. For the six months ended March 31, 2019 and 2018, the Company recorded income tax (expense) benefit of approximately $(30,000) and $0.5 million, respectively. Income tax expense for the six months ended March 31, 2019 is primarily comprised of state minimum tax expense. Income tax benefit for the six months ended March 31, 2018 is primarily comprised of the effect of the December 22, 2017 “Tax Act” which eliminated AMT and resulted in a refund to the Company of amounts paid in prior fiscal years.

For the three months ended ~~March~~December 31, 2019 and 2018, the effective tax rate on continuing operations was 0%0.0% and ~~(5.2)%~~0.1%, respectively. The lower tax rate for the three months ended ~~March~~December 31, 2019 is primarily due to the state minimum tax expense. The higher tax rate for the three months ended December 31, 2018 is primarily due to the operating loss and state minimum tax expense. The higher beneficial tax rate for the three months ended March 31, 2018 was primarily due to the effect of the Tax Act, which resulted in a credit to the Company on future tax payments for past AMT amounts paid and the fiscal year 2018 operating loss. Income tax expense is comprised of estimated alternative minimum tax ~~as prescribed by ASC 740~~ and foreign tax expense. The Company uses some estimates to forecast permanent differences between book and tax accounting.

For the six months ended March 31, 2019 and 2018, the effective tax rate on continuing operations was 0% and (13.7)%, respectively. The lower tax rate for the six months ended March 31, 2019 is primarily due to the operating loss and state minimum tax expense. The higher beneficial tax rate for the six months ended March 31, 2018 was primarily due to the effect of the Tax Act, which resulted in a credit to the Company on future tax payments for past AMT amounts paid and the current period operating loss. Income tax expense is comprised of estimated alternative minimum tax as prescribed by ASC 740 and foreign tax expense. The Company uses some estimates to forecast permanent differences between book and tax accounting.

We have not provided for income taxes on non-U.S. ~~subsidiaries'~~subsidiaries’ undistributed earnings as of ~~March~~December 31, 2019 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~~December 31, 2019. ~~However, on~~On a quarterly basis, the Company ~~will evaluate~~evaluates the positive and negative evidence to assess whether the more likely than not criteria ~~mandated by ASC 740,~~ has been satisfied in determining whether there will be further adjustments to the valuation allowance.

During the three ~~and six~~ months ended ~~March~~December 31, 2019 and 2018, there were no material increases or decreases in unrecognized tax benefits. As of ~~March~~December 31, 2019 and September 30, ~~2018,~~2019, we had approximately $0.5 million ~~and $0.4 million, respectively,~~ 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 12.~~	NOTE 13. Commitments ~~and Contingencies~~

~~Operating Lease Obligations: We lease certain facilities~~ and equipment under non-cancelable operating leases. Operating lease amounts exclude renewal option periods, property taxes, insurance, and maintenance expenses on leased properties. Our facility leases typically provide for rental adjustments for increases in base rent (up to specific limits), property taxes, insurance, and general property maintenance that would be recorded as rent expense. Rent expense was approximately $0.3 million for the three months ended March 31, 2019 and 2018. Rent expense was approximately $0.6 million for the six months ended March 31, 2019 and 2018. There are no off-balance sheet arrangements other than our operating leases.Contingencies

~~Asset Retirement Obligation~~: We have known conditional Asset Retirement Obligations (“AROs”) such as certain asset decommissioning and restoration of rented facilities to be performed in the future. Our ARO includes assumptions related to renewal option periods for those facilities where we expect to extend lease terms. The Company recognizes its estimate of the fair value of its ARO in the period incurred in long-term liabilities. The fair value of the ARO is also capitalized as property, plant and equipment.

In future periods, the ARO is accreted for the change in its present value and capitalized costs are depreciated over the useful life of the related assets. If the fair value of the estimated ARO changes, an adjustment will be recorded to both the ARO and the asset retirement capitalized cost. Revisions in estimated liabilities can result from revisions of estimated inflation rates, changes in estimated retirement costs, and changes in the estimated timing of settling the ARO. The fair value of our ARO was estimated by discounting projected cash flows over the estimated life of the related assets using credit adjusted risk-free rates which ranged from ~~1.20%~~ to ~~4.20%~~. There was no ARO settled during the three months ended March 31, 2019 and 2018. Accretion expense of $13,000 and $16,000 was recorded during the three months ended March 31, 2019 and 2018, respectively. Accretion expense of $27,000 and $33,000 was recorded during the six months ended March 31, 2019 and 2018, respectively.

~~EMCORE leases its primary facility in Alhambra, California covering six buildings where manufacturing, research and development, and general and administrative work is performed~~. In March 2019, amendments to leases for five of the six buildings were signed, extending the terms of the leases for these buildings for an additional three years through September 2023 plus a three year option to extend the leases through September 2026. In connection with the lease agreement, the Company has recorded an ARO liability at March 31, 2019 and September 30, 2018 of $1.8 million. The lease related to the sixth building expired in 2011, and this building is being occupied on a month-to-month basis.

The Company’s ARO consists of legal requirements to return the existing leased facilities to their original state and certain environmental work to be performed due to the presence of a manufacturing fabrication operation and significant changes to the facilities over the past thirty years.

In May 2016 (and retroactively effective on February 1, 2016), the Company entered into a five year lease agreement for facilities in Beijing, China where some manufacturing work is to be performed. In connection with the lease agreement, the Company has recorded an ARO liability in the amount of $0.1 million at March 31, 2019 and September 30, 2018.

In February 2019, the lease and related obligations, including ARO, at our former facility in Ivyland, Pennsylvania was terminated, resulting in no payment by the Company. As a result of this termination, the Company reduced its ARO associated with the former Pennsylvania facility by $40,000 and recorded a gain on the termination in the three and six months ended March 31, 2019.

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.

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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.

Intellectual Property Lawsuits

~~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 Legal Proceedings~~

~~On June 12, 2018,~~

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. ~~An arbitration hearing~~

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 ~~claims with the exception~~fiber optic gyroscopes sold by EMCORE, and (ii) sales from July 16, 2018 through May 31, 2019 of the ~~patent claims~~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

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that Phoenix was ~~held~~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 ~~January 8~~(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 ~~12,~~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 ~~closing arguments~~(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 and an additional $0.1 million of such ~~claims occurred on March 29, 2019. A second arbitration hearing on the patent claims has been set for~~amount is required to be paid in each of April 2020 and July ~~29, 2019. We believe that the claims asserted by Phoenix are without merit and we intend to vigorously defend ourselves against them.~~

2020.

On June 21, 2018, Phoenix ~~Navigation Components, LLC~~ commenced a special proceeding against EMCORE in the New York Supreme Court, Commercial Division ~~Index No. 653128/2018.~~(the “Special Proceeding”). As part of the ~~special proceeding,~~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. ~~On August 6, 2018, Phoenix’s~~The application ~~was resolved pursuant to~~resulted in a ~~stipulation~~so-ordered stipulated injunction between EMCORE and ~~Phoenix. This special proceeding remains open pending resolution~~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 ~~AAA arbitration.~~


~~NOTE 13.~~	~~Equity~~

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,

the 2010 Equity Incentive Plan (“2010 Plan”),

~~the 2000 Stock Option~~

the 2012 Equity Incentive Plan (“2012 Plan”), and

~~the 2010 Equity Incentive Plan (“2010 Plan”),~~

the 2019 Equity Incentive Plan (“2019 Plan”).

~~the 2012 Equity Incentive Plan (“2012 Plan”), and~~

~~the 2019 Equity Incentive Plan (“2019 Plan”).~~

We issue new shares of common stock to satisfy awards issued under our Equity Plans.

~~Stock Options~~

~~Most of our stock options vest and become exercisable over a~~ ~~four~~ to ~~five~~ ~~year period and have a contractual life of~~ 10 ~~years. Certain stock options awarded are intended to qualify as incentive stock options pursuant to Section 422A of the Internal Revenue Code.~~

~~The following table summarizes stock option activity under the Equity Plans for the six months ended March 31, 2019:~~

Number of Shares Weighted Average Exercise Price
Weighted Average
Remaining Contractual Life
(in years)
Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2018 69,980
$4.74
Granted —
—

Exercised (208 ) $3.97 —
Forfeited (52 ) $3.97
Expired (1,267 ) $5.21
Outstanding as of March 31, 2019 68,453
$4.74 4.70 $ 1
Exercisable as of March 31, 2019 48,118
$4.76 3.87 $ 1
Vested and expected to vest as of March 31, 2019 68,453
$4.74 4.70 $ 1

(*) Intrinsic value for stock options represents the “in-the-money” portion or the positive variance between a stock option's exercise price and the underlying stock price. For the six months ended March 31, 2018, the intrinsic value

Table of ~~options exercised was $13,000.~~

As of March 31, 2019, there was approximately $14,000 of unrecognized stock-based compensation expense related to non-vested stock options granted under the Equity Plans which is expected to be recognized over an estimated weighted average life of 1.6 years.

~~Valuation Assumptions~~

~~There were no stock option grants for the six months ended March 31, 2019 and 2018.~~

~~Time-Based Restricted Stock~~

~~Time-based restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) granted to employees under the 2010 Plan, 2012 Plan or 2019 Plan typically vest over~~ 3 to 4 years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. RSUs are not considered issued or outstanding common stock until they vest. RSAs are considered issued and outstanding on the grant date and are subject to forfeiture if specified vesting conditions are not satisfied.

~~The following table summarizes the activity related to RSUs and RSAs subject to time-based vesting requirements for the six months ended March 31, 2019:~~

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Restricted Stock Activity Restricted Stock Units Restricted Stock Awards
Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2018 1,011,621
$6.04 8,154
$8.20
Granted 63,254
$3.94 —
$0.00
Vested (223,174 ) $6.00 —
$0.00
Forfeited (117,108 ) $4.73 —
$0.00
Non-vested as of March 31, 2019 734,593
$6.08 8,154
$8.20

As of March 31, 2019, there was approximately $3.8 million of remaining unamortized stock-based compensation expense associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 2.7 years. The 0.7 million outstanding non-vested and expected to vest RSUs have an aggregate intrinsic value of approximately $2.7 million and a weighted average remaining contractual term of 1.6 years. For the six months ended March 31, 2019 and 2018, the intrinsic value of RSUs vested was approximately $0.9 million and $2.0 million, respectively. For the six months ended March 31, 2018, the weighted average grant date fair value of RSUs granted was $6.53 per share.

As of March 31, 2019, there was approximately $34,000 of remaining unamortized stock-based compensation expense associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 1.5 years.

~~Performance Stock~~

Performance based restricted stock units (“PSUs”) and performance based shares of restricted stock (“PRSAs”) granted to employees under the 2012 Plan or 2019 Plan typically vest over 1 to 3 years and are subject to forfeiture in whole, if employment terminates, or in whole or in part, if specified vesting conditions are not satisfied, in each case prior to vesting. PSUs are not considered issued or outstanding common stock until they vest. PRSAs are considered issued and outstanding on the grant date (at 200% of the target number of shares) and are subject to forfeiture if specified vesting conditions are not satisfied. PSUs and PRSAs that are granted to our executive officers and key employees are provided as long-term incentive compensation that is based on relative total shareholder return, which measures our performance against that of our competitors.

~~The following table summarizes the activity related to PSUs and PRSAs for the six months ended March 31, 2019:~~

Performance Stock Activity Performance Stock Units Performance Stock Awards
Number of Shares (at Target) Weighted Average Grant Date Fair Value Number of Shares (at Target) Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2018 397,777
$8.48 33,333
$12.25
Granted —
$0.00 —
$0.00
Vested (30,874 ) $7.14 —
$0.00
Forfeited (132,579 ) $7.24 —
$0.00
Non-vested as of March 31, 2019 234,324
$9.35 33,333
$12.25

As of March 31, 2019, there was approximately $1.0 million of remaining unamortized stock-based compensation expense associated with PSUs, which will be expensed over a weighted average remaining service period of approximately 1.5 years. The 0.2 million outstanding non-vested and expected to vest PSUs have an aggregate intrinsic value of approximately $0.9 million and a weighted average remaining contractual term of 1.5 years. There were no PSUs vested in the three months ended March 31, 2019 and 2018. For the six months ended March 31, 2019 and 2018, the intrinsic value of PSUs vested was approximately $0.2 million and $1.4 million, respectively. For the six months ended March 31, 2018, the weighted average grant date fair value of PSUs granted was $7.62.

As of March 31, 2019, there was approximately $0.1 million of remaining unamortized stock-based compensation expense associated with PRSAs, which will be expensed over a weighted average remaining service period of approximately 0.5 years.

Stock-based compensation

The effect of recording stock-based compensation expense was as follows:


	For the three months
Stock-based Compensation Expense - by award type	ended December 31,
(in thousands)	2019		2018
Employee stock options	$	5	$	7
Restricted stock units and awards		376		386
Performance stock units and awards		292		(60)
Employee stock purchase plan		47		40
Outside director equity awards and fees in common stock		81		52
Total stock-based compensation expense	$	801	$	425


	For the three months
Stock-based Compensation Expense - by expense type	ended December 31,
(in thousands)	2019		2018
Cost of revenue	$	136	$	111
Selling, general, and administrative		485		159
Research and development		180		155
Total stock-based compensation expense	$	801	$	425

Stock-based Compensation Expense - by award type For the three months ended March 31, For the six months ended March 31,
(in thousands) 2019 2018 2019 2018
Employee stock options $ 7
$ 10
$ 14
$ 20
Restricted stock units and awards 396
412
782
863
Performance stock units and awards 229
361
169
650
Employee stock purchase plan 42
75
82
161
Outside director equity awards and fees in common stock 47
75
99
154
Total stock-based compensation expense $ 721
$ 933
$ 1,146
$ 1,848

Stock-based Compensation Expense - by expense type For the three months ended March 31, For the six months ended March 31,
(in thousands) 2019 2018 2019 2018
Cost of revenue $ 109
$ 115
$ 220
$ 254
Selling, general, and administrative 473
652
632
1,290
Research and development 139
166
294
304
Total stock-based compensation expense $ 721
$ 933
$ 1,146
$ 1,848

Stock-based compensation within selling, general and administrative expense was lower for the six months ended March 31, 2019 due to the reversal of previously recognized expense associated with the forfeiture of unvested RSUs and PSUs of our former CFO Jikun Kim.

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. Since June 2015, all employer contributions are made in cash. Our matching contribution in cash for the ~~each of the~~ three months ended ~~March~~December 31, 2019 and 2018 was approximately $0.2 million and $0.1 ~~million. Our matching contribution in cash for the each of the six months ended March 31, 2019 and 2018 was approximately $0.3 million.~~

million, respectively.

Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share:


	For the three months
Basic and Diluted Net Loss Per Share	ended December 31,
(in thousands, except per share)	2019		2018
Numerator:
Loss from continuing operations	$	(1,335)	$	(5,538)
Undistributed earnings allocated to common shareholders for basic and diluted net income per share		(1,335)		(5,538)
Denominator:
Denominator for basic and fully diluted net loss per share - weighted average shares outstanding		28,832		27,534

Net loss per basic and fully diluted share	$	(0.05)	$	(0.20)

Weighted average antidilutive options, unvested restricted stock units and awards, unvested performance stock units and ESPP shares excluded from the computation		1,168		664

Basic and Diluted Net Loss Per Share For the three months ended March 31, For the six months Ended March 31,
(in thousands, except per share) 2019 2018 2019 2018
Numerator:
Loss from continuing operations $ (4,994 ) $ (3,071 ) $ (10,532 ) $ (3,153 )
Undistributed earnings allocated to common shareholders for basic and diluted net income per share (4,994 ) (3,071 ) (10,532 ) (3,153 )
Denominator:
Denominator for basic and fully diluted net loss per share - weighted average shares outstanding 27,652
27,197
27,592
27,113

Net loss per basic and fully diluted share $ (0.18 ) $ (0.11 ) $ (0.38 ) $ (0.12 )

Weighted average antidilutive options, unvested restricted stock units and awards, unvested performance stock units and ESPP shares excluded from the computation 849
972
535
793

Average market price of common stock $ 4.26
$ 6.05
$ 4.48
$ 6.79

For diluted loss per share, the denominator includes all outstanding common ~~shares and all potential dilutive common shares to be issued.~~shares. The anti-dilutive stock options and unvested stock were excluded from the computation of diluted net loss per share for the three months ended ~~March~~December 31, 2019 and 2018 due to the Company incurring a net loss for the ~~period.~~

periods.

Employee Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (“ESPP”) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is a ~~6-month~~6‑month duration plan with new participation periods beginning on

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approximately February 25 and August 26 of each year. The purchase price is set at 85% of the average high and low market price of our common stock on either the first or last trading day of the participation period, whichever is lower, and annual contributions are limited to the lower of 10% of an ~~employee's~~employee’s compensation or $25,000.

Future Issuances

As of ~~March~~December 31, 2019,, we had common stock reserved for the following future issuances:



~~Future Issuances~~	Number of Common
		Stock Shares Available for ~~Future Issuances~~
Future Issuances		Future Issuances
Exercise of outstanding stock options	~~68,453~~	48,684
Unvested restricted stock units and awards	~~742,747~~	1,754,697
Unvested performance stock units and awards (at 200% maximum payout)	~~535,314~~	1,812,000
Purchases under the employee stock purchase plan	~~674,152~~	543,731
Issuance of stock-based awards under the Equity Plans	~~3,621,906~~	1,126,981
Purchases under the officer and director share purchase plan	~~88,741~~	88,741
Total reserved	~~5,731,313~~	5,374,834

NOTE 15. Segment Data and Related Information


~~NOTE 14.~~	~~Geographical Information~~

~~We evaluate~~

The reportable segments reported below are the Company’s segments for which separate financial information is available and upon which operating results are evaluated by the chief operating decision maker to assess performance and to allocate resources. As a result of organizational changes effective in the beginning of fiscal year 2020, the Company has reassessed its reportable segments and determined that it has two reportable segments, (i) Aerospace and Defense and (ii) Broadband. All prior-period amounts have been adjusted retrospectively to reflect our reportable segment ~~pursuant to ASC 280,~~ ~~Segment Reporting.~~ changes.

The ~~Company's~~Company’s Chief Executive Officer is the chief operating decision maker and he assesses the performance of the operating segment and allocates resources ~~to the segment~~ based on segment profits. We do not allocate sales and marketing, or general and administrative expenses to our segments because management does not include the information in its ~~business prospects, competitive factors, net revenue,~~measurement of the performance of the operating ~~results,~~segments. Also, interest expense and ~~other non-U.S. GAAP financial ratios. Based~~interest income are not presented by segment because management does not include this information in its measurement of the performance of the operating segments.

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The Aerospace and Defense segment is comprised of two product lines: (i) Navigation and Inertial Sensing, and (ii) Defense Optoelectronics. The Broadband segment is comprised of three product lines: (i) CATV, (ii) Chip Devices, and (iii) Other. Information on ~~this evaluation, the Company operates~~reportable segments utilized by our chief operating decision maker is as ~~a single reportable segment, Fiber Optics.~~follows:


		For the three months
(in thousands)		ended December 31,
		2019		2018
Revenue:
Aerospace and Defense	$	13,704	$	4,140
Broadband		11,778		19,861
Total revenue	$	25,482	$	24,001

Segment Profit:
Aerospace and Defense gross profit	$	4,488	$	1,222
Aerospace & Defense R&D expense		3,951		1,551
Aerospace and Defense segment profit/(loss)	$	537	$	(329)

Broadband gross profit	$	2,986	$	4,586
Broadband R&D expense		691		2,468
Broadband segment profit/(loss)	$	2,295	$	2,118

Total consolidated segment profit	$	2,832	$	1,789
Unallocated (income) expense:
Selling, general and administrative		5,887		7,593
Gain on sale of assets		(1,602)		-
Interest expense (income), net		15		(267)
Foreign exchange gain		(147)		(14)
Total unallocated expense		4,153		7,312
Loss before income tax expense	$	(1,321)	$	(5,523)

Revenue: The following ~~tables set~~table sets forth revenue by geographic region with revenue assigned to geographic regions based on our customers’ billing address.


	For the three months
Revenue by Geographic Region	ended December 31,
(in thousands)	2019		2018
United States and Canada	$	20,195	$	18,576
Asia		2,266		4,045
Europe		1,889		1,266
Other		1,132		114
Total revenue	$	25,482	$	24,001

Revenue by Geographic Region For the three months ended March 31, For the six months ended March 31,
(in thousands) 2019 2018 2019 2018
United States and Canada $ 15,648
$ 14,940
$ 34,224
$ 35,019
Asia 4,207
2,146
8,252
4,803
Europe 1,781
1,505
3,047
2,732
Other 109
32
223
105
Total revenue $ 21,745
$ 18,623
$ 45,746
$ 42,659

Significant Customers: Significant customers are defined as customers representing greater than 10% of our consolidated revenue. Revenue from ~~four and~~ three of our significant customers represented an aggregate of ~~67%~~50% and ~~65%~~74% of our consolidated revenue for the three months ended ~~March~~December 31, 2019 and 2018, respectively. ~~Revenue from four and two of our significant customers represented an aggregate of 71% and 59% of our consolidated revenue for the six months ended March 31, 2019 and 2018, respectively.~~

Long-lived Assets: Long-lived assets consist of land, building and property, plant, and equipment. As of ~~March~~December 31, 2019 and September 30, ~~2018,~~2019, approximately ~~72%~~90% and ~~49%~~85%, respectively, of our long-lived assets were located in the United States. The remaining long-lived assets are primarily located in China.

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NOTE 16.Subsequent Events

SDI entered into a Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) (the “Purchase Agreement”) dated as of December 31, 2019 with Parkview Management Group, Inc. (“Buyer”), pursuant to which the parties agreed to consummate a sale and leaseback transaction (the “Sale and Leaseback Transaction”). Under the terms of the Purchase Agreement, SDI agreed to sell its property located in Concord, California (the “Real Property”) to Buyer, for a total purchase price of $13.4 million. On January 13, 2020, SDI and Buyer entered into First Amendment to Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) which provided for various amendments to the Purchase Agreement, including a reduction of the total purchase price to $13.2 million. The net proceeds to be received by SDI will be reduced by transaction commissions and expenses incurred in connection with the sale.

At the consummation of the Sale and Leaseback Transaction, SDI will enter into a Single-Tenant Triple Net Lease (the “Lease Agreement”) with Buyer pursuant to which SDI will lease back from Buyer the 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 will 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 will also be responsible for all monthly expenses related to the leased facilities, including insurance premiums, taxes and other expenses, such as utilities. In connection with the execution of the Lease Agreement, EMCORE will execute a Lease Guaranty (the “Guaranty”) with Buyer under which EMCORE will guarantee 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, and the performance by SDI of all of the material terms, conditions, covenants and agreements of the Lease Agreement.

EMCORE anticipates that the close of the Sale and Leaseback Transaction will occur in the second fiscal quarter of 2020, subject to satisfaction of certain customary closing conditions for transactions of this type.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included in Financial Statements under Item 1 within this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See Cautionary Statement Regarding Forward-Looking ~~Statements.~~Statements.

Business Overview

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~~serving the broadband communications ~~systems~~ and ~~service providers to meet growing demand for increased bandwidth~~Aerospace and ~~connectivity.~~Defense markets. 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 navigations systems technology. With ~~both analog~~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 ~~digital circuits~~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.

We have two reporting segments, Aerospace and Defense, and Broadband. Aerospace and Defense is comprised of two product lines: (i) Navigation and Inertial Sensing, and (ii) Defense Optoelectronics. The Broadband segment is comprised of three product lines: (i) CATV Lasers and Transmitters, (ii) Chip Devices, and (iii) Other. Due to a shift in customer base, the previously existing Satellite/Microwave Communications product line has been renamed “Defense Optoelectronics”.

Recent Developments

SDI Acquisition

On June 7, 2019, we completed the acquisition of SDI, a private-equity backed navigation systems provider with a scalable, chip-based platform for higher volume gyro applications utilizing Quartz MEMS technology. SeeNote 4 - Acquisition in the notes to our condensed consolidated financial statements for additional information regarding this acquisition. Following the closing, we began integrating SDI into our current navigation product line and have included the financial results of SDI in our consolidated financial statements beginning on ~~multiple chips, or even~~the acquisition date.

Hytera Transactions

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As part of the effort to streamline operations and move to a ~~single chip,~~variable cost model in our CATV Lasers and Transmitters product lines, on October 25, 2019, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Hytera Communications (Hong Kong) Company Limited, a limited liability company incorporated in Hong Kong (“Hytera HK”), and Shenzhen Hytera Communications Co., Ltd., a corporation formed under the ~~value~~laws of ~~Mixed-Signal~~ ~~device solutions is often far greater than traditional digital applications~~ the P.R.C. (“Shenzhen Hytera”, and ~~requires a specialized expertise held~~together with Hytera HK, the “Buyers”), pursuant to which the Buyers agreed to purchase from EMCORE certain CATV module and transmitter manufacturing equipment (the “Equipment”) owned by EMCORE and currently located at the manufacturing facility of EMCORE’s wholly-owned subsidiary, EMCORE Optoelectronics (Beijing) Co, Ltd., a corporation formed under the laws of the P.R.C., for an aggregate purchase price of approximately $5.54 million.

The Equipment will be transferred to the Buyers in three separate closings, one of which ~~is unique~~occurred in the ~~optics industry.~~quarter ended December 31, 2019 and the other two of which are expected to occur during the quarter ending March 31, 2020, with payment for each portion of the equipment to be made following each such transfer in an amount equal to (i) 80% of the applicable sale price within three months following the closing of the applicable sale and transfer and (ii) 20% of the applicable sale price within six months following the closing of the applicable sale and transfer. In October 2019, we received the first such payment in an amount equal to approximately $1.9 million.

Concurrently with entry into the Purchase Agreement, we entered into a Contract Manufacturing Agreement (the “Manufacturing Agreement”), dated as of October 25, 2019, with the Buyers pursuant to which the Buyers agreed to manufacture certain CATV module and transmitter products for EMCORE from a manufacturing facility located in Thailand for an initial five year term at product prices agreed to between the parties. In the Manufacturing Agreement, we agreed to pay certain shortfall penalties in the event that orders for manufactured products are below certain thresholds.

Other Actions Related to CATV Business

In the quarter ended September 30, 2019, we also reduced the size of our CATV-related employee headcount and reduced the capacity of our wafer fab to one shift. These actions incurred one-time costs of $0.4 million in the quarter ended September 30, 2019 and are expected to result in annual cash savings of approximately $3.0 million beginning in the quarter ended December 31, 2019. These operational changes in CATV also fulfill a strategic objective of better positioning the CATV product lines to generate positive cash flow to help fund the other growth areas of EMCORE in Aerospace and Defense.

Sale/Leaseback Transaction

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Results of Operations

The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue:


	For the three months
	ended December 31,
	2019		2018
Revenue	100.0	%	100.0	%
Cost of revenue	70.7		75.8
Gross profit	29.3		24.2
Operating expense:
Selling, general, and administrative	23.1		31.6
Research and development	18.2		16.8
Gain on sale of assets	(6.3)		—
Total operating expense	35.0		48.4
Operating loss	(5.7)		(24.2)
Other income:
Interest (expense) income, net	(0.1)		1.1
Foreign exchange gain	0.6		0.1
Total other income	0.5		1.2
Loss before income tax expense	(5.2)		(23.0)
Income tax expense	—		(0.1)
Net loss	(5.2)	%	(23.1)	%

For the three months ended March 31, For the six months ended March 31,
2019 2018 2019 2018
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 73.3
73.4
74.6
69.9
Gross profit 26.7
26.6
25.4
30.1
Operating expense:
Selling, general, and administrative 32.2
30.3
31.9
24.5
Research and development 20.0
17.7
18.3
16.6
Gain from change in estimate on ARO (0.2 ) —
(0.1 ) —
(Gain) loss on sale of assets —
(0.3 ) —
0.1
Total operating expense 52.0
47.7
50.1
41.2
Operating loss (25.3 ) (21.1 ) (24.7 ) (11.1 )
Other income:
Interest income, net 1.0
0.9
1.1
0.6
Foreign exchange gain 1.4
2.8
0.7
1.9
Total other income 2.4
3.7
1.8
2.5
Loss before income tax (expense) benefit (22.9 ) (17.4 ) (22.9 ) (8.6 )
Income tax (expense) benefit (0.1 ) 0.9
(0.1 ) 1.2
Net loss (23.0 )% (16.5 )% (23.0 )% (7.4 )%

Comparison of Financial Results for the Three Months Ended ~~March~~December 31, 2019 and 2018


	For the three months ended December 31,
(in thousands, except percentages)	2019		2018		$ Change		% Change
Revenue	$	25,482	$	24,001	$	1,481	6.2%
Cost of revenue		18,008		18,193		(185)	-1.0%
Gross profit		7,474		5,808		1,666	28.7%
Operating expense:
Selling, general, and administrative		5,887		7,593		(1,706)	-22.5%
Research and development		4,642		4,019		623	15.5%
Gain on sale of assets		(1,602)		—		(1,602)	N/A
Total operating expense		8,927		11,612		(2,685)	-23.1%
Operating loss		(1,453)		(5,804)		4,351	-75.0%
Other income (expense):
Interest (expense) income, net		(15)		267		(282)	-105.6%
Foreign exchange gain		147		14		133	950.0%
Total other income		132		281		(149)	-53.0%
Loss before income tax expense		(1,321)		(5,523)		4,202	-76.1%
Income tax expense		(14)		(15)		1	-6.7%
Net loss	$	(1,335)	$	(5,538)	$	4,203	-75.9%

(in thousands, except percentages) For the three months ended March 31,
2019 2018 $ Change % Change
Revenue $ 21,745
$ 18,623
$ 3,122
16.8%
Cost of revenue 15,936
13,676
2,260
16.5%
Gross profit 5,809
4,947
862
17.4%
Operating expense:
Selling, general, and administrative 6,996
5,644
1,352
24.0%
Research and development 4,360
3,300
1,060
32.1%
Gain from change in estimate on ARO (40 ) —
(40 ) N/A
Gain on sale of assets —
(68 ) 68
100.0%
Total operating expense 11,316
8,876
2,440
27.5%
Operating loss (5,507 ) (3,929 ) (1,578 ) (40.2)%
Other income (expense):
Interest income, net 224
163
61
37.4%
Foreign exchange gain 304
526
(222 ) (42.2)%
Total other income 528
689
(161 ) (23.4)%
Loss before income tax (expense) benefit (4,979 ) (3,240 ) (1,739 ) (53.7)%
Income tax (expense) benefit (15 ) 169
(184 ) (108.9)%
Net loss $ (4,994 ) $ (3,071 ) $ (1,923 ) (62.6)%

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Revenue


	For the three months ended December 31,
(in thousands, except percentages)	2019			2018		$ Change	% Change
Aerospace and Defense revenue	$	13,704	$	4,140	$	9,564	231.0%
Broadband revenue		11,778		19,861		(8,083)	-40.7%
Total revenue	$	25,482	$	24,001	$	1,481	6.2%

Aerospace and Defense Revenue

For the three months ended ~~March~~December 31, 2019, our Aerospace and Defense revenue increased ~~16.8%~~$9.6 million or 231% compared to the same period in the prior year. Included in Aerospace and Defense revenue is $8.1 million of revenue from SDI for the three months ended December 31, 2019. For the three months ended December 31, 2019, our Defense Optoelectronics product line revenue increased $1.8 million compared to the same period in the prior year primarily ~~driven by higher sales volume of~~due to increased customer demand.

Broadband Revenue:

For the three months ended December 31, 2019, our ~~CATV systems and components and, an increase in Chip Devices and Navigation Systems product line revenue. Navigation~~Broadband revenue ~~increased $2.0~~decreased $8.1 million or ~~99.7%, from~~41% compared to the same period in the prior year primarily due to ~~one new engineering contract~~lower customer demand in the ~~three months ended March 31, 2019 that did not exist in the same period in the prior year.~~

CATV and Chips product lines.

Gross Profit


	For the three months ended December 31,
(in thousands, except percentages)	2019			2018		$ Change	% Change
Aerospace and Defense gross profit	$	4,488	$	1,222	$	3,266	267.3%
Broadband gross profit		2,986		4,586		(1,600)	-34.9%
Total gross profit	$	7,474	$	5,808	$	1,666	28.7%

Our cost of revenue consists of raw materials, compensation expense including non-cash stock-based compensation expense, depreciation expense and other manufacturing overhead costs, expenses associated with excess and obsolete inventories, and product warranty costs. Historically, our cost of revenue as a percentage of revenue, which we refer to as our gross margin, has fluctuated significantly due to product mix, manufacturing yields and sales volumes, and inventory and specific product warranty charges.

Consolidated gross margins were ~~26.7%~~29.3% and ~~26.6%~~24.2% for the three months ended ~~March~~December 31, 2019 and 2018, respectively.

Stock-based compensation expense within cost of revenue totaled approximately $0.1 million during each of the three months ended ~~March~~December 31, 2019 and 2018.

Aerospace and Defense Gross Profit:

For the three months ended ~~March~~December 31, 2019, Aerospace and Defense gross profit increased ~~by 17.4% when~~$3.3 million or 267% compared to the same period in the prior ~~year. The increase in~~year primarily due to higher revenue, of which $2.3 million results from the inclusion of SDI gross profit ~~for~~in the three months ended ~~March~~December 31, 2019. For the three months ended December 31, 2019 and 2018, Aerospace and Defense gross margin was 32.7% and 29.5%, respectively.

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Broadband Gross Profit:

For the three months ended December 31, 2019, Broadband gross profit decreased $1.6 million or 35% compared to the same period in the prior year primarily as a result of lower revenues in the three months ended December 31, 2019. For the three months ended December 31, 2019 and 2018, Broadband gross margin was 25.4% and 23.1%, respectively. The higher gross margin in the three months ended December 31, 2019 was primarily the result of product mix and a $0.4 million inventory reserve on non-current inventory in the three months ended December 31, 2018 due to ~~higher sales.~~

the decline in sales and future demand of the inventory at such time.

Selling, General and Administrative (“SG&A”)

SG&A consists primarily of compensation expense including non-cash stock-based compensation expense related to executive, finance, and human resources personnel, as well as sales and marketing expenses, professional fees, legal and patent-related costs, and other corporate-related expenses.

Stock-based compensation expense within SG&A totaled approximately $0.5 million and ~~$0.7~~$0.2 million for the three months ended ~~March~~December 31, 2019 and 2018, respectively.

SG&A expense for the three months ended ~~March~~December 31, 2019 was ~~higher~~lower than the amount reported in the same period in the prior year primarily due to ~~an increase in expense for professional services as a result of~~lower attorneys’ fees and costs arising from the litigation proceedings with Phoenix, ~~Navigation Components, LLC.~~

partially offset by an increase in bad debt expense.

As a percentage of revenue, SG&A expenses were ~~32.2%~~23.1% and ~~30.3%~~31.6% for the three months ended ~~March~~December 31, 2019 and 2018, respectively.

Research and Development (“R&D”)

R&D consists primarily of compensation expense including non-cash stock-based compensation expense, as well as engineering and prototype costs, depreciation expense, and other overhead expenses, as they relate to the design, development, and testing of our products. Our R&D costs are expensed as incurred. We believe that in order to remain competitive, we must invest significant financial resources in developing new product features and enhancements and in maintaining customer satisfaction worldwide.

Stock-based compensation expense within R&D totaled approximately ~~$0.1 million and~~ $0.2 million during each of the three months ended ~~March~~December 31, 2019 and 2018, respectively.

For the three months ended December 31, 2019 and 2019, Aerospace and Defense R&D expense was $4.0 million and $1.6 million, respectively. For the three months ended December 31, 2019 and 2018, Broadband R&D expense was $0.7 million and $2.5 million, respectively.

R&D expense for the three months ended ~~March~~December 31, 2019 was higher than the amounts reported in the same period in the prior year primarily due to an increase in compensation costs and project spending, primarily in ~~navigation systems.~~

Aerospace and Defense.

As a percentage of revenue, R&D expenses were ~~20.0%~~18.2% and ~~17.7%~~15.8% for the three months ended ~~March~~December 31, 2019 and 2018, respectively.

Operating Loss

Operating loss represents revenue less the cost of revenue and direct operating expenses incurred. Operating loss is a measure that executive management uses to assess performance and make decisions. As a percentage of revenue, our operating loss was ~~(25.3)~~(5.7)% and ~~(21.1)~~(24.2)% for the three months ended ~~March~~December 31, 2019 and 2018, respectively. The ~~increase~~decrease in operating loss as a percentage of revenue in the three months ended ~~March~~December 31, 2019 compared to the

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same period in the prior year is primarily due to the increase in gross profit and the decrease in SG&A ~~and R&D~~ expense partially offset by the increase in ~~gross profit~~R&D expense in the three months ended ~~March~~December 31, 2019.

Other Income

Interest Income, net

During the three months ended ~~March~~December 31, 2019 and 2018, we recorded ~~$0.3~~$0.1 million and ~~$0.2~~$0.3 million, respectively, of interest income earned on cash and cash equivalents balances, which was partially offset by interest expense and letter of credit fees related to our Credit Facility (as defined below). Interest income for the three months year ended ~~March~~December 31, 2019 was ~~higher~~lower than the amount reported in the prior year due to ~~higher interest income earned on~~lower cash and cash equivalents balances.

Foreign Exchange

Gains or losses from foreign currency transactions denominated in currencies other than the U.S. dollar, both realized and unrealized, are recorded as foreign exchange gain (loss) on our consolidated statements of operations and comprehensive income. The gain (losses) recorded relate to the change in value of the Yuan Renminbi relative to the U.S. dollar.

Income Tax ~~Benefit (Expense)~~

Expense

For the three months ended ~~March~~December 31, 2019, the Company recorded income tax expense of ~~approximately $15,000.~~$14,000. For the three months ended ~~March~~December 31, 2018, the Company recorded income tax ~~benefit~~expense of ~~approximately $0.2 million.~~$15,000. Income tax expense for the three months ended ~~March~~December 31, 2019 is primarily comprised of state minimum tax expense. Income tax benefit for the three months ended March 31, 2018 is primarily comprised of the effect of the December 22, 2017 Tax Cuts and Jobs Act (the “Tax Act”) which eliminated Alternative Minimum Taxes and resulted in a refund to the Company of amounts paid in prior fiscal years.

~~Comparison of Financial Results for the Six Months Ended March 31, 2019 and 2018~~

(in thousands, except percentages) For the six months ended March 31,
2019 2018 $ Change % Change
Revenue $ 45,746
$ 42,659
$ 3,087
7.2%
Cost of revenue 34,129
29,798
4,331
14.5%
Gross profit 11,617
12,861
(1,244 ) (9.7)%
Operating expense:
Selling, general, and administrative 14,589
10,463
4,126
39.4%
Research and development 8,379
7,100
1,279
18.0%
Gain from change in estimate on ARO (40 ) —
(40 ) N/A
Loss on sale of assets —
39
(39 ) (100.0)%
Total operating expense 22,928
17,602
5,326
30.3%
Operating loss (11,311 ) (4,741 ) (6,570 ) (138.6)%
Other income (expense):
Interest income, net 491
274
217
79.2%
Foreign exchange gain 318
812
(494 ) (60.8)%
Total other income 809
1,086
(277 ) (25.5)%
Loss before income tax (expense) benefit (10,502 ) (3,655 ) (6,847 ) (187.3)%
Income tax (expense) benefit (30 ) 502
(532 ) (106.0)%
Net loss $ (10,532 ) $ (3,153 ) $ (7,379 ) (234.0)%

~~Revenue~~

For the six months ended March 31, 2019, revenue increased 7.2% compared to the same period in the prior year primarily driven by an increase in sales volume within our Chip Devices and Navigation Systems product line revenue partially offset by lower sales volume of our CATV systems. The increase in the Chip Devices and Navigation Systems product line revenue are primarily the result of increased sales to two significant customers in the six months ended March 31 2019 compared to the same period in the prior year. The decrease in CATV sales is primarily the result of a significant customer purchasing a large inventory accumulation in the six months ended March 31, 2018.

~~Gross Profit~~

~~Consolidated gross margins were 25.4% and 30.1% for the six months ended March 31, 2019 and 2018, respectively.~~

~~Stock-based compensation expense within cost of revenue totaled approximately $0.2 million and $0.3 million during each of the six months ended March 31, 2019 and 2018, respectively.~~

For the six months ended March 31, 2019, gross profit decreased by 9.7% when compared to the same period in the prior year. The decrease in gross profit for the six months ended March 31, 2019 was primarily due to sales of lower margin products and a recorded reserve on non-current inventory. The decrease in gross margin for the six months ended March 31, 2019 was primarily due to product mix. During the six months ended March 31, 2019, we recorded a $0.5 million reserve on non-current inventory due to the decline in sales and future demand of the inventory.

~~Selling, General and Administrative (“SG&A”)~~

~~Stock-based compensation expense within SG&A totaled approximately $0.6 million and $1.3 million for the six months ended March 31, 2019 and 2018, respectively.~~

SG&A expense for the six months ended March 31, 2019 was higher than the amount reported in the same period in the prior year primarily due to an increase in expense for professional services as a result of the litigation proceedings with Phoenix Navigation Components, LLC.

~~As a percentage of revenue, SG&A expenses were 31.9% and 24.5% for the six months ended March 31, 2019 and 2018, respectively.~~

~~Research and Development (“R&D”~~)

~~Stock-based compensation expense within R&D totaled approximately $0.3 million during each of the six months ended March 31, 2019 and 2018.~~

R&D expense for the six months ended March 31, 2019 was higher than the amounts reported in the same period in the prior year primarily due to an increase in compensation costs and project spending, primarily in navigation systems.

~~As a percentage of revenue, R&D expenses were 18.3% and 16.6% for the six months ended March 31, 2019 and 2018, respectively.~~

~~Operating Loss~~

Operating loss represents revenue less the cost of revenue and direct operating expenses incurred. Operating loss is a measure that executive management uses to assess performance and make decisions. As a percentage of revenue, our operating loss was (24.7)% and (11.1)% for the six months ended March 31, 2019 and 2018, respectively. The increase in operating loss as a percentage of revenue in the six months ended March 31, 2019 compared to the same period in the prior year is primarily due to a decrease in gross profit and an increase in SG&A and R&D expense in the six months ended March 31, 2019.

~~Other Income~~

~~Interest Income, net~~

During the six months ended March 31, 2019 and 2018, we recorded $0.6 million and $0.4 million, respectively, of interest income earned on cash and cash equivalents balances, which was partially offset by interest expense and letter of credit fees

related to our Credit Facility (as defined below). Interest income for the six months year ended March 31, 2019 was higher than the amount reported in the same period in the prior year due to higher interest income earned on cash and cash equivalents balances.

~~Foreign Exchange~~

~~Income Tax Benefit (Expense)~~

For the six months ended March 31, 2019, the Company recorded income tax expense of approximately $30,000. For the six months ended March 31, 2018, the Company recorded income tax benefit of approximately $0.5 million. Income tax expense for the six months ended March 31, 2019 is primarily comprised of state minimum tax expense. Income tax benefit for the six months ended March 31, 2018 is primarily comprised of the effect of the Tax Act which eliminated Alternative Minimum Taxes and resulted in a refund to the Company of amounts paid in prior fiscal years.

Order Backlog

~~EMCORE's~~

EMCORE’s product sales are made pursuant to purchase orders, often with short lead times. These orders are subject to revision or cancellation and often are made without deposits. ~~Products~~In addition, Broadband products typically ship within the same quarter in which a purchase order is ~~received; therefore,~~received. Therefore, our order backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period and may not be comparable to prior periods.

Liquidity and Capital Resources

~~Other than the fiscal years ended September 30, 2018 and 2017, in recent years we~~

We have historically consumed cash from operations and, in most periods, we have incurred operating losses from continuing operations. We have managed our liquidity position through the sale of assets and cost reduction initiatives, as well as, from time to time in prior periods, borrowings from our Credit Facility (defined below) and capital markets transactions.

As of ~~March~~December 31, 2019, cash and cash equivalents totaled ~~$50.6~~$15.4 million and net working capital totaled approximately ~~$77.1~~$43.0 million. Net working capital, calculated as current assets minus current liabilities, is a financial metric we use which represents available operating liquidity. ~~With respect~~

On November 11, 2010, we entered into a Credit and Security Agreement (as amended to ~~measures related~~date, the “Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”). The Credit Facility currently provides us with a revolving credit line of up to ~~liquidity:~~$15.0 million that can be used for working capital requirements, letters of credit, acquisitions, and other general corporate purposes subject to requirements that (a) the Company have (i) liquidity of at least $7.5 million (which amount increases to $10.0 million as of March 1, 2020), and (ii) for certain specific uses, liquidity of at least $25.0 million after such use and (b) the Company maintain excess availability of at least $1.0 million. The Credit Facility has a maturity date expiring in November 2021, 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. See Note 11 - Credit Facilities in the notes to the condensed consolidated financial statements for additional disclosures. As of February 3,

•

~~Credit Facility~~: On November 11, 2010, we entered into a Credit and Security Agreement (“Credit Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”). The Credit Facility, as amended by its seventh amendment on November 10, 2015, currently provides us with a revolving credit line of up to $15.0 million that can be used for working capital requirements, letters of credit, acquisitions, and other general corporate purposes subject to a requirement, for certain specific uses, that the Company have liquidity of at least $25.0 million after such use. On November 7, 2018 we entered into a Tenth Amendment of the Credit Facility which extended the maturity date of the facility to November 2021. 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. See ~~Note 10 - Credit Facilities~~ in the notes to the condensed consolidated financial statements for additional disclosures. As of May 6, 2019, there was no outstanding balance under this Credit Facility, $0.5 million reserved for one outstanding stand-by letter of credit and $5.5 million available for borrowing.

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2020, there was an outstanding balance under this Credit Facility of $3.1 million, $0.5 million reserved for one outstanding stand-by letter of credit and $5.0 million available for borrowing.

The Company has a history of operating losses and negative cash flows from operations. We believe that our existing balances of cash and cash equivalents, cash flows from operations and amounts expected to be available under our Credit Facility will provide us with sufficient financial resources to meet our cash requirements for operations, working capital, and capital expenditures for at least the next twelve ~~months. At~~months from the discretion of our Board of Directors and subject to restrictions in our Credit Facility, we may use our existing balances of cash and cash equivalents to provide liquidity to our shareholders through one or more additional special dividends or the repurchase of additional shares of our outstanding common stock, make investments in our business, pursue acquisitions or a combination thereof. For example, under our Credit Facility, we are restricted from making acquisitions or paying dividends that result in the liquiditydate of the ~~Company being less than $25.0 million after making such acquisition or paying such dividend if any amounts are outstanding under~~issuance of these financial statements. We have taken a number of actions to continue to support our ~~Credit Facility.~~operations and meet our obligations, including entering into an agreement for the sale of real property, headcount reductions and other cost reductions. In addition, should we require more capital than what is generated by our operations, ~~to, for example fund significant discretionary activities, such as business acquisitions,~~ we could engage in additional sales or other monetization of certain fixed assets, additional cost reductions, or elect to raise capital in the U.S. through debt or equity issuances. These alternatives could result in higher effective tax rates, increased interest expense, and/or dilution of our earnings. ~~We have borrowed funds in the past and continue to believe we have the ability to do so at reasonable interest rates.~~

Cash Flow

Net Cash (Used In) Provided By Operating Activities


Operating Activities	For the three months ended December 31,
(in thousands, except percentages)	2019		2018		$ Change		% Change
Net cash used in operating activities	$	(5,979)	$	(2,869)	$	(3,110)	-108.4%

Operating Activities
(in thousands, except percentages)
For the six months ended March 31,
2019 2018 $ Change % Change
Net cash (used in) provided by operating activities $ (7,061 ) $ 85
$ (7,146 ) 8,407.1%

Fiscal ~~2019~~:

2020:

For the ~~six~~three months ended ~~March~~December 31, 2019, our operating activities used cash of ~~$7.1~~$6.0 million, primarily due to our net loss of ~~$10.5~~$1.3 million, ~~and~~ changes in our operating assets and liabilities (or working capital components, which includes non-current inventory) of ~~$0.7~~$5.7 million and gain on disposal of assets of $1.6 million, partially offset by depreciation and amortization expense of ~~$3.2~~$2.0 million, stock-based compensation expense of ~~$1.1~~$0.8 million and ~~warranty~~bad debt provision of $0.1 million. The change in our operating assets and liabilities was primarily the result of an increase in accounts receivable of ~~$0.8~~$1.5 million, inventory of $0.9 million and other assets of ~~$3.2~~$2.8 million and a decrease in ~~accounts payable~~accrued expenses and other liabilities of ~~$0.3~~$1.4 million, partially offset by ~~a decrease in inventory of $0.7 million and~~ an increase in ~~other liabilities~~accounts payable of ~~$2.9~~$0.8 million.

Fiscal ~~2018~~:

2019:

For the ~~six~~three months ended ~~March~~December 31, 2018, our operating activities ~~provided~~used cash of ~~$0.1~~$2.9 million primarily due to depreciation and amortization expense of $2.6 million, stock-based compensation expense of $1.8 million, warranty provision of $0.3 million and loss on disposal of equipment of $39,000, partially offset by our net loss of ~~$3.2~~$5.5 million ~~and~~partially offset by changes in our operating assets and liabilities (or working capital components, which includes non-current inventory) of ~~$1.0~~$0.6 million, depreciation and amortization expense of $1.6 million, stock-based compensation expense of $0.4 million and warranty provision of $0.1 million. The change in our operating assets and liabilities was primarily the result of a decrease in accounts receivable of $0.9 million and inventory of $0.4 million and an increase in other liabilities of $1.8 million partially offset by an increase in other assets of ~~$2.8~~$0.4 million and a decrease in accounts payable of ~~approximately $4.9 million, partially offset by a decrease in accounts receivable of $4.4 million and inventory of $2.0 million and an increase in other liabilities of $0.3~~$2.1 million.

Working Capital ~~Components~~:

Components:

Accounts Receivable: We generally expect the level of accounts receivable at any given quarter end to reflect the level of sales in that quarter. Our accounts receivable balances have fluctuated historically due to the timing of account collections, timing of product shipments, and/or change in customer credit terms.

Inventory: We generally expect the level of inventory at any given quarter end to reflect the change in our expectations of forecasted ~~sales.~~sales during the quarter. Our inventory balances have fluctuated historically due to the timing of customer orders and product shipments, changes in our internal forecasts related to customer demand, as well as adjustments related to excess and obsolete inventory and the purchase of non-current inventory.

Accounts Payable: The fluctuation of our accounts payable balances is primarily driven by changes in inventory purchases as well as changes related to the timing of actual payments to vendors.

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Accrued Expenses: Our largest accrued expense typically relates to compensation. Historically, fluctuations of our accrued expense accounts have primarily related to changes in the timing of actual compensation payments, receipt or application of advanced payments, adjustments to our warranty accrual, and accruals related to professional fees.

Net Cash ~~Used In~~Provided By (Used In) Investing Activities


Investing Activities	For the three months ended December 31,
(in thousands, except percentages)	2019		2018		$ Change		% Change
Net cash provided by (used in) investing activities	$	441	$	(2,878)	$	3,319	115.3%

Investing Activities
(in thousands, except percentages)
For the six months ended March 31,
2019 2018 $ Change % Change
Net cash used in investing activities $ (5,576 ) $ (2,658 ) $ (2,918 ) (109.8)%

Fiscal ~~2019~~:

2020:

For the ~~six~~three months ended ~~March~~December 31, 2019, our investing activities provided cash of $0.4 million primarily from cash proceeds from the disposal of equipment of $1.9 million partially offset by capital-related expenditures of $1.5 million.

Fiscal 2019:

For the three months ended December 31, 2018, our investing activities used ~~$5.6~~$2.9 million of cash for ~~capital-related~~capital related expenditures of ~~$5.6~~$2.9 million primarily related to investment in our wafer fabrication facility.

Net Cash Used In Financing Activities


Financing Activities	For the three months ended December 31,
(in thousands, except percentages)	2019		2018		$ Change		% Change
Net cash used in financing activities	$	(1,085)	$	(150)	$	(935)	-623.3%

Fiscal ~~2018~~:

2020:

For the ~~six~~three months ended ~~March 31, 2018, our investing activities used $2.7 million of cash for capital-related expenditures partially offset by cash proceeds from the disposal of equipment of $0.1 million.~~

~~Net Cash Provided By (Used In) Financing Activities~~

Financing Activities
(in thousands, except percentages)
For the six months ended March 31,
2019 2018 $ Change % Change
Net cash provided by (used in) financing activities $ 44
$ (697 ) $ 741
106.3%

~~Fiscal 2019~~:

~~For the six months ended March~~December 31, 2019, our financing activities ~~provided~~used cash of ~~$44,000~~$1.1 primarily due to net payments related to borrowings from ~~proceeds from stock plan transactions of $0.2 million partially offset by tax withholding paid on behalf of employees for stock-based awards of $0.2 million.~~

our bank Credit Facility.

Fiscal ~~2018~~2019:

For the ~~six~~three months ended ~~March~~December 31, 2018, our financing activities used cash of ~~$0.7~~$0.2 million ~~primarily~~ for tax withholding paid on behalf of employees for stock-based awards ~~of $1.1 million partially offset by proceeds from stock plan transactions of $0.4 million.~~

Contractual Obligations and Commitments

~~Our contractual obligations and commitments for the remainder of fiscal 2019 and over the next five fiscal years are summarized in the table below (and are presented as of March 31, 2019):~~

(in thousands)
Total Less than a year 1 to 3 years 4 to 5 years Over 5 years
Purchase obligations $ 26,050
$ 25,604
$ 307
$ 139
$ —
Asset retirement obligations 2,152
—
—
2,152
—
Operating lease obligations 3,981
477
1,827
1,677
—
Total contractual obligations and commitments $ 32,183
$ 26,081
$ 2,134
$ 3,968
$ —

~~Interest payments are not included in the contractual obligations and commitments table above since they are insignificant to our consolidated results of operations.~~

The contractual obligations and commitments table above also excludes unrecognized tax benefits because we are unable to reasonably estimate the period during which this obligation may be incurred, if at all.

As of ~~March 31, 2019, we had unrecognized tax benefits~~the date of ~~$0.4 million.~~

~~Purchase Obligations~~

~~Our purchase obligations represent agreements~~this report, other than changes related to purchase goods or services that are enforceable and legally binding, that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timingadoption of the ~~transactions.~~

~~The purchase obligations of $26.1 million set forth above include~~new lease accounting standard as of March 31, 2019 $1.0 million that the Company has committed for the purchase and installation of capital equipment. In addition, we expect to incur during the six month period ending September 30, 2019, an additional $1.1 million to complete the purchase and installation of capital equipment.

~~Asset Retirement Obligations~~

~~We have known conditional ARO conditions, such as certain asset decommissioning and restoration of rented facilities to be performed~~discussed in the future. Our ARO includes assumptions related to renewal option periods where we expect to extend facility lease terms. Revisions in estimated liabilities can result from revisions of estimated inflation rates, escalating retirement costs, and changes in the estimated timing of settling the ARO. See Note ~~12 - Commitments and Contingencies~~2 – Recent Accounting Pronouncements ~~in the notes~~ to the condensed consolidated financial statements, ~~for additional information related~~there were no material changes to our ~~AROs.~~

~~Operating Leases~~

~~Operating leases include non-cancelable terms~~contractual obligations and ~~exclude renewal option periods, property taxes, insurance and maintenance expenses on leased properties. See~~commitments outside the ordinary course of business since September 30, 2019 as reported in our 2019 Form 10-K. ~~Note 12 - Commitments and Contingencies~~ ~~in the notes to the condensed consolidated financial statements for additional information related to our operating lease obligations.~~

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements other than our operating leases described above that have or are reasonably likely to have a current or future material effect on our condensed consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

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

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estimates from those disclosed in our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended September 30, ~~2018.~~2019. Please refer to Part II, Item 7 of our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended September 30, ~~2018~~2019 for a discussion of our critical accounting policies and estimates.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risks

We are exposed to financial market risks, including changes in currency exchange rates and interest rates. We do not use derivative financial instruments for speculative purposes.

Foreign Currency Exchange Risks

The United States dollar is the reporting currency for our condensed consolidated financial statements. The functional currency for our China ~~subsidiary~~subsidiaries is the Yuan Renminbi.

We recognize translation adjustments due to the effect of changes in the value of the Yuan Renminbi relative to the U.S. dollar associated with our operations in China. The assets and liabilities of our foreign operations are translated from their respective functional currencies into U.S. dollars at the rates in effect at the consolidated balance sheet dates, and the revenue and expense amounts are translated at the average rate during the applicable periods reflected on the consolidated statements of operations and comprehensive income. Foreign currency translation adjustments are recorded as accumulated other comprehensive income.

Gains and losses from foreign currency transactions denominated in currencies other than the U.S. dollar, both realized and unrealized, are recorded as foreign exchange gain (loss) on our consolidated statements of operations and comprehensive income.

During the normal course of business, we are exposed to market risks associated with fluctuations in foreign currency exchange rates due to the Yuan Renminbi. To reduce the impact of these risks on our earnings and to increase the predictability of cash flows, we use natural offsets in receipts and disbursements within the applicable currency as the primary means of reducing the risk.

Some of our foreign suppliers may adjust their prices (in U.S. dollars) from time to time to reflect currency exchange fluctuations, and such price changes could impact our future financial condition or results of operations. We do not currently hedge our foreign currency exposure.

Interest Rate Risks

We monitor our interest rate risk on cash balances primarily through cash flow forecasting. Cash that is surplus to immediate requirements is invested in short-term deposits with banks accessible with short notice and invested in money market accounts. ~~We believe~~Based on the LIBOR rate loans outstanding under our ~~current~~credit facility during the three months ended December 31, 2019, a hypothetical 50 basis points increase in interest ~~rate risk is immaterial.~~

rates would have resulted in an insignificant amount of additional interest expense.

Inflation Risks

Inflationary factors, such as increases in material costs and operating expenses, may adversely affect our results of operations and cash flows. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, an increase in the rate of inflation in the future may have an adverse effect on the levels of gross profit and operating expenses as a percentage of revenue if the sales prices for our products do not proportionately increase with these increases in expenses.

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Credit Market Conditions

The U.S. and global capital markets periodically experience turbulent conditions, particularly in the credit markets, which can result in tightening of lending standards, reduced availability of credit, and reductions in certain asset values. This could impact our ability to obtain additional funding through financing or asset sales.

ITEM 4. Controls and Procedures

a. Evaluation of Disclosure Controls and Procedures

Our management, with the participation of its Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Accounting Officer), evaluated the effectiveness of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Rules ~~13a-15(e)~~13a‑15(e) and ~~15d-15(e)~~15d‑15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~March~~December 31, 2019. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

b. Changes in Internal Control over Financial Reporting

As a result of the acquisition of SDI on June 7, 2019, our management is in the process of reviewing and evaluating the design and operating effectiveness of its internal control over financial reporting relating to SDI. Certain changes have been made and will continue to be made to our internal controls until management has completed its evaluation and integrated SDI’s information and accounting systems and processes.

There ~~were~~have been no other changes in the ~~Company's~~Company’s internal control over financial reporting (as defined in Rule ~~13a-15(f)~~13a‑15(f) and ~~15d-15(f)~~15d‑15(f) promulgated under the Exchange Act) during the quarter ended ~~March~~December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting.

PART II. Other Information

ITEM 1. Legal Proceedings

See the disclosures under the caption “Legal Proceedings” in Note 1213 - Commitments and Contingencies in the notes to our condensed consolidated financial statements for disclosures related to our legal proceedings, which disclosures are incorporated herein by reference.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form ~~10-K~~10‑K for the fiscal year ended September 30, ~~2018,~~2019, which could materially affect our business, financial condition or future results. We do not believe the ~~Company's~~Company’s risks have changed materially since we filed our Annual Report on Form ~~10-K~~10‑K on December ~~4, 2018.~~10, 2019. The risks described in our Annual Report on Form ~~10-K~~10‑K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition and/or operating results.

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ITEM 6. Exhibits and Financial Statement Schedules


2.1		Asset Purchase Agreement, dated as of October 25, 2019 by and among EMCORE Corporation, Hytera Communications (Hong Kong) Company Limited and Shenzhen Hytera Communications Co., Ltd. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8 K filed on October 30, 2019).
~~10.1†~~ 10.1		Contract Manufacturing Agreement, dated as of October 25, 2019 by and among EMCORE Corporation, Hytera Communications (Hong Kong) Company Limited and Shenzhen Hytera Communciations Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 K filed on October 30, 2019).
10.2		EMCORE Corporation ~~2019 Equity Incentive~~Fiscal 2020 Bonus Plan (incorporated by reference to Exhibit 10.1 to the ~~Company's~~Company’s Current Report on Form ~~8-K~~8 K filed on ~~March 27,~~December 26, 2019).
~~10.2†~~ 10.3		Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) dated as of December 31, 2019 by and between Parkview Management Group, Inc. and Systron Donner Inertial, Inc (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8 K filed on January 6, 2020).
10.4		Form of ~~Time-Based Restricted Stock Unit Award under the EMCORE Corporation 2019 Equity Incentive Plan~~Single-Tenant Triple Net Lease (incorporated by reference to Exhibit 10.2 to the ~~Company's~~Company’s Current Report on Form ~~8-K~~8 K filed on ~~March 27, 2019)~~January 6, 2020).
~~10.3†~~ 10.5		Form of ~~Performance-Based Restricted Stock Unit Award under the EMCORE Corporation 2019 Equity Incentive Plan~~Lease Guaranty (incorporated by reference to Exhibit 10.3 to the ~~Company's~~Company’s Current Report on Form ~~8-K~~8 K filed on ~~March 27, 2019)~~January 6, 2020).
10.6**		First Amendment to Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential) dated as of January 13, 2020 by and between Parkview Management Group, Inc. and Systron Donner Inertial, Inc.
31.1**		Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**		Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***		Certificate of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2***		Certificate of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document.
101.SCH**		XBRL Taxonomy Extension Schema Document.
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document.

~~_________~~

~~† Management contract or compensatory plan~~

** Filed herewith

*** Furnished herewith

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SIGNATURES

~~SIGNATURES~~

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


			EMCORE CORPORATION
		~~EMCORE CORPORATION~~
Date:	February 10, 2020
~~Date:~~ By:	~~May 8, 2019~~	~~By:~~	/s/ Jeffrey Rittichier
				Jeffrey Rittichier
				Chief Executive Officer (Principal Executive Officer)


Date:	~~May 8, 2019~~ February 10, 2020	~~By:~~	By:	/s/ ~~Mark A. Gordon~~Tom Minichiello
			~~Mark A. Gordon~~	Tom Minichiello
			~~Interim Principal~~	Chief Financial ~~and Accounting~~ Officer (Principal Financial and Accounting Officer)


New Jersey		22‑2746503
~~New Jersey~~ (State or other jurisdiction of incorporation or organization)	~~22-2746503~~	(I.R.S. Employer Identification No.)

~~2015 W. Chestnut Street, Alhambra, California, 91803~~ ~~(Address of principal executive offices) (Zip Code)~~


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


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



	For the three months ended March 31,						For the six months ended March 31,
	2019			2018			2019			2018
Revenue	$	21,745		$	18,623		$	45,746		$	42,659
Cost of revenue	15,936			13,676			34,129			29,798
Gross profit	5,809			4,947			11,617			12,861
Operating expense:
Selling, general, and administrative	6,996			5,644			14,589			10,463
Research and development	4,360			3,300			8,379			7,100
Gain from change in estimate on ARO obligation	(40		)	—			(40		)	—
(Gain) loss on sale of assets	—			(68		)	—			39
Total operating expense	11,316			8,876			22,928			17,602
Operating loss	(5,507		)	(3,929		)	(11,311		)	(4,741		)
Other income:
Interest income, net	224			163			491			274
Foreign exchange gain	304			526			318			812
Total other income	528			689			809			1,086
Loss before income tax (expense) benefit	(4,979		)	(3,240		)	(10,502		)	(3,655		)
Income tax (expense) benefit	(15		)	169			(30		)	502
Net loss	$	(4,994	)	$	(3,071	)	$	(10,532	)	$	(3,153	)
Foreign exchange translation adjustment	13			121			27			374
Comprehensive (loss) income	$	(4,981	)	$	(2,950	)	$	(10,505	)	$	(2,779	)
Per share data:
Net loss per basic and diluted share	$	(0.18	)	$	(0.11	)	$	(0.38	)	$	(0.12	)
Weighted-average number of basic and diluted shares outstanding	27,652			27,197			27,592			27,113



	As of			As of
	March 31, 2019			September 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	50,604		$	63,117
Restricted cash	33			78
Accounts receivable, net of allowance of $267 and $548, respectively	20,131			19,275
Inventory	20,672			20,850
Prepaid expenses and other current assets	16,392			12,730
Total current assets	107,832			116,050
Property, plant, and equipment, net	21,095			18,216
Non-current inventory	1,114			1,433
Other non-current assets	84			199
Total assets	$	130,125		$	135,898
LIABILITIES and SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,321		$	12,997
Accrued expenses and other current liabilities	17,381			14,205
Total current liabilities	30,702			27,202
Asset retirement obligations	1,836			1,809
Other long-term liabilities	96			82
Total liabilities	32,634			29,093
Commitments and contingencies (Note 12)
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized; 34,766 shares issued and 27,856 shares outstanding as of March 31, 2019; 34,487 shares issued and 27,577 shares outstanding as of September 30, 2018	735,257			734,066
Treasury stock at cost; 6,910 shares	(47,721		)	(47,721		)
Accumulated other comprehensive income	912			885
Accumulated deficit	(590,957		)	(580,425		)
Total shareholders’ equity	97,491			106,805
Total liabilities and shareholders’ equity	$	130,125		$	135,898



	As of
(in thousands)	March 31, 2019			September 30, 2018
Accounts receivable, gross	$	20,398		$	19,823
Allowance for doubtful accounts	(267		)	(548		)
Accounts receivable, net	$	20,131		$	19,275



(in thousands)	Severance-related accruals			Restructuring- related accruals			Total
Balance as of September 30, 2018	7			75			82
Expense - charged to accrual	57			—			57
Payments and accrual adjustments	(64		)	(75		)	(139		)
Balance as of March 31, 2019	$	—		$	—		$	—



Product Warranty Accruals	For the three months ended March 31,						For the six months ended March 31,
(in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	652		$	713		$	642		$	684
Provision for product warranty - expense	49			224			105			282
Adjustments and utilization of warranty accrual	(102		)	(100		)	(148		)	(129		)
Balance at end of period	$	599		$	837		$	599		$	837



	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2018	69,980		$4.74
Granted	—		—
Exercised	(208	)	$3.97		—
Forfeited	(52	)	$3.97
Expired	(1,267	)	$5.21
Outstanding as of March 31, 2019	68,453		$4.74	4.70	$	1
Exercisable as of March 31, 2019	48,118		$4.76	3.87	$	1
Vested and expected to vest as of March 31, 2019	68,453		$4.74	4.70	$	1



Restricted Stock Activity	Restricted Stock Units			Restricted Stock Awards
Restricted Stock Activity	Number of Shares		Weighted Average Grant Date Fair Value	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2018	1,011,621		$6.04	8,154	$8.20
Granted	63,254		$3.94	—	$0.00
Vested	(223,174	)	$6.00	—	$0.00
Forfeited	(117,108	)	$4.73	—	$0.00
Non-vested as of March 31, 2019	734,593		$6.08	8,154	$8.20



Performance Stock Activity	Performance Stock Units			Performance Stock Awards
Performance Stock Activity	Number of Shares (at Target)		Weighted Average Grant Date Fair Value	Number of Shares (at Target)	Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2018	397,777		$8.48	33,333	$12.25
Granted	—		$0.00	—	$0.00
Vested	(30,874	)	$7.14	—	$0.00
Forfeited	(132,579	)	$7.24	—	$0.00
Non-vested as of March 31, 2019	234,324		$9.35	33,333	$12.25



(in thousands)
	Total		Less than a year		1 to 3 years		4 to 5 years		Over 5 years
Purchase obligations	$	26,050	$	25,604	$	307	$	139	$	—
Asset retirement obligations	2,152		—		—		2,152		—
Operating lease obligations	3,981		477		1,827		1,677		—
Total contractual obligations and commitments	$	32,183	$	26,081	$	2,134	$	3,968	$	—