Form: 8-K/A

Current report filing

May 19, 2004

Documents

FINANCIAL INFORMATION

Published on May 19, 2004



EXHIBIT 99.1

SELECTED FINANCIAL DATA

The following selected consolidated financial data for EMCORE's five most
recent fiscal years ended September 30, 2003 is qualified by reference to and
should be read in conjunction with the Financial Statements and the Notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Annual Report. The Statement of
Operations data set forth below with respect to fiscal years 2003, 2002 and 2001
and the Balance Sheet data as of September 30, 2003 and 2002 are derived from
EMCORE's audited financial statements included elsewhere in this document. The
Statement of Operations data for fiscal years 2000 and 1999 and the Balance
Sheet data as of September 30, 2001, 2000 and 1999 are derived from audited
financial statements not included herein. All share amounts have been restated
to reflect EMCORE's two-for-one (2:1) common stock split that was effective on
September 18, 2000.

Significant transactions that affect the comparability of EMCORE's
operating results and financial condition:

o In March 2002, EMCORE acquired Tecstar for a total cash purchase price,
including related acquisition costs, of approximately $25.1 million. The
results of operations from this acquisition have been included in EMCORE's
consolidated results of operations from the acquisition closing date.

o In fiscal 2002, EMCORE recorded pre-tax charges to income totaling $40.7
million, which included restructuring and impairment charges of $31.6
million and other charges of $9.1 million, as described below:

1. Include in the provision for restructuring and impairment charges were
severance charges of $0.8 million related to employee termination
costs.

2. EMCORE also recorded $30.8 million of non-cash impairment charges
related to its fixed assets.

3. EMCORE recorded a $7.7 million inventory write-down charge to cost of
revenue and a $1.4 million additional reserve for doubtful accounts.

o In January 2003, EMCORE purchased Ortel, for $26.2 million in cash. The
results of operations from this acquisition have been included in EMCORE's
consolidated results of operations from the acquisition closing date.





(IN THOUSANDS) AS OF SEPTEMBER 30,
--------------------------------------------------------------
2003 2002 2001 2000 1999
--------- -------- --------- ---------- ----------

BALANCE SHEET DATA
- -------------------
Cash, cash equivalents and marketable
securities ............................. $28,439 $84,181 $147,661 $101,745 $7,165
Working capital........................... 77,464 111,825 201,215 111,575 20,690
Total assets.............................. 232,439 285,943 403,553 243,902 99,611
Long-term liabilities..................... 161,791 175,087 175,046 1,284 9,038
Redeemable convertible preferred stock.... - - - - 14,193
Shareholders' equity...................... $44,772 $81,950 $197,127 $199,322 $61,623




1



FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(as restated(1) (as restated)(2)

Revenue ............................................. $ 60,284 $ 51,236 $ 53,473 38,718 13,864
Cost of revenue ..................................... 61,959 62,385 41,784 23,526 6,636
--------- --------- --------- --------- ---------
Gross (loss) profit .............. (1,675) (11,149) 11,689 15,192 7,228

Operating expenses:
Selling, general and administrative .............. 21,637 15,659 15,714 12,115 8,033
Goodwill amortization ............................ -- -- 1,147 4,392 4,393
Research and development ......................... 17,002 30,580 42,204 27,200 16,339
Impairment and restructuring ..................... -- 31,636 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ..................... 38,639 77,875 59,065 43,707 28,765
--------- --------- --------- --------- ---------
Operating loss ............................. (40,314) (89,024) (47,376) (28,515) (21,537)

Other expenses (income):
Interest income .................................. (1,009) (2,865) (5,222) (4,925) (752)
Interest expense ................................. 8,288 8,936 3,240 346 1,622
(Gain) loss from debt extinguishment ............. (6,614) -- -- -- 1,334
Other expense (income) ........................... -- 14,388 (15,920) -- --
Imputed warrant interest expense ................. -- -- -- 843 1,136
Equity in net loss of unconsolidated affiliates .. 1,228 2,706 12,326 13,265 4,997
--------- --------- --------- --------- ---------
Total other expenses (income) ................ 1,893 23,165 (5,576) 9,529 8,337
--------- --------- --------- --------- ---------
Loss from continuing operations ............ (42,207) (112,189) (41,800) (38,044) (29,874)

Income (loss) from discontinued operations . 3,682 (17,572) 33,158 12,559 7,185
--------- --------- --------- --------- ---------
Net loss before cumulative effect of
a change in accounting principle............ (38,525) (129,761) (8,642) (25,485) (22,689)

Cumulative effect of a change in accounting
principal .................................. -- -- (3,646) -- --
--------- --------- --------- --------- ---------
Net loss ................................... $ (38,525) $(129,761) $ (12,288) $ (25,485) $ (22,689)
--------- --------- --------- --------- ---------
PER SHARE DATA:
Weighted average basic and diluted shares outstanding
used in per share calculations ...................... 36,999 36,539 34,438 31,156 21,180
--------- --------- --------- --------- ---------
Loss from continuing operations per basic and diluted
share ............................................... $ (1.14) $ (3.07) $ (1.21) $ (1.22) $ (1.41)

Income (loss) from discontinued operations per basic
and diluted share ................................... $ 0.10 $ (0.48) $ 0.96 $ 0.40 $ 0.34

Cumulative effect of change in accounting principle
per basic and diluted share ......................... $ -- $ -- $ (0.11) $ -- $ --
--------- --------- --------- --------- ---------
Net loss per basic and diluted share ................ $ (1.04) $ (3.55) $ (0.36) $ (0.82) $ (1.07)
========= ========= ========= ========= =========



(1) See Note 19 of the Notes to Consolidated Financial Statements.

(2) Upon adoption of Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections, EMCORE had reclassed the (gain) loss on the
early extinguishment of debt to a component of operating expenses. EMCORE,
after consultation with its auditors, has subsequently determined that the
loss on early extinguishment of debt should have been reported as a
component of other expense. Accordingly, the selected financial data for
the year ended September 30, 1999 has been restated to correct the
classification of this item.

2


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This report contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future markets, trends and
anticipated levels of revenue, gross margins, cash flow and future objectives,
expectations and intentions. These statements may be identified by the use of
words such as "expects", "anticipates", "intends", "plans", "estimate",
"target", "may", "will" and other similar expressions. These forward-looking
statements are subject to business, economic and other risks and uncertainties,
and actual results may differ materially from those discussed in these
forward-looking statements. Factors that could contribute to these differences
include, but are not limited to, those discussed under "Risk Factors" and
"Forward-Looking Statements" in our Fiscal 2003 Annual Report on Form 10-K.. The
cautionary statements made in this report should be read as being applicable to
all forward-looking statements wherever they appear in this report. This
discussion should be read in conjunction with the Consolidated Financial
Statements, including the related footnotes.

As discussed in Note 19 to the Notes to the Consolidated Financial Statements,
"Restatement of Statement of Operations," the consolidated statement of
operations for the year ended September 30, 2003 has been restated to change the
classification of the gain on debt extinguishment. Such restatement does not
change our balance sheet or statement of cash flows and has no effect on the
previously reported net loss, earnings per share or net worth. Amounts affected
by this restatement included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" have been appropriately revised.

Company Overview

EMCORE Corporation, a New Jersey corporation established in 1984, offers
a broad portfolio of compound semiconductor-based components and subsystems for
the rapidly expanding broadband and wireless communication markets and the
solid-state lighting industry. EMCORE continues to expand its comprehensive
product portfolio to enable the transport of voice, data and video over copper,
hybrid fiber/coax (HFC), fiber, satellite and wireless communication networks.
The company is building upon its leading-edge compound semiconductor materials
and device expertise to provide cost-effective components and subsystems for the
cable television (CATV), telecommunications, data and storage, satellite and
wireless communications markets. EMCORE supports these end markets through its
EMCORE Fiber Optics, EMCORE Photovoltaics and EMCORE Electronic Materials and
Devices product lines. Through its 49% ownership participation in GELcore, LLC,
EMCORE plays a vital role in developing and commercializing next-generation LED
technology for use in the general illumination market.

On November 3, 2003, EMCORE sold its TurboDisc systems business to a
subsidiary of Veeco Instruments Inc. (Veeco) in a transaction that could be
valued at up to $80.0 million. The purchase price was $60.0 million in cash at
closing with an additional aggregate maximum payout of $20.0 million over the
next two years. EMCORE will receive in cash 50% of all revenues from this
business that exceeds $40.0 million in each of the next two years, beginning
January 1, 2004. In accordance with the terms of the agreement, EMCORE also
received an additional $2.0 million in cash for working capital adjustments and
expense reimbursements. This transaction included the assets, products, product
warranty liabilities, hardware-related technology and intellectual property used
primarily in the operation of this business, including its manufacturing
facility located in Somerset, New Jersey. Approximately 150 employees of EMCORE
were involved in the TurboDisc business of which approximately 120 became
employees of Veeco. The results of operations of the TurboDisc systems business
are reported separately as discontinued operations in our consolidated
statements of operations. See footnote - 2 Discontinued Operations.

Management believes that the sale of the capital equipment business was
a critical step in reorienting EMCORE's market and product focus. The capital
equipment business enabled the Company to develop the critical materials science
expertise that has become the cornerstone of its compound semiconductor based
communications products and our sole business focus. EMCORE retained a license
to all systems related intellectual property and ownership of all its process
and device technology. Moreover, the sale of the TurboDisc business strengthened
EMCORE's balance sheet and helped provide the resources necessary to implement
its communications strategy.

Prior to this divestiture, EMCORE had two reportable operating
segments: the systems segment and the components and subsystems segment. As a
result of this divestiture, EMCORE now has one reportable operating segment, the
components and subsystems segment. This segment is comprised of our Fiber
Optics, Photovoltaics and Electronic Materials and Devices product lines.
EMCORE's Fiber Optics product line supports our CATV, telecommunications, data
and storage and Satcom target markets. Specific products for this
communications-related product line include optical components and subsystems
for CATV and FTTx, VCSEL and PIN photodiodes components, 10G LX4, CX4, TOSA,
ROSA packaged parts and modules, and Satcom transmitter and receiver components.
EMCORE's Photovoltaic revenues are derived primarily from the sales of solar
power conversion products including solar cells, covered interconnect solar
cells (CICs) and solar panels. Revenues from the Electronic Materials and
Devices product line include wireless products, such as RF materials including
HBTs and enhancement-mode pHEMTS, and also MR sensors and process development
technology.


3


The table below outlines revenues from EMCORE's different product lines:



- --------------------------------------------------------------------------------------------------------------------------
(in thousands)

PRODUCT REVENUE FY 2003 % of FY 2002 % of FY 2001 % of
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, revenue revenue revenue
- --------------------------------------------------------------------------------------------------------------------------

Photovoltaics............................ $18,196 30.2% $23,621 46.1% $20,206 37.8%
Fiber Optics........... 32,658 54.2% 9,077 17.7% 13,606 25.4%
Electronic Materials and Devices......... 9,430 15.6% 18,538 36.2% 19,661 36.8%
-------------------------------------------------------------------------
Total revenues.................... $60,284 100.0% $51,236 100.0% $53,473 100.0%
- --------------------------------------------------------------------------------------------------------------------------


In January 2003, EMCORE acquired Ortel, which contributed approximately
$23.6 million of fiber optic revenues in fiscal year 2003.

CUSTOMERS AND GEOGRAPHIC REGION

EMCORE works closely with its customers to design and develop process
technology and material science expertise for use in production systems for its
customers' end-use applications. EMCORE has leveraged its process and materials
science knowledge base to manufacture a broad range of compound semiconductor
wafers and devices. During fiscal 2003 Motorola Inc. accounted for 13.6% of
total revenue. In fiscal 2002, revenues from Motorola Inc., Boeing, and Loral
Space Systems represented 22.0%, 14.9%, and 13.7% of EMCORE's total revenue,
respectively. In fiscal 2001, revenues from Loral Space Systems, Motorola Inc.,
and Agilent Technologies represented 27.9%, 18.5%, and 10.9% of EMCORE's total
revenue, respectively.


Historically, EMCORE has received most payments for products and
services in U.S. dollars, and therefore, EMCORE does not anticipate that
fluctuations in any currency will have a material effect on its financial
condition or results of operations. The following chart contains a breakdown of
EMCORE's consolidated revenues by geographic region:




For the fiscal years ended September 30,
- ---------------------------------------------------------------------------------------------------------
Region 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------
(in thousands) Revenue % of revenue Revenue % of revenue Revenue % of revenue
------- ------------ ------- ------------ ------- ------------


United States. $44,136 73.2% $42,983 83.9% $41,765 78.1%
Asia............. 9,018 15.0% 3,638 7.1% 6,295 11.8%
Europe........... 7,130 11.8% 4,615 9.0% 5,413 10.1%
- ---------------------------------------------------------------------------------------------------------
TOTAL... $60,284 100% $51,236 100% $53,473 100%
======= ==== ======= ==== ======= ====



Sales to the United States include sales to Canada and South America, which have
not, historically, been material.


BACKLOG


As of September 30, 2003, EMCORE had a backlog from continuing
operations believed to be firm of approximately $33.1 million. This compares to
a backlog from continuing operations of $19.3 million as reported at the end of
fiscal 2002. Half of the increase in backlog was attributable to the Ortel
acquisition. Historically, significant portions of our revenue are not reported
in backlog since our customers have reduced lead times. Many of these sales
occur within the same month as the purchase order is received. We believe the
entire backlog could be filled during fiscal 2004. However, especially given the
current market environment, customers may delay shipment of certain orders.
Backlog also could be adversely affected if customers unexpectedly cancel
purchase orders accepted by us.

4


CRITICAL ACCOUNTING POLICIES


The preparation of financial statements requires management to make
assumptions and estimates that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results may differ from
those estimates. Critical accounting policies include those policies that are
reflective of significant judgments and uncertainties, which potentially could
produce materially different results under different assumptions and conditions.
The significant accounting policies that we believe are the most critical to the
understanding of reported financial results include the following.

o Valuation of long-lived assets and intangible assets -- EMCORE reviews
long-lived assets and intangible assets on an annual basis or whenever
events or changes in circumstances suggest that they may be impaired. A
long-lived asset is considered impaired when its anticipated undiscounted
cash flow is less than its carrying value. In making this determination,
EMCORE uses certain assumptions, including, but not limited to: (a)
estimates of the fair market value of these assets, and (b) estimates of
future cash flows expected to be generated by these assets, which are based
on additional assumptions such as asset utilization, length of service that
assets will be used in our operations and estimated salvage values.

During fiscal 2002, we determined certain plant and equipment was impaired
and as a result, we recorded impairment charges of $30.8 million. By
December 2001, EMCORE completed new facilities in anticipation of expanding
market prospects. Business forecasts updated in fiscal 2002 indicated
significantly diminished prospects, primarily based on the downturn in the
telecommunications industry. As a result of these circumstances, management
determined that the long-lived assets should be assessed for impairment.
Based on the outcome of this assessment, EMCORE recorded a $23.5 million
non-cash asset impairment charge to plant and equipment. The fair values of
the assets were determined based upon a calculation of the present value of
the expected future cash flows to be generated by its facilities. The
remainder of the impairment charge totaling $7.3 million related to certain
manufacturing assets that were disposed of. Such decision was made based
upon the downturn in the economic environment that affected certain product
lines causing these manufacturing assets to become idle.

o Inventories -- Inventories are stated at the lower of cost or market with
cost being determined using the first-in, first-out (FIFO) method. We
evaluate our ending inventories on a quarterly basis for excess quantities,
impairment of value and obsolescence. This evaluation includes analysis of
sales levels by product and projections of future demand based upon input
received from our customers, sales team and management estimates. If
inventories on hand are in excess of demand, or if they are greater than
12-months old, appropriate reserves are provided. Remaining inventory
balances are adjusted to approximate the lower of our manufacturing cost or
market value. If future demand or market conditions are less favorable than
our estimates, additional inventory write-downs may be required.

In fiscal 2002, EMCORE recorded a $7.8 million inventory charge. The
inventory charge was for excess raw material and finished goods inventory
that EMCORE believed it was carrying as a result of market conditions. In
fiscal 2003, EMCORE recorded a $2.0 million inventory charge related to its
fiber optic product line. The write-down was attributable to certain
transceiver devices that were later determined to be non-saleable because
of design deficiencies.

o Revenue Recognition-- Revenue is recognized upon shipment provided we have
received a signed purchase order, the price is fixed, the product meets the
customers' specifications, title and ownership have transferred to the
customer and there is reasonable assurance of collection of the sales
proceeds. The majority of our products have shipping terms that are FOB or
FCA shipping point. The difference between FOB and FCA is that under FCA
terms, the customer designates a shipping carrier of choice to be used.
Under both terms, we fulfill the obligation of delivery when the goods are
handed over to the carrier at our shipping dock. If inventory is maintained
at a consigned location, revenue is recognized when our customer pulls
product for its use.

As a result of the Tecstar acquisition in 2002, EMCORE records revenues
from solar panel contracts using the percentage-of-completion method where
the elapsed time from award of a contract to completion of performance
tends to exceed 6 months. Revenue is recognized in proportion to actual
costs incurred compared to total anticipated costs expected to be incurred
for each contract. If estimates of costs to complete long-term contracts
indicate a loss, a provision is made for the total loss anticipated. EMCORE
has numerous contracts that are in various stages of completion. Such
contracts require estimates to determine the appropriate cost and revenue
recognition. EMCORE uses all available information in determining
dependable estimates of the extent of progress towards completion, contract
revenues and contract costs.

5

Estimates are revised as additional information becomes available. During
fiscal 2003, EMCORE recorded approximately $0.2 million in anticipated
losses on certain long-term contracts.

Contract revenue represents reimbursement by various U.S. Government
entities to aid in the development of new technology. The contract funding
may be based on either a cost-plus or a cost-share arrangement. Cost-plus
funding is determined based on actual costs plus a set percentage margin.
For the cost-share contracts, the actual costs relating to the activities
to be performed by us under the contract are divided between the U.S.
Government and us based on the terms of the contract. The government's cost
share is then paid to us. A contract is considered complete when all
significant costs have been incurred, and the research reporting
requirements to the customer have been met. The contracts typically require
the submission of a written report that documents the results of such
research, as well as some material deliverables. The revenue and expense
classification for contract activities is based on the nature of the
contract. For contracts where we anticipate that funding will exceed direct
costs over the life of the contract, funding is reported as contract
revenue and all direct costs are reported as costs of contract revenue. For
contracts under which we anticipate that direct costs of the activities
subject to the contract will exceed amounts to be funded over the life of
the contract, costs over and above the funded amount are reported as
research and development expenses. Revenues from Government contracts
amounted to approximately $5.2 million, $3.3 million and $2.5 million for
the years ended September 30, 2003, 2002 and 2001, respectively.

In rare occurrences, at the customer's written request, EMCORE enters into
bill and hold transactions whereby title transfers to the customer, but the
product does not ship until a specified later date. EMCORE recognizes
revenues associated with the sale of product from bill and hold
arrangements when the product is complete, ready to ship, and all bill and
hold criteria have been met.

o Accounts Receivable -- EMCORE regularly evaluates the collectibility of its
accounts receivable and accordingly maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our customers
to meet their financial obligation to us. If the financial condition of our
customers were to deteriorate, additional allowances may be required.

o Accruals for Liabilities and Warranties -- EMCORE may incur costs for
which we have not been billed. These costs can include legal and accounting
fees, costs pertaining to our self-funded medical insurance, warranty costs
and other expenses. EMCORE makes estimates for these costs using historical
data or information gained directly from the service providers.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles. There are also areas in which management's judgment in selecting any
available alternative would not produce a materially different result. See our
audited consolidated financial statements and notes thereto included in this
Current Report on Form 8-K/A which contain a discussion of our accounting
policies and other disclosures required by accounting principles generally
accepted in the United States.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 clarifies that a guarantor is required to recognize, at the
inception of the guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. FIN 45 also requires
enhanced and additional disclosures of guarantees in financial statements ending
after December 15, 2002. As discussed in the footnotes to the financial
statements, EMCORE has guaranteed a loan associated with its GELcore joint
venture.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities. This interpretation defines when a business must
consolidate a variable interest entity. This interpretation applies immediately
to variable interest entities created or acquired after January 31, 2003. The
Company is not a party to any arrangements with variable interest entities and
thus the adoption of this statement did not have a material impact on the
Company's consolidated financial statements. In December 2003, the FASB
completed deliberations of proposed modifications to FIN 46 ("Revised
Interpretation") in multiple effective dates based on the nature as well as the
creation date of the variable interest entity. The adoption of the Revised
Interpretation did not have a material effect on the Company's financial
statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain


6

derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The changes in SFAS No. 149
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No.
133, (2) clarifies when a derivative contains a financing component, (3) amends
the definition of an underlying to conform it to language used in FIN 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and (4) amends certain other
existing pronouncements. Those changes will result in more consistent reporting
of contracts as either derivatives or hybrid instruments. SFAS No. 149 is to be
applied prospectively to contracts entered into or modified after June 30, 2003,
with certain exceptions, and for hedging relationships designated after June 30,
2003. Adoption of this statement did not have a material impact on the financial
position, results of operations, or cash flows of EMCORE.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Liabilities, Equity, or Both. This limited
scope statement prescribes changes to the classification of mandatorily
redeemable preferred stock, preferred securities of subsidiary trusts and the
accounting for forward purchase contracts issued by a company in its own stock
among other issues. SFAS No. 150 does not apply to features that are embedded in
a financial instrument that is not a derivative in its entirety and requires all
preferred securities of subsidiary trusts to be classified as debt on the
consolidated balance sheet and the related dividends as interest expense. The
Company adopted the provisions of SFAS No. 150, including the deferral of
certain effective dates as a result of the provisions of FASB Staff Position
150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests Under FASB Statement No. 150 Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The adoption of this statement did not have a material impact on the
Company's financial position or results of operations.


Results of Operations

The following table sets forth the consolidated statements of operations
data of EMCORE expressed as a percentage of total revenues for the fiscal years
ended September 30, 2003, 2002 and 2001:



STATEMENTS OF OPERATIONS DATA: FISCAL YEARS ENDED SEPTEMBER 30,

2003 2002 2001
------ ------ ------

Revenue ........................................... 100.0% 100.0% 100.0%
Cost of revenue ................................... 102.8% 121.8% 78.1%
------ ------ ------
Gross (loss) profit ...................... (2.8)% (21.8)% 21.9%

Operating expenses:
Selling, general and administrative ............ 35.9% 30.6% 29.4%
Goodwill amortization .......................... -- -- 2.1%
Research and development ....................... 28.2% 59.7% 78.9%
Impairment and restructuring ................... -- 61.7% --
------ ------ ------
Total operating expenses ................... 64.1% 152.0% 110.4%
------ ------ ------
Operating loss ........................... (66.9)% (173.8)% (88.5)%

Other expenses (income):
Interest expense (income), net ................. 12.1% 11.8% (3.7)%
Gain from debt extinguishment .................. (11.0)% -- --
Other expense (income) ......................... -- 28.1% (29.8)%
Equity in net loss of unconsolidated affiliates 2.0% 5.3% 23.1%
------ ------ ------
Total other expenses (income) .............. 3.1% 45.2% (10.4)%
------ ------ ------
Loss from continuing operations .......... (70.0)% (219.0)% (78.1)%

Income (loss) from discontinued operations 6.1% (34.3)% 62.0%
------ ------ ------
Net loss before cumulative effect of a
change in accounting principle (63.9)% (253.3)% (16.1)%

Cumulative effect of a change in
accounting principle .................. -- -- (6.8)%
------ ------ ------
Net loss ................................. (63.9)% (253.3)% (22.9)%
------ ------ ------

7

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2003 AND 2002

Revenue. EMCORE's consolidated revenue increased $9.1 million or 18% to
$60.3 million in fiscal 2003 from $51.2 million in fiscal 2002. Higher revenue
was primarily attributable to the Ortel acquisition, which contributed $23.6
million since being acquired in January 2003. International sales accounted for
27% of revenues in fiscal 2003 and 16% of revenues in fiscal 2002.

On a product line basis, sales of fiber optic components and subsystems
devices increased $23.6 million or 260%, photovoltaic products decreased $5.4
million or 23% and electronic materials and devices decreased $9.1 million or
49% from the prior year.

EMCORE's Fiber Optics product line supports our CATV, telecommunications,
data and storage and Satcom target markets. Revenues from VCSEL die and chip
products, packaged products that include TOSA, ROSA and transceiver module level
products were $9.1 million for both fiscal 2003 and 2002. On a quarterly basis,
fiscal 2003 digital fiber optic revenues were $2.3 million, $2.6 million, $3.0
million and $1.2 million. Sales of digital products represented 15% and 18% of
EMCORE's total revenues in fiscal 2003 and 2002, respectively. In fiscal 2003,
VCSEL die and chip sales prices on average decreased slightly due to increasing
price competitiveness in the marketplace, however, an increase in the number of
units shipped helped to maintain revenue levels. In the fourth quarter of fiscal
2003, the die and chip product line experienced cancellations of significant
orders from certain customers due to a perceived quality problem that was
clarified and resolved in October 2003. Also, during the fourth quarter of
fiscal 2003, EMCORE experienced product returns related to certain transceiver
module products. The transceiver devices were later determined to be
non-saleable because of design deficiencies and $2.0 million of inventory costs
associated with the products were written-off during the period. In October
2003, EMCORE purchased Molex's 10G Ethernet transceiver business.

Fiber optic products acquired through the Ortel acquisition primarily
consist of fiber optic transmitter and receiver CATV products, Satcom
transmission links and PON and FTTx systems. On a quarterly basis, beginning
with the second quarter, Ortel's revenues were $7.1 million, $8.2 million and
$8.2 million. Sales of Ortel's products represented 39% of EMCORE's total
revenues in fiscal 2003. Recently, cable operators and traditional telephone
service providers have been competing with each other to offer the lowest price
for unlimited "triple play" (voice, data and video) communications through one
cable. As the market leader in RF transmission over fiber for the cable
industry, Ortel is enabling Multi-System Operators (MSO's) to offer "triple
play" to meet the exploding demand for on-demand, high-speed interactive and
other new services. In response to the "triple play" threat from MSOs, the
Regional Bell operating companies (RBOCs) also plan to offer "triple play"
service over new deployment of fiber-to-the-premise systems. These growing
applications should increase demand for FTTx subsystems which are manufactured
and marketed by our Ortel division.

Photovoltaic revenues include the sale of epi wafers, solar cells, covered
interconnect solar cells (CICs) and solar panels. Fiscal 2003 photovoltaic
revenues decreased to $18.2 million from $23.6 million in fiscal 2002. The
annual decrease is attributable to prior period weakness in satellite
infrastructure spending, delays in government program launch schedules, sales
price erosion on solar cell products and the delay of two significant solar
contracts which have since been awarded to EMCORE. On a quarterly basis, fiscal
2003 photovoltaic revenues were $5.1 million, $5.2 million, $3.0 million and
$4.9 million. Photovoltaic sales fluctuate quarterly due to the timing of large
shipments or completion of significant research contracts. Sales in the
photovoltaic group represented 30% and 46% of EMCORE's total revenues in fiscal
2003 and 2002, respectively. The worldwide satellite industry has seen
substantial improvement in late 2003, with awards increasing more than 300% from
5 in 2002 to 17 thus far in 2003. In addition, the industry has seen
consolidation into more financially stable institutions. For example, Intelsat
Ltd. has agreed to purchase the North American satellites of satellite maker and
operator Loral Space & Communications Ltd. As a result, we are seeing progress
toward the satellite industry developing into a communications backbone for
video, voice and data.

Sales of electronic materials and devices, which include RF materials and
MR sensors, decreased to $9.4 million in fiscal 2003 from $18.5 million in
fiscal 2002 due to a significant decline in orders from Motorola. EMCORE
broadened its relationship with Motorola by entering into an agreement to
co-develop and transition into production certain RF materials. In light of the
fact that Motorola has now developed the capacity to supply a portion of their
needs internally and due to the delayed introduction of InGaP HBTs into GSM
handsets, annual RF materials related revenues have decreased significantly. On
a quarterly basis, fiscal 2003 revenues from electronic materials and devices
were $2.0 million, $2.0 million, $2.7 million and $2.7 million. This market is

8

highly competitive, raw materials are extremely expensive and average selling
prices have been declining over the past several years. Annual revenues from our
mature MR sensors product line decreased $0.7 million from the prior year as a
result of the phase out of certain automotive models at General Motors. Our
contract with General Motors expires in fiscal 2004.

Government contract revenue represents reimbursement by various U.S.
Government entities to aid in the development of new technology. Revenue from
government contracts increased $1.9 million to $5.2 million in fiscal 2003 from
$3.3 million in fiscal 2002. With increased government focus on energy
conservation, national security and fiber optic communications, we expect
revenues from government contracts to increase significantly in fiscal 2004.

Government contract revenues are included in the product line related to
the work being performed. In fiscal 2003, $2.7 million and $2.5 million of
government contract revenue was included in our photovoltaic and electronic
materials and devices revenue, respectively. In fiscal 2002, $1.5 million and
$1.8 million of government contract revenue was included in our photovoltaic and
electronic materials and devices revenue, respectively.

Gross Profit (Loss). Gross profit increased $9.4 million to ($1.7)
million in fiscal 2003 from ($11.1) million in fiscal 2002. Compared to the
prior year, gross margins increased from (21.8%) to (2.8%). During the second
quarter of fiscal 2002, EMCORE recorded a $7.7 million inventory charge. The
inventory charge was for excess raw material and finished goods inventory that
EMCORE believed it was carrying as a result of market conditions. As revenues
increase, our margins should increase as well since a significant portion of our
facility costs is fixed, so higher throughput should result in lower costs per
unit produced. Fiscal 2004 gross margins should also increase as product lines
are transferred to contract manufacturers for high volume production and as
management implements additional programs to improve manufacturing process
yields. Management does expect gains in gross margins to be somewhat offset by
lower sales prices due to competitive pricing pressures.

The most significant factor contributing to these negative gross margins
is unabsorbed overhead costs associated with lower revenues. EMCORE has a
significant amount of fixed expenses relating to capital equipment and
manufacturing overhead in its facilities. By December 2001, EMCORE's
manufacturing facilities were expanded and placed into service with the
anticipation of expanding market prospects. Lower than forecasted revenues
caused these fixed expenses to be allocated across reduced production volumes,
adversely affecting gross profit and margins. In addition, as mentioned above, a
$7.7 million inventory charge was recorded in fiscal 2002. During the fourth
quarter of fiscal 2003, EMCORE recorded approximately $0.2 million in
anticipated losses on certain long-term photovoltaic contracts. On a quarterly
basis, gross margins were (28.0%), (5.0%), 3.7% and 6.8%. This quarterly
improvement is associated with increased volumes, changes in product mix and
fewer manufacturing inefficiencies associated with newer product introductions.
With the expectation that fiscal 2004 revenues will increase 50% annually, we
expect gross profit and margins to continue to improve.

Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) increased $5.9 million or 38% to $21.6 million in fiscal 2003
from $15.7 million in fiscal 2002. As a percentage of revenue, SG&A increased
from 31% in fiscal 2002 to 36% in 2003. The Ortel acquisition added
approximately $5.0 million of SG&A in fiscal 2003. Assuming no further
non-recurring charges and acquisitions, management expects annual SG&A expenses
in fiscal year 2004 to continue to decrease as a percentage of revenue.

Research and Development. Research and development expenses (R&D)
decreased $13.6 million or 44% to $17.0 million in fiscal 2003 from $30.6
million in fiscal 2002. As a percentage of revenue, R&D decreased from 60% in
fiscal 2002 to 28% in 2003. The Ortel acquisition added approximately $4.2
million of R&D in fiscal 2003. The decrease in R&D was mostly due to the
deferral or elimination of certain non-critical research and development
projects and headcount reductions. It is also attributable to our photovoltaic
customers, who in response to a depressed satellite industry, prefer to use
previously qualified solar cells instead of newly developed more efficient
product. However, in fiscal 2004, with the recent increase in satellite builds,
management's increased focus to improve manufacturing yields and the encouraging
prospects of terrestrial concentrators for our InGaP/GaAs/Ge triple junction
solar cells, we expect photovoltaic R&D to increase in absolute dollars in
fiscal 2004 but also continue to decrease as a percentage of revenues. For the
fiber optic group, R&D is expected to be approximately $8.0 million in fiscal
2004. During fiscal 2003, this group incurred significant R&D on the development
of the LX4 CWDM fiber optic communications transceiver module. In the first half
of fiscal 2004, the fiber optic group is expected to complete the development of
(a) SmartLink, a 10 Gb/s patent-protected media converter solution that uses
fiber optics to extend the current copper socket throughout the data center or
central office to up to 300 meters; (b) CX4, a product similar to LX4 except
that is uses a copper cable connection instead of fiber optics; and (c) 10 Gb/s
TOSAs and ROSAs packaged parts. Ortel's R&D is expected to be approximately $7.2
million in fiscal 2004. Ortel's R&D focus is on the continued development of
PONs, FTTC and FTTH systems that will provide even greater bandwidth, better
performance and increased reliability to homes and businesses.

9

Impairment and Restructuring Charges. In fiscal 2002, EMCORE recorded
pre-tax charges to income totaling $31.6 million, which included impairment
charges of $30.8 million, and restructuring charges of $0.8 million.

Impairment charges: As discussed earlier in the critical accounting
policies section, EMCORE recorded $30.8 million of non-cash impairment
charges related to its property and equipment in the second quarter of
fiscal 2002.

Restructuring charges: EMCORE's fiscal 2002 restructuring program
consisted of a realignment of all engineering, manufacturing and
sales/marketing operations, as well as workforce reductions. Included in
the provision for impairment and restructuring charges were severance
and fringe benefit charges of $0.8 million related to employee
termination costs. All monetary obligations relating to these charges
were paid as of March 31, 2003.

Interest Expense, net. Interest expense, net increased $1.2 million or
20% to $7.3 million in fiscal 2003 from $6.1 million in fiscal 2002. The
increase is due to less interest income earned primarily from lower interest
rates available on our decreasing cash balance offset slightly by less interest
expense of $0.6 million due to a partial repurchase of outstanding debt.

Gain From Debt Extinguishment. In December 2002, EMCORE purchased, in
multiple transactions, $13.2 million principal amount of the notes at prevailing
market prices, for an aggregate of approximately $6.3 million. As a result of
the transaction, EMCORE recorded a gain of approximately $6.6 million after
netting unamortized debt issuance costs of approximately $0.3 million.

Other Expense. In fiscal 2001, EMCORE recorded a net gain of $10.0
million upon receipt of UTCI common stock in connection with the sale of a joint
venture. In fiscal 2002, UTCI and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, EMCORE
wrote off its investment in UTCI totaling $14.0 million in fiscal 2002.

In fiscal 2002, EMCORE invested approximately $0.4 million in Qusion, a
Princeton, New Jersey start-up specializing in monolithic integration of optical
components. Lacking additional funding, Qusion closed its business. EMCORE
purchased all of Qusion's intellectual property and wrote off its entire
investment.

Equity in Net Loss of Unconsolidated Affiliates. EMCORE's share of
GELcore's net loss decreased $1.5 million or 55% to $1.2 million in fiscal 2003
from $2.7 million in fiscal 2002. On a quarterly basis, EMCORE's share of
GELcore's operating results was ($0.6) million, ($0.7) million, ($33,000) and
$0.1 million. This quarterly improvement is associated with increased unit
volumes, changes in LED product mix and less manufacturing inefficiencies
associated with newer product introductions. Management believes GELcore's
results will continue to improve in fiscal 2004 when compared to fiscal 2003.

Income Taxes. As a result of its losses, EMCORE did not incur any income
tax expense in either fiscal 2003 or 2002. Management provides valuation
allowances against the deferred tax asset for amounts which are considered "more
likely than not" to not be realized. As of September 30, 2003, EMCORE had net
operating loss carryforwards for tax purposes of approximately $365.0 million
that expire in the years 2004 through 2023. In fiscal 2003, $0.6 million of net
operating loss carryforwards expired and approximately $3.7 million are due to
expire in fiscal 2004. EMCORE is incorporated in the State of New Jersey that
presently has a moratorium on the use of net operating loss carryforwards due to
state deficits encountered over the past two years.


COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 2002 AND 2001

Revenue. EMCORE's consolidated revenue decreased $2.3 million or 4% to
$51.2 million in fiscal 2002 from $53.5 million in fiscal 2001. Tecstar, which
was acquired mid-year in March 2002, contributed approximately $10.3 million of
revenue in fiscal 2002. International sales accounted for 16% of revenues in
fiscal 2002 and 22% of revenues in fiscal 2001.

On a product line basis, sales of fiber optic devices decreased $4.5
million or 33%, photovoltaic products increased $3.4 million or 17% and
electronic materials and devices decreased $1.2 million or 6% from the prior
year.

Fiber optic revenues decreased to $9.1 million in fiscal 2002 from $13.6
million in fiscal 2001. On a quarterly basis, fiscal 2002 fiber optic revenues
were $1.3 million, $2.4 million, $2.6 million and $2.8 million. Sales of fiber
optic products represented 18% and 26% of EMCORE's total revenues in fiscal 2002
and 2001, respectively. In the second and third quarter of fiscal 2001, fiber
optic quarterly revenues exceeded $4.0 million. Beginning in the fourth quarter
of fiscal 2001, the depressed economic climate, particularly in the data and
telecommunication sectors, resulted in a significant reduction of customer
orders.

10

Photovoltaic revenues include the sale of epi wafers, solar cells, CICs and
solar panels. Fiscal 2002 photovoltaic revenues increased to $23.6 million from
$20.2 million in fiscal 2001. The increase in annual revenue is attributable to
the Tecstar acquisition. The annual decrease is attributable to a weakness in
satellite infrastructure spending and delays in government program launch
schedules. On a quarterly basis, fiscal 2002 photovoltaic revenues were $1.8
million, $10.9 million, $3.1 million and $7.8 million. Photovoltaic sales
fluctuate quarterly due to the timing of large solar panel shipments or
completion of significant research contracts. Sales in the photovoltaic group
represented 46% and 38% of EMCORE's total revenues in fiscal 2002 and 2001,
respectively.

Sales of electronic materials and devices, which include RF materials and
MR sensors, decreased to $18.5 million in fiscal 2002 from $19.7 million in
fiscal 2001. Motorola was the largest customer for this product line and
revenues from Motorola represented approximately 22% of EMCORE's total fiscal
2002 revenues. During fiscal 2002, EMCORE broadened its relationship with
Motorola by entering into an agreement to co-develop and transition into
production certain RF materials. On a quarterly basis, fiscal 2002 revenues from
electronic materials and devices were $5.5 million, $5.2 million, $4.5 million
and $3.3 million. This market is highly competitive, raw materials are extremely
expensive and average selling prices have been declining over the past several
years. Annual revenues from our mature MR sensors product line decreased $1.8
million from the prior year as a result of the phase out of certain automotive
models at General Motors. Our contract with General Motors expires in fiscal
2004.

Government contract revenue represents reimbursement by various U.S.
Government entities to aid in the development of new technology. Revenue from
government contracts increased $0.8 million to $3.3 million in fiscal 2002 from
$2.5 million in fiscal 2001.

Gross Profit (Loss). Gross profit decreased $22.8 million to ($11.1)
million in fiscal 2002 from $11.7 million in fiscal 2001. Compared to the prior
year, gross margins decreased from 21.9% to (21.8%). During the second quarter
of fiscal 2002, EMCORE recorded a $7.7 million inventory charge. The inventory
charge was for excess raw material and finished goods inventory that EMCORE
believed it was carrying as a result of market conditions. As revenues
decreased, our margins decrease as well since a significant portion of our
facility costs is fixed, lower throughput results in higher costs per unit
produced.

On a quarterly basis, gross margins were (28.0%), (36.2%), (6.0%) and
(10.1%). The most significant factors contributing to this decrease in gross
margin were: a) unabsorbed overhead costs associated with lower revenues due to
customer delayed product launches; b) specific inventory write-down charges of
$7.7 million recorded in the second quarter of fiscal 2002; and c) higher than
expected costs incurred integrating Tecstar's operations into EMCORE. During
fiscal 2002, EMCORE developed significantly more photovoltaic and fiber optic
devices and components than in fiscal 2001. The inventory charge was related to
reserves for excess raw material and finished goods inventory that EMCORE
believed it was carrying as a result of market conditions. EMCORE also has a
significant amount of fixed expenses relating to capital equipment and
manufacturing overhead in its facilities. By December 2001, EMCORE's
manufacturing facilities were expanded and placed into service with the
anticipation of expanding market prospects. Lower than forecasted revenues
caused these fixed expenses to be allocated across reduced production volumes,
adversely affecting gross profit and margins.

Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) remained flat at $15.7 million for both fiscal years 2002 and
2001. As a percentage of revenue, SG&A increased from 30% in fiscal 2001 to 31%
in 2002.

Research and Development. Research and development expenses (R&D) decreased
$11.6 million or 27% to $30.6 million in fiscal 2002 from $42.2 million in
fiscal 2001. The decrease in R&D was mostly due to the deferral or elimination
of certain non-critical research and development projects and headcount
reductions. As a percentage of revenue, R&D decreased from 79% in fiscal 2001 to
60% in 2002.

Impairment and Restructuring Charges. As discussed earlier, in fiscal 2002,
EMCORE recorded pre-tax charges to income totaling $31.6 million, which included
impairment charges of $30.8 million, and restructuring charges of $0.8 million.

Interest Expense, net. Interest expense, net increased $8.1 million to
$6.1 million in fiscal 2002 from $2.0 million of net interest income in fiscal
2001. The increase is due to $2.5 million less interest income earned primarily
from lower interest rates available on our decreasing cash balance in addition
to an increase in interest expense of $5.6 million related to outstanding debt.

Other Expense. In March 2001, a net gain of $5.9 million was recorded
related to the settlement of litigation. As previously discussed, in fiscal
2001, EMCORE recorded a net gain of $10.0 million upon receipt of UTCI common
stock. In fiscal 2002, EMCORE wrote off its investments in UTCI and Qusion
totaling $14.0 million and $0.4 million, respectively.

11

Equity in Net Loss of Unconsolidated Affiliates. EMCORE's share of
GELcore's net loss decreased $2.2 million or 45% to $2.7 million in fiscal 2002
from $4.9 million in fiscal 2001. On a quarterly basis, EMCORE's share of
GELcore's operating results was ($0.4) million, ($0.8) million, ($0.8) million
and ($0.7) million. EMCORE recognized a loss of $7.4 million related to the
Uniroyal Optoelectronics LLC joint venture, for the year ended September 30,
2001.


Income Taxes. As a result of its losses, EMCORE did not incur any income
tax expense in either fiscal 2002 or 2001. Management provides valuation
allowances against the deferred tax asset for amounts which are considered "more
likely than not" to not be realized.





12

QUARTERLY RESULTS OF OPERATIONS

The following tables present EMCORE's unaudited results of operations
expressed in dollars and as a percentage of revenue for the eight most recently
ended quarters. EMCORE believes that all necessary adjustments, consisting only
of normal recurring adjustments, have been included in the amounts below to
present fairly the selected quarterly information when read in conjunction with
the consolidated financial statements and notes included elsewhere in this
document. EMCORE's results from operations may vary substantially from quarter
to quarter. Accordingly, the operating results for a quarter are not necessarily
indicative of results for any subsequent quarter or for the full year. EMCORE
has experienced and expects to continue to experience significant fluctuations
in quarterly results. See Item 6. Selected Financial Data for a listing of
certain significant transactions that affect the comparability of EMCORE's
operating results and financial condition.


STATEMENTS OF OPERATIONS



- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
2001 2002 2002 2002 2002 2003 2003 2003
--------- --------- --------- ---------- --------- --------- --------- ----------
(as restated)(1)

Revenue .................................. $ 8,663 $ 18,557 $ 10,131 $ 13,885 $ 9,382 $ 16,864 $ 16,986 $ 17,052
Cost of revenue .......................... 11,086 25,279 10,734 15,286 12,007 17,705 16,361 15,886
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ........... (2,423) (6,722) (603) (1,401) (2,625) (841) 625 1,166

Operating expenses:
Selling, general & administrative ... 2,925 4,107 4,399 4,228 3,974 5,499 5,979 6,185
Research and development ............ 9,279 8,579 8,086 4,636 2,449 4,212 4,283 6,058
Impairment and restructuring ........ - 31,267 - 369 - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ......... 12,204 43,953 12,485 9,233 6,423 9,711 10,262 12,243
-------- -------- -------- -------- -------- -------- -------- --------
Operating loss ............... (14,627) (50,675) (13,088) (10,634) (9,048) (10,552) (9,637) (11,077)

Interest expense (income), net ........... 966 1,566 1,797 1,742 1,786 1,746 1,827 1,920
Gain from debt extinguishment ............ - - - - (6,614) - - -
Other (income) expense ................... 13,262 - - 1,126 - - - -
Equity in net loss of unconsolidated
affiliates .......................... 377 851 769 709 571 731 33 (107)
-------- -------- -------- -------- -------- -------- -------- --------
Total other expenses (income) .... 14,605 2,417 2,566 3,577 (4,257) 2,477 1,860 1,813
-------- -------- -------- -------- -------- -------- -------- --------

Loss from continuing
operations ................... (29,232) (53,092) (15,654) (14,211) (4,791) (13,029) (11,497) (12,890)

(Loss) income from discontinued
operations .................. (1,735) (15,618) (269) 50 1,894 488 2,265 (965)
-------- -------- -------- -------- -------- -------- -------- --------
Net loss ..................... $(30,967) $(68,710) $(15,923) $(14,161) $ (2,897) $(12,541) $ (9,232) $(13,855)
======== ======== ======== ======== ======== ======== ======== ========


(1) See Note 19 of the Notes to Consolidated Financial Statements.

13



- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
2001 2002 2002 2002 2002 2003 2003 2003
-------- -------- -------- --------- -------- -------- -------- ---------

Revenue .................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue .......................... 128.0 136.2 106.0 110.1 128.0 105.0 96.3 93.2
-------- -------- -------- --------- -------- -------- -------- ---------
Gross profit (loss) ........... (28.0) (36.2) (6.0) (10.1) (28.0) (5.0) 3.7 6.8

Operating expenses:
Selling, general & administrative ... 33.8 22.1 43.4 30.5 42.4 32.6 35.2 36.3
Research and development ............ 107.1 46.3 79.8 33.4 26.1 25.0 25.2 35.5
Impairment and restructuring ........ - 168.5 - 2.7 - - - -
-------- -------- -------- --------- -------- -------- -------- ---------
Total operating expenses ....... 140.9 236.9 123.2 66.6 68.5 57.6 60.4 71.8
-------- -------- -------- --------- -------- -------- -------- ---------
Operating loss ................ (168.9) (273.1) (129.2) (76.7) (96.5) (62.6) (56.7) (65.0)

Interest expense (income), net ........... 11.2 8.4 17.7 12.5 19.0 10.4 10.8 11.3
Gain from debt extinguishment ............ - - - - (70.5) - - -
Other (income) expense ................... 153.1 - - 8.1 - - - -
Equity in net loss of unconsolidated
affiliates ............................ 4.4 4.6 7.6 5.1 6.1 4.3 0.2 (0.6)
-------- -------- -------- --------- -------- -------- -------- ---------
Total other expenses (income) .. 168.7 13.0 25.3 25.7 (45.4) 14.7 11.0 10.7
-------- -------- -------- --------- -------- -------- -------- ---------

Loss from continuing operations (337.6) (286.1) (154.5) (102.4) (51.1) (77.3) (67.7) (75.6)

(Loss) income from discontinued
operations .................. (20.0) (84.2) (2.7) 0.4 20.2 2.9 13.3 (5.7)
-------- -------- -------- --------- -------- -------- -------- ---------
Net loss ...................... (357.6)% (370.3)% (157.2)% (102.0)% (30.9)% (74.4)% (54.4)% (81.3)%
======== ======== ======== ========= ======== ======== ======== =========


LIQUIDITY AND CAPITAL RESOURCES

Working Capital

EMCORE has funded operations to date through product sales, sales of
equity, and subordinated debt. Significant financial transactions include the
following:

o In March 2000, EMCORE raised approximately $127.5 million from an
additional equity offering;

o In May 2001, EMCORE issued $175.0 million of 5% convertible subordinated
notes;

Cash, cash equivalents and marketable securities at September 30, 2003 and
2002 totaled $28.4 million and $84.2 million, respectively. This reflects a net
cash usage of $55.8 million for fiscal 2003. The following five items accounted
for $46.1 million of the cash usage:

o $26.5 million - Acquisitions: ORTEL Corporation and Alvesta Corporation

o $ 6.3 million - Repurchase of convertible subordinated notes

o $ 8.5 million - Semi-annual interest payment on convertible subordinated
notes

o $ 2.0 million - Investment into GELcore joint venture

o $ 2.8 million - Purchases of capital equipment

14



Cash Flow


Net Cash Used For Operations -- Net cash used for operations improved
$15.0 million or 45% to ($18.6) million in fiscal 2003 from ($33.6) million in
fiscal 2002. Included in EMCORE's fiscal 2003 net loss of $38.5 million were
non-cash items of $19.3 million in depreciation and amortization expenses, $6.6
million related to the gain from partial debt extinguishment and $1.2 million
equity loss in the GELcore joint venture. Increases in cash flow from changes in
balance sheet accounts totaled $2.2 million in fiscal 2003 and $2.3 million in
fiscal 2002. Significant fluctuations on the balance sheet included increased
receivables of $1.8 million and an inventory decrease of $6.6 million. Net cash
provided by (used in) operating activities of EMCORE's discontinued operation
was $4.1 million and ($10.1) million in fiscal 2003 and 2002, respectively.
During fiscal 2002, EMCORE proceeded with a restructuring program, consisting of
the realignment of all engineering, manufacturing and sales/marketing
operations, as well as workforce reductions. This restructuring, in conjunction
with an expected increase in revenues, should enable EMCORE to achieve positive
cash flow from operations by the end of fiscal 2004. Actual results may differ
from this target for a number of reasons as we have already discussed.


Net Cash Provided by Investing Activities -- Net cash provided by
investing activities improved $10.9 million to $10.3 million in fiscal
2003 from ($0.6) million in fiscal 2002. Changes in cash flow consisted of:

o CAPITAL EXPENDITURES -- Capital expenditures decreased $1.7 million or
40% to $2.6 million in fiscal 2003 from $4.3 million in fiscal 2002.
As part of our ongoing effort to manage cash, management carefully
scrutinizes all significant capital purchases. Exclusive of facility
consolidation efforts, EMCORE estimates fiscal 2004 capital
expenditures to increase modestly as management focuses on purchasing
equipment that will provide higher target yields for manufactured
product.


o ACQUISITIONS -- From time to time, EMCORE evaluates potential
acquisitions of complementary businesses as strategic opportunities
and anticipates continuing to make such evaluations. In fiscal 2003,
EMCORE purchased Ortel for $26.2 million in cash and acquired certain
assets of privately held Alvesta Corporation for approximately
$250,000. In fiscal 2002, EMCORE acquired certain assets of Tecstar
for $25.1 million in cash. As discussed above, in October 2003, EMCORE
purchased Molex's 10G Ethernet transceiver business for an initial
$1.0 million in cash and an additional $1.5 million in progress
payments expected to be paid during fiscal 2004.


o INVESTMENTS -- Investments in GELcore totaled approximately $2.0
million in fiscal 2003 and 2002. As noted above, GELcore has improved
operations and recently reported profitable quarterly results. EMCORE
does not expect to contribute additional cash to fund normal
operations of GELcore in the foreseeable future. In February 2002,
EMCORE purchased $1.0 million of preferred stock of Archcom
Technology, Inc., a venture-funded, start-up optical networking
components company that designs, manufactures, and markets a series of
high performance lasers and photodiodes for datacom and telecom
industries.

o REPAYMENT OF LOAN-- In November 2001, EMCORE received payment from
UTCI of $5.0 million for a related party loan made in August 2001.

o MARKETABLE SECURITIES -- In fiscal 2003, EMCORE's depleted its
investment in marketable securities by $41.4 million in order to fund
multiple acquisitions, partially repurchase debt and pay interest
expense on the remaining debt.

Net Cash Used For Financing Activities -- Net cash used for financing
activities increased $11.6 million to ($5.9) million in fiscal 2003 from $5.7
million in fiscal 2002. In fiscal 2003, $6.3 million related to the partial
repurchase of our convertible subordinated notes. In fiscal 2002, $4.2 million
related to proceeds received from the exercise of common stock warrants.

Financing Transactions

In May 2001, EMCORE issued $175.0 million aggregate principal amount of its
5% convertible subordinated notes due in May 2006. Net proceeds received by
EMCORE, after costs of issuance, were approximately $168.8 million. Interest is
payable in arrears semiannually on May 15 and November 15 of each year, which
began on November 15, 2001. The notes are convertible into EMCORE common stock
at a conversion price of $48.76 per share, subject to certain adjustments, at
the option of the holder. The notes may be redeemed at EMCORE's option, on or
after May 20, 2004 at specific redemption prices. There are no financial
covenants related to these notes. For the years ended September 30, 2003, 2002
and 2001, interest expense relating to the notes approximated $8.3 million, $8.8
million and $3.5 million, respectively.

In May 2002, the Board of Directors authorized EMCORE from time to time to
repurchase a portion of the notes in one or more open market transactions, in
accordance with certain guidelines. In December 2002, EMCORE purchased, in
multiple

15

transactions, $13.2 million principal amount of the notes at prevailing market
prices, for an aggregate purchase price of approximately $6.3 million. As a
result of the transaction, EMCORE recorded a gain of approximately $6.6 million
after netting unamortized debt issuance costs of approximately $0.3 million. As
a result of the partial debt repurchase, annual interest expense in future
periods has been decreased by approximately $650,000. EMCORE may continue to
repurchase notes through various means, including but not limited to one or more
open market or privately negotiated transactions in future periods. The timing
and amount of repurchase, if any, whether de minimis or material, will depend on
many factors, including but not limited to, the availability of capital, the
prevailing market price of the convertible notes and overall market conditions.

On January 21, 2004 EMCORE commenced an offer to exchange up to $88,962,500
principal amount of its new 5% Convertible Senior Subordinated Notes due May 15,
2011 and $56,612,500 payable in its common stock, up to a maximum of 10,542,365
shares, for up to all of the $161,750,000 principal amount of its currently
outstanding 5% Convertible Subordinated Notes due May 2006. If consummated, the
exchange offer will allow the Company to reduce its outstanding indebtedness by
up to $72,787,500 and reduce its interest expense through May 15, 2006 by up to
$3,639,375 per year. The exchange offer is scheduled to expire on February 18,
2004 at 11:59 p.m., unless extended. Interest would be payable on the new notes
at a rate of 5% per year, payable in cash semi-annually on May 15 and November
15 of each year. The new notes would be convertible at any time prior to
maturity.

In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the
"GELcore Credit Facility") with General Electric Canada, Inc., an affiliate of
GE, which is the owner of a 51% controlling share of GELcore. The GELcore Credit
Facility provides for borrowings of up to Canadian $7.5 million (U.S. $5.6
million at September 30, 2003) at a rate of interest based on prevailing
Canadian interest rates. Amounts outstanding under the GELcore Credit Facility
are payable on demand. GELcore's Credit Facility expired in August 2003 however
GELcore is in the process of extending this credit facility and expects
completion by December 31, 2003. EMCORE has guaranteed 49% (i.e., its
proportionate share) of GELcore's obligations under the GELcore Credit Facility.
As of September 30, 2003, EMCORE's share of this obligation was $0.7 million. If
GELcore's cash generated from operations and cash on hand are not sufficient to
repay the amount outstanding under the facility, EMCORE would be required to
make the necessary pro rata payment as outlined above.

As of September 30, 2003, EMCORE had remaining 2.0 million shares of
common stock available on a filed shelf registration statement previously
declared effective by the SEC.

Contractual Obligations

EMCORE's contractual obligations over the next five years are summarized
in the table below:



---------- -------------- ------------------ ------------------ ------------
As of September 30, 2003 TOTAL LESS THAN 2 - 3 4 - 5 AFTER 5
(in millions) 1 YEAR YEARS YEARS YEARS
---------- -------------- ------------------ ------------------ ------------
(fiscal 2004) (fiscal 2005-2007) (fiscal 2008-2009)


Long-Term Debt (1)................. $161.8 $- $161.8 $- $-
Capital Lease Obligations.......... 0.1 0.1 - - -
Operating Leases................... 10.4 2.1 3.2 2.3 2.8
---------- -------------- ------------------ ------------------ ------------
Total Contractual Cash Obligations.. $172.3 $2.2 $165.0 $2.3 $2.8
========== ============== ================== ================== ============


(1) Due in May 2006.
In December 2002, EMCORE repurchased $13.2 million of convertible
subordinated notes.
At December 2003, total long-term debt outstanding was $161.8
million.

EMCORE does not have any purchase obligations or any other long-term
liabilities other than those listed in the table above.


16

Conclusion

EMCORE believes that its current liquidity should be sufficient to meet its
cash needs for working capital through fiscal year 2004. However, if cash
generated from operations and cash on hand are not sufficient to satisfy
EMCORE's liquidity requirements, EMCORE will seek to obtain additional equity or
debt financing. Additional funding may not be available when needed or on terms
acceptable to EMCORE. If EMCORE is required to raise additional financing and if
adequate funds are not available or not available on acceptable terms, the
ability to continue to fund expansion, develop and enhance products and
services, or otherwise respond to competitive pressures may be severely limited.
Such a limitation could have a material adverse effect on EMCORE's business,
financial condition, results of operations and cash flow.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Although EMCORE occasionally enters into transactions denominated in
foreign currencies, the total amount of such transactions is not material.
Accordingly, fluctuations in foreign currency values would not have a material
adverse effect on our future financial condition or results of operations.

As of September 30, 2003, EMCORE no longer held investments in
marketable debt securities.



17

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
EMCORE Corporation
Somerset, New Jersey

We have audited the accompanying consolidated balance sheets of EMCORE
Corporation (the "Company") as of September 30, 2003 and 2002, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended September 30, 2003. Our audits also
included the financial statement schedule included in Section 15(a)(2). These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of EMCORE Corporation as of September
30, 2003 and 2002, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 2003 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 3 to the consolidated financial statements the Company
changed its method of accounting for revenue to conform to the U.S. Securities
and Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements. Also as discussed in Note 3 to the consolidated
financial statements, effective October 1, 2001, the Company changed its method
of accounting for goodwill and intangible assets upon adoption of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

As discussed in Note 19 to the consolidated financial statements, the
accompanying 2003 consolidated statement of operations has been restated.



Parsippany, New Jersey
December 24, 2003
(February 17, 2004 as to the effects of the discontinued operations discussed in
Note 2)
(May 19, 2004 as to the effects of the restatement discussed in Note 19)




18

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)



2003 2002 2001
--------- --------- ---------
(As restated
see Note 19)

Revenue ........................................... $ 60,284 $ 51,236 $ 53,473
Cost of revenue ................................... 61,959 62,385 41,784
--------- --------- ---------
Gross (loss) profit ............ (1,675) (11,149) 11,689

Operating expenses:
Selling, general and administrative ............ 21,637 15,659 15,714
Goodwill amortization .......................... - - 1,147
Research and development ....................... 17,002 30,580 42,204
Impairment and restructuring ................... - 31,636 -
--------- --------- ---------
Total operating expenses ................... 38,639 77,875 59,065
--------- --------- ---------
Operating loss ........................... (40,314) (89,024) (47,376)

Other expenses (income):
Interest income ................................ (1,009) (2,865) (5,222)
Interest expense ............................... 8,288 8,936 3,240
Gain from debt extinguishment .................. (6,614) - -
Other expense (income) ......................... - 14,388 (15,920)
Equity in net loss of unconsolidated affiliates 1,228 2,706 12,326
--------- --------- ---------
Total other expenses (income)................ 1,893 23,165 (5,576)
--------- --------- ---------
Loss from continuing operations .......... (42,207) (112,189) (41,800)

Income (loss) from discontinued operations 3,682 (17,572) 33,158
--------- --------- ---------
Net loss before cumulative effect of a
change in accounting principle ........... (38,525) (129,761) (8,642)

Cumulative effect of a change in
accounting principle ..................... -- -- (3,646)
--------- --------- ---------
Net loss ................................. $ (38,525) $(129,761) $ (12,288)
========= ========= =========
PER SHARE DATA:
Weighted average basic and diluted shares
outstanding used in per share calculations ........ 36,999 36,539 34,438
--------- --------- ---------
Loss from continuing operations per basic and
diluted share ..................................... $ (1.14) $ (3.07) $ (1.21)

Income (loss) from discontinued operations per
basic and diluted share ........................... $ 0.10 $ (0.48) $ 0.96

Cumulative effect of a change in accounting
principle per basic and diluted share ............. $ -- $ -- $ (0.11)
--------- --------- ---------
Net loss per basic and diluted share .............. $ (1.04) $ (3.55) $ (0.36)
========= ========= =========


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

19

EMCORE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND 2002
(IN THOUSANDS)



ASSETS 2003 2002
------------- -----------
Current assets:

Cash and cash equivalents............................................................... $28,439 $42,716
Marketable securities................................................................... - 41,465
Accounts receivable, net of allowance for doubtful accounts of
$1,041 and $1,185 at September 30, 2003 and 2002, respectively....................... 14,221 12,711
Accounts receivable - related parties................................................... 325 518
Inventories, net........................................................................ 13,963 14,073
Prepaid expenses and other current assets............................................... 1,936 1,157
Assets related to discontinued operations............................................... 44,456 28,091
-----------------------------
Total current assets............................................................... 103,340 140,731
Property, plant and equipment, net........................................................ 74,722 77,261
Goodwill.................................................................................. 30,366 20,384
Intangible assets, net.................................................................... 4,567 1,829
Investments in unconsolidated affiliate................................................... 9,214 8,482
Other assets, net......................................................................... 10,230 12,002
Assets related to discontinued operations................................................. - 25,254
-----------------------------

Total assets....................................................................... $232,439 $285,943
=============================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $8,155 $8,167
Accrued expenses........................................................................ 13,204 12,040
Customer deposits....................................................................... 295 621
Capitalized lease obligation - current.................................................. 52 81
Liabilities related to discontinued operations.......................................... 4,170 7,997
-----------------------------

Total current liabilities.......................................................... 25,876 28,906
Convertible subordinated notes............................................................ 161,750 175,000
Capitalized lease obligation, net of current portion...................................... 41 87
-----------------------------
Total liabilities.................................................................. 187,667 203,993
Commitments and contingencies

Shareholders' equity:
Preferred stock, $0.0001 par, 5,882 shares authorized, no shares outstanding........... - -
Common stock, no par value, 100,000 shares authorized, 37,327 shares issued and 37,307
outstanding at September 30, 2003; 36,772 shares issued and 36,752 outstanding at
September 30, 2002.................................................................... 335,266 334,051
Accumulated deficit.................................................................... (289,438) (250,913)
Accumulated other comprehensive loss................................................... (90) (222)
Shareholders' notes receivable......................................................... (34) (34)
Treasury stock, at cost; 20 shares at September 30, 2003 and 2002...................... (932) (932)
-----------------------------
Total shareholders' equity......................................................... 44,772 81,950
-----------------------------
Total liabilities and shareholders' equity......................................... $232,439 $285,943
=============================


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.


20
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(in thousands)



Accumulated
Other Shareholders Total
Common Accumulated Comprehensive Notes Treasury Shareholders'
Shares Stock Deficit Income (Loss) Receivable Stock Equity
-------- ---------- ------------ -------------- -------------- --------- --------------

BALANCE AT SEPTEMBER 30, 2000 .. 33,972 $314,780 $(108,864) $5 $(6,360) $(239) $199,322
Net loss .................................... (12,288) (12,288)
Unrealized gain on marketable securities .... (8,085) (8,085)
Translation adjustment ...................... (234) (234)
---------------
Comprehensive loss (20,607)
Issuance of common stock in connection with
acquisitions ............................. 41 1,840 1,840
Stock option exercise ....................... 438 3,248 3,248
Stock purchase warrant exercise ............. 1,111 5,509 5,509
Compensatory stock issuances ................ 34 1,505 1,505
Issuance of common stock - Employee Stock
Purchase Plan ............................ 17 677 677
Treasury stock .............................. (16) (693) (693)
Redemptions of shareholders' notes
receivable ............................... 6,326 6,326
-------- ---------- ------------ -------------- -------------- -------- ---------------
BALANCE AT SEPTEMBER 30, 2001 .. 35,597 327,559 (121,152) (8,314) (34) (932) 197,127
Net loss .................................... (129,761) (129,761)
Impairment of equity investment charged
to expense ............................... 8,421 8,421
Unrealized loss on marketable securities .... (308) (308)
Translation adjustment ...................... (21) (21)
---------------
Comprehensive loss ..................... (121,669)
Stock option exercise ....................... 159 1,023 1,023
Stock purchase warrant exercise ............. 823 4,194 4,194
Compensatory stock issuances ................ 125 714 714
Issuance of common stock - Employee Stock
Purchase Plan ............................ 48 561 561
-------- ---------- ------------ -------------- -------------- -------- ---------------
BALANCE AT SEPTEMBER 30, 2002 .. 36,752 334,051 (250,913) (222) (34) (932) 81,950

Net loss .................................... (38,525) (38,525)
Unrealized loss on marketable securities .... (37) (37)
Translation adjustment ...................... 169 169
---------------
Comprehensive loss ..................... (38,393)
Stock option exercise ....................... 157 285 285
Compensatory stock issuances ................ 309 759 759
Issuance of common stock - Employee Stock
Purchase Plan ............................ 89 171 171
-------- ---------- ------------ -------------- -------------- -------- ---------------
BALANCE AT SEPTEMBER 30, 2003 .. 37,307 $335,266 $(289,438) $(90) $(34) $(932) $44,772



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.

21

EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS)



2003 2002 2001
---------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss ............................................................. $ (38,525) $(129,761) $(12,288)
Adjustments to reconcile net loss to net cash used for operating
activities
Net (income) loss from discontinued operations ............... (3,682) 17,572 (33,158)
Loss on disposal of property, equipment and
other impairment charges .............................. - 48,649 -
Cumulative effect of a change in accounting principle ........ - - 3,646
Recognition of loss on marketable securities ................. - 14,389 -
Translation adjustment ....................................... 169 (21) (234)
Gain from debt extinguishment ................................ (6,614) - -
Depreciation and amortization ................................ 19,340 16,902 17,419
Provision for doubtful accounts .............................. 1,713 3,086 370
Gain on sale of unconsolidated affiliate ..................... - - (10,000)
Equity in net loss of unconsolidated affiliates .............. 1,228 2,706 12,326
Compensatory stock issuance .................................. 759 714 858
Reduction of note receivable due for services performed ...... 706 - -
Change in assets and liabilities:
Accounts receivable - trade .................................. (1,953) (3,949) (5,982)
Accounts receivable - related parties ........................ 193 1,643 174
Inventories .................................................. 6,639 1,777 (11,002)
Prepaid expenses and other current assets .................... (779) 3,065 (2,418)
Other assets ................................................. (619) 1,206 (7,617)
Accounts payable ............................................. (12) (1,430) 488
Accrued expenses ............................................. (936) (680) 7,884
Customer deposits ............................................ (326) 621 -
Net cash provided by (used in) operating activities of
discontinued operations .................................... 4,118 (10,100) (7,040)
---------------- --------------- ---------------
Total adjustments .................................................... 19,944 96,150 (34,286)
---------------- --------------- ---------------

Net cash and cash equivalents used for operating activities .......... (18,581) (33,611) (46,574)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment ...................... (2,599) (4,259) (68,201)
Cash purchase of business, net of cash acquired ................. (26,450) (25,084) (1,707)
Investments in marketable securities, net ....................... 41,428 28,682 (19,654)
Investment in associated company ................................ - (1,000) -
Investments in unconsolidated affiliates ........................ (1,960) (1,960) (6,302)
Repayment of related party loan ................................. - 5,000 -
Net cash provided by (used in) investing activities of discontinued
operations ...................................................... (164) (1,990) (21,123)
---------------- --------------- ---------------
Net cash and cash equivalents provided by (used for) investing
activities ....................................................... 10,255 (611) (116,987)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes, net of issuance
cost of $6,199 ............................................. - - 168,801
Proceeds from exercise of stock purchase warrants ............... - 4,194 5,509
Reduction of convertible debt obligation ........................ (6,317) - -
Proceeds from exercise of stock options ......................... 285 1,023 3,248
Payments on capital lease obligations ........................... (90) (79) (44)
Proceeds from employee stock purchase plan ...................... 171 561 677
Proceeds from shareholders' notes receivable .................... - - 5,760
---------------- --------------- ---------------
Net cash and cash equivalents (used for) provided by financing
activities ....................................................... (5,951) 5,699 183,951
---------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents ................. (14,277) (28,523) 20,390
Cash and cash equivalents, beginning of year ......................... 42,716 71,239 50,849
---------------- --------------- ---------------
Cash and cash equivalents, end of year ............................... $28,439 $42,716 $71,239
================ =============== ===============



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.

22



EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
(IN THOUSANDS)



2003 2002 2001
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest .............................................. $8,498 $8,958 $29

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Treasury stock received for redemption of shareholders'
notes receivable ................................................... - - 693

Issuance of non-qualified stock options to equity investee............ - - 649

Proceeds from sale of joint venture in form of marketable securities.. - - (13,958)

Issuance of common stock in connection with an acquisition............ - - 1,840

The Company purchased its Ortel Division for $26.2 million, and certain
assets of Tecstar for approximately $25.1 million. In conjunction with these
acquisitions, liabilities were assumed as follows:

Fair value of assets acquired ............................... $28,300 $25,084 $-

Cash paid for the net assets ................................ 26,200 25,084 -
----------- ----------- ----------
Liabilities assumed. ........................................ $2,100 $- $-
=========== =========== ==========



Reference is made to footnote 9 - Debt Facilities - for disclosure relating to
certain non-cash warrant issuance.

Reference is made to footnote 12 - Shareholders' Equity - for disclosure
relating to certain non-cash equity transactions.


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.

23



EMCORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2003 AND 2002 AND
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001


NOTE 1. DESCRIPTION OF BUSINESS

EMCORE Corporation, a New Jersey corporation established in 1984, offers a
versatile portfolio of compound semiconductor-based components and subsystems
for the rapidly expanding broadband and wireless communication markets and the
solid-state lighting industry. EMCORE continues to expand its comprehensive
product portfolio to enable the transport of voice, data and video over copper,
hybrid fiber/coax (HFC), fiber, satellite and wireless communication networks.
The company is building upon its leading-edge compound semiconductor materials
and device expertise to provide cost-effective components and subsystems for the
CATV, telecom, data and storage, satellite and wireless communications markets.
EMCORE supports these end markets through its EMCORE Fiber Optics, EMCORE
Photovoltaics, and EMCORE Electronic Materials and Devices product lines.
Through its 49% ownership participation in GELcore, LLC, EMCORE plays a vital
role in developing and commercializing next-generation LED technology for use in
the general illumination market.

NOTE 2. DISCONTINUED OPERATIONS

On November 3, 2003, pursuant to approval received by the Board of
Directors on October 31, 2003, EMCORE sold its TurboDisc systems business to a
subsidiary of Veeco Instruments Inc. (Veeco) in a transaction that could be
valued at up to $80.0 million. The purchase price was $60.0 million in cash at
closing with an additional aggregate maximum payout of $20.0 million over the
next two years. EMCORE will receive in cash 50% of all revenues from this
business that exceed $40.0 million in each of the next two years, beginning
January 1, 2004. In accordance with the terms of the agreement, EMCORE also
received an additional $2.0 million in cash for working capital adjustments and
expense reimbursements. This transaction included the assets, products, product
warranty liabilities, hardware-related technology and intellectual property used
primarily in the operation of this business, including its manufacturing
facility located in Somerset, New Jersey. Approximately 150 employees of EMCORE
were involved in the TurboDisc business of which approximately 120 became
employees of Veeco.

The systems business enabled the Company to develop the critical
materials science expertise that has become the cornerstone of its compound
semiconductor based communications products and its sole business focus. EMCORE
retained a license to all systems related intellectual property and ownership of
all its process and device technology. Moreover, the sale of TurboDisc business
strengthened EMCORE's balance sheet and helped provide the resources necessary
to implement its communications strategy.

The Company's financial statements have been reclassified to reflect the
TurboDisc systems business as a discontinued operation for all periods
presented.


24



Operating results of the discontinued operation are as follows:



- -------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED
(in thousands) 2003 2002 2001
- --------------------------------------------------------- ---------------- ------------- -------------

Revenue .............................................. $52,822 $36,536 $131,141
Cost of revenue ...................................... 36,630 26,029 72,725
---------------- ------------- -------------
Gross profit ................................ 16,192 10,507 58,416

Operating expenses:
Selling, general and administrative ............. 7,353 12,568 14,137
Research and development ........................ 5,179 10,390 11,187
Impairment and restructuring .................... - 5,085 -
---------------- ------------- -------------
Total operating expenses ................... 12,532 28,043 25,324
---------------- ------------- -------------
Operating income (loss) ..................... 3,660 (17,536) 33,092
Interest income (expense) ......................... 22 (36) 66
---------------- ------------- -------------
Income (loss) from discontinued operations .. $3,682 $(17,572) $33,158
================ ============= =============
- -------------------------------------------------------------------------------------------------------


The assets and liabilities of the discontinued operation included in the
September 30, 2003 and 2002 consolidated balance sheet are as follows:



2003 2002
---- ----

Assets:

Accounts receivable ................................. $11,375 $11,106
Inventories ......................................... 11,143 16,954
Other current assets ................................ 18 31
Property, plant and equipment ....................... 21,087 24,041
Identifiable intangible assets ...................... 833 1,213
-------------- -------------
Assets related to discontinued operations ........ $44,456 $53,345
============== =============

Liabilities:
Accounts payable .................................... $3,372 $2,174
Accrued expenses .................................... 506 839
Customer deposits ................................... 292 4,984
-------------- -------------
Liabilities related to discontinued operations ... $4,170 $7,997
============== =============


25

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include
the accounts of EMCORE and its wholly owned subsidiaries. The equity method of
accounting is used for unconsolidated affiliates where EMCORE exercises
significant influence, generally when ownership is at least 20% and not more
than 50%. All intercompany accounts and transactions are eliminated upon
consolidation. Prior period balances have been reclassified to conform to the
current period financial statement presentation.

Cash and Cash Equivalents. EMCORE considers all highly liquid short-term
investments purchased with an original maturity of three months or less to be
cash equivalents.

Marketable Securities. EMCORE accounts for its investment in marketable
securities as available-for-sale securities in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Unrealized gains and losses
for these securities are excluded from earnings and reported as a separate
component of shareholders' equity. Realized gains and losses on sales of
investments, as determined on a specific identification basis, are included in
the consolidated statement of operations. Fair values are determined by
reference to market prices for securities as quoted based on publicly traded
exchanges. The fair value of the debt securities approximated cost. Declines in
values that are deemed to be other than temporary in accordance with SFAS No.
115 are recorded as a component of other (income) expense on the statement of
operations. EMCORE recorded approximately $0.1 million, $0.2 million and $0.1
million of net realized gains on sales of available-for-sale debt securities
during fiscal 2003, 2002 and 2001, respectively.

Concentration of Credit Risk. Financial instruments, which may subject
EMCORE to a concentration of credit risk, consist primarily of cash and cash
equivalents, marketable securities and accounts receivable. EMCORE's cash and
cash equivalents consist primarily of money market funds. EMCORE has maintained
cash balances with certain financial institutions in excess of the $100,000
insured limit of the Federal Deposit Insurance Corporation. EMCORE performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral from its customers.

Accounts Receivable. EMCORE regularly evaluates its accounts receivable and
accordingly maintains allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to meet their financial obligation
to us. If the financial condition of our customers were to deteriorate,
additional allowances may be required.

Fair Value of Financial Instruments. The carrying amounts of cash and cash
equivalents, accounts receivable and payables and accrued expenses approximate
fair value because of the short maturity of these instruments. The carrying
amount of long-term receivables approximates fair value, as the effective rates
for these instruments are comparable to market rates at year-end. The carrying
amount of marketable securities and investments approximates fair market value.
As of September 30, 2003 and 2002, the fair market value of the convertible
subordinated debenture approximated $129.4 million and $81 million,
respectively. This fair value was estimated based on the quoted market prices
for the same or similar debt issuance.

Inventories. Inventories are stated at the lower of cost or market with
cost being determined using the first-in, first-out (FIFO) method. The Company
evaluates its ending inventories on a quarterly basis for excess quantities,
impairment of value and obsolescence. This evaluation includes analysis of sales
levels by product and projections of future demand based upon information
received from our customers, sales team and management estimates. If inventories
on hand are in excess of demand, or if they are greater than 12-months old,
appropriate reserves are provided. Remaining inventory balances are adjusted to
approximate the lower of our manufacturing cost or market value. If future
demand or market conditions are less favorable than our estimates, additional
inventory write-downs may be required.

Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Significant improvements and betterments are capitalized if they extend
the useful life of the asset. Routine maintenance and repairs are expensed when
incurred. Plant and equipment are depreciated using the straight-line method
over the estimated useful lives of the applicable assets, which range from three
to forty years. Leasehold improvements are amortized using the straight-line
method over the term of the related leases or the estimated useful lives of the
improvements, whichever is less. Depreciation expense includes the amortization
of capital leased assets.

Goodwill. In June 2001, SFAS No. 142, Goodwill and Other Intangible
Assets, was approved by the Financial Accounting Standards Board (FASB).
Amortization of goodwill, including goodwill recorded in past business
combinations and indefinite lived intangible assets, would cease upon adoption
of this statement. EMCORE adopted SFAS No. 142 on October 1, 2001 and completed
its transition test for impairment during the quarter ended March 31, 2002. No
impairment adjustment was deemed

26

necessary by management.

For the Year Ended
September 30, 2001
------------------------

Reported net loss $(12,288)
Add back: Goodwill amortization 1,147
--------
Adjusted net loss $ 11,141
========


Basic and diluted earnings per share:
Reported net loss $(0.36)
Goodwill amortization 0.03
------
Adjusted net loss $(0.33)
======

Valuation of long-lived assets and intangible assets. EMCORE reviews
long-lived assets and intangible assets on an annual basis or whenever events or
changes in circumstances suggest that they may be impaired. A long-lived asset
is considered impaired when its anticipated undiscounted cash flow is less than
its carrying value. In making this determination, EMCORE uses certain
assumptions, including, but not limited to: (a) estimates of the fair market
value of these assets, and (b) estimates of future cash flows expected to be
generated by these assets, which are based on additional assumptions such as
asset utilization, length of service that assets will be used in our operations
and estimated salvage values. See Footnote 6. Restructuring and Impairment
Charges.

Other Assets. Included in other assets are various deferred costs, related
party receivables and an investment. The deferred costs are primarily related to
financing costs associated with the May 2001 issuance of $175.0 million
convertible subordinated notes due in 2006. These financing costs are being
amortized on a straight-line basis over the five-year life of the notes. Total
capitalized financing costs, net of amortization, were $3.0 million and $4.4
million at September 30, 2003 and 2002, respectively. Total amortization expense
related to these financing costs amounted to approximately $1.0 million, $1.3
million and $0.5 million for the years ended September 30, 2003, 2002 and 2001
respectively. Related party receivables at September 30, 2003 primarily
consisted of a $3.4 million loan and accrued interest due from the Chief
Executive Officer issued in fiscal 2001. Also included in other assets is a $2.5
million six-year promissory note due from ASI/TSI issued in fiscal 2002.

Accruals for Liabilities and Warranties. EMCORE may incur costs for which
we have not been billed. These costs can include legal and accounting fees,
costs pertaining to our self-funded medical insurance, warranty costs and other
expenses. EMCORE makes estimates for these costs using historical data or
information gained directly from the service providers. Total warranty expense
amounted to approximately $2.2 million, $2.3 million and $1.0 million for the
years ended September 30, 2003, 2002 and 2001, respectively, of which $1.0
million, $0.7 million and $0.3 million is related to discontinued operations.

Revenue Recognition. Prior to the divestiture of our MOCVD business,
revenue from the systems segment was recognized upon shipment where product has
met customer's specifications and when the title and ownership have passed to
the customer. EMCORE's billing terms on system sales generally included a
holdback of 10-20% on the total purchase price subject to completion of the
installation and final acceptance process at the customer's site. Effective
October 1, 2000, EMCORE changed its revenue recognition policy to defer this
portion of revenue related to installation and final acceptance until such
installation and final acceptance has been completed. This change was made in
accordance with the implementation of U.S. Securities and Exchange Commission
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). The effect of this change was reported as the cumulative effect of a
change in accounting principle in the year ended September 30, 2001. This net
effect reflected the deferral as of October 1, 2000 of $3.6 million of revenue
and accrued installation expenses previously recognized. EMCORE recognized the
revenue included in the cumulative effect adjustment during the year ended
September 30, 2001.

Revenue is recognized upon shipment provided we have received a signed purchase
order, the price is fixed, the product meets the customers' specifications,
title and ownership have transferred to the customer and there is reasonable
assurance of collection of the sales proceeds. The majority of our products have
shipping terms that are FOB or FCA shipping point. The difference between FOB
and FCA is that under FCA terms, the customer designates a shipping carrier of
choice to be used. Under both terms, we fulfill the obligation of delivery when
the goods are handed over to the carrier at our shipping dock. If inventory is
maintained at a consigned location, revenue is recognized when our customer
pulls product for its use.

As a result of the Tecstar acquisition in 2002, EMCORE records revenues
from solar panel contracts using the percentage-of-completion method where the
elapsed time from award of a contract to completion of performance generally
exceeds 6 months. Revenue is recognized in proportion to actual costs incurred
compared to total anticipated costs expected to be incurred for each contract.
If estimates of costs to complete long-term contracts indicate a loss, a
provision is made for the total loss anticipated. EMCORE has numerous contracts
that are in various stages of completion. Such contracts require estimates to
determine the appropriate cost and revenue recognition. EMCORE uses all
available information in determining estimates of the extent of progress towards
completion, contract revenues and contract costs. Estimates are revised as
additional information becomes available. During fiscal 2003, EMCORE recorded
approximately $0.2 million in anticipated losses on certain long-term contracts.

Contract revenue represents reimbursement by various U.S. Government
entities to aid in the development of new technology. The contract funding may
be based on either a cost-plus or a cost-share arrangement. Cost-plus funding is
determined based on actual costs plus a set percentage margin. For the
cost-share contracts, the actual costs relating to the activities to be
performed by us under the contract are divided between the U.S. Government and
us based on the terms of the contract. The government's cost share is then paid
to us. A contract is considered complete when all significant costs have been
incurred, and the research reporting requirements to the customer have been met.
The contracts typically require the submission of a written report that
documents the results of such research, as well as some material deliverables.
The revenue and expense classification for contract activities is based on the
nature of the contract. For contracts where we anticipate that funding will
exceed direct costs over the life of the contract, funding is reported as
contract revenue and all direct costs are reported as costs of contract revenue.
For contracts under which we anticipate that direct costs of the activities
subject to the contract will exceed amounts to be funded over the life of the
contract, costs over and above the funded amount are reported as research and
development expenses. Revenues from Government contracts amounted to
approximately $5.2 million, $3.3 million and $2.5 million for the years ended
September 30, 2003, 2002 and 2001, respectively.
27

In rare occurrences, at the customer's written request, EMCORE enters into
bill and hold transactions whereby title transfers to the customer, but the
product does not ship until a specified later date. EMCORE recognizes revenues
associated with the sale of product from bill and hold arrangements when the
product is complete, ready to ship, and all bill and hold criteria have been
met.

Research and Development. Research and development costs are charged to
expense as incurred.

Income Taxes. Income taxes are accounted for using the asset and liability
method under which deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities and operating losses and tax
credit carry forwards. The effect on deferred taxes for a change in tax rates is
recognized as income in the period that includes the enactment date. Management
provides valuation allowances against the deferred tax asset for amounts which
are considered "more likely than not" to not be realized.

Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates. EMCORE's most significant estimates relate to accounts
receivable allowances, inventory valuation reserves, the valuation of goodwill,
intangibles and other long-lived assets, warranty accruals and revenue
recognition when utilizing the percentage-of-completion method.

Stock Options. EMCORE accounts for its employee stock option-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Accordingly, no
compensation expense is recognized for stock option-based compensation unless
the quoted market price of the stock at the grant date is in excess of the
amount the employee must pay to acquire the stock. EMCORE has not recognized any
stock option-based compensation expense in any of the periods presented. In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. EMCORE implemented SFAS No. 148
in the quarter ended March 31, 2003.

The following table illustrates the effect on the net loss and net loss per
share if EMCORE had applied the fair value recognition provisions of SFAS No.
123 to stock based employee compensation:



FOR THE YEAR ENDED SEPTEMBER 30 ,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2003 2002 2001
---- ---- ----

Net loss.............................................. $(38,525) $(129,761) $(12,288)

Deduct: Total stock based employee compensation
expense determined under fair value based methods for
all awards, net of related tax effects................ (3,339) (4,998) (4,358)
------- ------- -------

Pro forma net loss.................................... $(41,864) $(134,759) $(16,646)
=====================================




FOR THE YEAR ENDED SEPTEMBER 30,

2003 2002 2001
---- ---- ----

Reported net loss per basic and diluted share ..................... $(1.04) $(3.55) $(0.36)
Pro Forma net loss per basic and diluted share .................... $(1.13) $(3.69) $(0.48)





The pro forma disclosures shown above were calculated for all options using
the Black-Scholes option pricing model with the following assumptions:



FOR THE YEAR ENDED SEPTEMBER 30 ,
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2003 2002 2001
---- ---- ----
Expected dividend yield............................... 0% 0% 0%
Expected stock price volatility...................... 112% 112% 104%
Risk-free interest rate............................... 2.8% 2.6% 3.9%
Weighted average expected life (in years)............. 5 5 5

28

Comprehensive Income. SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive income and its
components in financial statements. It requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in the financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income consists of net
earnings, the net unrealized gains or losses on available for sale marketable
securities and foreign currency translation adjustments and is presented in the
consolidated statements of shareholders' equity.

Recent Financial Accounting Pronouncements. In November 2002, the FASB
issued Financial Interpretation No. 45 (FIN 45), Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 clarifies that a guarantor is required to
recognize, at the inception of the guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002. FIN 45 also requires
enhanced and additional disclosures of guarantees in financial statements for
the years ending after December 15, 2002. As discussed in Footnote 9-Commitments
and Contingencies, EMCORE has guaranteed a loan associated with its GELcore
joint venture.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities. This interpretation defines when a business must
consolidate a variable interest entity. This interpretation applies immediately
to variable interest entities created or acquired after January 31, 2003. The
Company is not a party to any arrangements with variable interest entities and
thus the adoption of this statement did not have a material impact on the
Company's consolidated financial statements. In December 2003, the FASB
completed deliberations of proposed modifications to FIN 46 ("Revised
Interpretation") in multiple effective dates based on the nature as well as the
creation date of the variable interest entity. The adoption of the Revised
Interpretation did not have a material effect on the Company's financial
statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
changes in SFAS No. 149 improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. In particular, SFAS
No. 149 (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in paragraph 6(b)
of SFAS No. 133, (2) clarifies when a derivative contains a financing component,
(3) amends the definition of an underlying to conform it to language used in FIN
45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and (4) amends certain other
existing pronouncements. Those changes will result in more consistent reporting
of contracts as either derivatives or hybrid instruments. SFAS No. 149 is to be
applied prospectively to contracts entered into or modified after June 30, 2003,
with certain exceptions, and for hedging relationships designated after June 30,
2003. Adoption of this statement did not have a material impact on the financial
position, results of operations, or cash flows of EMCORE.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Liabilities, Equity, or Both. This limited
scope statement prescribes changes to the classification of mandatorily
redeemable preferred stock, preferred securities of subsidiary trusts and the
accounting for forward purchase contracts issued by a company in its own stock
among other issues. SFAS No. 150 does not apply to features that are embedded in
a financial instrument that is not a derivative in its entirety and requires all
preferred securities of subsidiary trusts to be classified as debt on the
consolidated balance sheet and the related dividends as interest expense. The
Company adopted the provisions of SFAS No. 150, including the deferral of
certain effective dates as a result of the provisions of FASB Staff Position
150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests Under FASB Statement No. 150 Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The adoption of this statement did not have a material impact on the
Company's financial position or results of operations.


NOTE 4. EARNINGS (LOSS) PER SHARE

EMCORE accounts for earnings (loss) per share under the provision of
SFAS No. 128 Earnings Per Share. Basic earnings (loss) per share is calculated
by dividing net earnings (loss) attributable to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if EMCORE's
outstanding stock options were exercised (calculated using the treasury stock
method). The effect of outstanding common stock purchase options and warrants,
the convertible preferred stock and the convertible subordinated notes have been

29

excluded from the diluted earnings per share calculation since the effect of
such securities is anti-dilutive. The following table lists the number of shares
used in the earnings per share calculations.



FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2001
---- ---- ----


Net loss......................................................... (38,525) (129,761) (12,288)

Preferred stock dividends............................... - - -
Periodic accretion of preferred stock to redemption
value................................................... - - -
---------------------------------------

Net loss attributable to common shareholders..................... $(38,525) $(129,761) $(12,288)
========= ========== =========

- ---------------------------------------------------------------------------------------------------------------
Weighted average of outstanding common shares - basic and
diluted.......................................................... 36,999 36,539 34,438
- --------------------------------------------------------------------- ------------- -------------- ------------

Net loss per basic and diluted
share.................................................... $(1.04) $(3.55) $(0.36)
========= ========== =========


NOTE 5. ACQUISITIONS

In March 2002, EMCORE acquired certain assets of Tecstar for a total
cash purchase price, including related acquisitions costs, of approximately
$25.1 million. This acquisition vertically integrated all aspects of satellite
solar panel construction within EMCORE and enabled EMCORE to further penetrate
the satellite communications market. The results of operations from this
acquisition have been included in EMCORE's consolidated results of operations
from the acquisition closing date. This acquisition is not significant on a pro
forma basis and therefore pro forma financial statements are not provided. The
purchase price allocation was as follows:

Property and equipment $2,242
Other assets 558
Intellectual property 1,900
Goodwill 20,384
------
Total $25,084
=======


In January 2003, EMCORE purchased Agere Systems, Inc.'s CATV transmission
systems, telecom access and Satcom components business, formerly Ortel
Corporation (Ortel) for $26.2 million in cash in order to broaden EMCORE's
product portfolio. Ortel designs and manufactures high quality optoelectronic
solutions that enable voice, video and data networks.



30



The results of operations from this acquisition have been included in
EMCORE's consolidated results of operations from the acquisition closing date.
The effects of the acquisition have been presented using the purchase method of
accounting. The total purchase price of the transaction has been allocated to
assets and liabilities based on management's estimate of their fair values. The
following represents the allocation of the purchase price over the estimated
fair values of the acquired assets and assumed liabilities of Ortel.



Cash $ 25,000
Acquisition costs 1,200
----------
Total purchase price $ 26,200
==========

Allocation of purchase price based on fair values:
Assets acquired:
Inventories. $ 6,473
Property, plant and equipment 8,570
Identifiable intangible assets 3,275
Goodwill 9,982
Less: warranty reserve (2,100)
----------
Net assets acquired $ 26,200
==========

The following unaudited condensed consolidated pro forma financial data has
been prepared to give effect to EMCORE's acquisition of certain assets and
liabilities of Ortel. It does not purport to represent what the consolidated
results of operations or financial position of EMCORE would actually have been
if the acquisition had occurred on the dates referred to below, nor does it
purport to project the results of operations or financial position of EMCORE for
any future period. The unaudited condensed consolidated pro forma statement of
operations data was prepared by combining the operations of EMCORE with the
operations of Ortel, giving effect to the acquisition as though it occurred on
the first day of the respective fiscal year.

Condensed Consolidated Pro Forma Statement of Operations Data
For the year ended September 30, 2003
(unaudited)



EMCORE Pro Forma
------ ---------


Revenues .................................................. $60,284 $70,355
Net loss .................................................. (38,525) (42,997)

Weighted average basic and diluted shares
outstanding used in per share calculations ................ 36,999 36,999
Net loss per basic and diluted share ..... $(1.04) $(1.16)



Condensed Consolidated Pro Forma Statement of Operations Data
For the year ended September 30, 2002
(unaudited)



EMCORE Pro Forma
------ ---------

Revenues .................................................. $51,236 $107,036
Net loss .................................................. (129,761) (162,196)

Weighted average basic and diluted shares outstanding
used in per share calculations ............................ 36,539 36,539
Net loss per basic and diluted share . $(3.55) $ (4.44)


The acquisition of certain assets of Alvesta Corporation in December, 2002 for a
purchase price of $0.3 million is not significant on a pro forma basis and is
therefore not included in the table above.

31


NOTE 6. IMPAIRMENTS, RESTRUCTURING AND OTHER CHARGES

In fiscal 2002, EMCORE recorded pre-tax charges to income totaling $40.7
million, which included impairment and restructuring charges of $31.6 million
and other charges of $9.1 million, as described below.

IMPAIRMENT CHARGES

In fiscal 2002, we determined certain plant and equipment was impaired and
as a result, we recorded impairment charges of $30.8 million. By December 2001,
EMCORE completed new facilities in anticipation of expanding market prospects.
Business forecasts updated in fiscal 2002 indicated significantly diminished
prospects, primarily based on the downturn in the telecommunications industry.
As a result of these circumstances, management determined that the long-lived
assets should be assessed for impairment. Based on the outcome of this
assessment, EMCORE recorded a $23.5 million non-cash asset impairment charge to
plant and equipment. The fair values of the assets were determined based upon a
calculation of the present value of the expected future cash flows to be
generated by its facilities. The remainder of the impairment charge totaling
$7.3 million related to certain manufacturing assets that were disposed of. Such
decision was made based upon the downturn in the economic environment that
affected certain product lines causing these manufacturing assets to become
idle.

RESTRUCTURING CHARGES

In fiscal 2002, EMCORE proceeded with a restructuring program, consisting
of the realignment of all engineering, manufacturing and sales/marketing
operations, as well as workforce reductions. Included in the provision for
restructuring and impairment charges were severance and fringe benefit charges
of $0.8 million related to employee termination costs for 330 employees.

OTHER CHARGES

In fiscal 2002, EMCORE recorded a $7.7 million charge to cost of revenues.
Consistent with the downturn in the markets served by EMCORE, management
evaluated its inventory levels in light of actual and forecasted revenue. The
inventory charge related to reserves for excess inventory that EMCORE believed
it was carrying as a result of the market conditions. Included in selling,
general, and administrative expense was a $1.4 million charge related to a loss
provision for accounts receivable for customers whose current financial
condition and payment history indicate payment is doubtful.

NOTE 7. JOINT VENTURES

GELCORE

In January 1999, General Electric Lighting and EMCORE formed GELcore, a
joint venture to develop and market HB-LED lighting products. General Electric
Lighting and EMCORE have agreed that this joint venture will be the exclusive
vehicle for each party's participation in solid-state lighting. Under the terms
of the joint venture agreement, EMCORE has a 49% non-controlling interest in the
GELcore venture and accounts for this investment using the equity method of
accounting. In both fiscal 2003 and 2002, EMCORE contributed approximately $2.0
million to the joint venture. For the years ended September 30, 2003, 2002, and
2001, EMCORE recognized a loss of $1.2 million, $2.7 million and $4.9 million,
respectively, related to this joint venture which was recorded as a component of
other income and expense. As of September 30, 2003 and 2002, EMCORE's net
investment in this joint venture amounted to approximately $9.2 million and $8.5
million, respectively.

UNIROYAL OPTOELECTRONICS

In March 1997, EMCORE and a subsidiary of Uniroyal Technology Corporation
formed Uniroyal Optoelectronics LLC (UOE), a joint venture, to manufacture, sell
and distribute HB-LED wafers and package-ready devices. For the year ended
September 30, 2001, EMCORE recognized a loss of $7.4 million related to this
joint venture, which was recorded as a component of other income and expense.

In fiscal 2001, EMCORE recorded a net gain of $10.0 million upon receipt of
UTCI common stock in connection with the sale of the UOE joint venture. In
fiscal 2002, UTCI and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, EMCORE
wrote off its investment in UTCI totaling $14.0 million in fiscal 2002.

32


NOTE 8. BALANCE SHEET DATA

o ACCOUNTS RECEIVABLE, NET
The components of accounts receivable consisted of the following:



(in thousands) At At
September 30, 2003 September 30, 2002
----------------------- -----------------------


Accounts receivable.................. $13,128 $11,218
Accounts receivable - unbilled....... 2,134 2,678
----------------------- -----------------------
15,262 13,896

Allowance for doubtful accounts...... (1,041) (1,185)
----------------------- -----------------------

Total................. $14,221 $12,711
======================= =======================



o INVENTORIES
The components of inventories consisted of the following:


(in thousands) As of September 30,
-----------------------------
2003 2002
-------------- -------------


Raw materials................... $3,520 $6,572
Work-in-process................. 4,273 4,997
Finished goods.................. 6,170 2,504
-------------- -------------

Total............ $13,963 $14,073
============== =============


o PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and their estimated useful lives are
summarized below:


(in thousands) As of September 30,
Estimated ----------------------------
Useful Lives 2003 2002
--------------- -------------- -------------

Land................................. - $1,502 $1,502
Building and improvements............ 15-40 years 38,980 38,917
Equipment............................ 3-5 years 68,064 59,847
Furniture and fixtures............... 5 years 5,036 3,838
Leasehold improvements............... 5 years 1,802 1,729
Construction in progress............. - 1,928 632
Property and equipment
under capital lease............. 5 years 429 429
-------------- -------------
117,741 106,894
Less: accumulated depreciation and
amortization............... (43,019) (29,633)
-------------- -------------
Total $74,722 $77,261
============== =============


33

At September 30, 2003, minimum future lease payments due under the
capital leases are as follows:

(in thousands)
Period ending:
September 30, 2004.............. $58
September 30, 2005.............. 25
September 30, 2006.............. 12
September 30, 2007.............. 8
September 30, 2008.............. -
----------

Total minimum lease payments....... 103

Less: amount representing interest... 10
----------

Net minimum lease payments......... 93

Less: current portion................... 52
----------

Long-term portion...................... $41
==========


Depreciation expense on owned property and equipment amounted to
approximately $16.8 million, $16.3 million and $17.1 million in fiscal
2003, 2002 and 2001, respectively, of which approximately $3.2 million,
$3.4 million, and $3.9 related to discontinued operations. Accumulated
amortization on assets accounted under capital leases amounted to
approximately $0.3 million as of September 30, 2003 and 2002 .


o INTANGIBLE ASSETS, NET

Intangible assets include patents and other intellectual property.
Patent costs include costs related to obtaining product patents that
enhance and maintain EMCORE's intellectual property position. Patent costs
are amortized on a straight-line basis over five years or over the
remaining life of the patent, whichever is less. Total patent amortization
expense amounted to approximately $447,000, $450,000 and $346,000 for the
years ended September 30, 2003, 2002, and 2001, respectively. Amortization
expense related to discontinued operations was approximately $402,000,
$405,000 and $311,000, respectively. In March 2002, in connection with the
Tecstar acquisition, EMCORE allocated $1.9 million of the purchase price
towards intellectual property. This intellectual property is being
amortized on a straight-line basis over five years. In January 2003, in
connection with the Ortel acquisition, EMCORE acquired $3.3 million of
intellectual property. This intellectual property is being amortized on a
straight-line basis over a 5-15 year period. Total intellectual property
amortization expense in fiscal 2003 and 2002 approximated $898,000 and
$206,000, respectively. There was no intellectual property amortization
expense related to discontinued operations.

The components of intangible assets consisted of the following:



At September 30, 2003 At September 30, 2002
--------------------- ---------------------

(in thousands) GROSS ACCUMULATED NET GROSS ACCUMULATED NET
ASSETS AMORTIZATION ASSETS ASSETS AMORTIZATION ASSETS
--------- ---------------- --------- --------- ----------------- -----------

Patents............................. $469 $(165) $304 $268 $(133) $135
Acquired intellectual property:
Ortel..................... 3,274 (486) 2,788 - - -
Tecstar.................. 1,900 (586) 1,314 1,900 (206) 1,694
Alvesta.................. 193 (32) 161 - - -
--------- ---------------- --------- --------- ----------------- -----------
Total... $5,836 $(1,269) $4,567 $2,168 $(339) $1,829
========= ================ ========= ========= ================= ===========



34

Future estimated amortization expense is as follows:

(in thousands)
Year ending: Amortization
- ------------ ----------------
September 30, 2004 $1,155
September 30, 2005 1,143
September 30, 2006 1,130
September 30, 2007 752
September 30, 2008 159
Thereafter 228
----------------

Future estimated amortization expense $4,567
================

o GOODWILL

The changes in the carrying amount of goodwill for the years ended
September 30, 2003 and 2002, are as follows:

GOODWILL
------------------
Balance as of October 1, 2001 $ 2,687
Goodwill acquired during the year 20,384
Goodwill written off related to sale of
subsidiary (2,687)
-----------
Balance as of September 30, 2002 20,384
Goodwill acquired during the year 9,982
-----------
Balance as of September 30, 2003 $ 30,366
===========

In March 2002, EMCORE acquired Tecstar and allocated approximately $20.4 million
to goodwill. In May 2002, EMCORE wrote-off the goodwill related to the fiscal
2001 acquisition of Analytical Solutions, Inc. and Training Solutions, Inc.,
(ASI/TSI) as EMCORE sold ASI/TSI back to its original owner. In January 2003,
EMCORE purchased Ortel and allocated approximately $10.0 million to goodwill.



o ACCRUED EXPENSES

Accrued expenses consisted of the following:

(in thousands) As of September 30,
----------------------------
2003 2002
-------------------------

Salary and other compensation costs.... $4,447 $4,097
Interest............................... 3,055 3,281
Warranty............................... 2,440 1,594
Other.................................. 3,262 3,068
-------------------------

Total...... $13,204 $12,040
=========================

NOTE 9. DEBT FACILITIES

CONVERTIBLE SUBORDINATED NOTES

In May 2001, EMCORE issued $175.0 million aggregate principal amount of its
5% convertible subordinated notes due in May 2006. Net proceeds received by
EMCORE, after costs of issuance, were approximately $168.8 million. Interest is
payable in arrears semiannually on May 15 and November 15 of each year, which
began on November 15, 2001. The notes are convertible into EMCORE common stock
at a conversion price of $48.76 per share, subject to certain adjustments, at
the option of the holder. The notes may be redeemed at EMCORE's option, on or
after May 20, 2004 at specific redemption prices. There are no financial


35

covenants related to these notes. For the years ended September 30, 2003, 2002
and 2001, interest expense relating to the notes approximated $8.3 million, $8.8
million and $3.2 million respectively.

In May 2002, the Board of Directors authorized EMCORE from time to time to
repurchase a portion of the notes in one or more open market transactions, in
accordance with certain guidelines. In December 2002, EMCORE purchased, in
multiple transactions, $13.2 million principal amount of the notes at prevailing
market prices, for an aggregate purchase price of approximately $6.3 million. As
a result of the transaction, EMCORE recorded a gain of approximately $6.6
million after netting unamortized debt issuance costs of approximately $0.3
million.

On January 21, 2004 EMCORE commenced an offer to exchange up to $88,962,500
principal amount of its new 5% Convertible Senior Subordinated Notes due May 15,
2011 and $56,612,500 payable in its common stock, up to a maximum of 10,542,365
shares, for up to all of the $161,750,000 principal amount of its currently
outstanding 5% Convertible Subordinated Notes due May 2006. If consummated, the
exchange offer will allow the Company to reduce its outstanding indebtedness by
up to $72,787,500 and reduce its interest expense through May 15, 2006 by up to
$3,639,375 per year. The exchange offer is scheduled to expire on February 18,
2004 at 11:59 p.m., unless extended.


NOTE 10. COMMITMENTS AND CONTINGENCIES

EMCORE leases certain land, facilities, and equipment under non-cancelable
operating leases. Facility and equipment rent expense under such leases amounted
to approximately $2.1 million, $1.1 million and $0.8 million for the years ended
September 30, 2003, 2002 and 2001, respectively.

Future minimum rental payments under EMCORE's non-cancelable operating
leases with an initial or remaining term of one year or more as of September 30,
2003 are as follows:

(in thousands)
Period ending: Operating
- -------------- ------------
September 30, 2004.............. $2,069
September 30, 2005.............. 1,759
September 30, 2006.............. 1,483
September 30, 2007............. 1,237
September 30, 2008............. 1,024
Thereafter.................... 2,785
------------

Total minimum lease payments $10,357
============


Future amounts to be received by EMCORE related to the sublease of certain
of the Company's facilities are as follows:


(in thousands)

PERIOD ENDING: Subleases
- ----------------------------------------------- ------------
September 30, 2004....................... $ 158
September 30, 2005....................... 193
September 30, 2006....................... 136
-------------
Total sublease income.................... $ 487
=============

In fiscal 2000, GELcore entered into a Revolving Loan Agreement (the
"GELcore Credit Facility") with General Electric Canada, Inc., an affiliate of
GE, which is the owner of a 51% controlling share of GELcore. The GELcore Credit
Facility provides for borrowings of up to Canadian $7.5 million (U.S. $5.6
million at September 30, 2003) at a rate of interest based on prevailing
Canadian interest rates. Amounts outstanding under the GELcore Credit Facility
are payable on demand. GELcore's Credit Facility expired in August 2003 however
GELcore is in the process of extending this credit facility and expects
completion by December 31, 2003. EMCORE has guaranteed 49% (i.e., its
proportionate share) of GELcore's obligations under the GELcore Credit Facility.
As of September 30, 2003, EMCORE's share of this obligation was $0.7 million. If
GELcore's cash generated from operations and cash on hand are not sufficient to
repay the amount outstanding under the facility, EMCORE would be required to
make the necessary pro rata payment as outlined above. See footnote 7 -- Joint
Ventures.

36

EMCORE is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe that such pending
litigation will not have a material adverse effect on EMCORE's results of
operations, cash flows or financial condition.


NOTE 11. INCOME TAXES

The principal differences between the U.S. statutory and effective income tax
rates were as follows:



For the years ended September 30,
---------------------------------

2003 2002 2001
------------- ------------- -------------

US statutory income tax benefit rate......... (34.0)% (34.0)% (34.0)%
State rate, net of federal benefit........... (5.9)% (5.9)% (5.9)%
Change in valuation allowance................ 39.9% 39.9% 35.0%
Non-deductible amortization.................. - - 4.8%
Other........................................ - - 0.1%
------------- ------------- -------------
Effective tax rate. - - -
============= ============= =============



As a result of its losses, EMCORE did not incur any income tax expense during
the years ended September 30, 2003, 2002 and 2001. The components of EMCORE's
net deferred taxes were as follows:



(in thousands) For the years ended September 30,
---------------------------------
Deferred tax assets: 2003 2002
------------- --------------

Federal net operating loss carryforwards............. $71,723 $41,857
Research credit carryforwards (state and federal).... 4,124 3,850
Inventory reserves................................... 1,712 6,401
Accounts receivable reserves......................... 573 1,138
Fixed assets......................................... 8,241 11,104
Accrued warranty reserve............................. 933 725
State net operating loss carryforwards............... 13,942 8,127
Investment writedown................................. 4,766 4,766
Other................................................ 1,670 1,621
Valuation reserve - federal.......................... (96,677) (61,702)
Valuation reserve - state............................ (9,409) (17,429)
------------- --------------
Total deferred tax assets.................. 1,598 458

Deferred tax liabilities:
Fixed assets and intangibles......................... 1,598 (458)
------------- --------------
Net deferred taxes............ $ - $ -
============= ==============


EMCORE has established a valuation reserve as it has determined that it is
"more likely than not" that the net deferred tax asset is not realizable, based
upon EMCORE's past earnings history.

As of September 30, 2003, EMCORE had net operating loss (NOL) carryforwards
for tax purposes of approximately $365.0 million that expire in the years 2004
through 2023. In fiscal 2003, $0.6 million of NOL carryforwards expired and
approximately $3.7 million are due to expire in fiscal 2004. As of September 30,
2003, EMCORE had federal research credit carryovers for tax purposes of
approximately $1.0 million that expire in the years 2004 through 2023. EMCORE
believes that the consummation of certain equity transactions and a significant
change in the ownership during fiscal years 1995, 1998 and 1999 have constituted
a change in control under Section 382 of the Internal Revenue Code (IRC). Due to
the change in control, EMCORE's ability to use its federal NOL carryovers and
federal research credit carryovers to offset future income and income taxes,
respectively, are subject to annual limitations under IRC Sections 382 and 383.


37



NOTE 12. SHAREHOLDERS' EQUITY

Preferred Stock: EMCORE's certificate of incorporation authorizes the Board of
Directors to issue up to 5,882,352 shares of preferred stock of EMCORE upon such
terms and conditions having such rights, privileges and preferences as the Board
of Directors may determine.

Future Issuances: At September 30, 2003, EMCORE has reserved a total of
7,204,440 shares of its common stock for future issuances as follows:



Number of shares
----------------

For exercise of outstanding warrants to purchase common stock 31,535
For exercise of outstanding common stock options 5,751,066
For future common stock option awards 575,832
For future issuances to employees under the Employee Stock Purchase Plan 846,007
--------------------
Total reserved 7,204,440
====================


NOTE 13. STOCK OPTIONS AND WARRANTS

Stock Option Plans. EMCORE maintains two incentive stock option plans: the
2000 Stock Option Plan (2000 Plan) and the 1995 Incentive and Non Statutory
Stock Option Plan (1995 Plan and, together with the 2000 Plan, the Option
Plans). The 1995 Plan authorizes the grant of options to purchase up to
2,744,118 shares of EMCORE's common stock, and as of September 30, 2003, no
options were available for issuance thereunder. The 2000 Plan authorizes the
grant of options to purchase up to 4,750,000 shares of EMCORE's common stock,
and as of September 30, 2003, 575,832 options were available for issuance
thereunder. Certain options under the Option Plans are intended to qualify as
incentive stock options pursuant to Section 422A of the Internal Revenue Code.

During fiscal 2003, 4,181,349 options were granted pursuant to the 2000
Plan at exercise prices ranging from $1.65 to $3.20 per share.

Stock options generally vest over three to five years and are exercisable
over a ten-year period. As of September 30, 2003, 2002 and 2001, options with
respect to 3,088,389, 2,493,083 and 1,793,047 were exercisable, respectively.

The following table summarizes the activity under the Option Plans:



Weighted Average
Shares Exercise Price
------ --------------


OUTSTANDING AS OF SEPTEMBER 30, 2000 3,770,676 13.54
Granted 270,900 36.87
Exercised (462,315) 7.01
Cancelled (176,530) 28.85
--------- -----
OUTSTANDING AS OF SEPTEMBER 30, 2001 3,402,731 15.49
Granted 3,156,782 7.93
Exercised (133,441) 7.25
Cancelled (1,419,484) 12.52
----------- -----
OUTSTANDING AS OF SEPTEMBER 30, 2002 5,006,588 11.79
Granted 4,181,349 1.87
Exercised (156,716) 3.14
Cancelled (3,280,155) 13.28
----------- -----
OUTSTANDING AS OF SEPTEMBER 30, 2003 5,751,066 $3.98
========= =====


38

At September 30, 2003, stock options outstanding were as follows:



WEIGHTED AVERAGE
OPTIONS REMAINING EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE (YEARS) OPTIONS EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------

< $1 1,920 4.18 1,920 $0.23
$1 < to <= $5 4,158,727 7.25 1,798,077 1.72
$5 < to <= $10 1,330,769 7.55 1,034,742 7.51
> $10 259,650 6.54 253,650 22.09
------- -------
5,751,066 3,088,389


On September 30, 2002, EMCORE offered to all employees holding options with
an exercise price of at least $4.00 per share, excluding executive officers, the
opportunity to exchange those options for new options to be issued on May 1,
2003. On October 30, 2002, EMCORE accepted all options tendered for exchange and
canceled them all. On May 1, 2003, EMCORE issued 2,972,149 new options in
exchange for the tendered options. These new options had an exercise price of
$1.82, which was the closing price for EMCORE common stock on May 1, 2003. With
the exception of the new exercise price, the new options had the same terms as
the tendered options.


Warrants.
In October 2001, 822,256 warrants issued in connection with EMCORE's
October 1996 debt guarantee were exercised at $5.10 per share totaling $4.2
million in proceeds. Set forth below is a summary of EMCORE's outstanding
warrants at September 30, 2003:


- ------------------------ ----------------- --------------- --------------------
UNDERLYING
SECURITY EXERCISE PRICE WARRANTS EXPIRATION DATE
- ------------------------ ----------------- --------------- --------------------
Common Stock (1) $2.16 14,796 August 21, 2006
- ------------------------ ----------------- --------------- --------------------
Common Stock (2) $15.16-31.18 16,739 March 5, 2006 -
September 1, 2006
- ------------------------ ----------------- --------------- --------------------

(1) issued in connection with EMCORE's December 1997 acquisition of MicroOptical
Devices, Inc.
(2) issued in connection with EMCORE's IP agreement with Sandia Laboratories.


NOTE 14. RELATED PARTIES

In January 1999, EMCORE and General Electric Lighting formed GELcore, a
joint venture to develop and market HB- LED lighting products. As of September
30, 2003 and 2002, EMCORE had an outstanding receivable balance from GELcore
totaling $0.3 million and $0.5 million, respectively.

From time to time, prior to July 2002, EMCORE has lent money to certain of
its executive officers and directors. Pursuant to due authorization from
EMCORE's Board of Directors, EMCORE lent $3.0 million to the Chief Executive
Officer (CEO) in February 2001. The promissory note matures on February 22, 2006
and bears interest (compounded annually) at a rate of (a) 5.18% per annum
through May 23, 2002 and (b) 4.99% from May 24, 2002 through maturity. All
interest is payable at maturity. The note is partially secured by a pledge of
shares of EMCORE's common stock. Accrued interest at September 30, 2003 totaled
$414,000 and is recorded with the loan principal within other assets. During
fiscal 2003, the highest amount of the CEO's indebtedness to EMCORE was $3.4
million. In addition, pursuant to due authorization of the Company's Board of
Directors, EMCORE lent $85,000 to the Chief Financial Officer (CFO) of EMCORE in
December 1995. The promissory note executed by the CFO does not bear interest
and provides for offset of the loan via bonuses payable to the CFO over a period
of up to 25 years. The balance outstanding on the loan is currently $82,000, and
no larger amount has been outstanding since the beginning of fiscal 2003.


39



NOTE 15. SEGMENT DATA AND RELATED INFORMATION

On November 3, 2003, EMCORE sold its TurboDisc systems business to a
subsidiary of Veeco Instruments Inc. (Veeco) in a transaction that could be
valued at up to $80.0 million. The purchase price was $60.0 million in cash at
closing with an additional aggregate maximum payout of $20.0 million over the
next two years. EMCORE will receive in cash 50% of all revenues from this
business that exceeds $40.0 million in each of the next two years, beginning
January 1, 2004. In accordance with the terms of the agreement, EMCORE also
received an additional $2.0 million in cash for working capital adjustments and
expense reimbursements. This transaction included the assets, products, product
warranty liabilities, hardware-related technology and intellectual property used
primarily in the operation of this business, including its manufacturing
facility located in Somerset, New Jersey. Approximately 150 employees of EMCORE
were involved in the TurboDisc business of which approximately 120 became
employees of Veeco. The results of operations of the TurboDisc systems business
are reported separately as discontinued operations in our consolidated
statements of operations. See footnote - 2.

The capital equipment business enabled the Company to develop the
critical materials science expertise that has become the cornerstone of its
compound semiconductor based communications products and our sole business
focus. EMCORE retained a license to all systems related intellectual property
and ownership of all its process and device technology. Moreover, the sale of
the TurboDisc business strengthened EMCORE's balance sheet and helped provide
the resources necessary to implement its communications strategy.

Prior to this divestiture, EMCORE had two reportable operating
segments: the systems segment and the components and subsystems segment. As a
result of this divestiture, EMCORE now has one reportable operating segment, the
components and subsystems segment. This segment is comprised of our Fiber
Optics, Photovoltaics and Electronic Materials and Devices product lines.
EMCORE's Fiber Optics product line supports our CATV, telecommunications, data
and storage and Satcom target markets. Specific products for this
communications-related product line include optical components and subsystems
for CATV and FTTx, VCSEL and PIN photodiodes components, 10G LX4, CX4, TOSA,
ROSA packaged parts and modules, and Satcom transmitter and receiver components.
EMCORE's Photovoltaic revenues are derived primarily from the sales of solar
power conversion products including solar cells, covered interconnect solar
cells (CICs) and solar panels. Revenues from the Electronic Materials and
Devices product line include wireless products, such as RF materials including
HBTs and enhancement-mode pHEMTS, and also MR sensors and process development
technology.

The table below outlines revenues from EMCORE's different
product lines:



- ------------------------------------------------ ------------ ---------- -------------- ----------- ---------- -----------
(in thousands)

PRODUCT REVENUE FY 2003 % of FY 2002 % of FY 2001 % of
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, revenue revenue revenue
- ------------------------------------------------ ------------ ---------- -------------- ----------- ---------- -----------

Photovoltaics........................ $18,196 30.2% $23,621 46.1% $20,206 37.8%
Fiber Optics........... 32,658 54.2% 9,077 17.7% 13,606 25.4%
Electronic Materials and Devices..... 9,430 15.6% 18,538 36.2% 19,661 36.8%
------------ ---------- -------------- ----------- ---------- -----------
Total revenues................ $60,284 100.0% $51,236 100.0% $53,473 100.0%
- ------------------------------------------------ ------------ ---------- -------------- ----------- ---------- -----------


In January 2003, EMCORE acquired Ortel, which contributed approximately
$23.6 million of fiber optic revenues in fiscal year 2003.


CUSTOMERS

EMCORE works closely with its customers to design and develop process
technology and material science expertise for use in production systems for its
customers' end-use applications. EMCORE has leveraged its process and materials
science knowledge base to manufacture a broad range of compound semiconductor
wafers and devices. During fiscal 2003 Motorola Inc. accounted for 13.6% of
total revenue. In fiscal 2002, revenues from Motorola Inc., Boeing, and Loral
Space Systems represented 22.0%, 14.9%, and 13.7% of EMCORE's total revenue,
respectively. In fiscal 2001, revenues from Loral Space Systems, Motorola Inc.,
and Agilent Technologies represented 27.9%, 18.5%, and 10.9% of EMCORE's total
revenue, respectively.

40


Historically, EMCORE has received most payments for products and
services in U.S. dollars, and therefore, EMCORE does not anticipate that
fluctuations in any currency will have a material effect on its financial
condition or results of operations. The following chart contains a breakdown of
EMCORE's consolidated revenues by geographic region:



For the fiscal years ended September 30,
- ------------------------------------------------------------------------------------------------------------
Region 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
(in thousands) Revenue % of revenue Revenue % of revenue Revenue % of revenue
------- ------------ ------- ------------ ------- ------------


United States... $44,136 73.2% $42,983 83.9% $41,765 78.1%
Asia.............. 9,018 15.0% 3,638 7.1% 6,295 11.8%
Europe........... 7,130 11.8% 4,615 9.0% 5,413 10.1%
- --------------------- ------------- ---------------- ----------- --------------- ----------- ---------------
TOTAL... $60,284 100% $51,236 100% $53,473 100%
======= ==== ======= ==== ======= ====



Sales to the United States include sales to Canada and South America
which have not, historically, been material.

..
NOTE 16. EMPLOYEE BENEFITS

EMCORE has a savings plan (Savings Plan) that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code. Under the
Savings Plan, participating employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution limit. All
employer contributions are made in EMCORE's common stock. For the years ended
September 30, 2003, 2002 and 2001, EMCORE contributed approximately $701,000,
$714,000 and $830,000, respectively, in common stock, to the Savings Plan.

EMCORE adopted an Employee Stock Purchase Plan (Purchase Plan) in fiscal
2000. The Purchase Plan provides employees of EMCORE with an opportunity to
purchase common stock through payroll deductions. The purchase price is set at
85% of the lower of the fair market value of common stock at the beginning of
the participation period, the first Trading Day on or after January 1st, or at
the end of the participation period, the last Trading Day on or before December
31st of such year. Contributions are limited to 10% of an employee's
compensation. The participation periods have a 12-month duration, with new
participation periods beginning in January of each year. The Board of Directors
has reserved 1,000,000 shares of common stock for issuance under the Purchase
Plan. In January 2003, 89,180 shares of common stock were purchased under the
fiscal 2002 Purchase Plan. In January 2002, 48,279 shares of common stock were
purchased under the fiscal 2001 Purchase Plan. In January 2001, 16,534 shares of
common stock were purchased under the fiscal 2000 Purchase Plan.


41

NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)



- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
2001 2002 2002 2002 2002 2003 2003 2003
-------- -------- -------- --------- -------- -------- -------- ---------

(as restated
see note 19)
Revenue ................................ $ 8,663 $ 18,557 $ 10,131 $ 13,885 $ 9,382 $ 16,864 $ 16,986 $ 17,052
Cost of revenue ........................ 11,086 25,279 10,734 15,286 12,007 17,705 16,361 15,886
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss) ......... (2,423) (6,722) (603) (1,401) (2,625) (841) 625 1,166

Operating expenses:
Selling, general & administrative . 2,925 4,107 4,399 4,228 3,974 5,499 5,979 6,185
Research and development .......... 9,279 8,579 8,086 4,636 2,449 4,212 4,283 6,058
Impairment and restructuring ...... - 31,267 - 369 - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ..... 12,204 43,953 12,485 9,233 6,423 9,711 10,262 12,243
-------- -------- -------- -------- -------- -------- -------- --------

Operating loss .............. (14,627) (50,675) (13,088) (10,634) (9,048) (10,552) (9,637) (11,077)

Interest expense (income), net ......... 966 1,566 1,797 1,742 1,786 1,746 1,827 1,920
Gain from debt extinguishment .......... - - - - (6,614) - - -
Other (income) expense ................. 13,262 - - 1,126 - - - -
Equity in net loss of unconsolidated
affiliates .......................... 377 851 769 709 571 731 33 (107)
-------- -------- -------- -------- -------- -------- -------- --------
Total other expenses (income) . 14,605 2,417 2,566 3,577 (4,257) 2,477 1,860 1,813
-------- -------- -------- -------- -------- -------- -------- --------
Loss from continuing operations (29,232) (53,092) (15,654) (14,211) (4,791) (13,029) (11,497) (12,890)

(Loss) income from discontinued
operations .................. (1,735) (15,618) (269) 50 1,894 488 2,265 (965)
-------- -------- -------- -------- -------- -------- -------- --------
Net loss .................... $(30,967) $(68,710) $(15,923) $(14,161) $ (2,897) $(12,541) $ (9,232) $(13,855)
======== ======== ======== ======== ======== ======== ======== ========


NOTE 18. SUBSEQUENT EVENTS

ACQUISITION

On October 9, 2003, EMCORE acquired Molex Inc.'s 10G Ethernet transceiver
business (Molex) for an initial $1.0 million in cash. In accordance with the
agreement, EMCORE will pay an additional $1.5 million in progress payments, of
which $0.1 million was paid in the first quarter of fiscal 2004. The remaining
progress payments are expected to be paid during the balance of fiscal 2004.
This transaction included assets, products and intellectual property including
several Molex product designers. Molex specializes in
coarse-wavelength-division-multiplexing (CWDM) products. The newly formed design
center in Downers Grove, IL designs and manufactures serial 10 Gb/s and CWDM
optical transceivers for the growing 10G Ethernet market.

DEBT EXCHANGE OFFERING

On January 21, 2004 EMCORE commenced an offer to exchange up to $88,962,500
principal amount of its new 5% Convertible Senior Subordinated Notes due May 15,
2011 and $56,612,500 payable in its common stock, up to a maximum of 10,542,365
shares, for up to all of the $161,750,000 principal amount of its currently
outstanding 5% Convertible Subordinated Notes due May 2006. If consummated, the
exchange offer will allow the Company to reduce its outstanding indebtedness by
up to $72,787,500 and reduce its interest expense through May 15, 2006 by up to
$3,639,375 per year. The exchange offer is scheduled to expire on February 18,
2004 at 11:59 p.m., unless extended.

NOTE 19. RESTATEMENT OF STATEMENT OF OPERATIONS

Subsequent to the issuance of its consolidated financial statements for the
year ended September 30 2003, the Company, after consultation with its auditors,
determined that the gain from debt extinguishment should have been classified in
other expenses (income) rather than operating expenses in its consolidated
statements of operations.

As a result, operating loss for the year ended September 30, 2003 has been
increased by $6.6 million from the amount previously reported with a
corresponding decrease in other expenses (income). Such restatement does not
change our balance sheet or statement of cash flows and has no effect on the
previously reported net loss, earnings per share or net worth.

42


SCHEDULE II
SECTION 15(a)(2)


EMCORE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001




ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND WRITE-OFFS END OF
OF PERIOD EXPENSES (DEDUCTIONS) PERIOD
----------- ------------ -------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------

For the year ended September 30, 2003 $1,185,000 $ 443,000 $(587,000) $1,041,000
For the year ended September 30, 2002 $ 269,000 $1,589,000 $(673,000) $1,185,000
For the year ended September 30, 2001 $ 69,000 $ 203,000 $ (3,000) $ 269,000


43