Rubicon Technology, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2020
1.
BASIS OF PRESENTATION
Interim
financial data
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by GAAP for complete consolidated financial statements and should be read
in conjunction with Rubicon Technology, Inc.’s (the “Company”) annual report filed on Form 10-K for the fiscal
year ended December 31, 2019. In the opinion of management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the results of operations have been included. Consolidated operating
results for the three- and six-month periods ended June 30, 2020, are not necessarily indicative of results that may be expected
for the year ending December 31, 2020.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Investments
The
Company invests available cash primarily in U.S. Treasury securities, investment grade commercial paper, FDIC guaranteed certificates
of deposit, 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 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.
Accounts
receivable
The
majority of the Company’s accounts receivable is due from defense subcontractors, industrial manufacturers, fabricators,
resellers and pharmacy benefit managers. 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 length of time customer’s account is past due, 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.
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 are 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. See Note 10 Subsequent Events to the Condensed Financial Statements.
Share
repurchase activity during the three months ended June 30, 2020, 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)
|
|
April 1, 2020 to April 30, 2020
|
|
|
69,336
|
|
|
$
|
7.98
|
|
|
|
69,336
|
|
|
$
|
640
|
|
May 1, 2020 to May 31, 2020
|
|
|
9,805
|
|
|
|
8.05
|
|
|
|
9,805
|
|
|
|
561
|
|
June 1, 2020 to June 30, 2020
|
|
|
3,963
|
|
|
|
7.67
|
|
|
|
3,963
|
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
83,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 manufacturing 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 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.
Inventories
consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
468
|
|
|
$
|
468
|
|
Work-in-process
|
|
|
758
|
|
|
|
901
|
|
Finished goods
|
|
|
478
|
|
|
|
809
|
|
|
|
$
|
1,704
|
|
|
$
|
2,178
|
|
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.
Property
and equipment
Property
and equipment consisted of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
Machinery, equipment and tooling
|
|
$
|
3,343
|
|
|
$
|
3,341
|
|
Buildings
|
|
|
1,711
|
|
|
|
1,711
|
|
Information systems
|
|
|
835
|
|
|
|
835
|
|
Land and land improvements
|
|
|
594
|
|
|
|
594
|
|
Furniture and fixtures
|
|
|
8
|
|
|
|
8
|
|
Total cost
|
|
|
6,491
|
|
|
|
6,489
|
|
Accumulated depreciation and amortization
|
|
|
(3,925
|
)
|
|
|
(3,842
|
)
|
Property and equipment, net
|
|
$
|
2,566
|
|
|
$
|
2,647
|
|
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. The Company makes 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.
For
the year ended December 31, 2019, the Company reviewed the current fair value of its assets and concluded no adjustments were
needed. Additionally, no adjustments were recorded for the six months ended June 30, 2020. The Company will continue to assess
its 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.
The Company completed the sale of its Malaysian
facility for a sale price of Ringgit Malaysia 20,750,000. The Company realized net proceeds of approximately Ringgit Malaysia
20,364,000 (approximately $4.8 million based on the exchange rate on June 30, 2020 of $1=MYR4.27) after the payment of consent
fees, real estate taxes, brokerage and legal fees, transfer and other expenses. The Company recorded a gain on the disposal of
the Malaysian facility of approximately $1.8 million.
The
Company completed a sale of excess consumable assets in the amount of approximately $76,000 during the three months ended June
30, 2019. For the six months ended June 30, 2019, the Company sold $151,000 of excess consumable assets.
The
Company is pursuing the sale of its remaining parcels of land in Batavia, Illinois, and Penang, Malaysia. Although the Company
cannot assure the timing of these sales, these properties were classified as current assets held for sale at June 30, 2020 and
December 31, 2019, as it is the Company’s intention to complete these sales within the next twelve-month period. The Company
cannot guarantee that it will be able to successfully complete the sale or lease of any assets.
Revenue
recognition
The
Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts with Customers (“Topic 606”),
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.
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 $1,000 and $3,000 at June 30, 2020 and December 31, 2019, respectively.
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 (loss) per common share was the same as basic net income (loss) per common share for the three and six months ended
June 30, 2020 and 2019, because the effects of potentially dilutive securities did not have a material impact on the calculation
of diluted net income (loss) per share. The Company had outstanding options exercisable into 19,500 and 32,126 shares of the Company’s
common stock that would have had an anti-dilutive or immaterial effect at June 30, 2020 and 2019, respectively.
3.
INVESTMENTS
The
Company invests its available cash primarily in U.S. Treasury securities, investment grade commercial paper, FDIC guaranteed certificates
of deposit, 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.
The
following table presents the amortized cost and gross unrealized losses on all securities at June 30, 2020:
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
(in thousands)
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
14,743
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,743
|
|
Total short-term investments
|
|
$
|
14,743
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,743
|
|
The
following table presents the amortized cost and gross unrealized 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
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 debt securities consist of U.S. Treasury securities, high-quality investment grade
commercial paper, FDIC guaranteed certificates of deposit, 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 June 30,
2020:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
3,136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,136
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities — current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
—
|
|
|
|
14,743
|
|
|
|
—
|
|
|
|
14,743
|
|
Total
|
|
$
|
3,136
|
|
|
$
|
14,743
|
|
|
$
|
—
|
|
|
$
|
17,879
|
|
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-sale securities — current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
—
|
|
|
|
14,668
|
|
|
|
—
|
|
|
|
14,668
|
|
Marketable securities
|
|
|
790
|
|
|
|
—
|
|
|
|
—
|
|
|
|
790
|
|
Total
|
|
$
|
4,549
|
|
|
$
|
14,668
|
|
|
$
|
—
|
|
|
$
|
19,217
|
|
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 $7.8 million and $4.9 million of time deposits included in cash and cash equivalents as of
June 30, 2020 and December 31, 2019, respectively.
4.
SIGNIFICANT CUSTOMERS
For
the three months ended June 30, 2020, the Company had four customers individually that accounted for approximately 28%, 12%,
12% and 11%, of revenue. For the three months ended June 30, 2019, the Company had three customers individually that accounted
for approximately 19%, 17% and 12% of revenue. For the six months ended June 30, 2020, the Company had five customers that
accounted for approximately 24%, 14%, 12%, 10% and 10% of revenue. For the six months ended June 30, 2019, the Company had
three customers that accounted for approximately 20%, 18% and 15% of revenue. No other customer accounted for 10% or more of the
Company’s revenues during the three and six months ended June 30, 2020 and 2019.
Customers
individually representing more than 10% of trade receivables accounted for approximately 60% and 74% of accounts receivable as
of June 30, 2020 and December 31, 2019, respectively.
5.
STOCKHOLDERS’ EQUITY
Common
shares reserved
As
of June 30, 2020, the Company had reserved 76,453 shares of common stock for issuance upon the exercise of outstanding common
stock options and vesting of RSUs. Also, 281,775 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 June 30, 2020.
6.
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 entitled 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 value of the
common stock on the grant date. On June 24, 2016, the 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, 281,775 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 as of June 30, 2020, and changes during the
six months then ended:
|
|
Shares
available
for
grant
|
|
|
Number
of
options
outstanding
|
|
|
Weighted-
average
option
exercise
price
|
|
|
Number of
restricted
stock
and
board
shares
issued
|
|
|
Number of
RSUs
outstanding
|
|
At January 1, 2020
|
|
|
281,386
|
|
|
|
22,839
|
|
|
$
|
13.48
|
|
|
|
99,570
|
|
|
|
54,003
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised/issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/forfeited
|
|
|
389
|
|
|
|
(389
|
)
|
|
|
196.31
|
|
|
|
—
|
|
|
|
—
|
|
At June 30, 2020
|
|
|
281,775
|
|
|
|
22,450
|
|
|
$
|
10.31
|
|
|
|
99,570
|
|
|
|
54,003
|
|
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 June 30, 2020, there
was $39,585 of intrinsic value arising from 19,500 stock options exercisable and outstanding.
The Company uses the Black-Scholes option pricing
model to value stock options. The Company uses historical stock price average to determine 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 is based upon the vesting term of the Company’s options. The forfeiture rate of 36.13% is based
on the history of forfeited options. The expense is allocated using the straight-line method. For the three and six months ended
June 30, 2020, the Company recorded $2,000 and $5,000, respectively, of stock option compensation expense. For the three
and six months ended June 30, 2019, the Company recorded $6,000 and $13,000, respectively, of stock option compensation expense.
As of June 30, 2020, the Company had $4,000 of total unrecognized compensation cost related to non-vested stock option awards
granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 0.25 years.
A
summary of the Company’s non-vested options during the six months ended June 30, 2020, is presented below:
|
|
Options
|
|
|
Weighted-
average
exercise
price
|
|
Non-vested options at January 1, 2020
|
|
|
4,866
|
|
|
$
|
5.79
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Canceled/forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested options at June 30, 2020
|
|
|
4,866
|
|
|
$
|
5.79
|
|
For
the three and six months ended June 30, 2020, the Company did not record a RSU expense. For the three months and six months ended
June 30, 2019, the Company recorded $7,000 and $7,000, respectively, of RSU expense. As of June 30, 2020, there was
no compensation cost related to the non-vested RSUs remaining.
A
summary of the Company’s RSUs for the six month period ended June 30, 2020 is presented below:
|
|
RSUs
outstanding
|
|
|
Weighted
average
price at
time
of grant
|
|
|
Aggregate
intrinsic
value
|
|
Non-vested RSUs as of January 1, 2020
|
|
|
54,003
|
|
|
$
|
6.56
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Non-vested RSUs at June 30, 2020
|
|
|
54,003
|
|
|
$
|
6.56
|
|
|
$
|
354,250
|
|
The Company’s board of directors are
compensated partially in cash and partially in restricted stock. For the three and six months ended June 30, 2020, the Company
recorded $0 and $8,000, respectively, of stock compensation expense related to restricted stock. For the three and six months
ended June 30, 2019, the Company recorded $3,000 and $7,000, respectively, of stock compensation expense related to restricted
stock.
For the three months and six months ended June 30, 2020, no restricted
stock awards were issued to our directors. For the three months and six months ended June 30, 2019, $30,000 in restricted
stock was issued to our directors. As of June 30, 2020 and December 31, 2019, outstanding non-vested restricted stock shares were
0 and 0 respectively.
An
analysis of restricted stock outstanding is as follows:
Non-vested restricted stock as of January 1, 2020
|
|
|
—
|
|
Granted
|
|
|
—
|
|
Vested
|
|
|
—
|
|
Non-vested restricted stock as of June 30, 2020
|
|
|
—
|
|
The Company recognized an expense of $414,000
during the three months ended June 30, 2019 for the granting of shares to an employee of the Company as a bonus.
7.
COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company experiences
routine litigation in the normal course of its business. The management of the Company does not believe any pending litigation,
will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
COVID-19
Pandemic
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The full impact
of the COVID-19 outbreak is unknown and cannot be reasonably estimated. The magnitude and duration of the COVID-19 outbreak, as
well as other factors, could result in a material impact to the Company’s financial statements in future reporting periods.
8.
INCOME TAXES
In
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 allows 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 2018 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.
The
Company is subject to taxation in the U.S., Malaysia and in a U.S. state jurisdiction. On a quarterly basis, the Company assesses
the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of
significant judgment, and multiple factors, both positive and negative, are considered. For the period ended June 30, 2020,
a valuation allowance has been included in the 2020 forecasted effective tax rate. The Company is 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, objective verifiable evidence is
given greater weight than subjective evidence such as the Company’s projections for future growth. Based on an evaluation
in accordance with the accounting standards, as of December 31, 2015, a valuation allowance has been recorded against the net
U.S. 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 available evidence. At June 30, 2020, the Company continues to be in a three-year cumulative loss
position, therefore, until an appropriate level of profitability is attained, the Company expects to maintain a full valuation
allowance on its U.S. and Malaysia net deferred tax assets. Any U.S. and Malaysia tax benefits or tax expense recorded on the
Company’s consolidated statements of operations will be offset with a corresponding adjustment from the use of the net operating
loss (“NOL”) carryforward asset which currently has a full valuation allowance. In the event that the Company changes
its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance
with a corresponding impact to the provision for income taxes in the period in which such determination is made.
The tax provision for the six months ended
June 30, 2020, is based on an estimated combined statutory effective tax rate. The Company recorded for the three and six months
ended June 30, 2020, a tax expense of $4,000 and $9,000, respectively, for an effective tax rate of 0.23% and -1.86%, respectively.
For the three and six months ended June 30, 2020 the difference between the Company’s effective tax rate and the U.S. federal
21% statutory rate and state 6.2% (net of federal benefit) statutory rate was primarily related to the change in the Company’s
U.S. and Malaysia valuation allowances, U.S. research and development credit, Malaysia foreign tax rate differential and Malaysia
withholding taxes on intercompany loan interest.
9.
SEGMENT INFORMATION
The
Company has determined that it operates in two segments, the sapphire and pharmacy businesses.
Revenue
is attributed by geographic region based on ship-to location of the Company’s customers. The following table summarizes
revenue by geographic region:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,135
|
|
|
$
|
697
|
|
|
$
|
2,175
|
|
|
$
|
1,560
|
|
Asia
|
|
|
155
|
|
|
|
72
|
|
|
|
268
|
|
|
|
119
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
10
|
|
Total revenue
|
|
$
|
1,290
|
|
|
$
|
769
|
|
|
$
|
2,450
|
|
|
$
|
1,689
|
|
The
following table summarizes sales by product type:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Optical
|
|
$
|
1,090
|
|
|
$
|
738
|
|
|
$
|
2,117
|
|
|
$
|
1,658
|
|
Direct Dose Rx
|
|
|
200
|
|
|
|
31
|
|
|
|
333
|
|
|
|
31
|
|
Total revenue
|
|
$
|
1,290
|
|
|
$
|
769
|
|
|
$
|
2,450
|
|
|
$
|
1,689
|
|
The
following table summarizes assets by geographic region:
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
|
|
North America
|
|
$
|
25,038
|
|
|
$
|
29,703
|
|
Asia
|
|
|
6,843
|
|
|
|
5,094
|
|
Other
|
|
|
—
|
|
|
|
4
|
|
Total assets
|
|
$
|
31,881
|
|
|
$
|
34,801
|
|
Direct Dose Rx accounted for a loss of approximately
$76,000 for the three months ended June 30, 2020 and approximately $195,000 for the six months ended June 30, 2020. The Company
established Direct Dose Rx in May 2019.
10.
SUBSEQUENT EVENTS
In November 2018, the Company’s Board of Directors authorized
a program to repurchase up to $3 million of the Company’s common stock. Subsequent to June 30, 2020, the Company repurchased
additional shares of its common stock and used up all of the remaining amount of the original $3 million.