| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 Worldwide LLC, doing business as Rubicon Technology Worldwide LLC,
Rubicon Technology BP LLC, and the discontinued operations of Rubicon DTP LLC. In June 2021, the operations of Rubicon DTP LLC were discontinued.
All intercompany transactions and balances have been eliminated in consolidation. Investments We invest our available cash primarily in U.S.
Treasury securities, investment grade commercial paper, FDIC guaranteed certificates of deposit, common stock, equity-related securities
and corporate notes. Investments classified as available-for-sale debt securities are carried at fair value with unrealized gains and
losses recorded in accumulated other comprehensive income (loss). Investments in equity securities are reported at fair value, with both
realized and unrealized gains and losses recorded in other income (expenses), in the Consolidated Statements of Operations. Investments
in which the Company has the ability and intent, if necessary, to liquidate in order to support the current operations 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. Grants receivable and grant revenue Section 2301 of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) and its subsequent amendments in sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief
Act of 2020, provides for a refundable payroll tax credit (Employee Retention Credit or ERC) to eligible employers with less than 500
employees who paid qualified wages after March 12, 2020, and before June 30, 2021. During the quarter ended June 30, 2022, the Company
determined that although it did not meet the eligibility conditions during the period beginning March 12, 2020, and ending December 31,
2020, it did qualify to claim the ERC for the periods ending March 31, 2021, and June 30, 2021. As such, the Company recorded Grant
Revenue and Grants Receivable of approximately $250,000 related to its pending ERC claim analogous to ASC Subtopic 958-605. Since
the Company does not expect to receive the funds for the ERC claim for at least twelve months, the receivable has been classified as a
non-current asset on its balance sheet. 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. On July 5, 2022 the Company announced
that it had entered into a definitive Stock Purchase and Sale Agreement (“Purchase Agreement”) with Janel Corporation ("Janel"),
pursuant to which Janel would commence a cash tender offer to purchase up to 45% of the outstanding shares of Rubicon's common stock on
a fully-diluted basis at a price of $20.00 per share. The transaction was subsequently consummated in August of 2022. Pursuant to the
terms of the Company’s stock repurchase plan, this transaction resulted in the automatic termination of the plan. No shares of the Company’s common stock
were repurchased during the nine months ended September 30, 2022. 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:
September 30, December 31,
(in thousands)
Raw materials $ 368 $ 468
Work-in-process 380 328
Finished goods 192 330
$ 940 $ 1,126 Discontinued operations had no inventories as
of September 30, 2022, and December 31, 2021, respectively. As of September 30, 2022, and December 31, 2021,
the Company made the determination that certain inventories were such that the likelihood of significant usage within the current year
was doubtful and reclassified such inventory items as non-current in the reported financial statements. Property and equipment Property and equipment of continuing operations consisted of the following:
September 30, 2022 December 31, 2021
(in thousands)
Machinery, equipment and tooling $ 3,296 $ 3,296
Buildings 1,711 1,711
Information systems 819 819
Land and land improvements 594 594
Furniture and fixtures 7 7
Total cost 6,427 6,427
Accumulated depreciation and amortization (4,216 ) (4,126 )
Property and equipment, net $ 2,211 $ 2,301 Discontinued operations had no property and equipment
as of September 30, 2022, and December 31, 2021, 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, 2021, 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 nine months ended September 30, 2022. 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 sales of excess consumable
assets in the amount of approximately $0 and $1,086,000 during the three months and nine months ended September 30, 2022, respectively. On September 19, 2022, the Company completed the
sale of its parcel of land located in Batavia, Illinois pursuant to the terms and conditions of the agreement of sale, dated as of February
7, 2022. The selling price for the property was $722,000. The Company realized net proceeds of approximately $600,000 after the payment
of real estate taxes, brokerage and legal fees, transfer taxes and other expenses. Current and long-term debt The Company reports debt issuance costs as an
adjustment to the carrying amount of the related debt in accordance with ASC 835-30-45. The amortization of such costs is included in
interest expense for the period. On August 15, 2022, Rubicon Technology BP LLC,
a Delaware limited liability company (the “ Borrower Loan Note Lender The following table shows the net proceeds from
the Loan:
Proceeds From Mortgage Loan
(in thousands)
Initial loan amount $ 1,620
Loan costs (22 )
Escrow funding for property tax (38 )
Net proceeds from mortgage loan $ 1,560 Current and long-term debt, net, are shown in
the table below:
September 30, 2022 December 31, 2021
(in thousands)
Mortgage note $ 1,617 $ —
Unamortized loan costs (21 ) —
Total debt 1,596 —
Less: short-term portion 24 —
Long-term portion $ 1,572 $ — The Company had no interest expense for the year
ended December 31, 2021. Total interest and amortization expense on the
Company’s debt obligations during the three and nine months ended September 30, 2022, are as follows:
Three months ended Nine months ended
2022 2021 2022 2021
(in thousands)
Interest expense $ 12 $ — $ 12 $ —
Amortization of loan costs 1 — 1 —
Total interest expense $ 13 $ — $ 13 $ — The following table presents the future maturities
of long-term debt and the related loan costs amortization for the years ended September 30:
Principal Amort. Costs Debt, Net of
(in thousands)
2023 $ 29 $ (5 ) $ 24
2024 30 (4 ) 26
2025 32 (4 ) 28
2026 34 (4 ) 30
2027 1,492 (4 ) 1,488
Total $ 1,617 $ (21 ) $ 1,596 Revenue recognition The Company recognizes revenue in accordance with
ASC Topic 606, Revenue from Contracts with Customers The Company does not provide maintenance or other
services and it does not have sales that involve bill and 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 $1,000 at September 30,
2022 and December 31, 2021, 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”). Basic and diluted net income (loss) per common share
for continuing operations for the three months ended September 30, 2022 and 2021, were $(0.12) and $0.08, respectively. For the nine months
ended September 30, 2022 and 2021, basic and diluted net income (loss) per common share for continuing operations were $0.29 and $(0.22),
respectively. The Company had outstanding options exercisable into 300 and 7,000 shares of the Company’s common stock, and RSUs
outstanding in the amounts of 0 and 3,030 at September 30, 2022, and September 30, 2021, respectively. These options and RSU’s did
not have a material effect or were anti-dilutive for the three and nine months ended September 30, 2022 and 2021. New accounting pronouncements adopted The Company has evaluated recently issued accounting
pronouncements and does not believe that any of these pronouncements will have a significant impact the Company’s consolidated financial
statements and related disclosures. |
