Rubicon
Technology, Inc.
Condensed
Consolidated Balance Sheets
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
(in thousands, other than share and per share data)
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,700
|
|
|
$
|
11,130
|
|
Short-term investments
|
|
|
14,749
|
|
|
|
14,748
|
|
Accounts receivable, net
|
|
|
441
|
|
|
|
386
|
|
Inventories
|
|
|
930
|
|
|
|
1,073
|
|
Other inventory supplies
|
|
|
137
|
|
|
|
140
|
|
Prepaid expenses and other current assets
|
|
|
143
|
|
|
|
284
|
|
Assets held for sale
|
|
|
529
|
|
|
|
529
|
|
Total current assets
|
|
|
27,629
|
|
|
|
28,290
|
|
Inventories, non-current
|
|
|
468
|
|
|
|
468
|
|
Property and equipment, net
|
|
|
2,401
|
|
|
|
2,482
|
|
Total assets
|
|
$
|
30,498
|
|
|
$
|
31,240
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
440
|
|
|
$
|
497
|
|
Accrued payroll
|
|
|
275
|
|
|
|
211
|
|
Accrued and other current liabilities
|
|
|
193
|
|
|
|
201
|
|
Corporate income and franchise taxes
|
|
|
319
|
|
|
|
307
|
|
Accrued real estate taxes
|
|
|
73
|
|
|
|
71
|
|
Advance payments
|
|
|
—
|
|
|
|
18
|
|
Total current liabilities
|
|
|
1,300
|
|
|
|
1,305
|
|
Total liabilities
|
|
|
1,300
|
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 1,000,000 undesignated shares authorized, no shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.001 par value, 8,200,000 shares authorized; 2,994,223 and 2,971,283 shares issued; 2,445,195 and 2,422,225 shares outstanding, respectively
|
|
|
29
|
|
|
|
29
|
|
Additional paid-in capital
|
|
|
376,645
|
|
|
|
376,456
|
|
Treasury stock, at cost, 549,028 and 549,028 shares
|
|
|
(15,147
|
)
|
|
|
(15,147
|
)
|
Accumulated other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
Accumulated deficit
|
|
|
(332,329
|
)
|
|
|
(331,403
|
)
|
Total stockholders’ equity
|
|
|
29,198
|
|
|
|
29,935
|
|
Total liabilities and stockholders’ equity
|
|
$
|
30,498
|
|
|
$
|
31,240
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Rubicon
Technology, Inc.
Condensed
Consolidated Statements of Operations
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, other than share and per share data)
|
|
Revenue
|
|
$
|
848
|
|
|
$
|
1,089
|
|
|
$
|
1,343
|
|
|
$
|
2,117
|
|
Cost of goods sold
|
|
|
633
|
|
|
|
800
|
|
|
|
1,020
|
|
|
|
1,510
|
|
Gross profit
|
|
|
215
|
|
|
|
289
|
|
|
|
323
|
|
|
|
607
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
524
|
|
|
|
409
|
|
|
|
1,275
|
|
|
|
856
|
|
Sales and marketing
|
|
|
67
|
|
|
|
68
|
|
|
|
137
|
|
|
|
142
|
|
Gain on sale or disposal of assets
|
|
|
(370
|
)
|
|
|
(1,823
|
)
|
|
|
(370
|
)
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(6
|
)
|
|
|
1,635
|
|
|
|
(719
|
)
|
|
|
1,432
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2
|
|
|
|
32
|
|
|
|
3
|
|
|
|
106
|
|
Unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
156
|
|
|
|
-
|
|
|
|
(1,824
|
)
|
Realized loss on investments
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
-
|
|
Realized gain (loss) on foreign currency translation
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
(8
|
)
|
Total other income (loss)
|
|
|
2
|
|
|
|
156
|
|
|
|
3
|
|
|
|
(1,726
|
)
|
Income (loss) before income taxes from continuing operations
|
|
|
(4
|
)
|
|
|
1,791
|
|
|
|
(716
|
)
|
|
|
(294
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
9
|
|
Income (loss) from continuing operations
|
|
$
|
(4
|
)
|
|
$
|
1,787
|
|
|
$
|
(716
|
)
|
|
$
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
(115
|
)
|
|
|
(76
|
)
|
|
|
(210
|
)
|
|
|
(195
|
)
|
Income tax expense from discontinued operations
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(115
|
)
|
|
$
|
(76
|
)
|
|
$
|
(210
|
)
|
|
$
|
(195
|
)
|
Net income (loss)
|
|
|
(119
|
)
|
|
|
1,711
|
|
|
|
(926)
|
|
|
|
(498)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.00
|
|
|
$
|
0.71
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.12
|
)
|
Discontinued operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.00
|
|
|
$
|
0.71
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.12
|
)
|
Discontinued operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Weighted average common shares outstanding used in computing net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,433,725
|
|
|
|
2,513,945
|
|
|
|
2,433,725
|
|
|
|
2,571,706
|
|
Diluted
|
|
|
2,433,725
|
|
|
|
2,517,936
|
|
|
|
2,433,725
|
|
|
|
2,571,706
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Rubicon
Technology, Inc.
Condensed
Consolidated Statements of Comprehensive Income (Loss)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Income (loss) from continuing operations
|
|
$
|
(4
|
)
|
|
$
|
1,787
|
|
|
|
(716
|
)
|
|
$
|
(303
|
)
|
Loss from discontinued operations
|
|
|
(115
|
)
|
|
|
(76
|
)
|
|
|
(210
|
)
|
|
|
(195
|
)
|
Net income (loss)
|
|
|
(119
|
)
|
|
|
1,711
|
|
|
|
(926
|
)
|
|
|
(498
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
Comprehensive income (loss)
|
|
$
|
(119
|
)
|
|
$
|
1,700
|
|
|
$
|
(926
|
)
|
|
$
|
(498
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Rubicon
Technology, Inc.
Condensed
Consolidated Statements of Stockholders’ Equity
For
the Three and Six Months Ended June 30, 2021 and 2020
|
|
Common stock
|
|
|
Treasury stock
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
paid-in
capital
|
|
|
Accum
other
comp
loss
|
|
|
Accum
deficit
|
|
|
Total
stockholders’
equity
|
|
|
|
(in thousands other than share data)
|
|
Balance at January 1, 2020
|
|
|
2,955,253
|
|
|
$
|
29
|
|
|
|
(253,082
|
)
|
|
$
|
(12,749
|
)
|
|
$
|
376,306
|
|
|
$
|
(1
|
)
|
|
$
|
(330,340
|
)
|
|
$
|
33,245
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
Purchase of treasury stock, at cost
|
|
|
—
|
|
|
|
—
|
|
|
|
(146,674
|
)
|
|
|
(1,205
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,205
|
)
|
Unrealized loss on investments, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
11
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,209
|
)
|
|
|
(2,209
|
)
|
Balance at March 31, 2020
|
|
|
2,955,253
|
|
|
$
|
29
|
|
|
|
(399,756
|
)
|
|
$
|
(13,954
|
)
|
|
$
|
376,317
|
|
|
$
|
10
|
|
|
$
|
(332,549
|
)
|
|
$
|
29,853
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Purchase of treasury stock, at cost
|
|
|
—
|
|
|
|
—
|
|
|
|
(83,104
|
)
|
|
|
(663
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(663
|
)
|
Unrealized gain on investments, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,711
|
|
|
|
1,711
|
|
Balance at June 30, 2020
|
|
|
2,955,253
|
|
|
$
|
29
|
|
|
|
(482,860
|
)
|
|
$
|
(14,617
|
)
|
|
$
|
376,319
|
|
|
$
|
(1
|
)
|
|
$
|
(330,838
|
)
|
|
$
|
30,892
|
|
|
|
Common stock
|
|
|
Treasury stock
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
paid-in
capital
|
|
|
Accum
other
comp
loss
|
|
|
Accum
deficit
|
|
|
Total
stockholders’
equity
|
|
|
|
(in thousands other than share data)
|
|
Balance at January 1, 2021
|
|
|
2,971,283
|
|
|
$
|
29
|
|
|
|
(549,028
|
)
|
|
$
|
(15,147
|
)
|
|
$
|
376,456
|
|
|
$
|
—
|
|
|
$
|
(331,403
|
)
|
|
$
|
29,935
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
341
|
|
|
|
—
|
|
|
|
—
|
|
|
|
341
|
|
Common stock issued, net of shares withheld for employee taxes
|
|
|
16,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(162
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(162
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(807
|
)
|
|
|
(807
|
)
|
Balance at March 31, 2021
|
|
|
2,987,883
|
|
|
$
|
29
|
|
|
|
(549,028
|
)
|
|
$
|
(15,147
|
)
|
|
$
|
376,635
|
|
|
$
|
—
|
|
|
$
|
(332,210
|
)
|
|
$
|
29,307
|
|
Stock Based Compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
Common stock issued, net of shares withheld for employee taxes
|
|
|
6,340
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(119
|
)
|
|
|
(119
|
)
|
Balance at June 30, 2021
|
|
|
2,994,223
|
|
|
$
|
29
|
|
|
|
(549,028
|
)
|
|
$
|
(15,147
|
)
|
|
$
|
376,645
|
|
|
$
|
—
|
|
|
$
|
(332,329
|
)
|
|
$
|
29,198
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Rubicon
Technology, Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(unaudited)
(in thousands)
|
|
Cash flows from continuing operating activities
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(716
|
)
|
|
$
|
(303
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
74
|
|
|
|
76
|
|
(Gain) on sale or disposal of assets
|
|
|
(370
|
)
|
|
|
(1,823
|
)
|
Stock-based compensation
|
|
|
371
|
|
|
|
13
|
|
Realized (gain) loss on equity investments, net
|
|
|
—
|
|
|
|
1,824
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1
|
)
|
|
|
270
|
|
Inventories
|
|
|
106
|
|
|
|
460
|
|
Other inventory supplies
|
|
|
2
|
|
|
|
(1
|
)
|
Prepaid expenses and other assets
|
|
|
143
|
|
|
|
232
|
|
Accounts payable
|
|
|
(108
|
)
|
|
|
(395
|
)
|
Accrued payroll
|
|
|
63
|
|
|
|
3
|
|
Accrued real estate taxes
|
|
|
3
|
|
|
|
(43
|
)
|
Corporate income and franchise taxes
|
|
|
11
|
|
|
|
1
|
|
Advanced payments
|
|
|
(18
|
)
|
|
|
(16
|
)
|
Accrued and other current liabilities
|
|
|
13
|
|
|
|
(134
|
)
|
Net cash provided by (used in) continuing operating activities
|
|
|
(427
|
)
|
|
|
164
|
|
Cash flows from discontinued operations
|
|
|
(190
|
)
|
|
|
48
|
|
Cash flows from operating activities
|
|
|
(617
|
)
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(2
|
)
|
Proceeds from sale or disposal of assets
|
|
|
370
|
|
|
|
4,773
|
|
Purchases of investments
|
|
|
(3
|
)
|
|
|
(2,769
|
)
|
Proceeds from sale of investments
|
|
|
1
|
|
|
|
1,660
|
|
Net cash provided by investing activities
|
|
|
368
|
|
|
|
3,662
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Taxes paid related to net share settlement of equity awards
|
|
|
(181
|
)
|
|
|
—
|
|
Purchases of treasury stock
|
|
|
—
|
|
|
|
(1,868
|
)
|
Net cash used in financing activities
|
|
|
(181
|
)
|
|
|
(1,868
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(430
|
)
|
|
|
2,006
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
11,130
|
|
|
|
8,876
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
10,700
|
|
|
$
|
10,882
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Rubicon
Technology, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Three and Six Months Ended June 30, 2021 and 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, 2020. 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, 2021, are not necessarily indicative of results that may be expected
for the year ending December 31, 2021.
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 and Rubicon Sapphire Technology (Malaysia) SDN BHD. 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, common stock, preferred 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 common stock, preferred stock and equity-related 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, 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 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
In
November 2018, the Company’s Board of Directors authorized a program to repurchase up to $3,000,000 of its common stock. In July
2020, the Company used all of the original authorized $3,000,000.
On
December 14, 2020, Rubicon’s Board of Directors authorized an additional $3,000,000 for the repurchase of the Company’s common
stock. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. The timing, price
and volume of repurchases will be based on market conditions, relevant securities laws and other factors. The stock repurchases may be
made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions or pursuant
to a Rule 10b5-1 plan. The program may be terminated, suspended or modified at any time. There can be no assurance as to the number of
shares of common stock repurchased. The Company records treasury stock purchases under the cost method whereby the entire cost of the
acquired stock is recorded as treasury stock.
No
shares of the Company’s common stock were repurchased during the six months ended June 30, 2021. The dollar value of shares that
may yet to be purchased under the program is $3,000,000.
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
of continuing operations consisted of the following:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
468
|
|
|
$
|
468
|
|
Work-in-process
|
|
|
350
|
|
|
|
614
|
|
Finished goods
|
|
|
558
|
|
|
|
400
|
|
|
|
$
|
1,376
|
|
|
$
|
1,482
|
|
Inventories
of discontinued operations was approximately $22,000 and $59,000, as of June 30, 2021 and December 31, 2020, respectively.
As
of June 30, 2021 and December 31, 2020, 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,
2021
|
|
|
December 31,
2020
|
|
|
|
(in thousands)
|
|
Machinery, equipment and tooling
|
|
$
|
3,343
|
|
|
$
|
3,343
|
|
Buildings
|
|
|
1,711
|
|
|
|
1,711
|
|
Information systems
|
|
|
835
|
|
|
|
835
|
|
Land and land improvements
|
|
|
594
|
|
|
|
594
|
|
Furniture and fixtures
|
|
|
8
|
|
|
|
8
|
|
Total cost
|
|
|
6,491
|
|
|
|
6,491
|
|
Accumulated depreciation and amortization
|
|
|
(4,090
|
)
|
|
|
(4,009
|
)
|
Property and equipment, net
|
|
$
|
2,401
|
|
|
$
|
2,482
|
|
As of June 30, 2021 and December 31, 2020, the
property and equipment of the discontinued operations included above was less than $34,000 and less than $41,000, respectively.
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, 2020, the Company reviewed the current fair value of its assets and concluded no adjustments were needed.
Additionally, no adjustments were recorded for the three and six months ended June 30, 2021. 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.
During
the three months ended June 30, 2020, 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 $4,800,000 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 $1,800,000.
The
Company completed a sale of excess consumable assets in the amount of approximately $370,000 during the three months ended June 30, 2021.
The
Company is pursuing the sale of its remaining parcels of land in Batavia, Illinois. Although the Company cannot assure the timing of
this sale, this property was classified as current assets held for sale at June 30, 2021 and December 31, 2020, as it is the
Company’s intention to complete this sale within the next twelve-month period. The Company cannot provide assurance 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 $2,000 at June 30, 2021 and December 31, 2020, 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,
2021 and 2020, 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 7,000 and 19,500 shares of the Company’s common stock
that would have had an anti-dilutive or immaterial effect at June 30, 2021 and 2020, 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, 2021:
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
(in thousands)
|
|
Short-term investments:
|
|
|
|
U.S. Treasury securities
|
|
$
|
14,749
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,749
|
|
The
following table presents the amortized cost and gross unrealized losses on all securities at December 31, 2020:
|
|
Amortized
cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
|
|
(in thousands)
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
14,748
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,748
|
|
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, 2021:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
3,137
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,137
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities — current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
—
|
|
|
|
14,749
|
|
|
|
—
|
|
|
|
14,749
|
|
Total
|
|
$
|
3,137
|
|
|
$
|
14,749
|
|
|
$
|
—
|
|
|
$
|
17,886
|
|
The
following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31, 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
|
|
|
—
|
|
|
|
14,748
|
|
|
|
—
|
|
|
|
14,748
|
|
Total
|
|
$
|
3,136
|
|
|
$
|
14,748
|
|
|
$
|
—
|
|
|
$
|
17,884
|
|
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 $7,564,000 and $7,994,000 of time deposits included in cash
and cash equivalents as of June 30, 2021 and December 31, 2020, respectively.
4.
DISCONTINUED OPERATIONS: Closure of Direct Dose Rx
On June 24, 2021, the Company’s Board
of Directors approved effective immediately, to close its pharmacy operations dba Direct Dose Rx. Immediately thereafter, Direct
Dose Rx began transitioning its customers to other providers and began the process of closing its operations. Direct Dose was
launched as a start-up pharmacy primarily to deliver medications and vitamins to patients being discharged from skilled nursing
facilities. The Company does not believe that the costs associated with such closure will be material.
5.
SIGNIFICANT CUSTOMERS
For
the three months ended June 30, 2021, the Company had three customers individually that accounted for approximately 16%, 12% and
12% of revenue. 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 six months ended June 30, 2021, the Company had three customers that accounted for approximately
12%, 11% and 10% 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. Our principal customers have been defense subcontractors, industrial manufacturers, fabricators,
resellers and pharmacy benefit managers. No other customer accounted for 10% or more of the Company’s revenues during the three
and six months ended June 30, 2021 and 2020. 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.
Customers
individually representing more than 10% of trade receivables accounted for approximately 64% and 44% of accounts receivable as of June
30, 2021 and December 31, 2020, respectively.
6.
STOCKHOLDERS’ EQUITY
Common
shares reserved
As
of June 30, 2021, the Company had reserved 8,800 and 3,030 shares of common stock for issuance upon the exercise of outstanding
common stock options and vesting of RSUs, respectively. Also, 319,342 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, 2021.
7.
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, 319,342 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, 2021, 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, 2021
|
|
|
296,105
|
|
|
|
20,100
|
|
|
$
|
9.71
|
|
|
|
99,570
|
|
|
|
48,753
|
|
Granted
|
|
|
(38,330
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,030
|
|
Exercised/issued
|
|
|
—
|
|
|
|
(11,250
|
)
|
|
|
6.10
|
|
|
|
—
|
|
|
|
(3,750
|
)
|
Cancelled/forfeited
|
|
|
61,567
|
|
|
|
(50
|
)
|
|
|
44.10
|
|
|
|
—
|
|
|
|
(45,003
|
)
|
At June 30, 2021
|
|
|
319,342
|
|
|
|
8,800
|
|
|
$
|
14.13
|
|
|
|
99,570
|
|
|
|
3,030
|
|
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, 2021, there was
$21,560 of intrinsic value arising from 7,000 in the money 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, 2021, the Company did not record any stock option compensation expense. For the three and six months ended
June 30, 2020, the Company recorded $2,000 and $5,000, respectively, of stock option compensation expense. As of June 30, 2021,
the Company had $0 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s
stock-based plans
As
of December 31, 2020 and June 30, 2021, the Company did not have any non-vested options.
As of June 30, 2021, there was approximately
$30,000 of compensation cost related to the non-vested RSUs remaining.
A
summary of the Company’s RSUs for the six month period ended June 30, 2021 is presented below:
|
|
RSUs
outstanding
|
|
|
Weighted
average
price at
time
of grant
|
|
|
Aggregate
intrinsic
value
|
|
Non-vested RSUs as of January 1, 2021
|
|
|
48,753
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
|
|
3,030
|
|
|
|
9.90
|
|
|
|
|
|
Vested
|
|
|
(3,750
|
)
|
|
|
—
|
|
|
|
|
|
Cancelled
|
|
|
(45,003
|
)
|
|
|
—
|
|
|
|
|
|
Non-vested RSUs at June 30, 2021
|
|
|
3,030
|
|
|
$
|
9.90
|
|
|
$
|
30,000
|
|
The
Company’s board of directors are compensated partially in cash and partially in restricted stock units. For the three and six months
ended June 30, 2021 and 2020, the Company recorded $7,500 and $15,000, respectively, of stock compensation expense related to restricted
stock units.
8.
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.
9.
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 $3,900,000 at the time of provision to $5,000,000
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.
The
Company is subject to taxation in the U.S. and in U.S. state jurisdictions. 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, 2021, a valuation allowance has been
included in the 2021 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, 2021, 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. net deferred tax assets. Any U.S. 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”)
carry-forward 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.
10.
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 revenue of Direct Dose Rx, our discontinued
operations, is only in North America. The following table summarizes revenue by geographic region:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
890
|
|
|
$
|
1,135
|
|
|
$
|
1,478
|
|
|
$
|
2,175
|
|
Asia
|
|
|
70
|
|
|
|
154
|
|
|
|
209
|
|
|
|
268
|
|
Other
|
|
|
24
|
|
|
|
—
|
|
|
|
26
|
|
|
|
7
|
|
Total revenue
|
|
$
|
984
|
|
|
$
|
1,289
|
|
|
$
|
1,713
|
|
|
$
|
2,450
|
|
The
following table summarizes sales by product type:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Optical
|
|
$
|
848
|
|
|
$
|
1,089
|
|
|
$
|
1,343
|
|
|
$
|
2,117
|
|
Direct Dose Rx (discontinued operations)
|
|
|
136
|
|
|
|
200
|
|
|
|
370
|
|
|
|
333
|
|
Total revenue
|
|
$
|
984
|
|
|
$
|
1,289
|
|
|
$
|
1,713
|
|
|
$
|
2,450
|
|
Substantially
all of the Company’s assets are located in the United States.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
All statements, other than statements of historical
facts, included in this Quarterly Report on Form 10-Q, 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”
in our Annual Report on Form 10-K, for the year ended December 31, 2020, and elsewhere in this Quarterly Report could have a material
adverse effect on our business, results of operations and financial condition.
Although we believe that the expectations reflected
in the forward-looking statements are reasonable, forward-looking statements are inherently subject to known and unknown 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
Quarterly 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 Quarterly 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 Quarterly Report, the documents
that we reference in this Quarterly Report and have filed with the SEC as exhibits, and our Annual Report on Form 10-K for the year ended
December 31, 2020, 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.
OVERVIEW
The Company consisted of two primary operating subsidiaries, Rubicon
Technology Worldwide LLC (“RTW”) and Rubicon DTP LLC dba Direct Dose Rx (“Direct Dose”).
RTW is a vertically integrated, advanced materials
provider specializing in monocrystalline sapphire for applications in optical and industrial systems. We use our proprietary crystal growth
technology to produce high-quality sapphire products to meet our customers exacting specifications. 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 remaining operations
in the U.S.
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 carry-forwards.
On June 24, 2021, the Company’s Board of
Directors decided, effective immediately, to close its pharmacy operations dba Direct Dose Rx. Direct Dose was launched as a start-up
pharmacy primarily to deliver medications and vitamins to patients being discharged from skilled nursing facilities. The Company does
not believe that the costs associated with such closure will be material. At the end of June 2021, Direct Dose Rx ceased serving its customers
and began the process of closing its operations.
Direct Dose Rx was a specialized pharmacy that
provides prescription medications, over-the-counter drugs and vitamins to patients being discharged from skilled nursing facilities and
hospitals and directly to retail customers who want such medications delivered to their home. The delivered products are sorted by the
dose, date and time to be taken and come in easy to use perforated strip-packaging as opposed to separate pill bottles. Direct Dose Rx
is currently licensed to operate in 11 states. The services offered by Direct Dose Rx benefits patients, skilled nursing facilities and
hospitals by reducing the risk of hospital readmissions.
Historically, a significant portion of the Company’s
revenue has been derived from sales to relatively few customers. For the three months ended June 30, 2021, the Company had three
customers individually that accounted for approximately 16%, 12% and 12% of revenue. 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 six months ended June 30,
2021, the Company had three customers that accounted for approximately 12%, 11% and 10% 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. Our principal customers have
been defense subcontractors, industrial manufacturers, fabricators, resellers and pharmacy benefit managers. No other customer accounted
for 10% or more of the Company’s revenues during the three and six months ended June 30, 2021 and 2020. 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.
Customers individually representing more than
10% of trade receivables accounted for approximately 64% and 44% of accounts receivable as of June 30, 2021 and December 31, 2020, respectively.
We recognize revenue based upon the shipping terms
with our customers. Delays in product orders or changes to the timing of shipments could cause our quarterly revenue to vary significantly.
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. 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.
Our cost of goods sold consists primarily of manufacturing
materials, labor, manufacturing-related overhead, such as utilities, depreciation, provisions for excess and obsolete inventory reserves,
idle plant charges, outsourcing costs, freight, warranties and pharmaceutical products. 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.
Our operating expenses are comprised of sales
and marketing, and general and administrative (“G&A”) expenses. G&A expenses consist primarily of compensation and
associated costs for finance, human resources, information technology and administrative activities, including charges for accounting,
legal services and insurance. Additionally, the majority of our stock-based compensation relates to administrative personnel and is accounted
for as a G&A expense.
Other income consists of interest income, unrealized
gain (loss) on investments, realized gain (loss) on investments and realized gains (loss) on currency translation.
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 carry-forwards as of December 31,
2020, shows no impact on such utilization. In order to protect our NOL carry-forwards, in December 2020, we extended our stockholders’
rights plan to 2023. We are in a cumulative loss position for the past three years. Based on an evaluation in accordance with the accounting
standards, 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. Until an appropriate level
of profitability is attained, we expect to maintain a full valuation allowance on our U.S. net deferred tax assets.
We continue to review a variety of strategic alternatives
with a goal of providing greater value to our stockholders. These alternatives could result in, among other things, further 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, or we may continue to operate with our current business plan and strategy. We cannot provide assurance that this
process will result in the consummation of any transaction, or that the consummation of any transaction will provide greater value to
our stockholders.
Direct Dose Rx revenue and expenses are currently
not material to the consolidated financial information of the Company and therefore there is limited disclosure relating specifically
to it.
RESULTS OF CONSOLIDATED OPERATIONS THREE MONTHS ENDED JUNE 30,
2021 AND 2020
The following table sets forth our consolidated statements of continuing
operations for the periods indicated:
|
|
Three months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
848
|
|
|
$
|
1,089
|
|
Cost of goods sold
|
|
|
633
|
|
|
|
800
|
|
Gross profit
|
|
|
215
|
|
|
|
289
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
524
|
|
|
|
409
|
|
Sales and marketing
|
|
|
67
|
|
|
|
68
|
|
Gain on sale or disposal of assets
|
|
|
(370
|
)
|
|
|
(1,823
|
)
|
Total operating expenses
|
|
|
221
|
|
|
|
(1,346
|
)
|
Income (loss) from continuing operations
|
|
|
(6
|
)
|
|
|
1,635
|
|
Other income
|
|
|
2
|
|
|
|
156
|
|
Income (loss) before income taxes from continuing operations
|
|
|
(4
|
)
|
|
|
1,791
|
|
Loss from discontinued operations
|
|
|
(115
|
)
|
|
|
(76
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
(4
|
)
|
Net income (loss)
|
|
$
|
(119
|
)
|
|
$
|
1,711
|
|
The following table sets forth our consolidated statements of operations
as a percentage of revenue for the periods indicated:
|
|
Three months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(percentage of total)
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
75
|
|
|
|
73
|
|
Gross profit
|
|
|
25
|
|
|
|
27
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
62
|
|
|
|
38
|
|
Sales and marketing
|
|
|
8
|
|
|
|
6
|
|
Gain on sale or disposal of assets
|
|
|
(44
|
)
|
|
|
(167
|
)
|
Total operating expenses
|
|
|
26
|
|
|
|
(123
|
)
|
Income (loss) from continuing operations
|
|
|
(1
|
)
|
|
|
150
|
|
Other income
|
|
|
—
|
|
|
|
14
|
|
Loss before income taxes from continuing operations
|
|
|
(1
|
)
|
|
|
164
|
|
Loss from discontinued operations
|
|
|
(14
|
)
|
|
|
(7
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Net gain (loss)
|
|
|
(14
|
)%
|
|
|
157
|
%
|
Revenue.
Revenue from continuing operations was $848,000
and $1,089,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $241,000. This decrease in revenue
was primarily due to a decrease in orders from our industrial sapphire business, due to fluctuations in demand and timing of orders.
Revenue
from discontinuing operations was $136,000 and $200,000 for the three months ended June 30, 2021, and 2020, respectively, a decrease
of $64,000. This decrease in revenue was primarily due to a decrease in orders.
Gross profit.
Gross profit from continuing operations was $215,000
and $289,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $74,000. This decrease in gross profit
was due to decreased sales.
Gross profit from discontinuing operations was
$(7,000) and $62,000 for the three months ended June 30, 2021, and 2020, respectively, a decrease of $69,000. This decrease in gross profit
was the result of a decrease in orders and having certain fixed operating expenses that do not decrease when our revenue decreases.
General and administrative expenses.
General and administrative expenses from continuing
operations were $524,000 and $409,000 for the three months ended June 30, 2021 and 2020, respectively, an increase of $115,000. This
increase was primarily attributable to $56,000 in additional legal expenses and increase of employee expenses of $49,000.
General and administrative expenses from discontinuing
operations were $107,000 and $136,000 for the three months ended June 30, 2021, and 2020, respectively, a decrease of $29,000. This
decrease was primarily attributable to a reduction in personnel expenses.
Sales and marketing expenses.
Sales and marketing expenses from continuing operations
were $67,000 and $68,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $1,000.
Sales and marketing expenses from discontinuing
operations were $1,000 and $2,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $1,000.
Gain on sale or disposal of assets. For
the three months ended June 30, 2021, we recorded a gain on sale of excess consumable assets, recording a gain of $370,000. For the three
months ended June 30, 2020 the Company recorded a gain on sale or disposal of our facility in Penang, Malaysia of approximately $1,800,000.
Other income. Other income was $2,000 and
$156,000 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $154,000. This decrease was due to the drop
of interest rates.
Income tax (benefit) expense. In accordance
with ASC740 “Accounting for Income Taxes” (“ASC740”), we evaluate our deferred income tax assets quarterly to
determine if valuation allowances are required or should be adjusted. At June 30, 2021, we continue to be in a three-year cumulative
loss position; therefore, until an appropriate level of profitability is attained, we expect to maintain a valuation allowance on net
deferred tax assets related to future U.S. tax benefits and will no longer accrue tax benefits or tax expense on our consolidated statements
of operations. The tax provision for the three months ended June 30, 2021 is based on an estimated combined statutory effective
tax rate. For the three months ended June 30, 2021, the difference between the Company’s effective tax rate of 0.23% 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 our U.S.
NOL valuation allowances, U.S. research and development credit.
RESULTS OF CONSOLIDATED OPERATIONS SIX MONTHS ENDED JUNE 30,
2021 AND 2020
The following table sets forth our consolidated statements of continuing
operations for the periods indicated:
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
1,343
|
|
|
$
|
2,117
|
|
Cost of goods sold
|
|
|
1,020
|
|
|
|
1,510
|
|
Gross profit
|
|
|
323
|
|
|
|
607
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,275
|
|
|
|
856
|
|
Sales and marketing
|
|
|
137
|
|
|
|
142
|
|
Gain on sale or disposal of assets
|
|
|
(370
|
)
|
|
|
(1,823
|
)
|
Total operating expenses
|
|
|
(1,042
|
)
|
|
|
825
|
|
Gain (loss) from continuing operations
|
|
|
(719
|
)
|
|
|
1,432
|
|
Other income(loss)
|
|
|
3
|
|
|
|
(1,726
|
)
|
Loss before income taxes from continuing operations
|
|
|
(716
|
)
|
|
|
(294
|
)
|
Loss from discontinued operations
|
|
|
(210
|
)
|
|
|
(195
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
9
|
|
Net loss
|
|
$
|
(926
|
)
|
|
$
|
(498
|
)
|
The following table sets forth our consolidated statements of operations
as a percentage of revenue for the periods indicated:
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(percentage of total)
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of goods sold
|
|
|
76
|
|
|
|
71
|
|
Gross profit
|
|
|
24
|
|
|
|
29
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
95
|
|
|
|
40
|
|
Sales and marketing
|
|
|
10
|
|
|
|
7
|
|
Gain on sale or disposal of assets
|
|
|
(28
|
)
|
|
|
(86
|
)
|
Total operating expenses
|
|
|
(77
|
)
|
|
|
39
|
|
Gain (loss) from continuing operations
|
|
|
53
|
|
|
|
68
|
|
Other income
|
|
|
—
|
|
|
|
(81
|
)
|
Loss before income taxes from continuing operations
|
|
|
(53
|
)
|
|
|
(13
|
)
|
Loss from discontinued operations
|
|
|
(16
|
)
|
|
|
(9
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(69
|
)%
|
|
|
(22
|
)%
|
Revenue.
Revenue from continuing operations was $1,343,000
and $2,117,000 for the six months ended June 30, 2021, and 2020, respectively, a decrease of $774,000. This decrease in revenue was primarily
due to a decrease in orders from our industrial sapphire business due to fluctuations in demand and timing of orders.
Revenue from discontinuing operations was $370,000 and $332,000 for
the six months ended June 30, 2021, and 2020, respectively, a decrease of $38,000. This decrease in revenue was primarily due to a decrease
in orders.
Gross profit.
Gross profit from continuing operations was $323,000
and $607,000 for the six months ended June 30, 2021, and 2020, respectively, a decrease of $284,000. This decrease in gross profit was
the result of a decrease in orders from industrial sapphire business due to fluctuations in demand and timing of orders.
Gross profit from discontinuing operations was
$30,000 and $91,000 for the six months ended June 30, 2021, and 2020, respectively, a decrease of $61,000. This decrease in gross profit
was the result of a decrease in orders and the having certain fixed operating expenses that do not decrease when our revenues decrease.
General and administrative expenses.
General and administrative expenses from continuing
operations were $1,275,000 and $856,000 for the six months ended June 30, 2021 and 2020, respectively, an increase of $419,000.
This increase was primarily attributable to a non-cash stock grant expense of $315,000 in the six months ended June 30, 2020, higher legal
fees of $44,000 and an increase of insurance expense of $27,000. For the six months ended June 30, 2020, there were no stock grants issued.
General and administrative expenses from discontinuing
operations were $230,000 and $273,000 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $43,000. This
decrease was primarily attributable to a reduction in personnel expenses.
Sales and marketing expenses.
Sales and marketing expenses from continuing operations
were $137,000 and $142,000 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $5,000.
Sales and marketing expenses from discontinuing
operations were $10,000 and $14,000 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $4,000.
Gain on sale or disposal of assets. For
the six months ended June 30, 2021, we recorded a gain on sale or disposal of $370,000 on the sales of excess equipment and consumable
assets located in the U.S. For the six months ended June 30, 2020 we recorded a gain on sale from the disposal on the sale of the Company’s
Penang, Malaysia facility of approximately $1,800,000.
Other income. Other income continuing operations
was $3,000 and $(1,721,000) for the six months ended June 30, 2021 and 2020, respectively, an increase of $1,724,000. This increase
in other income was primarily due to realized losses on the Company’s equity related investments in the three months ended March
31, 2020.
Income tax (benefit) expenses from continuing
operations. In accordance with ASC740 “Accounting for Income Taxes” (“ASC740”), we evaluate our deferred income
tax assets quarterly to determine if valuation allowances are required or should be adjusted.
At June 30, 2021, we continue to be in a
three-year cumulative loss position; therefore, until an appropriate level of profitability is attained, we expect to maintain a valuation
allowance on net deferred tax assets related to future U.S. tax benefits and will no longer accrue tax benefits or tax expense on our
consolidated statements of operations. The tax provision for the six months ended June 30, 2021, is based on an estimated combined
statutory effective tax rate. For the six months ended June 30, 2021, the difference between the Company’s effective tax rate
of -1.86% 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 our U.S. NOL valuation allowances, U.S. research and development credit. The results from the discontinued operations are included
in the total cumulative loss position.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our operations using
a combination of issuances of common stock and cash generated from our operations. In addition to this, recently, we have used the funds
obtained through selling our excess equipment to fund our operations.
As of June 30, 2021, we had cash, cash equivalents
and short-term investments totaling $25,449,000, consisting of cash of $7,564,000 held in deposits at major banks, $3,137,000 invested
in money market funds and $14,749,000 of short-term investments, which includes U.S. Treasury securities, investment grade commercial
paper, FDIC guaranteed certificates of deposit, equity-related securities and corporate notes.
Cash flows from continuing operating activities
Cash used in continuing operating activities was $427,000 for the six months
ended June 30, 2021. During such period, we generated a net loss of $716,000, including non-cash items of $445,000, and a decrease
in cash from net working capital of $156,000. The net working capital cash decrease was primarily driven by a gain on the disposal of
assets of 370,000, a decrease in inventory of $106,000, a decrease of $63,000 in accrued payroll and a decrease of $143,000 in pre-paid
expenses. This was partially offset by an increase in accounts payables of $108,000.
Cash provided by operating activities was $212,000 for the six months ended
June 30, 2020. During such period, we generated a net loss of $303,000, including non-cash items of $98,000, and an increase in cash
from net working capital of $612,000. The net working capital cash increase was primarily driven by a decrease in accounts receivable
of $270,000 and a decrease of $460,000 in inventories. This was partially offset by an increase in other accruals of $189,000 and a decrease
in accounts payable of $395,000.
Cash flows from investing activities
Net cash provided in investing activities was $368,000
for the six months ended June 30, 2021, primarily due to the proceeds from the sale or disposal of assets of $370,000.
Net cash provided by investing activities was $3,662,000
for the six months ended June 30, 2020, primarily due to the proceeds from the sale of the Company’s facility in Penang, Malaysia,
partially offset by purchases of investments of U.S. Treasury securities of $415,000 and equity-related securities of $2.4 million. Additional
cash was generated by proceeds from sales of investments of $1,660,000.
We anticipate our capital expenditures for 2021 will be minimal.
Cash flows from financing activities
Net cash used in continuing operations in financing
activities was $181,000 for the six months ended June 30, 2021, due entirely to cash used to settle equity awards. Net cash used in financing
activities was $1,868,000 for the six months ended June 30, 2020, which was due to purchases of our treasury stock. Net cash used
in discontinuing operations in financing activities was $0 for the six months ended June 30, 2021 and June 30, 2020.
Future liquidity requirements
We believe that our existing cash, cash equivalents,
anticipated cash flows from operating activities and proceeds from sales or leases of fixed assets will be sufficient to meet our anticipated
cash needs for at least the next twelve months. 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
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.
Revenue recognition
We recognize 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. 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, we recognize revenue when the product is shipped, and control of the product, title
and risk of loss have been transferred to the 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 do not provide maintenance or other services
and do not have sales that involve bill & hold arrangements, multiple elements or deliverables. However, we do provide product warranty
for up to 90 days, for which we have accrued a warranty reserve of $1,000 and $2,000 at June 30, 2021 and December 31, 2020, respectively.
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. We make 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, 2020, we reviewed
the current fair value of our assets and concluded no adjustments were needed. Additionally, no adjustments were recorded for the six
months ended June 30, 2021. 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.
The Company is pursuing the sale of its parcel
of land in Batavia, Illinois. Although the Company cannot assure the timing of this sale, this property was classified as current assets
held for sale at June 30, 2021 and December 31, 2020, as it is the Company’s intention to complete this sale within the next twelve-month
period. The Company cannot guarantee that it will be able to successfully complete the sale or lease of this asset.
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 manufacturing 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.
Our method of estimating excess and obsolete inventory
has remained consistent for all periods presented. However, 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.
Investments
We invest our 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 in the consolidated statements of operations. Investments in which we have the ability
and intent, if necessary, to liquidate 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 statements of operations. As of June 30, 2021 and 2020, no impairment was recorded.
Stock-based compensation
We grant stock-based compensation in the form
of stock options, RSUs and restricted stock. We expense stock-based compensation 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 the historical data. We estimate the volatility of our
common stock based on a historical range of stock price fluctuations. 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 terms 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 36.13% was based on our past history of forfeitures.
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 on the date of grant 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
June 30, 2021, there was $21,560 of intrinsic value arising from 7,000 stock options exercisable and outstanding.
We allocate stock-based compensation costs using
a straight-line method, which amortizes the fair value of each award on a straight-line basis over the service period.
Income tax valuation allowance
In accordance with ASC 740 “Accounting for
Income Taxes” (“ASC 740”), we evaluate our deferred income tax assets quarterly to determine if valuation allowances
are required or should be adjusted. Evaluating the need for and amount of a valuation allowance for deferred tax assets often requires
significant judgment and extensive analysis of all 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 carry-forwards 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 carry-back
years, future reversals of existing temporary differences, the required use of tax planning strategies, and future taxable income exclusive
of reversing temporary differences and carry-forwards. We are in a cumulative loss position for the past three years, which is considered
significant negative evidence by the accounting standards that is difficult to overcome on a “more likely than not” standard
through objectively verifiable data. The accounting standards attribute greater weight to objective verifiable evidence than to subjective
positive evidence, such as our projections for future growth. Based on an evaluation in accordance with the accounting standards, as of
June 30, 2021, 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. Any U.S. tax benefits
or tax expense recorded on the consolidated statements of operations will be offset with a corresponding adjustment from the use of the
NOL carry-forward 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.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Condensed Financial Statements
for a discussion of new accounting standards.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.