UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the fiscal year ended December 31, 2019
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the transition period from
to
Commission
file number 001-33834
RUBICON
TECHNOLOGY, INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
Delaware |
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36-4419301 |
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification No.) |
| |
|
|
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900
East Green Street
Bensenville,
Illinois
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60106 |
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(Address
of Principal Executive Offices) |
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(Zip
Code) |
Registrant’s
Telephone Number, Including Area Code:
(847) 295-7000
Securities
registered pursuant to Section 12(b) of the
Act:
|
Title
of each class |
|
Name
of each exchange on which registered |
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Common
Stock, par value $0.001 per share |
|
The
NASDAQ Capital Market |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the
Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90
days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
| Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
| Emerging
growth company |
☐ |
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of
June 30, 2019, there were 2,304,639 shares of common stock
outstanding held by non-affiliates of the registrant, with an
aggregate market value of the common stock (based upon the closing
price of these shares on the NASDAQ Capital Market) of
approximately $19,128,504.
The
number of shares of the registrant’s common stock outstanding as of
the close of business on February 28, 2020 was
2,668,507.
Documents
incorporated by reference:
Portions
of the Registrant’s Proxy Statement for its 2020 Annual Meeting of
Stockholders are incorporated by reference into Part III of
this Annual Report on Form 10-K provided, that if such Proxy
Statement is not filed with the Commission within 120 days
after the end of the fiscal year covered by this Form 10-K, an
amendment to this Form 10-K shall be filed no later than the end of
such 120-day period.
TABLE OF CONTENTS
PART
I
All
statements, other than statements of historical facts, included in
this Annual Report on Form 10-K including statements regarding our
estimates, expectations, beliefs, intentions, projections or
strategies for the future, results of operations, financial
position, net sales, projected costs, prospects and plans and
objectives of management for future operations may be
“forward-looking statements” within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our current
expectations and projections about future events and financial
trends that we believe may affect our financial condition, results
of operations, business strategy, short-term and long-term business
operations and objectives and financial needs. These
forward-looking statements can be identified by the use of terms
and phrases such as “believe,” “plan,” “intend,” “anticipate,”
“target,” “estimate,” “expect,” “forecast,” “prospects,” “goals,”
“potential,” “likely,” and the like, and/or future-tense or
conditional constructions such as “will,” “may,” “could,” “should,”
etc. (or the negative thereof). Items contemplating or making
assumptions about actual or potential future sales, market size and
trends or operating results also constitute forward-looking
statements.
Moreover,
we operate in a very competitive and rapidly changing environment.
New risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of
all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
we may make. Before investing in our common stock, investors should
be aware that the occurrence of the risks, uncertainties and events
described in the section entitled “Risk Factors” and elsewhere in
this Annual Report could have a material adverse effect on our
business, results of operations and financial condition. These
risks and uncertainties include the adoption of sapphire as a
material in new applications, our successful development and the
market’s acceptance of new products; our ability to sell certain
assets, including those in Malaysia and underutilized assets in the
U.S., and the prices we receive therefor; our ability to make
effective acquisitions and successfully integrate newly acquired
businesses into existing operations; our ability to effectively
utilize net operating loss carryforwards; dependence on key
customers; our ability to secure new business and retain customers;
changes in demand or the average selling prices of sapphire
products; the failure to achieve the margins we expect, whether due
to our own operations or changes in the market for our products;
our ability to successfully qualify our products with customers and
potential customers; potential disruptions in our supply of
electricity; changes in our product mix; the outcome of the testing
of new products and processes or the testing of our existing
products for new applications; the failure of third parties
performing services for us to do so successfully; our ability to
protect our intellectual property rights; the competitive
environment; and the cost of compliance with environmental
standards. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, forward-looking
statements are inherently subject to known and unknown risks,
including business, economic and other risks and uncertainties that
may cause actual results to be materially different from those
discussed in these forward-looking statements. Readers are urged
not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Annual Report. We assume no
obligation to update any forward-looking statements in order to
reflect any event or circumstance that may arise after the date of
this Annual Report, other than as may be required by applicable law
or regulation. If one or more of these risks or uncertainties
materialize, or if the underlying assumptions prove incorrect, our
actual results may vary materially from those expected or
projected.
You
should read this Annual Report and the documents that we reference
in this Annual Report and have filed with the Securities and
Exchange Commission (the “SEC”) as exhibits with the understanding
that our actual future results, levels of activity, performance and
events and circumstances may be materially different from what we
expect.
Unless
otherwise indicated, the terms “Rubicon,” the “Company,” “we,”
“us,” and “our” refer to Rubicon Technology, Inc. and our
consolidated subsidiaries.
ITEM 1. BUSINESS
OVERVIEW
Rubicon
is a vertically integrated, advanced materials provider
specializing in monocrystalline sapphire for applications in
optical and industrial systems. We design, assemble and maintain
our own proprietary crystal growth furnaces to grow high-purity,
low-stress, ultra-low-defect-density sapphire crystals. We use our
proprietary crystal growth technology to produce high-quality
sapphire products to meet our customers’ exacting specifications.
Sapphire is a desirable material for high-performance applications
due to its hardness and strength, transparency in the visible and
infrared spectrum, thermal conductivity, thermal shock resistance,
abrasion resistance, high melting point and chemical inertness. As
a result, it is ideally suited for extreme environments in a range
of industries where material durability is just as important as
optical clarity. We believe that we continue to have a
reputation as one of the highest quality sapphire producers in the
market. We provide optical and industrial sapphire products in a
variety of shapes and sizes, including round and rectangular
windows, blanks, domes, tubes and rods.
Historically,
we have also provided sapphire products to the LED and mobile
device markets, which are the largest markets for sapphire.
However, given competitive pressures in those markets, in the
fourth quarter of 2016 we announced our decision to focus on the
optical and industrial sapphire markets and exit the LED market.
Following this decision, we closed our Malaysia facility and scaled
down and consolidated our remaining operations in the U.S. In the
succeeding years we have completed individual sales and held
auctions for assets located in Malaysia and at each of our U.S.
properties, resulting in the sale of certain of our excess
equipment and consumable assets. In September 2018, we completed
the sale of our manufacturing and office facility located in
Batavia, Illinois and in December 2019 we entered into a purchase
and sale agreement to sell our manufacturing facility located in
Malaysia. We are continuing to pursue the sale of our vacant
parcels of land in Batavia, Illinois and in Penang, Malaysia. The
timing on the sale or lease of this real estate is difficult to
predict. See Subsequent Events.
We
manage direct sales, grow and fabricate sapphire parts and ship
from our Bensenville, Illinois facility. Previously, we leased this
property, and it served as the headquarters of our operations and
one of our growth facilities. In the third quarter of 2018, we
vacated our leased Franklin Park, Illinois, facility due to the
expiration of our lease. In September 2018, we completed the
purchase of our Bensenville property and consolidated all of our
operations related to sapphire into this facility.
Our
sapphire business operates in a very competitive market. Our
ability to expand our optical and industrial business and the
acceptance of new product offerings are difficult to predict. Our
total sales backlog was approximately $1,625,000 and $859,000 as of
December 31, 2019 and 2018, respectively.
In May 2019, the Company established Rubicon DTP LLC (“Direct
Dose”) and acquired certain assets, hired employees and sublet a
facility from a pharmacy that was in the process of liquidation.
Direct Dose was launched as a start-up pharmacy primarily to
deliver medications and vitamins to patients being discharged from
skilled nursing facilities. The Direct Dose revenue and expenses
are currently not material to the consolidated financial
information of the Company and therefore are neither independently
disclosed nor discussed herein in much detail.
In
addition, since our optical and industrial sapphire business serves
smaller markets than our historical undertakings, we are actively
evaluating the acquisition of profitable companies outside of the
sapphire market in order to utilize our substantial net operating
loss (“NOL”) tax carryforwards.
Rubicon
Technology, Inc. is a Delaware corporation and was incorporated
on February 7, 2001. Our common stock is listed on the NASDAQ
Capital Market under the ticker symbol “RBCN.”
Sapphire INDUSTRY
OVERVIEW
Sapphire
is utilized in optical and industrial applications. It is used for
windows and optics for aerospace, sensor, medical, semiconductor,
instrumentation, electronics and laser applications due to its
wide-band transmission, superior strength, chemical and scratch
resistance and high strength-to-weight ratio. Sapphire’s physical
and optical properties also make it very well suited for defense
applications such as electro-optical and sensor suite windows for
military fighter jets, helicopters, unmanned air vehicles and
ships, forward-looking infrared windows for commercial and business
aircrafts, as well as missile domes, submarine windows and
components and transparent armor for military vehicles. We believe
that these markets may be growing as new applications for sapphire
emerge for larger size and higher quality sapphire
components.
TECHNOLOGY
Our
proprietary crystal growth technique, which we refer to as ES2,
produces high-quality sapphire crystals for use in our sapphire
products. ES2 is derived from the standard Kyropoulos method of
crystal growth. We developed this technique with the goal of
establishing greater control over the crystal growth process while
maintaining minimal temperature variations. Unlike other
techniques, during the ES2 technique, the growing sapphire crystal
exists in an unconstrained, low-stress environment inside a closed
growth chamber. The closed system allows for enhanced control of
the melt, resulting in a higher quality of crystals. The
temperature gradient between the melt and the crystal in the ES2
technique is significantly lower than in other crystal growth
techniques. We believe that these aspects of the ES2 technique
enable us to grow crystals that have a significantly lower
dislocation density, higher crystal purity and greater uniformity
than sapphire crystals grown using other techniques. The ES2
technique provides an inherent annealing process once the crystal
is fully grown. This thermal annealing is an integral means of
relieving stress in the crystal during the ES2 process. We have
demonstrated the ability to readily scale our ES2 technology in a
production environment while maintaining high crystal quality even
as crystal boule size is increased.
Our
furnace environments are controlled by closed-loop control systems
and the overall crystal growth process is run with minimal operator
intervention. A single operator can supervise the control of
multiple ES2 furnaces simultaneously, which reduces
costs.
We
have now completed crystal growth development for our Large Area
Net-Shaped Crystal Extraction (“LANCE”) technology, which is a
technology designed to produce very large, thick sapphire windows.
This technology was developed with government funding under a
contract with the Air Force Research Laboratory. We have completed
the growth of the window blank deliverables on this project,
including the largest size sapphire window in the world at 36 x 18
x 0.8 inch dimensions. The project was completed in 2018. We will
continue to refine the process to improve yield; however, our main
focus now is the development of the market for these larger
windows. The product has been displayed at trade shows and has
attracted interest both from military and industrial product
developers. In addition, we are exploring other potential
strategies to maximize the value of the LANCE
technology.
PRODUCTS
We
believe the developing optical and industrial markets require
large-diameter sapphire products, high-quality sapphire and
ultra-thin double-side polished windows and wafers which may be
beyond the capability of many sapphire suppliers. In addition,
military and defense applications often require a U.S.-based source
for their parts. We believe we continue to have a reputation for
producing the highest quality optical-grade sapphire. We also have
the ability to maintain the same high quality in crystals of very
large sizes, to support a strong and developing U.S. customer base,
and to provide very high performance ultra-thin double-side
polished sapphire products, which we believe positions us well in
the optical, laser, and epitaxial growth markets.
We
provide optical and industrial sapphire products in various shapes
and sizes, including round and rectangular windows and blanks,
domes, tubes and rods. These optical sapphire products are
qualified and used in equipment for a wide variety of end markets
and high performance applications, including defense and aerospace,
specialty lighting, instrumentation, sensors and detectors,
semiconductor process equipment, electronic substrates, medical and
laser applications.
We
believe we offer the industry’s largest sapphire windows and
highest quality, ultra-thin, double-side polished windows and
substrates. Our product lines include very thin, double-side
polished windows as thin as 300 microns for 6” optical diameter
substrates, and also very large-area blanks and polished windows.
We offer round C-plane sapphire windows up to 11” in diameter and
A-plane windows up to 18” in diameter with UV grade windows up to
13.5” in diameter. We also have produced sapphire window blanks at
36” x 18” x 0.8” dimensions.
RESEARCH
AND DEVELOPMENT
In
2019, Rubicon did not incur any research and development
(“R&D”) expenses and it currently does not have any plans for
expenditures in 2020 related to R&D. In 2018, the Company had
approximately $122,000 in R&D expenses.
MANUFACTURING
The
process of growing crystal begins by heating the raw material,
aluminum oxide, until it reaches an ideal temperature above its
melting point. This ideal temperature is essential for our process
because it allows us to produce high-purity crystals with very low
defect rates. Following the heating, a seed rod is inserted in the
melted material as the material is being cooled to crystallize into
a boule. Following the growth process, each boule is rigorously
inspected by using polarized lighting and magnification to find
imperfections, such as bubbles, dislocations and granular deposits
within the crystal. We then drill the resulting boules into
cylindrical cores using our custom high-precision crystal
orientation equipment and proprietary processes. For some of our
parts, the cores are then finished through an outsourcing model
using trusted partners.
We
are dedicated to quality assurance throughout our entire operation.
We employ detailed material traceability from raw material to
finished product. Our quality system is certified as
ISO9001:2000.
All
of our long-lived assets are located in the United States and
Malaysia. The Company currently owns vacant land and a factory in
Malaysia and has entered into an agreement to sell the factory and
is in ongoing discussions to sell the land. None of its Malaysian
assets are an active part of our operations.
SALES
AND MARKETING
We
market and sell our products through our direct sales force to
customers. Our direct sales force includes experienced and
technically sophisticated sales professionals and engineers who are
knowledgeable in the development, manufacturing and use of sapphire
windows and other optical materials. Our sales staff works with
customers during all stages of the manufacturing process, from
developing the precise composition of the parts through
manufacturing and processing the parts to the customers’
specifications.
A key
component of our marketing strategy is developing and maintaining
strong relationships with our customers. We achieve this by working
closely with our customers to optimize our products for their
production processes. In addition, we are able to develop long-term
relationships with key customers by offering product specification
assistance, providing direct access to enable them to evaluate and
audit our operations, delivering high-quality products and
providing superior customer service. We believe that maintaining
close relationships with our customers’ senior management and
providing technical support improves customer
satisfaction.
In
order to increase brand recognition of our products and our Company
in general, we publish technical articles, distribute promotional
materials and participate in industry trade shows and
conferences.
CUSTOMERS
Our
principal customers have been defense subcontractors, industrial
manufacturers, fabricators and resellers. A substantial portion of
our sales have been to a small number of customers. In 2019, our
top three customers (each greater than 10% of our revenues)
accounted for, in the aggregate, approximately 58% of our revenue
and in 2018, the top three customers accounted for approximately
44% of our revenue. Although we are attempting to diversify and
expand our customer base, we expect our sales to continue to be
concentrated among a small number of customers. However, we also
expect that our significant customers may change from time to time.
No other customer accounted for 10% or more of our revenues during
2019 or 2018.
INTELLECTUAL
PROPERTY
We
rely primarily upon a combination of know-how, patents, trade
secret laws and non-disclosure agreements with employees, customers
and potential customers to protect our intellectual property.
However, we believe that factors such as the technological and
innovative abilities of our personnel, the success of our ongoing
product development efforts and our efforts to maintain trade
secret protection are more important than patents in maintaining
our competitive position.
COMPETITION
The
markets for high-quality sapphire products are very competitive and
have been characterized by rapid technological change. The products
we produce must meet certain demanding requirements to succeed in
the marketplace. Although we are a well-established sapphire
producer, we face significant competition from other established
providers of similar products as well as from new and potential
entrants into our markets.
We
have several competitors that compete directly with us. We believe
that the key competitive factors in our markets are:
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consistently
producing high-quality products in the desired size, orientation
and finish; |
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pricing; |
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producing
large-format high-quality crystal for certain
applications; |
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providing
an United States based source of sapphire for military
applications; and |
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the
financial stability of a company. |
We
believe the developing optical and industrial markets require cost
effective high-quality sapphire, large-diameter sapphire products
and ultra-thin double-side polished windows and wafers, which we
have the capabilities to provide while certain other sapphire
producers may not. In addition, defense applications often require
a U.S.-based source for sapphire. We believe we continue to have a
reputation for producing the highest quality sapphire in the
market. We believe this positions us well with competitive
advantages in the markets for optical and industrial
sapphire.
ENVIRONMENTAL
REGULATION
In
our manufacturing process, we use water, oils, slurries, acids,
adhesives and other industrial chemicals. We are subject to a
variety of federal, state and local laws regulating the discharge
of these materials into the environment or otherwise relating to
the protection of the environment. These include statutory and
regulatory provisions under which we are responsible for the
management of hazardous materials we use and the disposition of
hazardous wastes resulting from our manufacturing processes.
Failure to comply with such provisions, whether intentional or
inadvertent, could result in fines and other liabilities to the
government or third parties, injunctions requiring us to suspend or
curtail operations or other remedies, which could have a material
adverse effect on our business. The cost of complying with
environmental regulation is not material.
EMPLOYEES
As of
December 31, 2019, we had 22 full-time employees. None of our
employees are represented by a labor union. We consider our
employee relations to be good.
OTHER
INFORMATION
You
may access, free of charge, our reports filed with the SEC (for
example, our Annual Reports on Form 10-K, our Quarterly
Reports on Form 10-Q and our Current Reports on Form 8-K and any
amendments to those forms) over the Internet at the SEC’s website
at http://www.sec.gov. You may also read and copy any document we
file at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings
are also available through our Internet website
(www.rubicontechnology.com). Reports filed with or furnished to the
SEC will be available as soon as reasonably practicable after they
are filed with or furnished to the SEC. Alternatively, if you would
like a paper copy of any such SEC report (without exhibits) or
document, write to Investor Relations, Rubicon Technology, Inc.,
900 East Green Street, Bensenville, Illinois 60106, and a copy of
such requested document will be provided to you, free of charge.
The information found on our website is not part of this or any
other report filed with or furnished to the SEC.
You
should carefully read the risk factors set forth below, together
with the financial statements, related notes and other information
contained in this Annual Report on Form 10-K. Our business is
subject to a number of important risks and uncertainties, some of
which are described below. The risks described below, however, are
not the only risks that we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be
immaterial may also impair our business operations. Any of these
risks may have a material adverse effect on our business, financial
condition, results of operations and cash flows. Please refer to
the discussion of “forward-looking statements” on page one of this
Annual Report on Form 10-K in connection with your consideration of
the risk factors and other important factors that may affect future
results described below.
We
have incurred significant losses in prior periods and may incur
losses in the future.
We
have incurred significant losses in prior periods and may incur
significant losses in the future. These losses may have an adverse
effect on our ability to attract new customers or retain existing
customers. We have incurred net losses of $1.1 million, $17.8
million, $62.9 million and $77.8 million in 2019, 2017, 2016 and
2015, respectively. Although we recorded net income of $963,000 in
2018, there can be no assurance that we will achieve profitability
in future periods.
We
are exploring, evaluating and have begun implementing certain
strategic alternatives with a goal of providing greater value to
our stockholders. There can be no assurance that we will be
successful in identifying additional strategic alternatives or
implementing any strategic alternative, or that any strategic
alternative will yield additional value for
stockholders.
Our
management and Board of Directors are continuing to review
strategic alternatives with a goal of providing greater value to
our stockholders. These alternatives could result in, among other
things, modifying or eliminating certain of our operations, selling
material assets, seeking additional financing, selling the
business, making investments, effecting a merger, consolidation or
other business combination, partnering or other collaboration
agreements, or potential acquisitions or recapitalizations, in one
or more transactions. In connection with the Board of
Directors’ continuing review of alternatives, in 2016, the Board of
Directors determined to exit the LED and mobile device markets,
scale down and consolidate remaining operations in the U.S. and
limit our focus on the optical and industrial sapphire markets.
There is no assurance that we will be able to successfully expand
our optical and industrial sapphire business or that we will obtain
market acceptance for any new product offerings in these
markets.
There
can be no assurance that our continued exploration of strategic
alternatives will result in the identification of additional
alternatives or that any transaction will be consummated. The
process of exploring strategic alternatives may be costly and may
be time consuming, distracting to management and disruptive to our
business operations. If we are unable to effectively manage
the process, our business, financial condition and results of
operations could be adversely affected. We also cannot provide
assurance that any potential transaction, investment or other
alternative identified, evaluated and consummated, will provide
greater value to our stockholders than that reflected in the
current stock price. Any potential transaction or investment would
be dependent upon a number of factors that may be beyond our
control, including, among other factors, market conditions,
industry trends and the availability of financing to us on
reasonable terms.
We
may acquire other businesses, products or technologies; if we do,
we may be unable to integrate them with our business effectively or
at all, which may adversely affect our business, financial
condition and operating results.
If we
find appropriate opportunities and have adequate funding, we may
acquire other businesses, product lines or technologies. However,
if we acquire a business, product line or technology, the process
of integration may produce unforeseen operating difficulties and
expenditures and may absorb significant attention of our management
that would otherwise be available for the ongoing development of
our business. Further, the acquisition of a business may result in
the assumption of unknown liabilities or create risks with respect
to our existing relationships with suppliers and customers. If we
make acquisitions, we may issue shares of stock that dilute other
stockholders, expend cash, incur debt, assume contingent
liabilities or create additional expenses related to amortizing
intangible assets, any of which may adversely affect our business,
financial condition or operating results.
If
we are unable to raise additional capital when needed, we may not
be able to execute our business plan or the acquisition of other
businesses.
We
may require additional capital to fund operations, capital
expenditures and the introduction of new products or the
acquisition of other businesses. We may finance future cash needs
through public or private equity offerings, debt financings,
corporate collaborations or licensing arrangements. Additional
funds may not be available when we need them on terms that are
acceptable to us, or at all. If adequate funds are not available,
we may be required to delay, reduce the scope of or eliminate one
or more of our acquisition opportunities. To the extent that we
raise additional funds by issuing equity securities, our
stockholders may experience dilution, and debt financing, if
available, may involve restrictive covenants. To the extent that we
raise additional funds through corporate collaborations or
licensing arrangements, it may be necessary to relinquish some
rights to our technologies or our new products, or grant licenses
on terms that may not be favorable to us. We may seek to access the
public or private capital markets whenever conditions are
favorable, even if we do not have an immediate need for additional
capital at that time. Introducing newly developed products to the
market often requires investment before revenue is generated from
those products. We currently have no commitments or arrangements
for any additional financing to fund our product research and
development programs. However, we may need to raise substantial
additional capital in the future to complete the development and
commercialization of our new products or to acquire new businesses
or technology.
We
believe our existing cash, cash equivalents and short-term
investments and interest thereon, will be sufficient to fund our
projected operating requirements for at least the next twelve
months. However, if our success in generating sufficient operating
cash flow or our use of cash in the next twelve months were to
significantly adversely change, we may not have enough funds
available to continue operating at our current level in future
periods. A limitation of funds available may raise concerns about
our ability to continue to operate. Such concerns may limit our
ability to obtain financing and some customers may not be willing
to do business with us.
Our
future funding requirements, both near and long-term, will depend
on many factors, including, but not limited to:
|
|
● |
the
amount of our revenues and ability to be operationally cash flow
positive; |
|
|
● |
the
extent to which we acquire or invest in businesses, products or
technologies; |
|
|
● |
the
level of capital expenditures required to maintain or expand our
operations; |
|
|
● |
the
initiation, progress, timing, costs and results of studies and
trials required for our new products; |
|
|
● |
the
terms and timing of any future collaboration, licensing or other
arrangements that we may establish; |
|
|
● |
the
cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights; |
|
|
● |
the
effect of competing technological and market developments;
and |
|
|
● |
the
cost of establishing sales, marketing and distribution capabilities
for any new products. |
We
rely on third parties for certain finishing steps for our products,
including the slicing and polishing of our sapphire
crystal.
In
order to reduce product costs and improve cash flow, we use third
parties for certain finishing functions for our products, including
the slicing and polishing of our sapphire crystal
inventory. These types of services are only available from a
limited number of third parties. Our ability to successfully
outsource these finishing functions will substantially depend on
our ability to develop, maintain and expand our strategic
relationship with these third parties. Any impairment in our
relationships with the third parties performing these functions, in
the absence of a timely and satisfactory alternative arrangement,
could have a material adverse effect on our business, results of
operations, cash flow and financial condition. In addition, we
do not control any of these third parties or the operation of their
facilities, and we may not be able to adequately manage and oversee
the third parties performing our finishing
functions. Accordingly, any difficulties encountered by these
third parties that result in product defects, delays or defaults on
their contractual commitments to us could adversely affect our
business, financial condition and results of operations. In
addition, their facilities may be vulnerable to damage or
interruption from natural disasters, inclement weather conditions,
power loss, acts of terrorism and similar events. A decision
to close a facility without adequate notice as a result of these or
other unanticipated problems at the facility could result in
lengthy interruptions in their services to us; and any loss or
interruption of these services could significantly increase our
expenses, cause us to default on our obligations to our customers
and/or otherwise adversely affect our business. Furthermore, the
outsourcing of our finishing steps, such as slicing and polishing
of wafers, may not continue to be available at reasonable prices or
on commercially reasonable terms, or at all.
Our
gross margins could fluctuate as a result of changes in our product
mix and other factors, which may adversely impact our operating
results.
We
anticipate that our gross margins will fluctuate from period to
period as a result of the mix of products that we sell in any given
period. We are working to increase sales of higher margin products,
introduce new differentiated products and lower our costs. There
can be no assurance that we will be successful in improving our
gross margin mix. If we are not successful, our overall gross
margin levels and operating results in future periods would
continue to be adversely impacted. Increased competition and the
adoption of alternatives to our products, more complex engineering
requirements, lower demand and other factors may lead to a further
downward shift in our product margins, leading to price erosion
and lower revenues for us in the future.
The
markets in which we operate are very competitive, and many of our
competitors and potential competitors are larger, more established
and better capitalized than we are.
The
markets for selling high-quality sapphire products are very
competitive and have been characterized by rapid technological
change. This competition could result in increased pricing
pressure, reduced profit margins, increased sales and marketing
expenses, and failure to increase, or the loss of, market share or
expected market share, any of which would likely seriously harm our
business, operating results and financial condition.
Some
of our competitors and potential competitors are substantially
larger and have greater financial, technical, marketing and other
resources than we do. Given their capital resources, the large
companies with which we compete, or may compete in the future, are
in a better position to substantially increase their manufacturing
capacity and research and development efforts or to withstand any
significant reduction in orders by customers in our markets. Such
larger companies typically have broader product lines and market
focus and thus are not as susceptible to downturns in a particular
market. Some of our competitors also receive government subsidies,
which could create a competitive advantage. We would be at a
competitive disadvantage if our competitors bring their products to
market earlier, if their products are more technologically capable
than ours, or if any of our competitors’ products or technologies
becomes preferred in the industry. Moreover, we cannot assure you
that existing or potential customers will not develop their own
products, or acquire companies with products that are competitive
with our products. Any of these competitive threats could have a
material adverse effect on our business, operating results or
financial condition.
The
average selling prices of sapphire products have historically been
volatile and in recent years sapphire product prices have been
increasingly depressed.
Historically,
our industry has experienced volatility in product demand and
pricing. However, in the last five years, the sales prices for our
sapphire products have trended downward due to an over-supply of
products in the market. In some countries, government programs
support sapphire producers who would otherwise be unprofitable; in
such circumstances, sapphire may be sold at prices below cost for
an extended period of time, depressing market prices, to the
detriment of our gross margins. This has had a significant adverse
impact on our profitability and our results of operations.
Moreover, changes in average selling prices of our products as a
result of competitive pricing pressures increased sales discounts
and new product introductions by our competitors could have a
significant impact on our profitability. Although we attempt to
optimize our product mix, introduce new products, reduce
manufacturing costs and pass along certain increases in costs to
our customers in order to lessen the effect of decreases in selling
prices, we may not be able to successfully do so in a timely manner
or at all, and our results of operations and business may be
harmed.
Our
future operating results may fluctuate significantly, which makes
our future results difficult to predict and could cause our
operating results for particular periods to fall below
expectations.
Our
revenues and operating results have fluctuated in the past and are
likely to fluctuate in the future. These fluctuations are due to a
number of factors, many of which are beyond our control. In
connection with the Board of Directors’ continuing review of
alternatives with a goal of providing greater value to our
stockholders, on September 12, 2016, we announced the Board’s
decision to limit our business focus to the optical and industrial
sapphire markets and to exit the LED and mobile device
markets. The optical and industrial sapphire markets are
smaller markets than our historical undertakings and there is no
assurance that we will be able to successfully expand our optical
and industrial sapphire business, or that such shift in focus will
ultimately improve our profitability or operating
results.
Some
of the factors that will affect operating results include, among
others:
|
|
● |
our
ability to attract new customers; |
|
|
● |
gain
or loss of significant customers; |
|
|
● |
timing
and size of orders from and shipments to customers; |
|
|
● |
volatility
of sapphire product prices; |
|
|
● |
our
ability to meet customer specifications for products; |
|
|
● |
our
ability to retain key relationships with suppliers and contractor
third parties, including for the slicing and polishing functions
for our sapphire crystal; |
|
|
● |
performance
of suppliers, contractors and other third parties on whom we
depend; |
|
|
● |
our
ability to reduce costs commensurate to our scaled down
operations; |
|
|
● |
competitive
market conditions, including pricing actions by our competitors and
our customers’ competitors; |
|
|
● |
additions
or departures of key personnel; |
|
|
● |
interruption
of operations at our manufacturing facilities or the facilities of
our suppliers; and |
The
foregoing factors are difficult to forecast, and these, as well as
other factors, could materially adversely affect our quarterly or
annual operating results. Likewise, if we acquire any new business,
whether or not in the sapphire market, the operating results of
that business will be subject to the same risks as are listed
above. If our revenues or operating results fall below the
expectations of investors or any securities analysts that may
publish research on our Company, the price of our common stock
would likely decline.
We
depend on a few customers for a major portion of our sales and our
results of operations would be adversely impacted if they reduce
their order volumes.
Historically,
we have earned, and believe that in the future we will continue to
earn, a substantial portion of our revenue from a small number of
customers. In 2019 our top three customers accounted for, in the
aggregate, approximately 58% of our revenue and in 2018 our top
three customers accounted for approximately 44% of our revenue. If
we were to lose one of our major customers or have a major customer
significantly reduce its volume of business with us, our revenues
and profitability would be materially reduced unless we are able to
replace such demand with other orders promptly. We expect to
continue to be dependent on our major customers, the number and
identity of which may change from period to period.
We
generally sell our products on the basis of purchase orders. Thus,
most of our customers could cease purchasing our products with
little or no notice and without penalties. In addition, delays in
product orders could cause our quarterly revenue to vary
significantly. A number of factors could cause our customers to
cancel or defer orders, including interruptions to their operations
due to a downturn in their industries, natural disasters, delays in
manufacturing their own product offerings into which our products
are incorporated, securing other sources for the products that we
manufacture or developing such products internally.
Our
products must meet exacting specifications and undetected defects
may cause customers to return or stop buying our
products.
Our
customers establish demanding specifications for quality,
performance and reliability that our products must meet. While we
inspect our products before shipment, they still may contain
undetected defects. If defects occur in our products, we could
experience lost revenue, increased costs, delays in, or
cancellations or rescheduling of orders or shipments, product
returns or discounts, or damage to our reputation, any of which
would harm our operating results and our business.
If
the market acceptance of newly developed products does not meet our
expectations or our efforts to enhance existing products are not
successful, our future operating results may be
harmed.
The
development of new products may require substantial investment in
development efforts. If our newly developed products do not achieve
market acceptance, we may be unable to generate anticipated revenue
and our operating results could be harmed.
Our
continuing efforts to enhance our current products and to develop
new products involve several risks, including:
|
● |
our
ability to anticipate and respond in a timely manner to changes in
customer requirements; |
|
|
● |
the
significant research and development investment that may be
required to make before market acceptance of a particular new or
enhanced product; |
|
|
● |
the
possibility that the industry may not accept new or enhanced
products after we have invested a significant amount of resources
in development; and |
|
|
● |
competition
from new technologies, processes and products introduced by our
current and/or future competitors. |
If
we are unable to attract or retain qualified personnel, our
business and product development efforts could be
harmed.
Our
success depends on our continued ability to identify, attract,
hire, train, retain and motivate highly skilled technical,
managerial, manufacturing, administrative and sales and marketing
personnel. Competition for these individuals is intense, and we may
not be able to successfully recruit, assimilate or retain
sufficiently qualified personnel. In particular, we may encounter
difficulties in recruiting and retaining a sufficient number of
qualified technical personnel. The inability to attract and retain
necessary technical, managerial, manufacturing, administrative and
sales and marketing personnel could harm our ability to obtain new
customers and develop new products and could adversely affect our
business and operating results. In addition, the loss of the
services, or distraction, of our senior management for any reason
could adversely affect our business, operating results and
financial condition.
We
are dependent on the continued services and performances of certain
senior management employees such as sales management and the head
of operations.
Our
future success is dependent on the continued services and
contributions of our senior management who must work together
effectively in order to design and produce our products, expand our
business, increase our revenue and improve our operating results.
The loss of services of our senior management for any reason could
adversely affect our business, operating results and financial
condition.
We
are subject to risks from international sales that may harm our
operating results.
In
2019 and 2018, revenue from sales outside of North America for our
optical and industrial markets products was approximately 6% and
13%, respectively, of our total optical and industrial markets
revenue. We expect that revenue from international sales will
continue to be a portion of our total revenue for the foreseeable
future. Our international sales are subject to a variety of
additional risks, including risks arising from:
|
|
● |
sales
variability as a result of transacting our foreign sales in U.S.
dollars as prices for our products become less competitive in
countries with currencies that are low or are declining in value
against the U.S. dollar and more competitive in countries with
currencies that are high or increasing in value against the U.S.
dollar; |
|
|
● |
trading
restrictions, tariffs, trade barriers and taxes; |
|
|
● |
economic
and political risks, wars, acts of terrorism, political unrest,
pandemics, boycotts, curtailments of trade and other business
restrictions; |
|
|
● |
the
difficulty of enforcing contracts and collecting receivables
through some foreign legal systems; |
|
|
● |
unexpected
changes in regulatory requirements and other governmental
approvals, permits and licenses; and |
|
|
● |
periodic
foreign economic downturns. |
Our
future success will depend on our ability to anticipate and
effectively manage these and other risks associated with our
international sales. Our failure to manage any of these risks could
harm our business, operating results and financial
condition.
Our
gross margins and profitability may be adversely affected by energy
costs.
Most
of our power consumption takes place in our manufacturing facility
in the United States. Electricity prices could increase due to
overall changes to the price of energy due to conditions in the
Middle East, natural gas shortages in the U.S. and other economic
conditions and uncertainties regarding the outcome and implications
of such events. Once our current purchase agreements expire, if
electricity prices increase significantly, we may not be able to
pass these price increases through to our customers on a timely
basis, if at all, which could adversely affect our gross margins
and results of operations.
The
protection of our intellectual property rights and the defense of
claims of infringement against us by third parties may subject us
to costly litigation.
Other
companies might allege that we are infringing certain of their
patents or other rights. If we are unable to resolve these matters
satisfactorily, or to obtain licenses on acceptable terms, we may
face litigation. Any litigation to enforce patents issued to us, to
protect trade secrets or know-how possessed by us or to defend us
or indemnify others against claimed infringement of the rights of
others could have a material adverse effect on our financial
condition and operating results. Regardless of the validity or
successful outcome of any such intellectual property claims, we may
need to expend significant time and expense to protect our
intellectual property rights or to defend against claims of
infringement by third parties, which could have a material adverse
effect on us. If we lose any such litigation where we are alleged
to infringe the rights of others, we may be required to:
|
|
● |
pay
substantial damages; |
|
|
● |
seek
licenses from others; or |
|
|
● |
change,
or stop manufacturing or selling, some or all of our
products. |
Any
of these outcomes could have an adverse effect on our business,
results of operations or financial condition.
We
are subject to numerous environmental laws and regulations, which
could expose us to environmental liabilities, increase our
manufacturing and related compliance costs or otherwise adversely
affect our business and operating results.
In
our manufacturing process, we use water, oils, slurries, acids,
adhesives and other industrial chemicals. We are subject to a
variety of foreign, federal, state and local laws and regulations
governing the protection of the environment. These environmental
laws and regulations include those relating to the use, storage,
handling, discharge, emission, disposal and reporting of toxic,
volatile or otherwise hazardous materials used in our manufacturing
processes. These materials may have been or could be released into
the environment at properties currently or previously operated by
us, at other locations during the transport of the materials, or at
properties to which we send substances for treatment or disposal.
If we were to violate or become liable under environmental laws and
regulations or become non-compliant with permits required at some
of our facilities, we could be held financially responsible and
incur substantial costs, including investigation and cleanup costs,
fines and civil or criminal sanctions, third-party property damages
or personal injury claims. In addition, new laws and regulations or
stricter enforcement of existing laws and regulations could give
rise to additional compliance costs and liabilities.
Our
operations are concentrated in one facility, and the unavailability
of this facility could harm our business.
Our
manufacturing, research and development, sales and marketing, and
administrative activities are concentrated in one facility located
in Bensenville, Illinois. Going forward, this will be our sole
operating facility. Should a casualty, natural disaster, inclement
weather, an outbreak of disease, power loss, an act of terrorism or
similar event affect the Chicagoland area, our operations could be
significantly impacted. We may not be able to replicate the
manufacturing capacity and other operations of our Bensenville
facility or such replication could take significant time and
resources to accomplish. The disruption from such an event could
adversely affect or interrupt entirely our ability to conduct our
business.
We
are dependent on information technology, and disruptions, failures
or security breaches of our information technology infrastructure
could have a material adverse effect on our operations. In
addition, increased information technology security threats and
more sophisticated computer crime pose a risk to our systems,
networks, products and services.
We
rely on information technology networks and systems, including the
Internet and cloud services, many of which are managed by third
parties, to securely process, transmit and store electronic
information of financial, marketing, legal and regulatory nature to
manage our business processes and activities. Although we have
implemented enhanced controls around our information technology
systems, these systems may be susceptible to damage, disruptions or
shutdowns due to failures during the process of upgrading or
replacing software, databases, power outages, hardware failures,
telecommunication failures, user errors, natural disasters,
terrorist attacks or other catastrophic events. If any of our
significant information technology systems suffer severe damage,
disruption or shutdown, and our disaster recovery and business
continuity plans do not effectively resolve the issues in a timely
manner, our product sales, financial condition and results of
operations may be materially and adversely affected, and we could
experience delays in reporting our financial results, or our
operations may be disrupted, exposing us to performance failures
with customers. In addition, cybersecurity threats, such as
computer viruses, attacks by computer hackers or other
cybersecurity threats pose a risk to the security of our systems
and networks and the confidentiality, availability and integrity of
our data. There can be no assurance that our security controls and
safeguard measures taken to improve our cybersecurity protection
will be sufficient to mitigate all potential risks to our systems,
networks and data. Potential consequences of a cybersecurity attack
include disruption to systems, corruption of data, unauthorized
release of confidential or otherwise protected information,
reputational damage, and litigation with third parties. The amount
of insurance coverage we maintain may be inadequate to cover claims
or liabilities related to a cybersecurity attack.
Our
U.S. NOL carryforwards may expire or could be substantially limited
if we experience an ownership change as defined in the Internal
Revenue Code (“IRC”) or if changes are made to the
IRC.
We
have significant U.S. NOL carryforwards. Under federal tax laws, we
can carry forward and use our NOLs to reduce our future U.S.
taxable income and tax liabilities until such NOL carryforwards
expire in accordance with the IRC of 1986, as amended. Our NOL
carryforwards provide a benefit to us, if fully utilized, of
significant future tax savings. However, our ability to use these
tax benefits in future years will depend upon the amount of our
federal and state taxable income. If we do not have sufficient
federal and state income in future years to use the benefits before
they expire, we will permanently lose the benefit of the NOL
carryforwards. Our ability to use the tax benefits associated with
our NOL carryforwards is dependent upon our generation of future
taxable profits and our ability to successfully identify and
consummate suitable acquisitions or investment
opportunities.
Additionally,
Section 382 and Section 383 of the IRC provide an annual
limitation on our ability to utilize our NOL carryforwards, as well
as certain built-in losses, against the future U.S. taxable income
in the event of a change in ownership, as defined under the IRC.
While we have implemented a stockholder’s right plan to protect our
NOL carryforwards, there is no assurance that we will not
experience a change in ownership in the future as a result of
changes in our stock ownership, and any such subsequent changes in
ownership for purposes of the IRC could further limit our ability
to use our NOL carryforwards.
Under
the recently enacted Tax Cut and Jobs Act, U.S. NOLs generated on
or after January 1, 2018, could be limited to 80% of taxable
income. If other changes were made to the IRC, they could impact
our ability to utilize our NOLs. Accordingly, any such occurrences
could adversely affect our financial condition, operating results
and cash flows.
RISKS
RELATED TO OWNERSHIP OF OUR COMMON STOCK
The
trading price of our common stock has been and will likely continue
to be volatile due to various factors, some of which are beyond our
control, and each of which could adversely affect our stockholders’
value.
Factors
related to our Company and our business, as well as broad market
and industry factors, may adversely affect the market price of our
common stock, regardless of our actual operating performance. Such
factors that could cause fluctuations in our stock price include,
among other things:
|
|
● |
changes
in market valuations of other companies in our
industry; |
|
|
● |
changes
in financial guidance or estimates by us, by investors or by any
financial analysts who might cover our stock or our
industry; |
|
|
● |
our
ability to meet the performance expectations of financial analysts
or investors; |
|
|
● |
our
ability to develop and market new and enhanced products on a timely
basis; |
|
|
● |
announcements
by us or our competitors of significant products, contracts,
acquisitions or strategic partnerships; |
|
|
● |
general
market and economic conditions; and |
|
|
● |
the
size of the public float of our stock. |
Our
certificate of incorporation, bylaws and Delaware law may
discourage takeovers and business combinations that our
stockholders might consider in their best interests.
A
number of provisions in our certificate of incorporation and
bylaws, as well as anti-takeover provisions of Delaware law, may
have the effect of delaying, deterring, preventing or rendering
more difficult a change in control of Rubicon that our stockholders
might consider in their best interests. These provisions
include:
|
● |
a
classified Board of Directors; |
|
● |
a tax
benefits preservation plan designed to preserve our ability to
utilize our net operating losses as a result of certain stock
ownership changes, which may have the effect of discouraging
transactions involving an actual or potential change in our
ownership; |
|
● |
granting
to the Board of Directors sole power to set the number of directors
and to fill any vacancy on the Board of Directors, whether such
vacancy occurs as a result of an increase in the number of
directors or otherwise; |
|
● |
limitations
on the ability of stockholders to remove directors; |
|
● |
the
ability of our Board of Directors to designate and issue one or
more series of preferred stock without stockholder approval, the
terms of which may be determined at the sole discretion of the
Board of Directors; |
|
● |
prohibition
on stockholders from calling special meetings of
stockholders; |
|
● |
prohibition
on stockholders from acting by written consent; and |
|
● |
establishment
of advance notice requirements for stockholder proposals and
nominations for election to the Board of Directors at stockholder
meetings. |
These
provisions may prevent our stockholders from receiving the benefit
from any premium to the market price of our common stock offered by
a bidder in a takeover context. Even in the absence of a takeover
attempt, the existence of these provisions may adversely affect the
prevailing market price of our common stock if they are viewed as
discouraging takeover attempts in the future.
The
foregoing provisions of our certificate of incorporation and bylaws
may also make it difficult for stockholders to replace or remove
our management. These provisions may facilitate management
entrenchment that may delay, deter, render more difficult or
prevent a change in our control, which may not be in the best
interests of our stockholders.
We
are subject to litigation risks, including securities class action
litigation, which may be costly to defend.
All
industries, including ours, are subject to legal claims, including
securities litigation. When the market price of a stock declines
significantly, due to factors such as trends in the stock market in
general, broad market and industry fluctuations or operating
performance, holders of that stock have sometimes instituted
securities class action litigation against the company that issued
the stock. This sort of litigation can be particularly costly and
may divert the attention of our management and our resources in
general. We have been subject to securities class action litigation
in the past, as disclosed in our previous filings with the SEC. Due
to the inherent uncertainty of the litigation process, the
resolution of any particular legal claim or proceeding (including
by settlement) could have a material effect on our business,
financial condition, results of operations or cash flows. Further,
uncertainties resulting from the initiation and continuation of
securities or other litigation could harm our ability to obtain
credit and financing for our operations and to compete in the
marketplace.
Our
Board of Directors does not intend to declare or pay any dividends
to our stockholders in the foreseeable future.
The
declaration, payment and amount of any future dividends will be
made at the discretion of our Board of Directors and will depend
upon, among other things, the results of our operations, cash flows
and financial condition, operating and capital requirements, and
other factors the Board of Directors considers relevant. There is
no plan to pay dividends in the foreseeable future, and if
dividends are paid, there can be no assurance with respect to the
amount of any such dividend.
|
|
ITEM 1B. |
UNRESOLVED STAFF
COMMENTS |
Disclosure
under this item is not required, as the registrant is a smaller
reporting company.
Our
executive, growth and manufacturing functions are located in our
Bensenville, Illinois, 30,000 square-foot facility that we
purchased in September 2018. Previously, we leased this property,
and it served as the headquarters of our operations and one of our
growth facilities. In the third quarter of 2018, we vacated our
leased Franklin Park, Illinois, facility due to the expiration of
our lease. In September 2018, we completed the purchase of our
Bensenville property and consolidated all of our operations into
this facility.
We
own a parcel of land in Batavia, Illinois, which was acquired in
2012 for future expansion. We also own vacant land and a 65,000
square-foot facility in Penang, Malaysia. The Company entered into
an agreement for the sale of its Malaysian facility in December
2019. The remaining parcels of land located in Penang, Malaysia,
and Batavia, Illinois are currently available for sale or
lease and being marketed.
|
|
ITEM 3. |
LEGAL
PROCEEDINGS |
From
time to time, we, our subsidiaries and/or our directors and
officers may be named in claims arising in the ordinary course of
business. Management believes that there are no pending legal
proceedings involving us or any of our subsidiaries that will,
individually or in the aggregate, have a material adverse effect on
our consolidated results of operations or financial
condition.
In
October 2018, we received a summons from Bartmann, Perales &
Dolter, LLC, the former lessor of the Franklin Park, Illinois,
property we leased previously, alleging that we owe $175,000 in
overdue rent payments, property taxes and restoration costs. We
intend to vigorously defend against these allegations and have
asserted a counterclaim pursuant to the terms of the lease
agreement for reimbursement of costs and expenses to maintain the
condition and repair of said property.
No
other outstanding actions exist as of December 31, 2019 or through
the date of this filing.
|
|
ITEM 4. |
MINE SAFETY
DISCLOSURES |
Not
applicable.
PART II
|
|
ITEM 5. |
MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market
Information
Our
common stock trades on the NASDAQ Capital Market under the symbol
“RBCN”. The following table sets forth the high and low sales
prices for our common stock as reported on the NASDAQ for the
periods indicated:
| |
|
High |
|
|
Low |
|
| Fiscal
year ended December 31, 2019 |
|
|
|
|
|
|
|
First
Quarter |
|
$ |
8.48 |
|
|
$ |
7.62 |
|
|
Second
Quarter |
|
$ |
8.62 |
|
|
$ |
7.50 |
|
|
Third
Quarter |
|
$ |
9.87 |
|
|
$ |
8.16 |
|
|
Fourth
Quarter |
|
$ |
10.09 |
|
|
$ |
7.93 |
|
| |
|
High |
|
|
Low |
|
| Fiscal
year ended December 31, 2018 |
|
|
|
|
|
|
|
First
Quarter |
|
$ |
8.39 |
|
|
$ |
6.95 |
|
|
Second
Quarter |
|
$ |
8.06 |
|
|
$ |
6.76 |
|
|
Third
Quarter |
|
$ |
9.46 |
|
|
$ |
7.80 |
|
|
Fourth
Quarter |
|
$ |
9.12 |
|
|
$ |
7.24 |
|
Holders
As of
February 28, 2020, our common stock was held by approximately 18
stockholders of record and there were 2,668,507 shares of our
common stock outstanding.
Dividend
Policy
We
have never declared or paid cash dividends on our common stock. We
currently intend to retain future earnings to finance the growth
and development of our business and we do not anticipate declaring
or paying any cash dividends in the foreseeable future. The
declaration, payment and amount of any future dividends will be
made at the discretion of our Board of Directors.
|
ITEM
6. |
SELECTED FINANCIAL
DATA |
Disclosure
under this item is not required as the registrant is a smaller
reporting company.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
In
November 2018, our Board of Directors authorized a program to
repurchase up to $3 million of our common stock. Our share
repurchase program does not obligate us to acquire any specific
number of shares. Under the program, shares may be repurchased in
privately negotiated and/or open market transactions. The timing,
price and volume of repurchases will be based upon market
conditions, relevant securities laws and other factors. The stock
repurchase program expires on November 19, 2021, and may be
terminated at any time.
Share
repurchase activity during the quarter ended December 31,
2019, was as follows:
|
Periods
|
|
Total
number of
shares
purchased |
|
|
Average
price
paid per
share |
|
|
Total
number of
shares
purchased
as part of
publicly
announced
program |
|
|
Approximate
dollar value
of
shares
that
may yet
be
purchased
under the program
(in thousands)
|
|
|
October 1, 2019, to October 31, 2019 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
$ |
2,434 |
|
| November 1, 2019
to November 31, 2019 |
|
|
500 |
|
|
$ |
8.06 |
|
|
|
500 |
|
|
|
2,430 |
|
|
December 1, 2019 to December 31, 2019 |
|
|
3,792 |
|
|
|
8.15 |
|
|
|
3,792 |
|
|
|
2,399 |
|
|
Total |
|
|
4,292 |
|
|
|
|
|
|
|
|
|
|
$ |
2,399 |
|
|
ITEM 7. |
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The
following discussion and analysis of our financial condition and
results of operations should be read together with our financial
statements and related notes appearing elsewhere in this Annual
Report on Form 10-K. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions. You should review the “Risk Factors” section of this
Annual Report for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by the forward-looking statements described
in the following discussion and analysis.
OVERVIEW
We
are a vertically integrated, advanced materials provider
specializing in monocrystalline sapphire for applications in
optical and industrial systems. We design, assemble and maintain
our own proprietary crystal growth furnaces to grow high-purity,
low-stress, ultra-low-defect-density sapphire crystals. We use our
proprietary crystal growth technology to produce high-quality
sapphire products to meet our customers’ exacting specifications.
Sapphire is a desirable material for high-performance applications
due to its hardness and strength, transparency in the visible and
infrared spectrum, thermal conductivity, thermal shock resistance,
abrasion resistance, high melting point and chemical inertness. As
a result, it is ideally suited for extreme environments in a range
of industries where material durability is just as important as
optical clarity. We believe that we continue to have a
reputation as one of the highest quality sapphire producers in the
market. We provide optical and industrial sapphire products in
various shapes and sizes, including round and rectangular windows
and blanks, domes, tubes and rods.
Historically,
we have also provided sapphire products to the LED and mobile
device markets, which are the largest markets for sapphire.
However, given competitive pressures in those markets, in the
fourth quarter of 2016 we announced our decision to limit our focus
to the optical and industrial sapphire markets and exit the LED
market. Following this decision, we developed a plan to close our
Malaysia facility, and scale down and consolidate our remaining
operations in the U.S. In 2018 and 2019, we completed individual
sales and held auctions for assets located in Malaysia and at each
of our U.S. properties, resulting in the sale of certain of our
excess equipment and consumable assets. In September 2018, we
completed the sale of our manufacturing and office facility located
in Batavia, Illinois and in December 2019 we entered into an
agreement for the sale of our Malaysian manufacturing facility. We
are continuing to pursue the sale of our parcel of land in Batavia,
Illinois, and a 65,000 square-foot facility and vacant land, in
Penang, Malaysia. The timing on the sale or lease of this real
estate is difficult to predict.
The
Company entered into an agreement for the sale of the Malaysia
facility in December 2019. The remaining parcels of land located in
Penang, Malaysia, and Batavia, Illinois are currently available for
sale or lease and being marketed.
We
manage direct sales, grow and fabricate sapphire parts and ship
from our facility located in Bensenville, Illinois. Previously, we
leased this property, and it served as the headquarters of our
operations and one of our growth facilities. In the third quarter
of 2018, we vacated our leased Franklin Park, Illinois, facility
due to the expiration of our lease. In September 2018, we completed
the purchase of our Bensenville property and consolidated all of
our operations into this facility.
We
operate in a very competitive market. Our ability to expand our
optical and industrial business and acceptance of new product
offerings are difficult to predict.
In
addition, our current optical and industrial sapphire business
serves smaller markets than our historical undertakings, therefore,
we are actively evaluating the acquisition of profitable companies
outside of the sapphire market to utilize our substantial NOL
carryforwards.
Historically,
a significant portion of our revenue has been derived from sales to
relatively few customers. For the year ended December 31,
2019, we had three customers individually that accounted for
approximately 31%, 15% and 12% of revenue. For the year ended
December 31, 2018, we had three customers individually that
accounted for approximately 18%, 16% and 10% of revenue. Our
principal customers have been defense subcontractors, industrial
manufacturers, fabricators and resellers. No other customer
individually accounted for 10% or more of our revenues during the
years ended December 31, 2019 and 2018. We expect our sales to
continue to be concentrated among a small number of customers.
However, we also expect that our significant customers may change
from time to time.
We sell our products on a global basis and historically derived a
significant portion of our revenue from customers outside of the
U.S., with the majority of our sales to the Asian and European
markets. Following the decision to limit our focus to the optical
and industrial sapphire markets, a major source of our revenue is
derived from the North American market. For the year ended
December 31, 2019, the North American and other markets
accounted for 94% and 6% of our revenue, respectively. For the year
ended December 31, 2018, the North American and other markets
accounted for 87% and 13% of our revenue, respectively. All of our
revenue and corresponding accounts receivable are denominated in
U.S. dollars. Substantially all of our revenue is generated by our
direct sales force and we expect this to continue in the future.
For more information about our revenues by country, see Note 2 –
Segment Information of our Consolidated Financial Statements
included in this Annual Report on Form 10-K. For a discussion of
risks associated with our international sales see the risk factor
captioned “We are subject to risks from international sales that
may harm our operating results” under Item 1A “Risk
Factors”.
Financial
operations
Revenue.
Our revenue consists of sales of optical and industrial sapphire
products sold as blanks or polished windows. Products are made to
varying specifications, such as crystal planar orientations and
thicknesses. With the focus on smaller optical and industrial
markets and the consolidation of our operations in the U.S., we
expect in future periods our revenue will continue to be primarily
from the sale of optical materials. Our R&D revenue in recent
years has been related to LANCE, our large rectangular window
development project which was completed in 2018. We recognize
revenue once the performance obligation is satisfied, when the
product is manufactured to the customer’s specification and, based
upon shipping terms, title, and control of the product and risk of
loss transfer to the customer. Delays in product orders or changes
to the timing of shipments could cause our quarterly revenue to
vary significantly. All of our revenue and corresponding accounts
receivable are denominated in U.S. dollars. Substantially all of
our revenue is generated by our direct sales force and we expect
this to continue in the future.
Cost
of goods sold. Our cost of goods sold consists primarily of
manufacturing materials, labor, manufacturing related overhead such
as utilities, depreciation, rent, provisions for excess and
obsolete inventory reserves, idle plant charges, outsourcing costs,
freight and warranties. We purchase materials and supplies to
support current and future demand for our products. We are subject
to variations in the cost of consumable assets from period to
period because we do not have long-term fixed-price agreements with
our suppliers. We currently outsource some of our production
processes and needs.
Gross
profit (loss). Our gross profit (loss) has been and will
continue to be affected by a variety of factors, including average
sales prices of our products, product mix, our ability to reduce
manufacturing costs, idle plant charges and fluctuations in the
costs of electricity, production supplies and other manufacturing
overhead costs.
General
and administrative expenses. General and administrative
expenses (“G&A”) consist primarily of compensation and
associated costs for employees in finance, information technology
and administrative activities, charges for accounting, legal
services, insurance and stock-based compensation.
Sales
and marketing expenses. Sales and marketing expenses
consist primarily of salaries and associated costs for employees
engaged in sales activities, product samples, charges for
participation in trade shows and travel.
Research
and development expenses. Research and development
(“R&D”) expenses include costs related to engineering
personnel, materials and other product development related costs.
R&D is expensed as incurred.
(Gain)
loss on sale or disposal of assets. (Gain) loss on sale or
disposal of assets represents the difference between the amount of
proceeds from sale of our property, equipment and consumable assets
and their respective net book values. When the amount of proceeds
exceeds the net book value of an underlying asset, we record this
favorable variance as a gain on sale or disposal of assets.
Alternatively, when the net book value of an asset exceeds the
amount of proceeds recovered from sale or disposal of this asset,
such unfavorable variance is recorded as a loss on sale or disposal
of assets.
Other
income (expense). Other income (expense) consists of
interest income and gains and losses on investments and currency
translation.
Provision
for income tax. We account for income taxes under the
asset and liability method whereby the expected future tax
consequences of temporary differences between the book value and
the tax basis of assets and liabilities are recognized as deferred
tax assets and liabilities, using enacted tax rates in effect for
the year in which the differences are expected to be recognized.
Our analysis of ownership changes that limit the utilization of our
NOL carryforwards as of December 31, 2019, shows no impact on
such utilization. We are in a cumulative loss position for the past
three years which is considered significant negative evidence that
is difficult to overcome on a “more likely than not” standard
through objectively verifiable data. Based on an evaluation in
accordance with the accounting standards, as of December 31,
2019 and 2018, a valuation allowance has been recorded against the
net U.S. and Malaysia deferred tax assets in order to measure only
the portion of the deferred tax assets that are more likely than
not to be realized based on the weight of all the available
evidence. Until an appropriate level of sustained profitability is
attained, we expect to maintain a full valuation allowance on our
U.S. and Malaysia net deferred tax assets. Any U.S. and Malaysia
tax benefits or tax expense recorded on the Consolidated Statement
of Operations will be offset with the corresponding adjustment from
the use of the NOL carryforward asset which currently has a full
valuation allowance. In the event that we change our determination
as to the amount of deferred tax assets that can be realized, we
will adjust our valuation allowance with a corresponding impact to
the provision for income taxes in the period in which such
determination is made.
Stock-based
compensation. The majority of our stock-based compensation
relates primarily to our Board of Directors and administrative
personnel and is accounted for as a G&A expense. For the years
ended December 31, 2019 and 2018, our stock-based compensation
expense was $523,000 and $381,000, respectively.
RESULTS
OF OPERATIONS
The
following table sets forth our statements of operations for the
periods indicated:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
millions) |
|
| |
|
|
|
|
Revenue |
|
$ |
3.5 |
|
|
$ |
3.9 |
|
|
Cost of goods sold |
|
|
2.4 |
|
|
|
3.9 |
|
|
Gross profit (loss) |
|
|
1.1 |
|
|
|
— |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
| General and
administrative |
|
|
2.5 |
|
|
|
2.2 |
|
| Sales and
marketing |
|
|
0.4 |
|
|
|
0.4 |
|
| Research and
development |
|
|
— |
|
|
|
0.1 |
|
|
(Gain) loss on sale or disposal of assets |
|
|
(0.6 |
) |
|
|
(3.4 |
) |
|
Total operating (income) expenses |
|
|
2.3 |
|
|
|
(0.7 |
) |
| Income
(loss) from operations |
|
|
(1.2 |
) |
|
|
0.7 |
|
|
Other income |
|
|
0.1 |
|
|
|
0.3 |
|
| Income
(loss) before income taxes |
|
|
(1.1 |
) |
|
|
1.0 |
|
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
$ |
(1.1 |
) |
|
$ |
1.0 |
|
The
following table sets forth our statements of operations as a
percentage of total revenue for the periods
indicated:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
|
|
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
Cost of goods sold |
|
|
69 |
|
|
|
100 |
|
|
Gross profit (loss) |
|
|
31 |
|
|
|
— |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
| General and
administrative |
|
|
71 |
|
|
|
56 |
|
| Sales and
marketing |
|
|
11 |
|
|
|
10 |
|
| Research and
development |
|
|
— |
|
|
|
3 |
|
|
(Gain) loss on sale or disposal of assets |
|
|
(17 |
) |
|
|
(87 |
) |
|
Total operating (income) expenses |
|
|
65 |
|
|
|
(18 |
) |
| Income
(loss) from operations |
|
|
(34 |
) |
|
|
18 |
|
|
Other income |
|
|
2 |
|
|
|
8 |
|
| Income
(loss) before income taxes |
|
|
(32 |
) |
|
|
26 |
|
|
Income tax expense |
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
(32 |
)% |
|
|
26 |
% |
Comparison
of years ended December 31, 2019 and 2018
Revenue.
Revenue was $3.5 million for the year ended December 31, 2019,
and $3.9 million for the year ended December 31, 2018, a
decrease of $352,000. Revenue from our optical and industrial
sapphire business decreased by $531,000 due to an increased
emphasis on limiting our sales to orders with a minimum gross
profit, fluctuations in demand and timing of orders. This reduction
was partially offset by sales of $179,000 from the mid-year
formation of Rubicon DTP.
Gross
profit (loss). Gross profit was $1.1 million for the year
ended December 31, 2019 and $16,000 for the year ended
December 31, 2018, an increase of $1.1 million. For the year
ended December 31, 2019, we experienced an increase in gross profit
due to improved pricing and a decrease in production costs of
$765,000, as a result of improved production efficiency. In
addition, in 2018 the Company incurred a write-down for certain
inventory and consumable assets in the amount of $172,000, and
incurred expenses of $63,000 for restructuring and $66,000 of
estimated expenses for the restoration of our leased facility that
we may incur in order to comply with the terms of the lease, each
thereby increasing its costs of goods sold and decreasing its gross
profit.
General
and administrative expenses. General and administrative
expenses were $2.5 million and $2.2 million for the years ended
December 31, 2019 and 2018, respectively, an increase of
$300,000. This increase was primarily due to wages and salaries of
$353,000 and overhead of $138,000, including rent and licenses,
attributable to the formation and operations of Rubicon DTP as well
as increased legal expenses of $54,000 and higher wages and
salaries of $86,000 in the sapphire business. This increase was
partially offset by reductions in investor relations and BOD
expenses of $39,000, audit and tax consulting fees of $65,000,
other facility expenses of $134,000, IT expenses of $44,000 and
insurance premiums of $45,000.
Sales
and marketing expenses.
Sales and marketing expenses were $361,000 and $376,000 for the
years ended December 31, 2019 and 2018, respectively, a
decrease of $15,000. The decrease in sales and marketing expenses
was primarily attributable to a decrease in employee compensation
costs of $55,000 on lower headcount and a decrease in travel
and other costs related to sales and marketing of $17,000 in the
legacy sapphire business more than offsetting the additional
expense attributable to Rubicon DTP of $57,000.
Research
and development expenses. Research and development
expenses were $0 and $122,000 for the years ended December 31,
2019 and 2018, respectively, a decrease of $122,000. The decrease
in research and development expenses was attributable to the
suspension of activities in November 2018.
(Gain)
loss on sale or disposal of assets.
Following the decision in 2016 to limit our focus to the smaller
optical and industrial sapphire markets, we have held multiple
auctions and completed individual sales of a significant amount of
the excess equipment and consumable assets located in the U.S. and
Malaysia. In 2019, the Company disposed of its remaining
manufacturing equipment located at its Malaysian facility,
resulting in a gain on disposal of $302,000, and sold other excess
equipment located in the Company’s Bensenville facility for
$76,000. In addition, the Company recorded a gain on sale or
disposal of assets of $200,000, which was attributable to a partial
reimbursement for a dispute related to the purchase of equipment in
2016.
For
the year ended December 31, 2018, we recorded gain on sale or
disposal of assets of $3.4 million, of which $2.5 million was
attributable to the sale of fully depreciated and previously
written down equipment, and $380,000 was attributable to the sale
of previously written down consumable assets, small tools and
equipment. Additionally, in the third quarter of 2018, we completed
the sale of our manufacturing and office facility located in
Batavia, Illinois, which had a net book value of $5.9 million. The
net proceeds for the property were approximately $6.4 million, and
we recorded a gain on sale of this asset of $504,000.
Long-lived
asset impairment charges. We did not record any additional
asset impairment expenses for the years ended December 31, 2019 and
December 31, 2018. We will continue to assess our long-lived assets
to ensure the carrying amount of these assets is still appropriate
given any changes in the asset usage, marketplace and other factors
used in determining the current fair value.
Other
income. Other income was $125,000 and $352,000 for the
years ended December 31, 2019 and 2018, respectively, a
decrease of $227,000. This decrease in other income primarily
resulted from realized and unrealized losses on investments of
$338,000, partially offset by an increase in interest income of
$98,000 and an increase in gains on foreign currency translation of
$11,000.
Income
tax (expense) benefit. We are subject to income taxes in the
United States and Malaysia. On a quarterly basis, we assess the
recoverability of deferred tax assets and the need for a valuation
allowance. For the year ended December 31, 2019, a valuation
allowance has been included in the 2019 forecasted effective tax
rate. At December 31, 2019, we continue to be in a three-year
cumulative loss position; therefore, as of December 31, 2019, we
maintained a full valuation allowance on our United States and
Malaysia net deferred tax assets and until an appropriate level of
profitability is attained, we expect to maintain a full valuation
allowance going forward. In the event that we change our
determination as to the amount of deferred tax assets that can be
realized, we will adjust our valuation allowance with a
corresponding impact to the provision for income taxes in the
period in which such determination is made.
On
December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the
“Act”) which, among other provisions, reduced the U.S. corporate
tax rate from 35% to 21% effective January 1, 2018. The SEC issued
guidance, Staff Accounting Bulletin 118, on accounting for the tax
effects of the Act. The guidance allowed us to record provisional
amounts for those impacts, with the requirement that the accounting
be completed in a period not to exceed one year from the date of
enactment. We have completed our accounting for the tax effects of
enactment of the Act. The deemed inclusion from the repatriation
tax increased from $3.9 million at the time of provision to $5.0
million at the time the calculation was finalized for the tax
return. The increase of the inclusion related primarily to the
refinement of Malaysia earnings and profits. As we are in a full
valuation allowance position (as described above), an equal benefit
adjustment was recorded for the impact of the increase of the
deemed repatriation tax. The tax provision for the years ended
December 31, 2019 and 2018, is based on an estimated combined
statutory effective tax rate. For the year ended December 31,
2019 and 2018, we recorded a tax expense of $22,000 and $24,000,
respectively, for an effective tax rate of 2.0% and 2.4%,
respectively. For the years ended December 31, 2019 and 2018,
the difference between our effective tax rate and the U.S. federal
21% statutory rate and state 7.5% (net of federal benefit)
statutory rate was primarily related to the change in our U.S. and
Malaysia NOL valuation allowances, U.S. R&D credit, Malaysia
foreign tax rate differential and Malaysia withholding
taxes.
At
December 31, 2019, we had separate Federal and Illinois NOL
carryforwards of $188.1 million and $200.0 million, respectively,
which begin to expire in 2021 and 2020, respectively. With the
adoption of ASU 2016-09 in 2017, we recorded a deferred tax asset
related to $26.4 million of unrecorded federal and state NOLs
attributable to stock option exercises. NOLs attributable to the
stock option exercise were fully offset by the valuation allowance
(as described above). We have recorded an uncertain tax position of
$2.6 million that further reduces the net operating loss deferred
tax assets reported in the financial statements. In addition, at
December 31, 2019, we had Federal and Illinois research and
development credits and Illinois investment tax credit of $662,000,
$66,000 and $23,000, respectively, which began to expire in
2019.
LIQUIDITY
AND CAPITAL RESOURCES
We
have historically funded our operations using a combination of
issuances of common stock and cash generated from our
operations.
As of
December 31, 2019, we had cash equivalents and short-term
investments totaling $24.2 million, including cash of $4.9 million
held in deposits at major banks, $3.8 million invested in money
market funds and $15.5 million of short-term investments including
U.S. Treasury securities, investment grade commercial paper, FDIC
guaranteed certificates of deposit, common stock, equity related
securities and corporate notes.
We
plan to limit our capital expenditures to only those required under
existing obligations or as otherwise necessary to realize value
from the development, commercialization or sale of
products.
Cash
flows from operating activities
The
following table represents the major components of our cash flows
from operating activities for the years ended December 31,
2019 and 2018:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
millions) |
|
| |
|
|
|
| Net income (loss) |
|
$ |
(1.1 |
) |
|
$ |
1.0 |
|
|
Non-cash items: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
0.2 |
|
|
|
0.3 |
|
| Net (gain) loss on
sale or disposal of assets |
|
|
(0.6 |
) |
|
|
(3.4 |
) |
| Unrealized (gain)
loss on equity investments |
|
|
0.2
|
|
|
|
—
|
|
|
Stock-based compensation |
|
|
0.5 |
|
|
|
0.4 |
|
|
Total non-cash items: |
|
|
0.3 |
|
|
|
(2.7 |
) |
|
Changes in working capital: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(0.3 |
) |
|
|
— |
|
| Inventories |
|
|
— |
|
|
|
0.9 |
|
| Prepaid
expenses and other assets |
|
|
(0.4 |
) |
|
|
0.2 |
|
| Accounts
payable |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
Other accruals |
|
|
— |
|
|
|
(0.3 |
) |
|
Total working capital items: |
|
|
(0.4 |
) |
|
|
0.6 |
|
|
Net cash used in operating activities |
|
$ |
(1.2 |
) |
|
$ |
(1.1 |
) |
Cash
used in operating activities was $1.2 million for the year ended
December 31, 2019. The Company generated a net loss of $1.1
million, including non-cash items of $300,000, and a decrease in
cash from net working capital of $400,000. The net working capital
increase was primarily driven by an increase in accounts receivable
related to sales increases in the fourth quarter of 2019 and an
increase in prepaid expenses of $300,000, largely due to the timing
of insurance premiums versus prior year. This was partially offset
by an increase in accounts payable of $300,000.
Cash
used in operating activities was $1.1 million for the year ended
December 31, 2018. During such period, we generated net income
of $963,000, including non-cash items of ($2.7) million, and an
increase in cash from net working capital of $602,000. The net
working capital cash increase was primarily driven by a decrease in
the work-in-process, finished goods and consumable asset
inventories of $976,000. Additionally, we experienced a decrease in
prepaid expenses and other assets of $146,000 due to a decrease in
prepaid lease expense and deposits on expired lease agreements and
consolidation of operations in our Bensenville property, which we
purchased in the third quarter of 2018. This was partially offset
by a decrease in accounts payable of $182,000 and a decrease in
other accruals of $185,000 on lower spending. Additionally, we
recorded lower net accrued real estate taxes of $153,000 due to the
sale of our Batavia facility and the purchase of our Bensenville
facility
Cash
flows from investing activities
The
following table represents the major components of our cash flows
from investing activities for the years ended December 31,
2019 and 2018:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
millions) |
|
| |
|
|
|
|
Purchases of assets |
|
$ |
(0.1 |
) |
|
$ |
(2.3 |
) |
| Proceeds
from sale or disposal of assets |
|
|
0.8 |
|
|
|
11.0 |
|
| Purchases of investments |
|
|
(1.6 |
) |
|
|
(8.1 |
) |
|
Proceeds from sales of investments |
|
|
0.3 |
|
|
|
0.2 |
|
|
Net cash (used in) provided by investing activities |
|
$ |
(0.6 |
) |
|
$ |
0.8 |
|
Net cash used in investing activities was $400,000 for the year
ended December 31, 2019, primarily due to the purchases of
investments in U.S. Treasury securities and marketable securities
of $1.6 million and the purchase of Rubicon DTP assets of
$64,000. Partially offsetting these were the proceeds of the sale
of the remaining idle equipment at our Malaysia manufacturing
facility, the sale of other excess equipment located in the United
States and a $200,000 payment received as partial reimbursement for
a dispute related to the purchase of equipment in 2016 totaling
$764,000 and the proceeds from the sales of investment securities
in the period of $304,000.
Net
cash provided by investing activities was $831,000 for the year
ended December 31, 2018, primarily due to the proceeds from
sales of our Batavia facility of approximately $6.4 million and
proceeds from sales of equipment and other assets of $4.6 million,
as the result of the auctions we held and completion of individual
sales at our U.S. and Malaysia locations. Additionally, we recorded
$201,000 of proceeds from sale of investments on an increased
investment activity. This was partially offset by the purchases of
investments in U.S. Treasury securities and commercial paper of
$8.1 million and the purchase of our Bensenville office and
manufacturing facility of $2.3 million.
Cash
flows from financing activities
Net
cash used in financing activities was $730,000 for the year ended
December 31, 2019, driven by purchases of our treasury stock
of $536,000 and cash used to settle net equity awards of
$194,000.
Net
cash used in financing activities was $79,000 for the year ended
December 31, 2018, which was primarily due to purchases of our
treasury stock. Additionally, cash used to settle net equity awards
was $14,000.
Future
liquidity requirements
We
believe that our existing cash, cash equivalents, anticipated cash
flows from operating activities and proceeds from sales or lease of
fixed assets will be sufficient to meet our anticipated cash needs
for at least the next twelve months from the date of filing of this
report. However, if our ability to generate sufficient operating
cash flow or our use of cash in the next twelve months were to
significantly adversely change, we may not have enough funds
available to continue operating at our current level in future
periods. Our cash needs include cash required to fund our
operations. If the assumptions underlying our business plan
regarding future revenues and expenses change, or if unexpected
opportunities or needs arise, we may seek to raise additional cash
by selling equity or convertible debt securities. If we raise
additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders could be
significantly diluted, and these newly issued securities may have
rights, preferences or privileges senior to those of existing
stockholders.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of financial statements in accordance with the
accounting principles generally accepted in the U.S. requires us to
make estimates, assumptions and judgments that affect the amounts
reported in our financial statements and the accompanying notes. We
base our estimates on historical experience and various other
assumptions that we believe to be reasonable. Although these
estimates are based on our present best knowledge of the future
impact on the Company of current events and actions, actual results
may differ from these estimates, assumptions and
judgments.
We
consider to be critical those accounting policies that require our
most subjective or complex judgments, which often result from a
need to make estimates about the effect of matters that are
inherently uncertain, and that are among the most important of our
accounting policies in the portrayal of our financial condition and
results of operations. We believe the following to be our critical
accounting policies, including the more significant estimates and
assumptions used in preparation of our financial
statements.
Foreign
currency translation and transactions.
Rubicon
Technology Worldwide LLC and Rubicon Technology Hong Kong Limited
assets and liabilities are translated into U.S. dollars at exchange
rates existing at the respective balance sheet dates and capital
accounts at historical exchange rates. The results of operations
are translated into U.S. dollars at the average exchange rates
during the respective period. Translation adjustments resulting
from fluctuations in exchange rates for Rubicon Technology
Worldwide LLC and Rubicon Technology Hong Kong Limited are recorded
as a separate component of accumulated other comprehensive income
(loss) within stockholders’ equity.
We
have determined that the functional currency of Rubicon Sapphire
Technology (Malaysia) SDN BHD is the U.S. dollar. Rubicon Sapphire
Technology (Malaysia) SDN BHD’s assets and liabilities are
translated into U.S. dollars using the re-measurement method.
Non-monetary assets are translated at historical exchange rates and
monetary assets are translated at exchange rates existing at the
respective balance sheet dates. Translation adjustments for Rubicon
Sapphire Technology (Malaysia) SDN BHD are included in determining
net income (loss) for the period. The results of operations are
translated into U.S. dollars at the average exchange rates during
the respective period. We record these gains and losses in other
income (expense).
Foreign
currency transaction gains and losses are generated from the
effects of exchange rate changes on transactions denominated in a
currency other than our functional currency, which is the U.S.
dollar. Gains and losses on foreign currency transactions are
generally required to be recognized in the determination of net
income (loss) for the period. We record these gains and losses in
other income (expense).
Revenue
recognition.
We
recognize revenue in accordance with ASC Topic 606, Revenue From
Contracts with Customers (“Topic 606”) which was adopted on
January 1, 2018. We recognize revenue when performance obligations
under a purchase order or signed quotation are satisfied. Our
business practice commits us to manufacture and deliver product
upon acceptance of a customer’s purchase order or signed quotation
(“agreement”). The agreement with the customer includes
specifications of the product to be delivered, price, expected ship
date and payment terms. Our agreements generally do not contain
variable, financing, rights of return or non-cash components. There
are no up-front costs to develop the production process. The
performance obligation is satisfied at the point in time (single
performance obligation) when the product is manufactured to the
customer’s specification, as performance does not create an asset
with an alternative use to us. Accordingly, revenue is recognized
when product is shipped, and control of the product, title and risk
of loss transfer to a customer. We grant credit terms considering
normal collection risk. If there is doubt about collection, full
prepayment for the order is required. Any payments received prior
to shipment are recorded as deferred revenue and included in
Advance Payments in the Consolidated Balance Sheets.
We
recognize R&D revenue in the period during which the related
costs are incurred over the contractually defined period. In July
2012, we signed a contract with the Air Force Research Laboratory
to produce large-area sapphire windows on a cost plus fixed fee
basis. The deliverables under the contract included development of
machinery and technology to be able to produce large area sapphire
windows, prove the concept of growing large windows with that
equipment and delivery of large-area sapphire windows. We record
R&D revenue on a gross basis as costs are incurred, plus a
portion of the fixed fee over a period of time as the obligations
(machinery, proof of concept and finished windows) are completed
following the input method of measuring progress which recognizes
revenue as resources are consumed, labor hours expended and costs
are incurred. As of December 31, 2018, this contract had been
completed and the full amount of revenue of $4.7 million allowable
per the contract had been recognized.
We do
not provide maintenance or other services and we do not have sales
that involve multiple elements or deliverables.
All
of our revenue is denominated in U.S. dollars.
Inventory
valuation
We
value our inventory at the lower of cost or net realizable value.
Net realizable value is determined based on an estimated selling
price in the ordinary course of business less reasonably
predictable costs of completion and disposal. Raw materials cost is
determined using the first-in, first-out method, and
work-in-process and finished goods costs are determined on a
standard cost basis which includes materials, labor and overhead.
We establish inventory reserves when conditions exist that suggest
inventory may be in excess of anticipated demand or is obsolete
based on customer required specifications. We evaluate the ability
to realize the value of our inventory based on a combination of
factors, including forecasted sales, estimated current and future
market value and changes in customers’ product specifications. For
the year ended December 31, 2019, we consumed inventory that
had previously been reflected as excess or obsolete and recorded an
adjustment which increased inventory and decreased costs of goods
sold by $107,000. This compares to an increase in cost of goods
sold of $284,000 in the previous year. Based on most recent sales
prices, we recorded for the years ended December 31, 2019 and
2018, a lower of cost or net realizable value adjustment which
reduced inventory and increased cost of goods sold by $35,000 and
$6,000, respectively.
For
the year ended December 31, 2018, we recorded a write-down of
certain of its consumable assets in the amount of $63,000. We did
not record any additional write-downs of these inventories for the
year ended December 31, 2019.
We
did not record any additional adjustments of sapphire crystals in
the year ended December 31, 2019 or for the prior year, as we sold
some of our lower-quality crystals at a price exceeding the book
value of these crystals.
Our
method of estimating excess and obsolete inventory has remained
consistent for all periods presented. If our recognition of excess
or obsolete inventory is, or if our estimates of our inventory’s
potential utility become, less favorable than currently expected,
additional inventory reserves may be required.
In the year
ended December 31, 2019, the Company made the determination that
raw material inventories were such that the likelihood of
significant usage within the current year was doubtful and
reclassified such raw material inventories as non-current in the
reported financial statements.
We
determine our normal operating capacity and record as an expense
costs attributable to lower utilization of equipment and staff. For
the year ended December 31, 2018, we determined that we were
not operating at capacity and recorded costs associated with lower
utilization of equipment and staff of $723,000. For the year ended
December 31, 2019, we continued to reduce our costs attributable to
lower utilization of equipment and staff due to consolidation of
our operations in our Bensenville, Illinois, facility, and recorded
$223,000 of such costs.
Investments
We
invest our available cash primarily in U.S. Treasury securities,
investment grade commercial paper, FDIC guaranteed certificates of
deposit, common stock, equity related securities and corporate
notes. Investments classified as available-for-sale debt securities
are carried at fair value with unrealized gains and losses recorded
in accumulated other comprehensive income (loss). Investments in
equity securities are reported at fair value, with both realized
and unrealized gains and losses recorded in other income (expense),
in the Consolidated Statements of Operations. Investments in which
we have the ability and intent, if necessary, to liquidate in order
to support our current operations are classified as
short-term.
We
review our available-for-sale debt securities investments at the
end of each quarter for other-than-temporary declines in fair value
based on the specific identification method. We consider various
factors in determining whether an impairment is
other-than-temporary, including the severity and duration of the
impairment, changes in underlying credit ratings, forecasted
recovery, our ability and intent to hold the investment for a
period of time sufficient to allow for any anticipated recovery in
market value and the probability that the scheduled cash payments
will continue to be made. When we conclude that an
other-than-temporary impairment has resulted, the difference
between the fair value and carrying value is written off and
recorded as a charge on the Consolidated Statement of Operations.
As of December 31, 2019 and 2018, no impairment was
recorded.
Allowance
for doubtful accounts
We
estimate the allowance for doubtful accounts based on an assessment
of the collectability of specific customer accounts. The
determination of risk for collection is assessed on a
customer-by-customer basis considering our historical experience
and expected future orders with the customer, changes in payment
patterns and recent information we have about the current status of
our accounts receivable balances. If we determine that a specific
customer is a risk for collection, we provide a specific allowance
for credit losses to reduce the net recognized receivable to the
amount we reasonably believe will be collected. If a receivable is
deemed uncollectible, and the account balance differs from the
allowance provided, the specific amount is written off to bad debt
expense. We believe that based on the customers to whom we sell and
the nature of our agreements with them, our estimates are
reasonable. Our method of estimating collectability has remained
consistent for all periods presented and with past collections
experience.
Assets
held for sale and long-lived assets
When
circumstances, such as adverse market conditions, indicate that the
carrying value of a long-lived asset may be impaired, we perform an
analysis to review the recoverability of the asset’s carrying value
using estimates of the undiscounted cash flows (excluding interest
charges) from the expected future operations of the asset. These
estimates consider factors such as expected future operating
income, operating trends and prospects, as well as the effects of
demand, competition and other factors. If the analysis indicates
that the carrying value is not recoverable from future cash flows,
an impairment loss is recognized to the extent that the carrying
value exceeds the estimated fair value. The estimated fair value of
assets is determined using appraisal techniques which assume the
highest and best use of the asset by market participants,
considering the use of the asset that is physically possible,
legally permissible, and financially feasible at the measurement
date. Any impairment losses are recorded as operating expenses,
which reduce net income.
In
connection with the decision in 2016 to limit our focus to the
optical and industrial sapphire markets and exit the LED market, we
developed a plan to close our Malaysia facility, scale down and
consolidate remaining operations in the U.S. and sell additional
assets that would not be needed. We evaluated our U.S. and Malaysia
asset portfolios to identify assets needed for our current business
strategy and excess assets that were no longer needed. We
determined we had excess machinery, equipment and facilities.
Excess U.S. and Malaysia assets were evaluated based on assuming an
orderly liquidation plan, which considers economic obsolescence and
sales of comparable equipment, as it is our intention to sell these
assets. Additionally, we evaluated our U.S. assets continuing to be
used in operations using a cost and market approach to determine
the current fair value.
In
September 2018, we completed the sale of our 134,400 square-foot
manufacturing and office facility located in Batavia, Illinois,
with the net book value of $5.9 million. The sale price for the
property was $6.7 million, we realized net proceeds of
approximately $6.4 million after the payment of real estate taxes,
brokerage and legal fees, transfer taxes and other expenses, and
recorded a gain on sale of this asset of $504,000.
In
the year ended December 31, 2018, we completed individual sales and
held auctions for equipment and consumable assets located at each
of our U.S. properties, resulting in the sale of certain of our
excess U.S. equipment and consumable assets, which had a total net
book value of $1.6 million. In the beginning of 2018, we intended
to sell a certain number of our crystal growth furnaces. Due to our
changed needs and business plan, we reduced the number of furnaces
we wanted to sell. The difference in the number of furnaces we
originally intended to sell and the number we actually disposed of,
had a net book value of $236,000. The additional furnaces that
we decided to retain were reclassified from current assets held for
sale to fixed assets held and used at December 31, 2018.
Additionally, in the year ended December 31, 2018, we completed
sales of Malaysia equipment with a total net book value of
$131,000. Based on these sales, a gain on disposal of equipment and
consumable assets of $2.9 million was recorded for the year ended
December 31, 2018.
In
the year ended December 31, 2019, we completed the sale of the
remaining excess equipment for $490,000 in total consideration. The
equipment had a total net book value of $188,000 and we recorded a
gain on disposal of $302,000.
We
are pursuing the sale of a parcel of land in Batavia, Illinois, and
also in Penang Malaysia. We have entered into an agreement for the
sale of our manufacturing facility located in Penang, Malaysia.
Although we cannot assure the timing of these sales, these
properties were classified as current assets held for sale at
December 31, 2019 and 2018, as it is our intention to complete
these sales within the next twelve-month period.
In
September 2018, we completed the purchase of our property located
in Bensenville, Illinois. The purchase price for the property was
approximately $2.3 million. Previously, we leased the Bensenville
property and it was the headquarters of our operations and one of
our growth facilities. We used our cash on hand to purchase the
property.
Stock-based
compensation
We
grant stock-based compensation in the form of stock options,
restricted stock units (“RSUs”) and restricted stock. We expense
stock options based upon the fair value on the date of grant. We
use the Black-Scholes option pricing model to determine the fair
value of stock options. The determination of the fair value of
stock-based payment awards on the date of grant using an
option-pricing model is affected by assumptions regarding a number
of complex and subjective variables. These variables include our
expected stock volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rates, forfeitures and expected dividends.
The
expected term represents the weighted-average period that our stock
options are expected to be outstanding and is based upon five years
of historical data. We estimate the volatility of our common stock
based on a five-year historical stock price. We base the risk-free
interest rate that we use in the option pricing model on U.S.
Treasury zero-coupon issues with remaining terms similar to the
expected term on the options. We do not anticipate paying any cash
dividends in the foreseeable future and, therefore, use an expected
dividend yield of zero in the option pricing model. We are required
to estimate forfeitures at the time of grant and revise those
estimates in subsequent periods if actual forfeitures differ from
those estimates. The current forfeiture rate of 29.0% was based on
our past history of forfeitures.
All
stock options are granted at an exercise price per share equal to
the closing market price of our common stock on the last market
trading day prior to the date of grant. Therefore, there is no
intrinsic value because the exercise price per share of each option
was equal to the fair value of the common stock on the date of
grant.
We
used a Monte Carlo simulation model valuation technique to
determine the fair value of RSUs granted in 2017 and 2018 to a key
executive pursuant to an employment agreement, because the awards
vest based upon achievement of market price targets of our common
stock. The Monte Carlo simulation model utilizes multiple input
variables that determine the probability of satisfying the market
condition stipulated in the award and calculates the fair value of
each RSU. The daily expected stock price volatility is based on a
four-year historical volatility of our common stock. The daily
expected dividend yield is based on annual expected dividend
payments. The average daily risk-free interest rate is based on the
three-year treasury yield as of the grant date. Each of the
tranches is calculated to have its own fair value and requisite
service period. The fair value of each tranche is amortized over
the requisite or derived service period, which is up to four
years.
We
allocate stock-based compensation costs using a straight-line
method which amortizes the fair value of each option on a
straight-line basis over the service period, but in no event less
than the amount vested.
All
option grants are granted at an exercise price per share equal to
the closing market price of our common stock on the day before the
date of grant. Therefore, there is no intrinsic value because the
exercise price per share of each option was equal to the fair value
of the common stock on the date of grant. Based on the fair value
of the common stock at December 31, 2019, there was $43,000 of
intrinsic value arising from 19,500 stock options exercisable or
outstanding.
For
more information on stock-based compensation, see Note 7 – Stock
Incentive Plans to our Consolidated Financial Statements included
in this Annual Report on Form 10-K.
Income
tax valuation allowance
Evaluating
the need for and amount of a valuation allowance for deferred tax
assets often requires significant judgment and extensive analysis
of all the positive and negative evidence available to determine
whether all or some portion of the deferred tax assets will not be
realized. A valuation allowance must be established for deferred
tax assets when it is more likely than not (a probability level of
more than 50%) that they will not be realized. In general,
“realization” refers to the incremental benefit achieved through
the reduction in future taxes payable or an increase in future
taxes refundable from the deferred tax assets, assuming that the
underlying deductible differences and carryforwards are the last
items to enter into the determination of future taxable income. In
determining our valuation allowance, we consider the source of
taxable income including taxable income in prior carryback years,
future reversals of existing temporary differences, the required
use of tax planning strategies, and future taxable income exclusive
of reversing temporary differences and carryforwards. We are in a
cumulative loss position for the past three years which is
considered significant negative evidence that is difficult to
overcome on a “more likely than not” standard through objectively
verifiable data. Under the accounting standards, verifiable
evidence will have greater weight than subjective evidence such as
our projections for future growth. Based on an evaluation in
accordance with the accounting standards, as of December 31,
2019, a valuation allowance has been recorded against the net U.S.
and Malaysia deferred tax assets in order to measure only the
portion of the deferred tax assets that are more likely than not to
be realized based on the weight of all the available evidence. Any
U.S. and Malaysia tax benefit or tax expense recorded on the
Consolidated Statement of Operations will be offset with a
corresponding adjustment from the use of the NOL carryforward asset
which currently has a full valuation allowance. In the event that
we change our determination as to the amount of deferred tax assets
that can be realized, we will adjust our valuation allowance with a
corresponding impact to the provision for income taxes in the
period in which such determination is made.
Accounting
for uncertainty in income taxes
We
recognize the tax benefit from an uncertain tax position only if it
is more likely than not the tax position will be sustained on
examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on
the largest benefit that has a greater than 50% likelihood of being
realized upon settlement. At December 31, 2019 and 2018, we
had $1.1 million of unrecognized tax benefits taken or expected to
be taken in a tax return that have been recorded on our financial
statements as an offset to the valuation allowance related to tax
positions taken in 2012. We recognize interest and/or penalties
related to income tax matters in income tax expense. There were no
interest or penalties related to income taxes that have been
accrued or recognized as of and for the years ended
December 31, 2019 and 2018.
We
are subject to taxation in the U.S., Malaysia and in a U.S. state
jurisdiction. Due to the existence of NOL carryforwards, tax years
ended December 31, 2001 through 2006, 2008, 2009 and 2012
through 2018 are open to examination by tax authorities for Federal
purposes. Due to NOL carryforwards at the State level, tax years
ended 2008, 2009 and 2012 through 2018 are open to examination by
state tax authorities. Tax years 2013 through 2018 are open to
examination by the Malaysia Inland Revenue Board.
RECENT
ACCOUNTING PRONOUNCEMENTS
See
Note 1 to the Consolidated Financial Statements for a discussion of
new accounting standards.
OFF-BALANCE
SHEET ARRANGEMENTS
None.
|
|
ITEM
7A. |
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Disclosure
under this item is not required as the registrant is a smaller
reporting company.
|
|
ITEM 8. |
CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA |
Our
Consolidated Financial Statements, together with the related notes
and the report of independent registered public accounting firm,
are set forth on the pages indicated in Item 15 of this
Annual Report on Form 10-K and are incorporated by reference
herein.
|
|
ITEM 9. |
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES. |
None.
|
|
ITEM 9A. |
CONTROLS AND
PROCEDURES |
Management’s
Evaluation of Disclosure Controls and Procedures.
An
evaluation was performed under the supervision and with the
participation of our management, including our chief executive
officer and chief financial officer (together, our “certifying
officers”), of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the year covered by this
report. Disclosure controls and procedures are controls and other
procedures designed to ensure that information required to be
disclosed by us in our periodic reports filed with the SEC is
recorded, processed, summarized and reported within the time
periods specified by the SEC’s rules and forms, and that the
information is accumulated and communicated to our management,
including the chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure. Based on their evaluation, our certifying officers
concluded that these disclosure controls and procedures were
effective as of December 31, 2019.
Management’s
Report on Internal Control over Financial Reporting
The
financial statements were prepared by management, which is
responsible for their integrity and objectivity and for
establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f).
The
Company’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. The Company’s internal control over financial reporting
includes those policies and procedures that:
|
|
i. |
pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and disposition of
the assets of the Company; |
|
|
ii. |
provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of Consolidated Financial Statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the
Company; and |
|
|
iii. |
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the Consolidated
Financial Statements. |
There
are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable assurance
with respect to the financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal
controls may vary over time.
Management
assessed the design and effectiveness of the Company’s internal
control over financial reporting as of December 31, 2019. In
making this assessment, management used the criteria set forth in
2013 Internal Control—Integrated Framework by the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO).
Based
on management’s assessment using those criteria, as of
December 31, 2019, management concluded that the Company’s
internal control over financial reporting was effective.
This
annual report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. The Company’s internal controls
over financial reporting were not subject to attestation by our
independent registered public accounting firm pursuant to rules of
the SEC.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial
reporting that occurred during the quarter ended December 31,
2019, that our certifying officers concluded materially affected,
or are reasonably likely to materially affect, our internal
controls over financial reporting.
|
ITEM
9B. |
OTHER
INFORMATION |
None.
PART III
|
|
ITEM 10. |
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE |
The
Information required by Items 401, 405, 407(d)(4) and 407(d)(5) of
Regulation S-K will be included under the captions “Proposal 1:
Election of Directors,” “Executive Compensation – Executive
Officers,” “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters – Section 16(a)
Beneficial Ownership Reporting Compliance” and “Corporate
Governance – Committees of the Board of Directors and Meetings –
Audit Committee” in our proxy statement for our 2019 Annual Meeting
of Stockholders and is incorporated by reference herein. If such
proxy statement is not filed with the SEC within 120 days after the
end of the fiscal year covered by this Form 10-K, an amendment to
this Form 10-K shall be filed not later than the end of such
120-day period.
We
have adopted a Code of Ethics that applies to all of our employees,
officers and directors. A copy of the Code of Ethics is available
on our website at www.rubicontechnology.com, and any waiver from
the Code of Ethics will be timely disclosed on the Company’s
website as will any amendments to the Code of Ethics.
|
|
ITEM 11. |
EXECUTIVE
COMPENSATION |
The
information required by Item 402 of Regulation S-K will be
included under the captions “Executive Compensation” and “Director
Compensation” in our proxy statement for our 2020 Annual Meeting of
Stockholders and is incorporated by reference herein. If such proxy
statement is not filed with the SEC within 120 days after the
end of the fiscal year covered by this Form 10-K, an amendment to
this Form 10-K shall be filed not later than the end of such
120-day period.
|
|
ITEM 12. |
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Securities
Authorized for Issuance under Equity Compensation
Plans
The
following table represents securities authorized for issuance
under, the Rubicon Technology Inc. 2007 Stock Incentive Plan, as
amended and restated, and the Rubicon Technology Inc. 2016 Stock
Incentive Plan as of December 31, 2019.
Equity
Compensation Plan Information
|
Plan category |
|
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights |
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights |
|
|
Number of securities
remaining available
for future issuances
under the equity
compensation plans
(excluding securities
reflected in column
(a)) |
|
| |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
Equity compensation plans approved by security holders(1) |
|
|
76,842 |
|
|
$ |
13.48 |
|
|
|
281,386 |
|
|
|
(1) |
The
Rubicon Technology Inc. 2007 Stock Incentive Plan was approved by
stockholders before our initial public offering. The Rubicon
Technology Inc. 2016 Stock Incentive Plan was approved by
stockholders in June 2016. |
The
information required by Item 403 of Regulation S-K will be
included under the caption “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters”
in our proxy statement for our 2020 Annual Meeting of Stockholders
and is incorporated by reference herein. If such proxy statement is
not filed with the SEC within 120 days after the end of the fiscal
year covered by this Form 10-K, an amendment to this Form 10-K
shall be filed not later than the end of such 120-day
period.
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The
information required by Item 404 of Regulation S-K will be
included under the caption “Certain Relationships and Related Party
Transactions” in our proxy statement for our 2019 Annual Meeting of
Stockholders and is incorporated by reference herein. The
information required by Item 407(a) of Regulation S-K will be
included under the caption “Corporate Governance - Director
Independence” in our proxy statement for our 2020 Annual Meeting of
Stockholders and is incorporated by reference herein. If such proxy
statement is not filed with the SEC within 120 days after the end
of the fiscal year covered by this Form 10-K, an amendment to this
Form 10-K shall be filed not later than the end of such 120-day
period.
|
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES
AND SERVICES |
The
information required by this Item will be included under the
caption “Ratification of Selection of Independent Registered Public
Accounting Firm” in our proxy statement for our 2020 Annual Meeting
of Stockholders and is incorporated by reference herein. If such
proxy statement is not filed with the SEC within 120 days
after the end of the fiscal year covered by this Form 10-K, an
amendment to this Form 10-K shall be filed not later than the end
of such 120-day period.
PART IV
|
|
ITEM 15. |
EXHIBITS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES |
(a)
Financial statements. The following Consolidated Financial
Statements are filed as part of this Annual Report on
Form 10-K.
(b)
Exhibits. The exhibits filed or incorporated by reference as a part
of this report are listed in the Index to Exhibits which appears
following the signature page to this Annual Report on Form 10-K and
are incorporated by reference.
(c)
Financial statement schedules not listed above have been omitted
because they are inapplicable, are not required under applicable
provisions of Regulation S-X, or the information that would
otherwise be included in such schedules is contained in the
registrant’s financial statements or accompanying notes.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized on March 20, 2020.
| |
Rubicon
Technology, Inc. |
|
|
|
|
| |
By |
/s/
Timothy E. Brog |
| |
|
Timothy
E. Brog
President
and Chief Executive Officer
|
KNOWN
BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy E. Brog and Mathew
J. Rich, jointly and severally, his or her attorney-in-fact, with
the power of substitution, for him or her in any and all
capacities, to sign any amendments to this Annual Report on Form
10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 20,
2020.
|
Signature |
|
Title |
| |
|
|
|
/s/
Timothy E. Brog |
|
Director,
President and Chief Executive Officer |
| Timothy
E. Brog |
|
(Principal
Executive Officer) |
| |
|
|
|
/s/
Mathew J. Rich |
|
Chief
Financial Officer |
| Mathew
J. Rich |
|
(Principal
Financial and Accounting Officer) |
| |
|
|
|
/s/
Michael E. Mikolajczyk |
|
Chairman
of the Board of Directors |
| Michael
E. Mikolajczyk |
|
|
| |
|
|
|
/s/
Susan Westphal |
|
Director |
| Susan
Westphal |
|
|
| |
|
|
|
/s/
Jefferson Gramm |
|
Director |
| Jefferson
Gramm |
|
|
EXHIBIT
INDEX
The
Exhibits listed below are filed or incorporated by reference as
part of this Annual Report on Form 10-K.
|
Exhibit
No. |
|
Description |
|
Incorporation by Reference |
| |
|
|
|
|
|
3.1 |
|
Eighth
Amended and Restated Certificate of Incorporation of Rubicon
Technology, Inc. |
|
Filed
as Exhibit 3.1 to the registrant’s Registration Statement on
Form S-1/A, filed on November 1, 2007 (File No.
333-145880) |
| |
|
|
|
|
|
3.2 |
|
Amendment
No. 1 to Eighth Amended and Restated Certificate of Incorporation
of Rubicon Technology, Inc. |
|
Filed
as Appendix A to the registrant’s Definitive Proxy Statement on
Schedule 14A, filed on April 29, 2011 (File No.
1-33834) |
| |
|
|
|
|
|
3.3 |
|
Amendment
No. 2 to Eighth Amended and Restated Certificate of Incorporation
of Rubicon Technology, Inc. |
|
Filed
as Exhibit 3.1 to the registrant’s Current Report on Form 8-K,
filed on May 4, 2017 (File No. 1-33834) |
|
|
|
|
|
|
|
3.4 |
|
Second
Amended and Restated Bylaws of Rubicon Technology,
Inc. |
|
Filed
as Exhibit 3.3 to the registrant’s Quarterly Report on Form 10-Q,
filed on May 10, 2016 (File No. 1-33834) |
|
|
|
|
|
|
|
3.5 |
|
Certificate
of Designations of Series A Junior Participating Preferred Stock of
Rubicon Technology, Inc. filed with the Secretary of State of
Delaware on December 18, 2017. |
|
Filed
as Exhibit 3.1 to the registrant’s Current Report on Form 8-K,
filed on December 18, 2017 (File No. 1-33834) |
|
|
|
|
|
|
|
3.6 |
|
Amendment No. 3 to Eighth Amended and Restated Certificate of
Incorporation of Rubicon Technology, Inc. |
|
Filed
as Exhibit 3.1 to the registrant’s Current Report on Form 8-K,
filed on May 15, 2018 (File No. 1-33834) |
| |
|
|
|
|
|
4.1 |
|
Specimen
Common Stock Certificate |
|
Filed
as Exhibit 4.1 to the registrant’s Registration Statement on
Form S-1/A, filed on November 13, 2007 (File No.
333-145880) |
|
|
|
|
|
|
|
4.2 |
|
Rights
Agreement dated as of December 18, 2017, between Rubicon
Technology, Inc. and American Stock Transfer & Trust Company,
LLC, which includes the Form of Certificate of Designations of
Series A Junior Participating Preferred Stock as Exhibit A, the
Form of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C. |
|
Filed
as Exhibit 4.1 to the registrant’s Current Report on Form 8-K,
filed on December 18, 2017 (File No. 1-33834) |
|
|
|
|
|
|
|
10.1* |
|
Rubicon
Technology, Inc. 2007 Stock Incentive Plan, as amended and
restated, effective March 23, 2011 |
|
Filed
as Exhibit 10.2 to the registrant’s Annual Report on Form 10-K,
filed on March 13, 2014 (File No. 1-33834) |
|
Exhibit
No. |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
|
|
10.2* |
|
Rubicon
Technology, Inc. 2016 Stock Incentive Plan |
|
Filed
as Appendix A to the registrant’s Definitive Proxy Statement on
Schedule 14A, filed on May 18, 2016 (File No. 1-33834) |
|
|
|
|
|
|
|
10.3(a)* |
|
Form
of Notice of Stock Option Grant and Stock Option Agreement pursuant
to Rubicon Technology, Inc. 2016 Stock Incentive
Plan |
|
Filed
as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q,
filed on August 9, 2016 (File No. 1-33834) |
|
|
|
|
|
|
|
10.3(b)* |
|
Form
of Non-Employee Director Restricted Stock Agreement pursuant to
Rubicon Technology, Inc. 2016 Stock Incentive Plan |
|
Filed
as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q,
filed on August 9, 2016 (File No. 1-33834) |
|
|
|
|
|
|
|
10.3(c)* |
|
Form
of Restricted Stock Unit Agreement pursuant to Rubicon Technology,
Inc. 2016 Stock Incentive Plan (with time-based
vesting) |
|
Filed
as Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q,
filed on August 9, 2016 (File No. 1-33834) |
| |
|
|
|
|
|
10.4* |
|
Form
of Indemnification Agreement for Directors and Executive
Officers |
|
Filed
as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q,
filed on May 8, 2015 (File No. 1-33834) |
| |
|
|
|
|
|
10.5* |
|
Executive
Employment Agreement by and between Rubicon Technology, Inc. and
Timothy E. Brog, dated as of March 1, 2017 |
|
Filed
as Exhibit 10.1 to the registrant’s Current Report on Form 8-K,
filed on March 16, 2017 (File No. 1-33834) |
| |
|
|
|
|
|
10.6* |
|
Amended
and Restated Executive Employment Agreement by and between Rubicon
Technology, Inc. and Timothy E. Brog, dated as of May 12,
2017 |
|
Filed
as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q,
filed on May 12, 2017 (File No. 1-33834) |
| |
|
|
|
|
|
10.7 |
|
Stockholder’s Agreement dated as of November 16, 2017, by and among
Rubicon Technology, Inc. and Bandera Partners LLC, Bandera Master
Fund L.P., Gregory Bylinsky and Jefferson
Gramm |
|
Filed
as Exhibit 10.1 to the registrant’s Current Report on Form 8-K,
filed on November 16, 2017 (File No. 1-33834) |
|
Exhibit
No. |
|
Description |
|
Incorporation by Reference |
|
|
|
|
|
|
|
10.8 |
|
Commercial
Lease by and between Rubicon Technology, Inc. and Bartmanns,
Perales & Dolter, LLC, dated as of December 23,
2004 |
|
Filed
as Exhibit 10.12(a) to the registrant’s Registration Statement on
Form S-1, filed on September 5, 2007 (File No.
333-145880) |
| |
|
|
|
|
|
10.8(a) |
|
Amendment
to Commercial Lease by and between Rubicon Technology, Inc. and
Bartmanns, Perales & Dolter, LLC, dated as of May 6,
2005 |
|
Filed
as Exhibit 10.12 to the registrant’s Registration Statement on Form
S-1, filed on September 5, 2007 (File No. 333-145880) |
| |
|
|
|
|
|
10.8(b) |
|
Second
Amendment to Commercial Lease by and between Rubicon Technology,
Inc. and Bartmanns, Perales & Dolter, LLC, dated as of December
23, 2014 |
|
Filed
as Exhibit 10.11 to the registrant’s Annual Report on Form 10-K,
filed on March 13, 2015 (File No. 1-33834) |
|
|
|
|
|
|
| 10.9 |
|
Asset
Purchase Agreement, dated as of May 17, 2019, by and among
Wellfount, Corporation, Rubicon DTP LLC and Rubicon Technology,
Inc. |
|
Filed
as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q,
filed on August 14, 2019 (File No. 1-33834) |
| |
|
|
|
|
| 10.10 |
|
Sale
and Purchase Agreement, dated as of December 19, 2019, by and among
Rubicon Sapphire Technology (Malaysia) SDN. BHD., Rubicon
Technology, Inc. and Computime (Malaysia) SDN. BHD |
|
Filed
as Exhibit 10.1 to the registrant’s Current Report on Form 8-K,
filed on December 19, 2019 (File No. 1-33834) |
| |
|
|
|
|
| 10.11 |
|
Real
Estate Sale Contract, dated as of February 26, 2020, between
Rubicon Technology, Inc. and the Batavia Park
District |
|
Filed
as Exhibit 10.1 to the registrant’s Current Report on Form 8-K,
filed on February 28, 2020 (File No. 1-33834) |
|
|
|
|
|
|
|
21.1** |
|
Subsidiaries
of the Company |
|
|
| |
|
|
|
|
|
23.1** |
|
Consent
of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
|
|
| 24.1** |
|
Power
of Attorney (incorporated by reference to the signature page of
this Annual Report on Form 10-K) |
|
|
|
|
|
|
|
|
|
31.1** |
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
31.2** |
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
32.1** |
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
|
| |
|
|
|
|
|
101.INS** |
|
XBRL
Instance Document |
|
|
| |
|
|
|
|
|
101.SCH** |
|
XBRL
Taxonomy Extension Schema Document |
|
|
| |
|
|
|
|
|
101.CAL** |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
|
|
| |
|
|
|
|
|
101.LAB** |
|
XBRL
Taxonomy Extension Label Linkbase Document |
|
|
| |
|
|
|
|
|
101.PRE** |
|
XBRL
Taxonomy Extension Presentation Document |
|
|
| |
|
|
|
|
|
101.DEF** |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
|
|
|
* |
Management
contract or compensatory plan or arrangement of the
Company. |
|
|
** |
Submitted
electronically with this Annual Report on Form 10-K. |
Rubicon
Technology, Inc.
INDEX TO
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors of
Rubicon
Technology, Inc. and Subsidiaries
Opinion
on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Rubicon
Technology, Inc. and Subsidiaries (the “Company”) as of December
31, 2019 and 2018, the related consolidated statements of
operations, comprehensive income (loss), stockholders’ equity and
cash flows for each of the two years in the period ended December
31, 2019, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2019 and 2018,
and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2019, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for
Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted
our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of
our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits
included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/
Marcum
LLP
Marcum
llp
We have
served as the Company’s auditor since 2017.
Chicago,
Illinois
March 20,
2020
Rubicon Technology,
Inc.
Consolidated Balance
Sheets
| |
|
As of December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands, other
than share data) |
|
| Assets |
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
8,709 |
|
|
$ |
11,241 |
|
| Restricted
cash |
|
|
171 |
|
|
|
169 |
|
| Short-term
investments |
|
|
15,458 |
|
|
|
14,356 |
|
| Accounts
receivable, net |
|
|
1,053 |
|
|
|
733 |
|
| Inventories |
|
|
1,710 |
|
|
|
2,130 |
|
| Other inventory
supplies |
|
|
140 |
|
|
|
183 |
|
| Prepaid expenses
and other current assets |
|
|
488 |
|
|
|
109 |
|
|
Assets held for sale |
|
|
3,957 |
|
|
|
4,145 |
|
| Total current
assets |
|
|
31,686 |
|
|
|
33,066 |
|
| Inventories,
non-current |
|
|
468 |
|
|
|
— |
|
|
Property and equipment, net |
|
|
2,647 |
|
|
|
2,728 |
|
| Total
assets |
|
$ |
34,801 |
|
|
$ |
35,794 |
|
| Liabilities and
stockholders’ equity |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
733 |
|
|
$ |
400 |
|
| Accrued
payroll |
|
|
53 |
|
|
|
28 |
|
| Accrued and other
current liabilities |
|
|
344 |
|
|
|
345 |
|
| Corporate income
and franchise taxes |
|
|
296 |
|
|
|
286 |
|
| Accrued real
estate taxes |
|
|
114 |
|
|
|
96 |
|
|
Advance payments |
|
|
16 |
|
|
|
39 |
|
| Total current
liabilities |
|
|
1,556 |
|
|
|
1,194 |
|
| Commitments and contingencies |
|
|
|
|
|
|
|
|
| Stockholders’ equity |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 1,000,000 undesignated shares
authorized, no shares issued or outstanding |
|
|
— |
|
|
|
— |
|
| Common
stock, $0.001 par value 8,200,000 shares authorized; 2,955,253 and
2,919,542 shares issued; 2,702,171 and 2,733,601 shares
outstanding |
|
|
29 |
|
|
|
29 |
|
| Additional paid-in
capital |
|
|
376,306 |
|
|
|
375,979 |
|
| Treasury stock, at
cost, 253,082 and 185,941 shares |
|
|
(12,749 |
) |
|
|
(12,213 |
) |
| Accumulated other
comprehensive loss |
|
|
(1 |
) |
|
|
(2 |
) |
|
Accumulated deficit |
|
|
(330,340 |
) |
|
|
(329,193 |
) |
| Total
stockholders’ equity |
|
|
33,245 |
|
|
|
34,600 |
|
| Total
liabilities and stockholders’ equity |
|
$ |
34,801 |
|
|
$ |
35,794 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Rubicon Technology,
Inc.
Consolidated
Statements of Operations
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands, other
than share data) |
|
| |
|
|
|
| Revenue |
|
$ |
3,526 |
|
|
$ |
3,878 |
|
| Cost of goods
sold |
|
|
2,444 |
|
|
|
3,862 |
|
| Gross profit
(loss) |
|
|
1,082 |
|
|
|
16 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| General and
administrative |
|
|
2,548 |
|
|
|
2,250 |
|
| Sales and
marketing |
|
|
361 |
|
|
|
376 |
|
| Research and
development |
|
|
— |
|
|
|
122 |
|
|
(Gain) loss on sale or disposal of assets |
|
|
(577 |
) |
|
|
(3,367 |
) |
|
Income (loss) from operations |
|
|
(1,250 |
) |
|
|
635 |
|
| Other income: |
|
|
|
|
|
|
|
|
| Interest
income |
|
|
460 |
|
|
|
361 |
|
| Realized gain
(loss) on marketable securities |
|
|
(165 |
) |
|
|
— |
|
| Unrealized gain
(loss) on marketable securities |
|
|
(171 |
) |
|
|
— |
|
|
Realized gain (loss) on foreign currency translation |
|
|
1 |
|
|
|
(9 |
) |
| Total
other income |
|
|
125 |
|
|
|
352 |
|
| Income (loss) before income taxes |
|
|
(1,125 |
) |
|
|
987 |
|
| Income tax
expense |
|
|
(22 |
) |
|
|
(24 |
) |
| Net income
(loss) |
|
$ |
(1,147 |
) |
|
$ |
963 |
|
| Net income (loss)
per common share |
|
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.42 |
) |
|
$ |
0.35 |
|
| Diluted |
|
$ |
(0.42 |
) |
|
$ |
0.35 |
|
| Weighted
average common shares outstanding used in computing net income
(loss) per common share |
|
|
|
|
|
|
|
|
| Basic |
|
|
2,707,811 |
|
|
|
2,729,548 |
|
| Diluted |
|
|
2,707,811 |
|
|
|
2,734,721 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Rubicon Technology,
Inc.
Consolidated
Statements of Comprehensive Income (Loss)
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
| Net income (loss) |
|
$ |
(1,147 |
) |
|
$ |
963 |
|
| Other comprehensive income: |
|
|
|
|
|
|
|
|
| Unrealized gain
(loss) on investments, net of taxes |
|
|
— |
|
|
|
1 |
|
|
Unrealized gain (loss) on currency translation |
|
|
1 |
|
|
|
— |
|
| Other
comprehensive income (loss) |
|
|
1 |
|
|
|
1 |
|
| Comprehensive
income (loss) |
|
$ |
(1,146 |
) |
|
$ |
964 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Rubicon Technology,
Inc.
Consolidated
Statements of Stockholders’ Equity
| |
|
Common stock |
|
|
Treasury stock |
|
|
|
|
|
Stockholders’ equity |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Additional
paid-in
capital |
|
|
Accum
other
comp
inc. |
|
|
Accum
deficit |
|
|
Total
stockholders’
equity |
|
| |
|
(in thousands other than share data) |
|
|
Balance at January 1, 2018 |
|
|
2,910,334 |
|
|
$ |
29 |
|
|
|
(177,484 |
) |
|
$ |
(12,148 |
) |
|
$ |
375,611 |
|
|
$ |
(3 |
) |
|
$ |
(330,156 |
) |
|
$ |
33,333 |
|
| Exercise
of stock options, net of shares withheld for employee taxes |
|
|
125 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
|
Restricted stock issued |
|
|
6,592 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
| Common
stock issued, net of shares withheld for employee taxes |
|
|
2,491 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
251 |
|
|
|
— |
|
|
|
— |
|
|
|
251 |
|
| Purchase
of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
(8,457 |
) |
|
|
(65 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65 |
) |
|
Unrealized gain on investments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
963 |
|
|
|
963 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at
December 31, 2018 |
|
|
2,919,542 |
|
|
$ |
29 |
|
|
|
(185,941 |
) |
|
$ |
(12,213 |
) |
|
$ |
375,979 |
|
|
$ |
(2 |
) |
|
$ |
(329,193 |
) |
|
$ |
34,600 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
508 |
|
|
|
— |
|
|
|
— |
|
|
|
508 |
|
|
Restricted stock issued |
|
|
2,538 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
| Common
stock issued, net of shares withheld for employee taxes |
|
|
33,173 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(196 |
) |
|
|
— |
|
|
|
— |
|
|
|
(196 |
) |
| Purchase
of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
(67,141 |
) |
|
|
(536 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(536 |
) |
|
Unrealized gain on currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,147 |
) |
|
|
(1,147 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
|
|
2,955,253 |
|
|
$ |
29 |
|
|
|
(253,082 |
) |
|
$ |
(12,749 |
) |
|
$ |
376,306 |
|
|
$ |
(1 |
) |
|
$ |
(330,340 |
) |
|
$ |
33,245 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Rubicon Technology,
Inc.
Consolidated
Statements of Cash Flows
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
| Cash flows from
operating activities |
|
|
|
|
|
|
|
|
| Net
income (loss) |
|
$ |
(1,147 |
) |
|
$ |
963 |
|
| Adjustments to
reconcile net income (loss) to net cash used in operating
activities |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
169 |
|
|
|
355 |
|
| Net (gain) loss on
sale or disposal of assets |
|
|
(577 |
) |
|
|
(3,367 |
) |
| Unrealized (gain)
loss on equity investments |
|
|
171
|
|
|
|
—
|
|
| Stock-based
compensation |
|
|
523 |
|
|
|
381 |
|
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(320 |
) |
|
|
(15 |
) |
| Inventories |
|
|
(48 |
) |
|
|
900 |
|
| Other inventory
supplies |
|
|
42 |
|
|
|
76 |
|
| Prepaid expenses
and other assets |
|
|
(380 |
) |
|
|
161 |
|
| Accounts
payable |
|
|
332 |
|
|
|
(182 |
) |
| Accrued
payroll |
|
|
25 |
|
|
|
(73 |
) |
| Corporate income
and franchise taxes |
|
|
(7 |
) |
|
|
(8 |
) |
| Accrued real
estate taxes |
|
|
11 |
|
|
|
(153 |
) |
| Advance
payments |
|
|
(22 |
) |
|
|
(20 |
) |
|
Accrued and other current liabilities |
|
|
(2 |
) |
|
|
(84 |
) |
| Net
cash used in operating activities |
|
|
(1,230 |
) |
|
|
(1,066 |
) |
| Cash flows from
investing activities |
|
|
|
|
|
|
|
|
| Purchases of assets |
|
|
(64 |
) |
|
|
(2,280 |
) |
| Proceeds from sale
or disposal of assets |
|
|
765 |
|
|
|
11,016 |
|
| Purchase of investments |
|
|
(1,575 |
) |
|
|
(8,106 |
) |
|
Proceeds from sale of investments |
|
|
304 |
|
|
|
201 |
|
| Net
cash (used in) provided by investing activities |
|
|
(570 |
) |
|
|
831 |
|
| Cash flows from
financing activities |
|
|
|
|
|
|
|
|
| Taxes paid related
to net share settlement of equity awards |
|
|
(194 |
) |
|
|
(14 |
) |
|
Purchases of treasury stock |
|
|
(536 |
) |
|
|
(65 |
) |
| Net
cash used in financing activities |
|
|
(730 |
) |
|
|
(79 |
) |
| Net effect of currency
translation |
|
|
— |
|
|
|
(1 |
) |
| Net decrease in cash, cash equivalents
and restricted cash |
|
|
(2,530 |
) |
|
|
(315 |
) |
| Cash, cash
equivalents and restricted cash, beginning of year |
|
|
11,410 |
|
|
|
11,725 |
|
| Cash, cash
equivalents and restricted cash, end of year |
|
$ |
8,880 |
|
|
$ |
11,410 |
|
| Supplemental disclosure of cash flow -
none |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Rubicon Technology,
Inc.
Notes to
Consolidated Financial Statements
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of
business
Rubicon
Technology, Inc., a Delaware corporation (the “Company”), is a
vertically integrated, advanced materials provider specializing in
monocrystalline sapphire for applications in optical and industrial
systems. The Company sells its products on a global basis to
customers in North America, Europe and Asia. The Company maintains
its operating facility in the Chicago metropolitan area.
Principles of
consolidation
The
Consolidated Financial Statements include the accounts of the
Company and its wholly owned subsidiaries, Rubicon Technology
Worldwide LLC, Rubicon DTP LLC, Rubicon Technology BP LLC, Rubicon
Sapphire Technology (Malaysia) SDN BHD and Rubicon Technology Hong
Kong Limited. All intercompany transactions and balances have been
eliminated in consolidation.
A summary of
the Company’s significant accounting policies applied in the
preparation of the accompanying Consolidated Financial Statements
follows.
Cash and
cash equivalents
The Company
considers all unrestricted highly liquid investments immediately
available to be cash equivalents. Cash equivalents primarily
consist of time deposits with banks, unsettled trades and brokerage
money market accounts.
Restricted
cash
A summary of
the Company’s restricted cash at December 31, 2019 and 2018,
is as follows:
| |
|
As of December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
|
(in
thousands)
|
|
|
Fixed deposits |
|
|
171 |
|
|
|
169 |
|
| |
|
$ |
171 |
|
|
$ |
169 |
|
Foreign
currency translation and transactions
Rubicon
Technology Worldwide LLC, and Rubicon Technology Hong Kong Limited
assets and liabilities are translated into U.S. dollars at exchange
rates existing at the respective balance sheet dates and capital
accounts at historical exchange rates. The results of operations
are translated into U.S. dollars at the average exchange rates
during the respective period. Translation adjustments resulting
from fluctuations in exchange rates for Rubicon Technology
Worldwide LLC and Rubicon Technology Hong Kong Limited are recorded
as a separate component of accumulated other comprehensive income
(loss) within stockholders’ equity.
The
Company has determined that the functional currency of Rubicon
Sapphire Technology (Malaysia) SDN BHD is the U.S. dollar. Rubicon
Sapphire Technology (Malaysia) SDN BHD’s assets and liabilities are
translated into U.S. dollars using the remeasurement method.
Non-monetary assets are translated at historical exchange rates and
monetary assets are translated at exchange rates existing at the
respective balance sheet dates. Translation adjustments for Rubicon
Sapphire Technology (Malaysia) SDN BHD are included in determining
net income (loss) for the period. The results of operations are
translated into U.S. dollars at the average exchange rates during
the respective period. The Company records these gains and losses
in other income.
Foreign
currency transaction gains and losses are generated from the
effects of exchange rate changes on transactions denominated in a
currency other than the functional currency of the Company, which
is the U.S. dollar. Gains and losses on foreign currency
transactions are generally required to be recognized in the
determination of net income (loss) for the period. The Company
records these gains and losses in other income.
Investments
We invest
our available cash primarily in U.S. Treasury securities,
investment grade commercial paper, FDIC guaranteed certificates of
deposit, common stock, equity related securities and corporate
notes. Investments classified as available-for-sale debt securities
are carried at fair value with unrealized gains and losses recorded
in accumulated other comprehensive income (loss). Investments in
equity securities are reported at fair value, with both realized
and unrealized gains and losses recorded in other income, in the
consolidated statements of operations. Investments in which the
Company has the ability and intent, if necessary, to liquidate are
classified as short-term.
The Company
reviews its available-for-sale debt securities investments at the
end of each quarter for other-than-temporary declines in fair value
based on the specific identification method. The Company considers
various factors in determining whether an impairment is
other-than-temporary, including the severity and duration of the
impairment, changes in underlying credit ratings, forecasted
recovery, its ability and intent to hold the investment for a
period of time sufficient to allow for any anticipated recovery in
market value and the probability that the scheduled cash payments
will continue to be made. When the Company concludes that an
other-than-temporary impairment has resulted, the difference
between the fair value and carrying value is written off and
recorded as a charge on the consolidated statements of operations.
As of December 31, 2019 and 2018, no impairment was
recorded.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
The Company
records treasury stock purchases under the cost method whereby the
entire cost of the acquired stock is recorded as treasury stock. In
November 2018, the Company’s Board of Directors authorized a
program to repurchase up to $3 million of the Company’s common
stock. The Company’s share repurchase program does not obligate it
to acquire any specific number of shares. Under the program, shares
may be repurchased in privately negotiated and/or open market
transactions. The timing, price and volume of repurchases will be
based upon market conditions, relevant securities laws and other
factors. The stock repurchase plan expires on November 19, 2021,
and may be terminated at any time.
Share
repurchase activity during the year ended December 31, 2019,
was as follows:
|
Periods
|
|
Total
number of
shares
purchased |
|
|
Average
price
paid per
share |
|
|
Total
number of
shares
purchased
as part of
publicly
announced
program |
|
|
Approximate
dollar value
of
shares
that may
yet
be
purchased
under the program
(in thousands)
|
|
|
January 1, 2019, to December 31, 2019 |
|
|
67,141 |
|
|
$ |
7.97 |
|
|
|
67,141 |
|
|
|
2,399 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
67,141 |
|
|
|
|
|
|
|
|
|
|
$ |
2,399 |
|
Accounts
receivable
The majority
of the Company’s accounts receivable are due from defense
subcontractors, industrial manufacturers, fabricators and
resellers. Credit is extended based on an evaluation of the
customer’s financial condition. Accounts receivable are due based
on contract terms and at stated amounts due from customers, net of
an allowance for doubtful accounts. Losses from credit sales are
provided for in the financial statements.
Accounts
outstanding longer than the contractual payment terms are
considered past due. The Company determines its allowance by
considering a number of factors, including the length of time a
customer’s account is past due, the customer’s current ability to
pay and the condition of the general economy and industry as a
whole. The Company writes off accounts receivable when they are
deemed uncollectible and such write-offs, net of payments received,
are recorded as a reduction to the allowance.
The
following table shows the activity of the allowance for doubtful
accounts:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
|
Beginning balance |
|
$ |
7 |
|
|
$ |
7 |
|
| Charges
to costs and expenses |
|
|
33 |
|
|
|
— |
|
|
Account write-offs, less recoveries |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
40 |
|
|
$ |
7 |
|
Inventories
Inventories
are valued at the lower of cost or net realizable value. Net
realizable value is determined based on an estimated selling price
in the ordinary course of business less reasonably predictable
costs of completion and disposal. Raw materials cost is determined
using the first-in, first-out method, and work-in-process and
finished goods costs are determined on a standard cost basis, which
includes materials, labor and overhead. The Company reduces the
carrying value of its inventories for differences between the cost
and the estimated net realizable value, taking into account usage,
expected demand, technological obsolescence and other relevant
information.
The Company
establishes inventory reserves when conditions exist that suggest
inventory may be in excess of anticipated demand or is obsolete
based on customer specifications. The Company evaluates the ability
to realize the value of its inventory based on a combination of
factors, including forecasted sales, estimated current and future
market value and changes in customers’ product specifications. The
Company’s method of estimating excess and obsolete inventory has
remained consistent for all periods presented. The Company recorded
for the years ended December 31, 2019 and 2018, a lower of
cost or net realizable value adjustment which reduced inventory and
increased cost of goods sold by $35,000 and $6,000,
respectively.
In 2018 and
2019, the Company used some of its previously written down two-inch
diameter core material in production of optical and industrial
sapphire wafers and did not record any additional adjustments for
the years ended December 31, 2018 and December 31, 2019.
The Company
evaluates the amount of raw material needed for future production
based on expected crystal growth production needed to meet
anticipated sales. The Company did not record any write-downs of
its raw materials inventory for the years ended December 31, 2018
and December 31, 2019.
Inventories
are composed of the following:
| |
|
As of December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
|
Raw materials |
|
$ |
468
|
|
|
$ |
468 |
|
|
Work-in-process |
|
|
901 |
|
|
|
1,322 |
|
|
Finished goods |
|
|
809 |
|
|
|
340 |
|
| |
|
$ |
2,178 |
|
|
$ |
2,130 |
|
In the year ended December 31, 2019, the Company made the
determination that raw material inventories were such that the
likelihood of significant usage within the current year was
doubtful and reclassified such raw material inventories as
non-current in the reported financial statements.
Other
inventory supplies
The
Company’s other inventory supplies include stock of consumable
assets and spare parts used in the manufacturing
process.
For the year
ended December 31, 2018, the Company recorded a write-down of
certain of its obsolete consumable assets in the amount of $63,000.
No additional write-downs were recorded in the year ended December
31, 2019.
Assets held for sale
An asset is considered to be held for sale when all of the
following criteria are met: (i) management commits to a plan
to sell the asset; (ii) it is unlikely that the disposal plan
will be significantly modified or discontinued; (iii) the
asset is available for immediate sale in its present condition;
(iv) actions required to complete the sale of the asset have
been initiated; (v) sale of the asset is probable and the
completed sale is expected to occur within one year; and
(vi) the asset is actively being marketed for sale at a price
that is reasonable given its current market value.
A long-lived asset classified as held for sale is measured at the
lower of its carrying amount or fair value less cost to sell. If
the long-lived asset is newly acquired, the carrying amount of the
long-lived asset is established based on its fair value less cost
to sell at the acquisition date. A long-lived asset is not
depreciated or amortized while it is classified as held for
sale.
Property
and equipment
Property and
equipment consisted of the following:
| |
|
As of December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
|
Machinery, equipment and tooling |
|
$ |
3,341 |
|
|
$ |
3,293 |
|
| Buildings |
|
|
1,711 |
|
|
|
1,686 |
|
|
Information systems |
|
|
835 |
|
|
|
819 |
|
| Land and
land improvements |
|
|
594 |
|
|
|
594 |
|
|
Furniture and fixtures |
|
|
8 |
|
|
|
8 |
|
| Total
cost |
|
|
6,489 |
|
|
|
6,400 |
|
|
Accumulated depreciation and amortization |
|
|
(3,842 |
) |
|
|
(3,672 |
) |
|
Property and equipment, net |
|
$ |
2,647 |
|
|
$ |
2,728 |
|
Property and
equipment are carried at cost and depreciated over their estimated
useful lives using the straight-line method. The cost of
maintenance and repairs is charged to expense as incurred.
Significant renewals and improvements are capitalized. Depreciation
expense associated with property and equipment was $169,000 and
$355,000 for the years ended December 31, 2019 and 2018,
respectively.
The
estimated useful lives are as follows:
|
Asset
description |
|
Life |
| Buildings |
|
39 years |
| Machinery, equipment and
tooling |
|
3-10 years |
| Furniture and
fixtures |
|
7
years |
| Information
systems |
|
3
years |
Warranty
cost
The
Company’s sales terms include a warranty that its products will
meet certain specifications. The Company records a current
liability for the expected cost of warranty-related claims at the
time of sale. The warranty reserve is included in accrued and other
current liabilities on the Consolidated Balance Sheets.
The
following table presents changes in the Company’s product warranty
liability:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
|
Balance,
beginning of period |
|
$ |
8 |
|
|
$ |
15 |
|
|
Charged to
cost of sales |
|
|
31 |
|
|
|
23 |
|
|
Actual
product warranty expenditures |
|
|
(35 |
) |
|
|
(30 |
) |
|
Balance, end
of period |
|
$ |
4 |
|
|
$ |
8 |
|
The Company
does not provide maintenance or other services and it does not have
sales that involve bill & hold arrangements, multiple elements
or deliverables. However, the Company does provide product warranty
for up to 90 days, for which the Company has accrued a warranty
reserve of $4,000 and $8,000 for the years ended December 31, 2019
and 2018, respectively.
Fair
value of financial instruments
The
Company’s financial instruments consist primarily of cash and cash
equivalents, short-term investments, accounts receivable, and
accounts payable. The carrying values of these assets and
liabilities approximate their fair values due to the short-term
nature of these instruments at December 31, 2019 and
2018.
Concentration of
credit risks and other risks and uncertainties
Financial
instruments that could potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, restricted cash, short-term investments and accounts
receivable. At December 31, 2019 and 2018, the Company had
$1.6 million on deposit at foreign financial institutions. For the
year ended December 31, 2019, the Company had $5.7 million on
deposit at financial institutions in excess of amounts insured by
the FDIC and other foreign governmental insurance agencies. This
compares to a $6.8 million as of December 31, 2018. The Company
performs a periodic evaluation of these institutions for relative
credit standing. The Company has not experienced any losses in such
accounts and management believes it is not exposed to any
significant risk of loss on these balances.
The Company
uses third parties for certain finishing functions for its
products, including the slicing and polishing of its sapphire
crystal inventory. These types of services are only available
from a limited number of third parties. The Company’s ability
to successfully outsource these finishing functions will
substantially depend on its ability to develop, maintain and expand
its strategic relationship with these third parties. As a result,
the Company may be unable to meet the demand for its products,
which could have a material adverse impact on the
Company.
Concentration of credit
risk related to revenue and accounts receivable is discussed in
Note 4.
Revenue
recognition
Revenues
recognized include product sales and billings for costs and fees
for government contracts.
Product
Sales
The Company
recognizes revenue in accordance with ASC Topic 606, Revenue
From Contracts with Customers (“Topic 606”) which was adopted
on January 1, 2018. The Company recognizes revenue when performance
obligations under a purchase order or signed quotation are
satisfied. The Company’s business practice commits the Company to
manufacture and deliver product upon acceptance of a customer’s
purchase order or signed quotation (“agreement”). The agreement
with the customer includes specifications of the product to be
delivered, price, expected ship date and payment terms. The
Company’s agreements generally do not contain variable, financing,
rights of return or non-cash components. There are no up-front
costs to develop the production process. The performance obligation
is satisfied at the point in time (single performance obligation)
when the product is manufactured to the customer’s specification,
as performance does not create an asset with an alternative use to
the Company. Accordingly, the Company recognizes revenue when the
product is shipped, and control of the product, title and risk of
loss have been transferred to the customer. The Company grants
credit terms considering normal collection risk. If there is doubt
about collection, full prepayment for the order is required. Any
payments received prior to shipment are recorded as deferred
revenue and included in Advance Payments in the Consolidated
Balance Sheets.
Government
Contracts
The Company
recognizes R&D revenue in the period during which the related
costs are incurred over the contractually defined period. In July
2012, the Company signed a contract with the Air Force Research
Laboratory (the LANCE government contract) to produce large-area
sapphire windows on a cost plus fixed fee basis for a total
contract amount of $4.7 million. The deliverables under the
contract included development of machinery and technology to be
able to produce large area sapphire windows, prove the concept of
growing large windows with that equipment and delivery of large
area sapphire windows. The Company records research and development
revenue on a gross basis as costs are incurred, plus a portion of
the fixed fee over a period of time as the obligations (machinery,
proof of concept and finished windows) are completed following the
input method of measuring progress which recognizes revenue as
resources are consumed, labor hours expended and costs are
incurred. For the year ended December 31, 2018, $56,000 of
revenue was recorded. The performance obligations under this
contract were completed in the year ended December 31, 2018 and as
such, no R&D revenue for this contract was recognized in the
year ended December 31, 2019.
Shipping
and handling costs
The Company
records costs incurred in connection with shipping and handling of
products as cost of goods sold. Amounts billed to customers in
connection with these costs are included in revenue and are not
material for any of the periods presented in the accompanying
financial statements.
Sales
tax
The Company
collects and remits sales taxes on products sold to customers and
reports such amounts under the net method in its Consolidated
Statements of Operations and records a liability until remitted to
the respective tax authority.
Stock-based
compensation
The Company
requires all share-based payments to employees, including grants of
employee stock options, to be measured at fair value and expensed
in the Consolidated Statements of Operations over the service
period (generally the vesting period) of the grant. Expense is
recognized in the Consolidated Statements of Operations for these
share-based payments. The Company uses Black Scholes option pricing
model in order to determine the fair value of stock option
grants.
Research
and development
R&D
costs are expensed as incurred. There was no R&D expense
recognized during the year ended December 31, 2019. R&D expense
was $122,000 for the year ended December 31, 2018.
Accounting for
uncertainty in income taxes
The Company
recognizes the tax benefit from an uncertain tax position only if
it is more likely than not the tax position will be sustained on
examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on
the largest benefit that has a greater than 50% likelihood of being
realized upon settlement. The Company recognizes interest and/or
penalties related to income tax matters in income tax expense.
There were no interest or penalties related to income taxes that
have been accrued or recognized as of and for the years ended
December 31, 2019 and 2018.
The Company
is subject to taxation in the U.S., Malaysia and in a U.S. state
jurisdiction. Due to the existence of NOL carryforwards, tax years
ended December 31, 2001 through 2006, 2008, 2009 and 2012
through 2018 are open to examination by tax authorities for Federal
purposes. Due to NOL carryforwards at the State level, tax years
ended 2008, 2009 and 2012 through 2018 are open to examination by
state tax authorities. Tax years 2013 through 2018 are open to
examination by the Malaysia Inland Revenue Board.
Income
taxes
Deferred tax
assets and liabilities are provided for temporary differences
between financial reporting and income tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws
expected to be in effect when the differences will reverse.
Deferred income taxes also arise from the future benefits of NOL
carryforwards. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be
realized. Full valuation allowances on net deferred tax assets are
maintained until an appropriate level of profitability that
generates taxable income is deemed sustainable or until a tax
strategy is developed that would enable the Company to conclude
that it is more likely than not that a portion of the deferred tax
assets will be realizable. Based on an evaluation in accordance
with the accounting standards, as of December 31, 2019 and
2018, a valuation allowance has been recorded against the net U.S.
and Malaysia deferred tax assets in order to measure only the
portion of the deferred tax assets that are more likely than not to
be realized based on the weight of all the available
evidence.
Use of
estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) 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 could differ
from those estimates.
Other
comprehensive loss
Comprehensive loss is
defined as the change in equity of a business enterprise from
transactions and other events from non-owner sources. Comprehensive
loss includes net loss and other non-owner changes in equity that
bypass the statement of operations and are reported in a separate
component of equity.
Net
income (loss) per common share
Basic net
income (loss) per common share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per common share is
computed by dividing net income (loss) by the weighted-average
number of diluted common shares outstanding during the period.
Diluted shares outstanding are calculated by adding to the
weighted-average shares (a) any outstanding stock options based on
the treasury stock method and (b) restricted stock units
(“RSU”).
Diluted net
income per share was the same as basic net income per share for the
year ended December 31, 2019, because the effects of
potentially dilutive securities did not have a material impact on
the calculation of diluted net income per share. The Company had
outstanding options exercisable into 19,500 shares of the Company’s
common stock that would have had an anti-dilutive effect at
December 31, 2019.
Diluted net
loss per common share was the same as basic net loss per common
share for the year ended December 31, 2018, because the
effects of potentially dilutive securities were
anti-dilutive.
New
accounting pronouncements adopted
In November
2016, the FASB issued ASU No. 2016-18 (“ASU 2016-18”), Statement of
Cash Flows (Topic 230): Restricted Cash. The standard requires that
amounts generally described as restricted cash and restricted cash
equivalents to be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amount
shown on the statement of cash flows. In addition, the standard
requires disclosure of the nature of restrictions on cash balances
and how the statement of cash flows reconciles to the balance sheet
in any situation in which the balance sheet includes more than one
line item of cash, cash equivalents and restricted cash. ASU
2016-18 is effective for the interim and annual periods beginning
after December 15, 2017, with early adoption permitted. The
Company’s adoption of ASU 2016-18 did not have a material impact on
its consolidated financial statements. As of December 31, 2019,
cash and cash equivalents of $8,709,000 and restricted cash of
$171,000 on the consolidated balance sheet are presented on the
consolidated statement of cash flows as $8,880,000 as the
end-of-year balance of cash, cash equivalents and restricted cash.
As of December 31, 2018, cash and cash equivalents of $11,241,000
and restricted cash of $169,000 on the consolidated balance sheet
are presented on the consolidated statement of cash flows as
$11,410,000 as the end-of-year balance of cash, cash equivalents
and restricted cash.
In
February 2016, the FASB issued ASU No. 2016-02 (“ASU
2016-02”), Leases (Topic 842) which modifies the lease
recognition requirements and requires entities to recognize the
assets and liabilities arising from leases on the balance sheet.
ASU 2016-02 requires entities to use a modified retrospective
approach for leases for the periods longer than twelve months that
exist or are entered into after the beginning of the earliest
comparative period in the financial statements. ASU 2016-02 is
effective for annual reporting periods beginning after
December 15, 2018. Early adoption is permitted. The Company
adopted ASU 2016-02 in the first quarter of the fiscal year ending
December 31, 2019. The adoption of ASU 2016-02 did not have a
material impact on the Company’s consolidated financial statements,
as the Company does not have any material lease
agreements.
In June
2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Compensation
- Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. These amendments expand the scope
of Topic 718, Compensation – Stock Compensation, which currently
only includes share-based payments to employees, to include
share-based payments issued to non-employees for goods or services.
Consequently, the accounting for share-based payments to
non-employees and employees will be substantially aligned. ASU
2018-07 supersedes Subtopic 505-50, Equity – Equity-Based Payments
to Non-Employees. The guidance is effective for public companies
for the interim and annual periods beginning after December 15,
2018. Early adoption is permitted, but no earlier than a company’s
adoption date of Topic 606, Revenue from Contracts with Customers.
At this time, the Company does not recognize the existence of any
non-employee relationships involving share-based payments. The
adoption of ASU 2018-07 effective January 1, 2019, did not have any
material impact on the consolidated financial statements, as the
Company has not entered into any material transactions involving
share-based payments with non-employees.
In August
2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”), Fair Value
Measurement (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13
revises the disclosure requirements for fair value measurements by
removing, modifying or adding certain disclosures. This standard is
effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted. The Company is currently in the process of
evaluating the effects of this pronouncement on its financial
statements.
The Company has evaluated other recently issued accounting
pronouncements and does not believe that any of these
pronouncements will have a significant impact the Company’s
consolidated financial statements and related
disclosures.
2.
SEGMENT INFORMATION
The Company
has determined that it operates in two segments, the sapphire and
pharmacy business.
Revenue is
attributed by geographic region based on ship-to location of the
Company’s customers. The following table summarizes revenue by
geographic region:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
|
|
|
|
North America |
|
$ |
3,324 |
|
|
$ |
3,389 |
|
| Asia |
|
|
185 |
|
|
|
478 |
|
|
Other |
|
|
17 |
|
|
|
11 |
|
| |
|
|
|
|
|
|
|
|
| Total
revenue |
|
$ |
3,526 |
|
|
$ |
3,878 |
|
The
following table summarizes sales by product type:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
| Optical |
|
$ |
3,338 |
|
|
$ |
3,781 |
|
| Core |
|
|
9 |
|
|
|
41 |
|
| Research & development |
|
|
— |
|
|
|
56 |
|
| Rubicon
DTP |
|
|
179 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Total
revenue |
|
$ |
3,526 |
|
|
$ |
3,878 |
|
The
following table summarizes assets by geographic region:
| |
|
As of December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
| United States |
|
$ |
29,703 |
|
|
$ |
30,680 |
|
| Malaysia |
|
|
5,094 |
|
|
|
5,110 |
|
| Other |
|
|
4 |
|
|
|
4 |
|
| Total
assets |
|
$ |
34,801 |
|
|
$ |
35,794 |
|
Rubicon DTP
accounted for approximately $447,000 of the Company’s loss for the
year ended December 31, 2019.
3.
INVESTMENTS
The Company invests available cash primarily in U.S. Treasury
securities, investment grade commercial paper, FDIC guaranteed
certificates of deposit, common stock, equity related securities
and corporate notes. Investments classified as available-for-sale
debt securities are carried at fair value with unrealized gains and
losses recorded in accumulated other comprehensive income/(loss).
Investments in equity securities are reported at fair value, with
both realized and unrealized gains and losses recorded as
unrealized gain/(loss) on investments and realized gain on
investments, in other income/(expense), in the consolidated
statements of operations. Investments in which the Company has the
ability and intent, if necessary, to liquidate are classified as
short-term.
The
following table presents the amortized cost, and gross unrealized
gains and losses on all securities at December 31,
2019:
| |
|
Amortized
cost |
|
|
Gross
unrealized
gains |
|
|
Gross
unrealized
losses |
|
|
Fair
value |
|
| |
|
(in
thousands) |
|
| Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury
securities |
|
$ |
14,668 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
14,668 |
|
| Marketable
securities |
|
|
961 |
|
|
|
— |
|
|
|
(171 |
) |
|
|
790 |
|
| Total
short-term investments |
|
$ |
15,629 |
|
|
$ |
— |
|
|
$ |
(171 |
) |
|
$ |
15,458 |
|
The
following table presents the amortized cost, and gross unrealized
gains and losses on all securities at December 31,
2018:
| |
|
Amortized
cost |
|
|
Gross
unrealized
gains |
|
|
Gross
unrealized
losses |
|
|
Fair
value |
|
| |
|
(in
thousands) |
|
| Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury
securities |
|
$ |
14,357 |
|
|
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
14,356 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
short-term investments |
|
$ |
14,357 |
|
|
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
14,356 |
|
The Company
values its investments at fair value, defined as the price that
would be received to sell an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that
may be used to measure fair value which are the
following:
|
|
● |
Level
1—Quoted prices in active markets for identical assets or
liabilities. |
|
|
● |
Level
2—Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. |
|
|
● |
Level
3—Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. |
The
Company’s fixed income available-for-sale securities consist of
U.S. Treasury securities, high-quality investment grade commercial
paper, FDIC guaranteed certificates of deposit, common stock,
equity related securities and corporate notes. The Company values
these securities based on pricing from pricing vendors, who may use
quoted prices in active markets for identical assets (Level 1
inputs) or inputs other than quoted prices that are observable
either directly or indirectly (Level 2 inputs) in determining fair
value. The valuation techniques used to measure the fair value of
the Company’s financial instruments having Level 2 inputs were
derived from non-binding market consensus prices that are
corroborated by observable market data, quoted market prices for
similar instruments, or pricing models, such as discounted cash
flow techniques.
The
following table summarizes the Company’s financial assets measured
at fair value on a recurring basis as of December 31,
2019:
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| |
|
(in
thousands) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
| Money
market funds |
|
$ |
3,759 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,759 |
|
| Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sales securities—current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury
securities |
|
|
— |
|
|
|
14,668 |
|
|
|
— |
|
|
|
14,668 |
|
|
Marketable securities |
|
|
790 |
|
|
|
|
|
|
|
— |
|
|
|
790 |
|
| Total |
|
$ |
4,549 |
|
|
$ |
14,668 |
|
|
$ |
— |
|
|
$ |
19,217 |
|
The
following table summarizes the Company’s financial assets measured
at fair value on a recurring basis as of December 31,
2018:
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| |
|
(in
thousands) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
| Money
market funds |
|
$ |
2,821 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,821 |
|
| Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sales securities—current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury
securities |
|
|
— |
|
|
|
14,356 |
|
|
|
— |
|
|
|
14,356 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
2,821 |
|
|
$ |
14,356 |
|
|
$ |
— |
|
|
$ |
17,177 |
|
There are no
terms or conditions restricting the Company from redeeming any of
its investments.
In addition
to the debt securities noted above, the Company had approximately
$4.9 million and $8.4 million of time deposits included in cash and
cash equivalents as of December 31, 2019 and 2018,
respectively.
4.
SIGNIFICANT CUSTOMERS
For the year
ended December 31, 2019, the Company had three customers that
accounted for approximately 31%, 15% and 12% of its revenue. For
the year ended December 31, 2018, the Company had three
customers that accounted for approximately 18%, 16% and 10% of its
revenue.
Customers
individually representing more than 10% of trade receivables
accounted for approximately 74% and 79% of accounts receivable as
of December 31, 2019 and 2018, respectively.
5. ASSETS
HELD FOR SALE AND LONG-LIVED ASSETS
When
circumstances, such as adverse market conditions, indicate that the
carrying value of a long-lived asset may be impaired, the Company
performs an analysis to review the recoverability of the asset’s
carrying value using estimates of the undiscounted cash flows
(excluding interest charges) from the expected future operations of
the asset. These estimates consider factors such as expected future
operating income, operating trends and prospects, as well as the
effects of demand, competition and other factors. If the analysis
indicates that the carrying value is not recoverable from future
cash flows, an impairment loss is recognized to the extent that the
carrying value exceeds the estimated fair value. The estimated fair
value of assets is determined using appraisal techniques which
assume the highest and best use of the asset by market
participants, considering the use of the asset that is physically
possible, legally permissible, and financially feasible at the
measurement date. Any impairment losses are recorded as operating
expenses, which reduce net income.
In
connection with the Company’s decision in 2016 to limit its focus
to the optical and industrial sapphire markets and exit the LED
market, the Company developed a plan to close its Malaysia
facility, scale down and consolidate remaining operations in the
U.S. and sell additional assets that would not be needed. The
Company evaluated its U.S. and Malaysia asset portfolios to
identify assets needed for its current business strategy and excess
assets that were no longer needed. The Company determined it had
excess machinery, equipment and facilities. Excess U.S. and
Malaysia assets were evaluated based on assuming an orderly
liquidation plan, which considers economic obsolescence and sales
of comparable equipment, as it is the Company’s intention to sell
these assets. Additionally, the Company evaluated its U.S. assets
continuing to be used in operations using a cost and market
approach to determine the current fair value.
In September
2018, the Company completed the sale of its 134,400 square-foot
manufacturing and office facility located in Batavia, Illinois,
with the net book value of $5.9 million. The sale price for the
property was $6.7 million, the Company realized net proceeds of
approximately $6.4 million after the payment of real estate taxes,
brokerage and legal fees, transfer taxes and other expenses, and
recorded a gain on sale of this asset of $504,000.
In the year
ended December 31, 2018, the Company completed individual sales and
held auctions for equipment and consumable assets located at each
of its U.S. properties, resulting in the sale of certain of its
excess U.S. equipment and excess consumable assets, which had a
total net book value of $1.6 million. In the beginning of 2018, the
Company intended to sell a certain number of its crystal growth
furnaces. Due to the changed needs and business plan, the Company
reduced the number of furnaces it wanted to sell. The difference in
the number of furnaces the Company originally intended to sell and
the number it actually disposed of, had a net book value of
$236,000. The additional furnaces that the Company decided to
retain were reclassified from current assets held for sale to fixed
assets held and used at December 31, 2018. Additionally, in the
year ended December 31, 2018, the Company completed sales of
Malaysia equipment with a total net book value of $131,000. Based
on these sales, a gain on disposal of equipment and consumable
assets of $2.9 million was recorded for the year ended December 31,
2018. Unsold excess Malaysia equipment continued to be classified
as current assets held for sale at December 31, 2018.
In the year
ended December 31, 2019, we completed the sale of the remaining
excess equipment located in Malaysia for total consideration of
$490,000. Such equipment had a total net book value of $188,000,
thereby resulting in a gain on disposal of $302,000.
The Company
is pursuing the sale of its parcel of land in Batavia, Illinois and
in Penang, Malaysia. We have entered into an agreement to sell our
manufacturing facility located in Penang, Malaysia. Although the
Company cannot assure the timing of these sales, these properties
were classified as current assets held for sale at December 31,
2019 and 2018, as it is the Company’s intention to complete these
sales within the next twelve-month period.
In September
2018, the Company completed the purchase of a property located in
Bensenville, Illinois. The purchase price for the property was
approximately $2.3 million. Previously, the Company leased the
Bensenville property and it was the headquarters of its operations
and one of its growth facilities. The Company used its cash on hand
to purchase the property.
6.
STOCKHOLDERS’ EQUITY
Common
stock
At the
Company’s annual meeting of stockholders held on May 3, 2017, the
Company’s stockholders approved amendments to the Company’s Eighth
Amended and Restated Certificate of Incorporation (as amended, the
“Certificate of Incorporation”) to (i) effect a reverse stock split
of the Company’s common stock; and (ii) decrease the Company’s
authorized number of shares of common stock to three times the
number of shares of the Company’s common stock outstanding
immediately following the reverse stock split. On May 3, 2017,
following the annual meeting, the Company filed with the Secretary
of State of the State of Delaware a Certificate of Amendment to (a)
implement the reverse stock split at a ratio of 1-for-10; and (b)
to reduce the number of authorized shares of common stock from
40,000,000 to 8,200,000, consequently reducing the number of total
authorized shares from 45,000,000 to 13,200,000. With the
completion of the reverse stock split, the Company’s shares began
trading above the required $1.00 per share closing bid price, as
required by the Listing Qualifications Department of NASDAQ. The
share information has been retroactively reflected for the effects
of this reverse stock split for all periods presented.
Preferred
stock
At the
Company’s annual meeting of stockholders held on May 10, 2018, the
Company’s stockholders approved an amendment to the Certificate of
Incorporation to decrease the Company’s authorized number of shares
of preferred stock from 5,000,000 shares to 1,000,000 shares. The
Company filed with the Secretary of State of the State of Delaware
a Certificate of Amendment to decrease the authorized number of
preferred shares, consequently reducing the number of total
authorized shares from 13,200,000 to 9,200,000.
Common
shares reserved
As of
December 31, 2019, the Company had reserved 76,842 shares of
common stock for issuance upon the exercise of outstanding common
stock options and vesting of RSUs. Also 281,386 shares of the
Company’s common stock were reserved for future grants of stock
options and RSUs (or other similar equity instruments) under the
Rubicon Technology, Inc. 2016 Stock Incentive Plan (the “2016
Plan”) as of December 31, 2019.
7.
STOCKHOLDER RIGHTS AGREEMENT
On
December 18, 2017, the Company entered into a Section 382 Rights
Agreement with American Stock Transfer & Trust Company, LLC, as
Rights Agent (the “Rights Agreement”) in an effort to protect
stockholder value by attempting to diminish the risk that the
Company’s ability to use its net NOLs to reduce potential future
federal income tax obligations may become substantially limited.
The Company’s ability to utilize its NOLs may be substantially
limited if the Company experiences an “ownership change” within the
meaning of Section 382 of the Internal Revenue Code of 1986, as
amended (the “IRC”). The Rights Agreement is intended to act as a
deterrent to any person acquiring beneficial ownership of 4.9% or
more of the Company’s outstanding common stock without the approval
of the Company’s Board of Directors (the “Board”).
The Board
authorized the issuance of one Right for each outstanding share of
common stock, par value $0.001 per share, of the Company, payable
to stockholders of record date of the close of business on January
2, 2018. One Right will also be issued together with each share of
the Company’s common stock issued after January 2, 2018 but before
the Distribution Date (as defined below) and, in certain
circumstances, after the Distribution Date. Subject to the terms,
provisions and conditions of the Rights Agreement, if the Rights
become exercisable, each Right would initially represent the right
to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $0.001 per
share, of the Company (the “Series A Preferred Stock”) for a
purchase price of $40.00. If issued, each one-thousandth of a share
of Series A Preferred Stock would give the stockholder
approximately the same dividend, voting and liquidation rights as
does one share of common stock. However, prior to exercise, a Right
does not give its holder any rights as a stockholder of the
Company, including, without limitation, any dividend, voting or
liquidation rights.
The Rights
will not be exercisable until the earlier of (i) ten business days
after a public announcement that a person has become an “Acquiring
Person” by acquiring beneficial ownership of 4.9% or more of
outstanding common stock (or, in the case of a person that had
beneficial ownership of 4.9% or more of the outstanding common
stock as of the close of business on December 18, 2017, by
obtaining beneficial ownership of any additional shares of common
stock representing 0.5% or more of the shares of common stock then
outstanding (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding shares of the common
stock or pursuant to a split or subdivision of the outstanding
shares of common stock) at a time such person still beneficially
owns 4.9% or more of the outstanding common stock), and (ii) ten
business days (or such later date as may be specified by the Board
prior to such time as any person becomes an Acquiring Person) after
the commencement of a tender or exchange offer by or on behalf of a
person that, if completed, would result in such person becoming an
Acquiring Person (the “Distribution Date”).
Until the
Distribution Date, common stock certificates or the ownership
statements issued with respect to uncertificated shares of common
stock will evidence the Rights. Any transfer of shares of common
stock prior to the Distribution Date will also constitute a
transfer of the associated Rights. After the Distribution Date,
separate rights certificates will be issued and the Rights may be
transferred other than in connection with the transfer of the
underlying shares of common stock unless and until the Board has
determined to effect an exchange pursuant to the Rights Agreement
(as described below).
In the event
that a person becomes an Acquiring Person, each holder of a Right,
other than Rights that are or, under certain circumstances, were
beneficially owned by the Acquiring Person (which will thereupon
become void), will thereafter have the right to receive upon
exercise of a Right and payment of the purchase price, a number of
shares of the Company’s common stock (or, in certain circumstances,
cash, property or other securities of the Company) having a market
value equal to two times the purchase price. However, Rights are
subject to redemption and exchange at the option of the
Company.
In the event
that, at any time following a person becoming an Acquiring Person,
(i) the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation;
(ii) the Company engages in a merger or other business combination
transaction in which the Company is the surviving corporation and
the common stock is changed or exchanged; or (iii) 50% or more of
the Company’s assets, cash flow or earning power is sold or
transferred, each holder of a Right (except Rights which have
previously been voided) shall thereafter have the right to receive,
upon exercise of the Right, common stock of the acquiring company
having a value equal to two times the purchase price.
At any time
until the earlier of December 18, 2020, and ten calendar days
following the first date of public announcement that a person has
become an Acquiring Person or that discloses information which
reveals the existence of an Acquiring Person or such earlier date
as a majority of the Board becomes aware of the existence of an
Acquiring Person, the Board may redeem the Rights in whole, but not
in part, at a price of $0.001 per Right (the “Redemption Price”).
The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board in its sole
discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the
only right of the holders of Rights will be to receive the
Redemption Price.
At any time
after a person becomes an Acquiring Person, the Board may, at its
option, exchange the Rights (other than Rights that have become
void), in whole or in part, at an exchange ratio of one share of
common stock, or a fractional share of Series A Preferred Stock (or
of a share of a similar class or series of the Company’s preferred
stock having similar rights, preferences and privileges) of
equivalent value, per Right (subject to adjustment). Immediately
upon an exchange of any Rights, the right to exercise such Rights
will terminate and the only right of the holders of Rights will be
to receive the number of shares of common stock (or fractional
share of Series A Preferred Stock or of a share of a similar class
or series of the Company’s preferred stock having similar rights,
preferences and privileges) equal to the number of such Rights held
by such holder multiplied by the exchange ratio.
Each one
one-thousandth of a share of Series A Preferred Stock, if issued:
(i) will be nonredeemable and junior to any other series of
preferred stock the Company may issue (unless otherwise provided in
the terms of such other series), (ii) will entitle holders to
preferential cumulative quarterly dividends in an amount per share
of Series A Preferred Stock equal to the greater of (a) $1 or (b)
1,000 times the aggregate the dividends, if any, declared on one
share of the Company’s common stock, (iii) will entitle holders
upon liquidation (voluntary or otherwise) to receive $1,000 per
share of Series A Preferred Stock plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not
declared, (iv) will have the same voting power as one share of
common stock, and (v) will entitle holders to a per share payment
equal to the payment made on one share of the Company’s common
stock, if shares of the common stock are exchanged via merger,
consolidation, or a similar transaction. Because of the nature of
the Series A Preferred Stock’s dividend, liquidation and voting
rights, the value of a Unit of Series A Preferred Stock purchasable
upon exercise of each Right should approximate the value of one
share of common stock.
The Rights
and the Rights Agreement will expire on the earliest of (i)
December 18, 2020, (ii) the time at which the Rights are redeemed
pursuant to the Rights Agreement, (iii) the time at which the
Rights are exchanged in full pursuant to the Rights Agreement, (iv)
the date that the Board determines that the Rights Agreement is no
longer necessary for the preservation of material valuable Tax
Benefits, (v) the beginning of a taxable year of the Company to
which the Board determines that no NOL tax benefits may be carried
forward, and (vi) a determination by the Board, prior to the time
any Person becomes an Acquiring Person, that the Rights Agreement
and the Rights are no longer in the best interests of the Company
and its stockholders.
The Board
may adjust the purchase price, the number of shares of Series A
Preferred Stock or other securities or assets issuable and the
number of outstanding Rights to prevent dilution that may occur as
a result of certain events, including among others, a stock
dividend, a stock split or a reclassification of the Series A
Preferred Stock or common stock. With certain exceptions, no
adjustments to the purchase price will be required until cumulative
adjustments amount to at least 1% of the purchase price.
For so long
as the Rights are redeemable, the Board may supplement or amend any
provision of the Rights Agreement in any respect without the
approval of the holders of the Rights. From and after the time the
Rights are no longer redeemable, the Board may supplement or amend
the Rights Agreement only to cure an ambiguity, to alter time
period provisions, to correct inconsistent provisions, or to make
any additional changes to the Rights Agreement which the Company
may deem necessary or desirable, but only to the extent that those
changes do not impair or adversely affect any Rights holder (other
than an Acquiring Person or any Affiliate or Associate of an
Acquiring Person or certain of their transferees) and do not result
in the Rights again becoming redeemable or the Rights Agreement
again becoming amendable other than in accordance with this
sentence.
In
connection with the adoption of the Rights Agreement and
authorization and declaration of the dividend of the Rights, on
December 18, 2017, the Company filed the Certificate of Designation
with the Secretary of State of the State of Delaware. The
Certificate of Designation became effective on December 18,
2017.
8. STOCK
INCENTIVE PLANS
In August
2007, the Company adopted the Rubicon Technology Inc. 2007 Stock
Incentive Plan, which was amended and restated effective in March
2011 (the “2007 Plan”), and which allowed for the grant of
incentive stock options, non-statutory stock options, stock
appreciation rights, restricted stock, RSUs, performance awards and
bonus shares. The maximum number of shares that could be awarded
under the 2007 Plan was 440,769 shares. Options granted under the
2007 Plan entitle the holder to purchase shares of the Company’s
common stock at the specified option exercise price, which could
not be less than the fair market value of the common stock on the
grant date. On June 24, 2016, the 2007 Plan terminated with
the adoption of the Rubicon Technology, Inc. 2016 Stock Incentive
Plan, (the “2016 Plan”). Any existing awards under the 2007 Plan
remain outstanding in accordance with their current terms under the
2007 Plan. In June 2016, the Company’s stockholders approved
adoption of the 2016 Plan effective as of March 17, 2016,
which allows for the grant of incentive stock options,
non-statutory stock options, stock appreciation rights, restricted
stock, RSUs, performance awards and bonus shares. The Compensation
Committee of the Board administers the 2016 Plan. The committee
determines the type of award to be granted, the fair value, the
number of shares covered by the award, and the time when the award
vests and may be exercised.
Pursuant to
the 2016 Plan, 222,980 shares of the Company’s common stock
plus any shares subject to outstanding awards under the 2007
Plan that subsequently expire unexercised, are forfeited without
the delivery of shares or are settled in cash, will be available
for issuance under the 2016 Plan. The 2016 Plan will automatically
terminate on March 17, 2026, unless the Company terminates it
sooner.
The
following table summarizes the activity of the stock incentive and
equity plans:
| |
|
Shares
available
for grant |
|
|
Number of
options
outstanding |
|
|
Weighted-
average
option
exercise price |
|
|
Number of
restricted
stock shares
issued |
|
|
Number of
RSUs
outstanding |
|
| Outstanding at January 1, 2018 |
|
|
274,494 |
|
|
|
125,564 |
|
|
|
19.53 |
|
|
|
97,692 |
|
|
|
22,384 |
|
| Granted |
|
|
(47,953 |
) |
|
|
10,000 |
|
|
|
— |
|
|
|
1,878 |
|
|
|
36,075 |
|
| Exercised/issued |
|
|
— |
|
|
|
(938 |
) |
|
|
6.10 |
|
|
|
— |
|
|
|
(5,300 |
) |
|
Canceled/forfeited |
|
|
68,526 |
|
|
|
(65,543 |
) |
|
|
31.66 |
|
|
|
— |
|
|
|
(2,983 |
) |
| Outstanding at December 31, 2018 |
|
|
295,067 |
|
|
|
69,083 |
|
|
|
12.10 |
|
|
|
99,570 |
|
|
|
50,176 |
|
| Granted |
|
|
(60,925 |
) |
|
|
1,000 |
|
|
|
— |
|
|
|
— |
|
|
|
925 |
|
| Exercised/issued |
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
— |
|
|
|
(6,098 |
) |
|
Canceled/forfeited |
|
|
47,244 |
|
|
|
(47,244 |
) |
|
|
11.35 |
|
|
|
— |
|
|
|
— |
|
| Outstanding at December 31,
2019 |
|
|
281,386 |
|
|
|
22,839 |
|
|
$ |
13.48 |
|
|
|
99,570 |
|
|
|
45,003 |
|
The
following table sets forth option grants made during 2019. There is
no intrinsic value because the exercise price per share of each
option was equal to the fair value of the common stock on the date
of grant.
|
Date of
grant |
|
Number of
options
granted |
|
|
Exercise
price |
|
|
Intrinsic
value
per share |
|
|
May
2019 |
|
|
1,000 |
|
|
$ |
8.34 |
|
|
|
— |
|
At
December 31, 2019, the exercise prices of outstanding options
were as follows:
|
Exercise price |
|
Number of
options
outstanding |
|
|
Average
remaining
contractual life
(years) |
|
|
Number of
options
exercisable |
|
|
$6.10 - $13.50 |
|
|
20,500 |
|
|
|
6.75 |
|
|
|
14,634 |
|
| $40.10 -
$44.10 |
|
|
1,850 |
|
|
|
4.94 |
|
|
|
1,850 |
|
| $77.50 -
$121.10 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$194.90 - $226.90 |
|
|
489 |
|
|
|
0.44 |
|
|
|
489 |
|
| |
|
|
22,839 |
|
|
|
4.86 |
|
|
|
17,973 |
|
The weighted
average grant date fair value of the options that became vested in
the years ended 2019 and 2018 was $77,000 and $76,000,
respectively.
The
following table summarizes the activity of non-vested
options:
| |
|
Non-vested
options |
|
|
Weighted-
average option
exercise
price |
|
|
Non-vested at January 1, 2018 |
|
|
46,842 |
|
|
$ |
8.26 |
|
| Granted |
|
|
10,000 |
|
|
|
7.77 |
|
| Vested |
|
|
(8,413 |
) |
|
|
9.04 |
|
|
Cancelled |
|
|
(26,437 |
) |
|
|
8.99 |
|
| Non-vested at
December 31, 2018 |
|
|
21,992 |
|
|
|
6.86 |
|
| Granted |
|
|
1,000 |
|
|
|
8.34 |
|
| Vested |
|
|
(10,878 |
) |
|
|
7.07 |
|
|
Cancelled |
|
|
(7,248 |
) |
|
|
7.25 |
|
|
Non-vested at December 31, 2019 |
|
|
4,866 |
|
|
$ |
5.79 |
|
The
Company’s aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying stock options and the
fair value of the Company’s common stock. Based on the fair value
of the common stock at December 31, 2019 there was $43,000 of
intrinsic value arising from 19,500 stock options exercisable or
outstanding.
The Company
used historical stock prices as the basis for its volatility
assumptions. The assumed risk-free rates were based on U.S.
Treasury rates in effect at the time of grant with a term
consistent with the expected option lives. The expected term for
the year ended December 31, 2019, is based upon the Company’s
median average life of its options. The forfeiture rate is based on
the past history of forfeited options. The expense is being
allocated using the straight-line method. For the years ended
December 31, 2019 and 2018, the Company recorded $24,000 and
$47,000, respectively, of stock option compensation expense. As of
December 31, 2019, the Company has $12,000 of total
unrecognized compensation cost related to non-vested options
granted under the Company’s stock-based plans that it expects to
recognize over a weighted-average period of 0.75 years.
For the year
ended December 31, 2019, the assumptions used for the
estimated fair value at the date of option grant using the
Black-Scholes option-pricing model were as follows:
| |
|
2019 |
|
|
Weighted-average fair value per option |
|
$ |
6.09 |
|
|
Expected
term |
|
|
5.1 years |
|
|
Risk-free
interest rate |
|
|
2.95% |
|
|
Volatility |
|
|
47% |
|
|
Dividend
yield |
|
|
None |
|
|
Forfeiture
rate |
|
|
24.43 |
% |
Pursuant to
an employment agreement in March 2017, which was subsequently
amended on May 12, 2017, the Company granted 30,902 and 59,098 RSUs
to a key executive in years ended December 31, 2018 and 2017,
respectively.
The
following table summarizes the award vesting terms for the RSUs
granted in 2019:
|
Number of
RSUs |
|
Target
price |
|
|
925 |
|
$ |
7.95 |
|
The
following table summarizes the award vesting terms for the RSUs
granted in 2018:
|
Number of
restricted stock units |
|
Target price |
|
|
902 |
|
$ |
11.00 |
|
| 15,000 |
|
$ |
12.50 |
|
| 15,000 |
|
$ |
14.00 |
|
The RSUs vest in the amounts set forth below on the first date the
15-trading day average closing price of the Company’s common stock
equals or exceeds the corresponding target price for the common
stock before May 12, 2021. At the time the negotiation of the terms
of the employment agreement began, the closing price of the common
stock was $5.50. On the date of grant, the closing price of the
common stock was $6.30. During the twelve months ended December 31,
2017, the first three tranches of the grant vested. No additional
tranches vested during the years ended December 31, 2019 and
2018.
The Company
used Monte Carlo simulation model valuation technique to determine
the fair value of RSUs granted because the awards vest based upon
achievement of market price targets. The Monte Carlo simulation
model utilizes multiple input variables that determine the
probability of satisfying the market condition stipulated in the
award and calculates the fair value of each RSU. The Company used
the following assumptions in determining the fair value of the
RSUs:
| |
|
Granted |
|
|
|
|
January
2018 |
|
|
March
2017 |
|
|
Daily
expected stock price volatility |
|
|
4.2806 |
% |
|
|
4.4237 |
% |
| Daily expected mean
return on equity |
|
|
(0.2575 |
%) |
|
|
(0.2226 |
%) |
| Daily expected dividend
yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
| Average daily risk-free
interest rate |
|
|
0.0078 |
% |
|
|
0.0063 |
% |
The daily expected stock price volatility is based on a four-year
historical volatility of the Company’s common stock. The daily
expected dividend yield is based on annual expected dividend
payments. The average daily risk-free interest rate is based on the
three-year treasury yield as of the grant date. Each of the
tranches is calculated to have its own fair value and requisite
service period. The fair value of each tranche is amortized over
the requisite or derived service period which is up to four years.
The RSUs granted in January 2018 and March 2017 had a grant date
fair value of $209,000 and $323,000, respectively. There were no
grants with market price targets issued in the year ended December
31, 2019.
A summary of
the Company’s RSUs is as follows:
| |
|
RSUs
outstanding |
|
|
Weighted-average
price at
time of grant |
|
|
Aggregate intrinsic
value |
|
|
Non-vested RSUs as of January 1, 2018 |
|
|
22,384 |
|
|
$ |
4.65 |
|
|
|
|
|
| Granted |
|
|
36,075 |
|
|
|
7.88 |
|
|
|
|
|
| Vested |
|
|
(5,300 |
) |
|
|
8.51 |
|
|
|
|
|
|
Cancelled |
|
|
(2,983 |
) |
|
|
8.88 |
|
|
|
|
|
| Non-vested RSUs
as of December 31, 2018 |
|
|
50,176 |
|
|
|
6.31 |
|
|
|
|
|
| Granted |
|
|
9,925 |
|
|
|
8.32 |
|
|
|
|
|
| Vested |
|
|
(6,098 |
) |
|
|
7.40 |
|
|
|
|
|
|
Cancelled |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Non-vested RSUs at December 31, 2019 |
|
|
54,003 |
|
|
$ |
6.56 |
|
|
$ |
354,250 |
|
The fair value of each RSU is the market price on the date of grant
and is being recorded as compensation expense ratably over the
vesting terms or the expected achievement of market price targets
based on the Monte Carlo simulation model. For the years ended
December 31, 2019 and 2018, the Company recorded $7,000 and
$265,000 of RSU expense, respectively. The RSUs are forfeited by a
participant upon termination for any reason, and there is no
proportionate or partial vesting in the periods between the vesting
dates. As of December 31, 2019, there was no unrecognized
compensation cost related to the non-vested RSUs.
An analysis
of restricted stock issued is as follows:
|
Non-vested restricted stock as of January 1, 2018 |
|
|
4,904 |
|
| Granted |
|
|
1,878 |
|
|
Vested |
|
|
(4,328 |
) |
| Non-vested
restricted stock as of December 31, 2018 |
|
|
2,454 |
|
| Granted |
|
|
— |
|
|
Vested |
|
|
(2,454 |
) |
| |
|
|
|
|
|
Non-vested restricted stock as of December 31, 2019 |
|
|
— |
|
For the year
ended December 31, 2019 the Company recorded $14,000 related
to restricted stock compared to $69,000 in the prior
year.
9. INCOME
TAXES
On December
22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”)
which, among other provisions, reduced the U.S. corporate tax rate
from 35% to 21% effective January 1, 2018. The SEC issued guidance,
Staff Accounting Bulletin 118, on accounting for the tax effects of
the Act. The guidance allowed the Company to record provisional
amounts for those impacts, with the requirement that the accounting
be completed in a period not to exceed one year from the date of
enactment. The Company has completed its accounting for the tax
effects of enactment of the Act. The deemed inclusion from the
repatriation tax increased from $3.9 million at the time of
provision to $5.0 million at the time the calculation was finalized
for the tax return. The increase of the inclusion related primarily
to the refinement of Malaysia earnings and profits. As the Company
is in a full valuation allowance position, an equal benefit
adjustment was recorded for the impact of the increase of the
deemed repatriation tax.
Components
of income before income taxes and the income tax provision are as
follows:
Income
(loss) before income taxes
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
|
U.S. |
|
$ |
(1,142 |
) |
|
$ |
1,017 |
|
|
Foreign |
|
|
17 |
|
|
|
(30 |
) |
| |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(1,125 |
) |
|
$ |
987 |
|
Income
taxes
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| |
|
|
|
| Current |
|
|
|
|
|
|
|
|
| U.S. |
|
$ |
— |
|
|
$ |
— |
|
| State |
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
22 |
|
|
|
24 |
|
|
Total current income tax expense |
|
|
22 |
|
|
|
24 |
|
| Deferred |
|
|
|
|
|
|
|
|
| U.S. |
|
|
— |
|
|
|
— |
|
| State |
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
Total deferred income tax expense (benefit) |
|
|
— |
|
|
|
— |
|
|
Total income tax expense (benefit) |
|
$ |
22 |
|
|
$ |
24 |
|
The
reconciliation of income tax computed at the federal statutory rate
to income before taxes is as follows:
| |
|
Year ended December 31, |
|
| |
|
2019 |
|
|
2018 |
|
|
U.S. federal statutory rate |
|
|
(21.0 |
)% |
|
|
(21.0 |
)% |
| State
taxes net of federal benefit |
|
|
(7.6 |
) |
|
|
(7.7 |
) |
| Foreign
rate differential and transactional tax |
|
|
0.1 |
|
|
|
0.1 |
|
| Tax
credits |
|
|
— |
|
|
|
(14.0 |
) |
|
Valuation allowance |
|
|
28.5 |
|
|
|
42.7 |
|
|
Other |
|
|
2.0 |
|
|
|
(2.5 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
2.0 |
% |
|
|
(2.4 |
)% |
Deferred
income taxes reflect the net tax effects of the temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.
Significant
components of the Company’s net deferred income taxes are as
follows at December 31:
| |
|
2019 |
|
|
2018 |
|
| |
|
(in
thousands) |
|
| Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
11 |
|
|
$ |
2 |
|
| Inventory
reserves |
|
|
3,185 |
|
|
|
3,323 |
|
| Consumables excess
reserve |
|
|
169 |
|
|
|
170 |
|
| Accrued
liabilities |
|
|
52 |
|
|
|
55 |
|
| Warrant interest
expense |
|
|
196 |
|
|
|
196 |
|
| Stock compensation
expense |
|
|
789 |
|
|
|
881 |
|
| State net
operating loss |
|
|
15,010 |
|
|
|
14,633 |
|
| Net operating loss
carryforward |
|
|
40,437 |
|
|
|
38,525 |
|
| Tax credits |
|
|
740 |
|
|
|
740 |
|
| Depreciation |
|
|
1,329 |
|
|
|
2,993 |
|
|
Valuation allowance |
|
|
(61,869 |
) |
|
|
(61,512 |
) |
| Total deferred tax
assets |
|
|
49 |
|
|
|
6 |
|
| Deferred tax liability: |
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
(49 |
) |
|
|
(6 |
) |
| Net
deferred tax liability |
|
$ |
— |
|
|
$ |
— |
|
In February
2018, the FASB issued ASU No. 2018-02 (“ASU 2018-02), Income
Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated
Comprehensive Income. The new guidance allows companies to
reclassify stranded tax effects resulting from the Tax Act, from
accumulated other comprehensive income to retained earnings. The
guidance also requires certain new disclosures regardless of the
election. Early adoption is permitted. The Company’s adoption of
ASU 2018-02 did not have a material impact on its consolidated
financial statements.
The
Company adopted the guidance in ASU No. 2015-17, Income
Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, which requires that all deferred tax assets and
liabilities, along with any related valuation allowance, be
classified as noncurrent in the balance sheet. As a result, each
jurisdiction has one net noncurrent deferred tax asset or
liability. The new guidance does not change the existing
requirement that only permits offsetting within a jurisdiction.
Companies are still prohibited from offsetting deferred tax
liabilities from one jurisdiction against deferred tax assets of
another jurisdiction. The change in accounting principle did not
have an impact on the Company’s results of operations, cash flows
or stockholders’ equity.
At
December 31, 2019, the Company had separate Federal and
Illinois NOL carryforwards of $188.1 million and $200.0 million,
respectively, which begin to expire in 2021 and 2020, respectively.
In addition, at December 31, 2019, the Company had Federal and
Illinois research and development credits and Illinois investment
tax credits of $662,000, $66,000 and $23,000, respectively, which
began to expire in 2019. Tax credits are accounted for using the
flow-through method and therefore are taken in the year
earned.
The Company
completed an analysis of the utilization of NOLs subject to limits
based upon certain ownership changes as of December 31, 2019. The
results of this analysis indicated no ownership change limiting the
utilization of net operating losses and tax credits.
The Company
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken, or expected to be taken, in a tax return. At
December 31, 2019 and 2018, the Company had $1.1 million of
unrecognized tax benefits taken or expected to be taken in a tax
return that have been recorded on the Company’s financial
statements as an offset to the valuation allowance related to tax
positions taken in 2012. It is not reasonably possible that the
amount will change in the next twelve months. There were no
material changes to prior year or current year positions taken
during the year ended December 31, 2019.
There were
no interest or penalties related to income taxes that have been
accrued or recognized as of and for the years ended
December 31, 2019 and 2018.
The Company
files income tax returns in the United States federal jurisdiction
and in a state jurisdiction. During 2009, the Company began foreign
operations in Malaysia and is subject to local income taxes in that
jurisdiction. The Company’s Malaysia tax returns for the periods
ended December 31, 2010 through 2012 have been audited by the
Malaysia Inland Revenue Board with no changes made to the taxable
income for those years. All other tax years in Malaysia are open to
examination by tax authorities.
The
Company’s federal tax returns for the periods ended
December 31, 2010, 2008 and 2007 have been audited by the
Internal Revenue Service (IRS) with no changes made to the
Company’s taxable losses for those years. The Company’s state tax
returns for the periods ended December 31, 2009 through 2012
have been audited by the Illinois Department of Revenue with no
changes made to the Company’s taxable losses for those years. Due
to the existence of NOL carryforwards, tax years ended
December 31, 2001 through 2006, 2008, 2009 and 2011 through
2018 are open to examination by tax authorities for Federal
purposes. Due to NOL carryforwards at the State level, tax years
ended 2008, 2009 and 2012 through 2018 are open to examination by
state tax authorities.
Due to the
closing of the Rubicon Malaysia operations, the Company no longer
considers the undistributed earnings of Rubicon Malaysia to be
indefinitely reinvested. Upon liquidation of Rubicon Malaysia, it
is anticipated any cash left after the liquidation will be brought
back to the U.S. via a payment of principal towards the
intercompany loan. A withholding tax will be payable to the
Malaysian government on the interest portion of the loan. At
December 31, 2019 and 2018, the Company accrued the withholding tax
on the interest balance of the loan in the amount of $22,000 and
$24,000, respectively, which represents the incremental
tax.
10.
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The Company adopted ASU 2016-02 in the first quarter of the fiscal
year ending December 31, 2019. The adoption of ASU 2016-02 did not
have a material impact on the Company’s consolidated financial
statements, as the Company does not have any material lease
agreements Rubicon DTP leases a building for its manufacturing and
offices, however such lease was not considered material to the
Company’s financial statements.
Net rent
expense under operating leases in 2019 and 2018 amounted to $35,000
and $418,000, respectively.
Litigation
From time to
time, the Company experiences routine litigation in the ordinary
course of business. On October 31, 2018, the Company received a
summons from Bartmann, Perales & Dolter, LLC, the former lessor
of the Franklin Park, Illinois, property the Company leased
previously, alleging that the Company owes $175,000 in overdue rent
payments, property taxes and restoration costs. The Company intends
to vigorously defend against these allegations and has asserted a
counterclaim pursuant to the terms of the lease agreement for
reimbursement of costs and expenses to maintain the condition and
repair for said property. The management of the Company does not
believe any pending litigation will have a material adverse effect
on the financial condition or results of operations or cash flows
of the Company.
11.
BENEFIT PLAN
The Company
sponsors a 401(k) savings plan (the “Plan”). Employees are eligible
to participate in the Plan upon reaching 18 years of age. Employees
make contributions to the Plan through payroll deferrals. Employer
matching contributions are discretionary. There were no employer
matching contributions for the years ended December 31, 2019
and 2018.
12.
SUBSEQUENT EVENTS
None.
F-31
