| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the assets, liabilities, shareholders’ equity, and operating results of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company is not the primary beneficiary of, nor do we hold a significant variable interest in, any variable interest entity. Discontinued Operations In April 2023, we initiated a restructuring program that included the strategic shutdown of our Broadband business segment (including our cable TV, wireless, sensing and chips product lines) and the discontinuance of our defense optoelectronics product line. During the quarter ended September 30, 2023, the Broadband business segment and defense optoelectronics product line were considered as held for sale based upon (i) the existence of an executed non-binding letter of intent to sell our Broadband business segment (other than our chips product line) and our defense optoelectronics product line and (ii) in consideration of ongoing negotiations for the sale of the chips business. Given the prospective sale of the Broadband business segment and defense optoelectronics product line, we identified these asset groups as discontinued operations during the quarter ended September 30, 2023. We ceased operations of our chips business and indium phosphide wafer fabrication facility during the quarter ended September 30, 2023. In accordance with the authoritative guidance for discontinued operations (Accounting Standards Codification (“ASC”) 205-20), the Company determined that these business lines met held-for sale and discontinued operations accounting criteria during the quarter ended September 30, 2023. Accordingly, the Company classified the results of these business lines as discontinued operations in its consolidated statements of operations and comprehensive loss for all periods presented. Additionally, the related assets and liabilities associated with these business lines were classified as held for sale in the September 30, 2023 consolidated balance sheet. See Note 17— Discontinued Operations for additional information. In October 2023, the Company entered into an Asset Purchase Agreement with Photonics Foundries, Inc., a Delaware corporation (“PF”) and Ortel LLC, a Delaware limited liability company and wholly-owned subsidiary of PF (the “Buyer”), and consummated a transaction pursuant to which (i) the Company transferred to the Buyer, and Buyer assumed, substantially all of the assets and liabilities primarily related to the Company’s TV, wireless, sensing and defense optoelectronics business lines (the “Businesses”), including with respect to employees, contracts, intellectual property and inventory, and (ii) Buyer provided a limited license back to the Company of the patents being sold to the Buyer (the “PF Transaction”). Also in October 2023, the Company entered into a non-binding letter of intent with Asia-Pacific Environment Investment Limited (“APEI”) to sell substantially all of the assets and liabilities related to the Company’s chips business, including assets related to the Company’s indium phosphide wafer fabrication operations. On April 30, 2024, the Company entered into an Asset Purchase Agreement (the “HieFo Purchase Agreement”) with HieFo Corporation, a Delaware corporation and affiliate of APEI (“HieFo”), pursuant to which the Company transferred to HieFo substantially all of the assets primarily related to the Company’s discontinued chips business line, including with respect to equipment, contracts, intellectual property and inventory, including without limitation the Company’s indium phosphide wafer fabrication equipment, in consideration for a purchase price equal to $2.9 million in cash and assumption by HieFo of certain assumed liabilities (collectively, the “Chips Transaction”). Going Concern Basis The consolidated financial statements included herein have been prepared in accordance with GAAP assuming we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about our ability to continue as a going concern exists. We have recently experienced significant losses from operations and used a significant amount of cash, amounting to a net loss of $31.2 million and net cash outflows from operations of $5.5 million for the fiscal year ended September 30, 2024, and we expect to continue to incur losses and use cash in our operations. As a result of our recent cash outflows, we have taken actions to manage our liquidity and will need to continue to manage our liquidity. As of September 30, 2024, our cash and cash equivalents totaled $11 million. We are evaluating the sufficiency of our existing balances of cash and cash equivalents, cash flows from continuing operations, together with additional actions we could take to further reduce our expenses and/or potentially raising capital through additional debt or equity issuances, or from the potential monetization of certain assets. In addition, on November 7, 2024, we entered into the Merger Agreement with Parent, Parent Group Member, and Merger Sub – see “Aerosphere Power Merger Agreement” in “ Note 18 – Subsequent Events ” below for additional information related to the Merger Agreement. However, we may not be successful in executing on our plans to manage our liquidity, including recognizing the expected benefits from our previously announced restructuring program, or raising additional funds if we elect to do so, and as a result substantial doubt about our ability to continue as a going concern exists. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Such estimates include accounts receivable, inventories, long-lived assets, product warranty liabilities, legal contingencies, income taxes, asset retirement obligations, and pension obligation, as well as the evaluation associated with the going concern determination. We develop estimates based on historical experience and on various assumptions about the future that are believed to be reasonable based on the best information available to us. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. Concentration of Credit Risk Financial instruments that may subject us to concentrations of credit risk consist primarily of accounts receivable. When necessary, we perform credit evaluations on customers’ financial condition and occasionally we request deposits in advance of shipping product to customers. These financial evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, historical payment patterns, bad debt write-off experience, and financial review of the particular customer. Cash and Cash Equivalents Cash and cash equivalents consists primarily of bank deposits and highly liquid short-term investments with a maturity of three months or less at the time of purchase. Accounts Receivable We regularly evaluate the collectability of accounts receivable and maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to meet their financial obligations to us. The allowance is based on the age of receivables and a specific identification of receivables considered at risk of collection. We classify charges associated with the allowance for doubtful accounts as selling, general, and administrative expense. Inventory Inventory is stated at the lower of cost or net realizable value (first-in, first-out). Inventory that is expected to be used within the next 12 months is classified as current inventory. We write-down inventory once it has been determined that conditions exist that may not allow the inventory to be sold for its intended purpose or the inventory is determined to be excess or obsolete based on assumptions about future demand and market conditions. The charge related to inventory write-downs is recorded as cost of revenue. We evaluate inventory levels at least quarterly against an estimate of future demand on a significant part-by-part basis, in addition to determining its overall inventory risk. We have incurred, and may in the future incur, charges to write-down of inventory. The allowance for excess and obsolete inventory for the fiscal years ended September 30, 2024 and 2023 was $11.5 million and $10.0 million, respectively. See Note 5 - Inventory for additional information. Property, Plant, and Equipment Property, plant, and equipment are recorded at cost. Plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. We depreciate equipment over three three Note 6 - Property, Plant, and Equipment, net for additional information. Goodwill and Intangible Assets Intangible assets of the Company that are considered to have an indefinite life include goodwill and a certain Company trademark. Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other (“ASC 350”). ASC 350 requires the completion of a goodwill impairment test and test of other indefinite lived intangible assets at least annually based on either an optional qualitative assessment (Step 0) or a quantitative analysis (Step 1) comparing the estimated fair value of a reporting unit or indefinite lived intangible asset to its carrying value as of the test date which is July 1st for the Company. See Note 7 - Intangible Assets and Goodwill for discussion on the impairment of all goodwill in the fiscal year ended September 30, 2023. Valuation of Long-lived Assets Long-lived assets consist primarily of finite-life intangible assets, net and property, plant, and equipment, net. Since long-lived assets are subject to amortization and depreciation/amortization, we review these assets for impairment in accordance with the provisions of ASC 360, Property, Plant, and Equipment. Intangible assets that are not considered to have an indefinite useful life are itemized in Note 7 - Intangible Assets and Goodwill and are amortized over their useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Impairment testing of long-lived assets consists of determining whether the carrying amount of the long-lived asset or asset group is recoverable, in other words, whether the sum of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group exceeds the carrying amount. The determination of the existence of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets. In making this determination, we use certain assumptions, including estimates of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, the length of service that assets will be used in operations, and estimated salvage values. Leases 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 lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. To the extent that the Company’s agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time. Lease expense for these leases is recognized on a straight-line basis over the lease term. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets, current operating lease liabilities, and non-current operating lease liabilities in the Company’s consolidated balance sheets. See Note 12 - Commitments and Contingencies for additional information. Asset Retirement and Environmental Obligations Pursuant to ASC 410, Asset Retirement and Environmental Obligations (“ARO”), an ARO is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the fair value of the liability can reasonably be estimated. Upon initial recognition of an ARO, a company increases the carrying amount of the long-lived asset by the same amount as the liability. Over time, the liabilities are accreted for the change in their present value through charges to operations costs. The initial capitalized costs are depleted over the useful lives of the related assets through charges to depreciation, and/or amortization. If the fair value of the estimated ARO changes, an adjustment is recorded to both the ARO and the asset retirement cost. Revisions in estimated liabilities can result from revisions of estimated inflation rates, escalating retirement costs, and changes in the estimated timing of settling ARO liabilities. See Note 12 - Commitments and Contingencies for additional information. Pension Plan With the acquisition of S&N, we acquired the assets and assumed the liabilities associated with a pension plan, now named the EMCORE Space & Navigation Corporation Pension Plan (the “Pension Plan”), which is a defined benefit pension plan providing postretirement benefits to certain employees. As of July 1, 2022, the Pension Plan was amended to freeze benefit plan accruals for participants. The investments in the Pension Plan are measured at fair value using quoted market prices or the net asset value per share as a practical expedient. The projected benefit obligations associated with the Pension Plan are determined based on actuarial models utilizing mortality tables and discount rates applied to the expected benefit term. See Note 8 - Benefit Plans for additional information. Fair Value of Financial Instruments We determine the fair value of financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC Topic 820 (“ASC 820”), Fair Value Measurements, establishes a valuation hierarchy for disclosure of the inputs to valuation techniques used to measure fair value. This standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value: • Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly, through market corroboration, for substantially the full term of the financial instrument. • Level 3 inputs are unobservable inputs based on 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 and cash equivalents consist 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 cash temporarily reserved by the Company. Cash, cash equivalents, and restricted cash are based on Level 1 measurements. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, contract assets, prepaid expenses, other current assets, accounts payable, accrued expenses and other current liabilities, and contract liabilities approximate fair value because of the short maturity of these instruments. The Company values its outstanding Warrant (as defined in Note 10 - Credit Agre ement below), which is classified as a liability, using the Monte Carlo Simulation for option pricing, a Level 3 fair value measurement with the assistance of a third-party valuation specialist. The significant unobservable inputs used by the specialists include, in each case of September 30, 2024, the expected volatility of 72.55% (based on historical daily stock price returns over a look-back period equal to the simulation term), a risk-free rate of 3.75%, a stock price of $2.21, a strike price of $2.73, an expected term of 9.58 years, a dividend yield of 0.00%, and an annual growth rate of 3.00% in shares outstanding. Changes in these inputs could result in materially different fair value measurements. Furthermore, the specialist assumed that the forced exercise provision will be enacted in all possible circumstances, that there could be replacement warrants granted on four separate dates with four unique strike prices, and that the probability of the put right being exercised is de minimis. The Company has and will continue to subsequently remeasure the fair value of the Warrant each reporting period as long as the Warrant remains classified as a liability, with changes in the fair value reported in loss on extinguishment of debt and change in fair value of warrant liability on the consolidated statements of operations and comprehensive loss. See Note 10 - Credit Agreemen t for the value of the Warrant calculated upon Issuance Date of April 29, 2024 and as of September 30, 2024. Revenue Recognition To determine the proper revenue recognition, we perform the following five steps: (a) identify the contract(s) with a customer; (b) identify the performance obligations in the contract; (c) determine the transaction price; (d) allocate the transaction price to the performance obligations in the contract; and (e) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. The majority of revenues are from product sales to customers pursuant to purchase orders. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard. When we perform shipping and handling activities after the transfer of control 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 period of the asset that we would have recognized is one year or less. We also enter into 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. In addition, we follow the percentage of completion method of revenue recognition for contracts typically for products specific to the customer and for which there is no alternative use for the product. We recognize revenue progressively as the customer takes control of the manufactured products built to customer specifications. Under these manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. 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. 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. Accounts Receivable, Net Accounts receivable, 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 credit loss 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. Contract Assets A contract asset is recognized when the Company has recognized revenue, but has not issued an invoice for payment. Contract assets are classified as current assets and transferred to receivables when the entitlement to payment becomes unconditional. The Company’s contract assets are generally converted to account receivables within 90 days, at which time the Company is entitled to payment of the fixed price upon delivery of the finished product subject to customer payment terms. Contract Liabilities A contract liability is recognized when the Company has billed and received payment from a customer, but has not yet earned revenue. Contract liabilities are classified as current liabilities and transferred to revenue when revenue recognition standards have been met. Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for long-term contracts for which control has not transferred to the customer. As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $11.2 million. The Company expects to recognize revenue on the remaining performance obligations by the end of fiscal year 2025. Product Warranty Reserves We provide customers with warranty claims for certain products and warranty-related services are not considered a separate performance obligation. Pursuant to 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 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. Disaggregation of Revenue For additional information on the disaggregated revenues by geographical region and major product category, see Note 14 – Revenue Information . Income Taxes In accordance with the authoritative guidance on accounting for income taxes, we recognize income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of all available evidence, both positive and negative, and the relative weight of the evidence. We have determined that at this time it is more likely than not that deferred tax assets attributable to all other items will not be realized, primarily due to uncertainties related to the ability to utilize net operating loss carryforwards before they expire. Accordingly, we have established a valuation allowance for such deferred tax assets which we do not expect to realize. If there is a change in the ability to realize deferred tax assets for which a valuation allowance has been established, then the tax valuation allowance may decrease in the period in which we determine that realization is more likely than not. Likewise, if we determine that it is not more likely than not that deferred tax assets will be realized, then a valuation allowance may be established for such deferred tax assets and the tax provision may increase in the period in which we make the determination. See Note 11 - Income and Other Taxes for additional information. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements There were no recently adopted accounting pronouncements. Recent Accounting Standards or Updates Not Yet Effective In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for annual periods beginning after December 15, 2024. This accounting standard is effective in the first quarter of the Company's fiscal year ended September 30, 2026. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which enhanced the segment reporting requirements by introducing additional disclosure obligations, including significant segment expenses. The new standard is effective for annual periods beginning after December 15, 2023. This accounting standard is effective in the first quarter of the Company's fiscal year ended September 30, 2025. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial statements. |
