UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020March 31, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission file number 001-33834

RUBICON TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (847) 295-7000

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ No  ☒

As of November 4, 2020,April 30, 2021, the Registrant had 2,421,8222,438,855 shares of common stock, par value $.001 per share, outstanding.

RUBICON TECHNOLOGY, INC.

Quarterly Report on Form 10-Q

For the quarterly period ended September 30, 2020March 31, 2021

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Rubicon Technology, Inc.

Condensed Consolidated Balance Sheets

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

Rubicon Technology, Inc.

Rubicon Technology, Inc.

Condensed Consolidated Statements of Operations

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

Rubicon Technology, Inc.

Rubicon Technology, Inc.

Condensed Consolidated Statements of Comprehensive Loss

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

Rubicon Technology, Inc.

Rubicon Technology, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020 and 2019

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

Rubicon Technology, Inc.

Condensed Consolidated Statements of Cash Flows

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

Rubicon Technology, Inc.

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

Rubicon Technology, Inc.

Condensed Consolidated Statements of Cash Flows

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

Rubicon Technology, Inc. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020March 31, 2021

1. BASIS OF PRESENTATION

Interim financial data

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements and should be read in conjunction with Rubicon Technology, Inc.’s (the “Company”) annual report filed on Form 10-K for the fiscal year ended December 31, 2019.2020. 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 nine-month periodsthree-month period ended September 30, 2020,March 31, 2021, are not necessarily indicative of results that may be expected for the year ending December 31, 2020.2021.

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.BHD and Rubicon DTP LLC. 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 equitycommon 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 Statementsconsolidated statement of Operations.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 statementsstatement of operations. 

Accounts receivable

The majority of the Company’s accounts receivable is due from defense subcontractors, industrial manufacturers, fabricators resellers and pharmacy benefit managers.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. In November 2018, the Company’s Board of Directors authorized a program to repurchase up to $3 million

No shares of the Company’s common stock. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may bestock were repurchased in privately negotiated and/or open market transactions. The timing, price and volume of repurchases are based upon market conditions, relevant securities laws and other factors. The stock repurchase plan expires on November 19, 2021 and may be terminated at any time.

After the purchases described below, the Company used up all of the remaining amount of the original authorized $3 million.

Share repurchase activity during the three months ended September 30, 2020, was as follows:March 31, 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 consisted of the following:

As of December 31, 20192020 and September 30, 2020,March 31, 2021, 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:

Assets held for sale and long-lived assets

When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value. The Company makes estimates of the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. The estimated fair value of assets is determined using appraisal techniques, which assume the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible and financially feasible at the measurement date. Any impairment losses are recorded as operating expenses which reduce net income.

For the year ended December 31, 2019,2020, the Company reviewed the current fair value of its assets and concluded no adjustments were needed. Additionally, no adjustments were recorded for the ninethree months ended September 30, 2020.March 31, 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.

In June 2020, theThe Company completed the saledid not record any sales of its Malaysian facilityequipment or consumable assets for a sale price of Ringgit Malaysia 20,750,000. The Company realized net proceeds of approximately Ringgit Malaysia 20,364,000 (approximately $4.8 million based on the exchange rate on June 30, 2020 of $1=MYR4.27) after the payment of consent fees, real estate taxes, brokerage and legal fees, transfer and other expenses. The Company recorded a gain on the disposal of the Malaysian facility of approximately $1.8 million.

The Company collected a payment of $125,000 during the three months ended September 30, 2019 related to a settled dispute. For the nine months ended September 30, 2019, the Company sold $76,000 of excess consumable assets and received a total of $200,000 related to such settled dispute.March 31, 2021.

The Company is pursuing the sale of its remaining parcelsour parcel of land located in Batavia, Illinois, and Penang, Malaysia.Illinois. Although the Company cannot assure the timing of these sales, these properties werethis sale, the property was classified as current assetsasset held for sale at September 30, 2020March 31, 2021 and December 31, 2019,2020, as it is the Company’sour intention to complete these salesthis sale within the next twelve-month period. The CompanyWe cannot guarantee that itwe will be able to successfully complete the sale or lease of these properties.this asset.

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

We do not provide maintenance or other services and it doesdo not have sales that involve bill & hold arrangements, multiple elements or deliverables. However, the Company doeswe do provide product warranty for up to 90 days, for which the Company haswe have accrued a warranty reserve of $1,000$2,000 and $3,000$2,000 at September 30, 2020March 31, 2021 and December 31, 2019,2020, 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 nine months ended September 30,March 31, 2021 and 2020, and 2019, because the effects of potentially dilutive securities did not have a material impact on the calculation of diluted net income (loss) per share. The Company had outstanding options exercisable into 20,50018,250 and 32,83919,500 shares of the Company’s common stock that would have had an anti-dilutive or immaterial effect at September 30,March 31, 2021 and 2020, respectively.

New accounting pronouncements adopted

The Company has evaluated other recently issued accounting pronouncements and 2019, respectively.does not believe that any of these pronouncements will have a significant impact the Company’s consolidated financial statements and related disclosures. 

3. INVESTMENTS

The Company invests its 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 equitycommon 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.

The following table presents the amortized cost and gross unrealized losses on all securities at September 30, 2020:March 31, 2021:

The following table presents the amortized cost and gross unrealized losses on all securities at December 31, 2019:2020:

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:

The Company’sCompany invests in fixed-income, common stock, preferred stock and equity-related securities. Its 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 September 30, 2020:March 31, 2021:

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2019:2020:

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 $7.2 million$7,434,000 and $4.8 million$7,994,000 of time deposits included in cash and cash equivalents as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

4. SIGNIFICANT CUSTOMERS

For the three months ended September 30, 2020,March 31, 2021, the Company had three customers individually that accounted for approximately 24%19%, 18%15%, and 12%,11% of revenue. For the three months ended September 30, 2019,March 31, 2020, the Company had four customers individually that accounted for approximately 26%18%, 13%, 12% and 11% of revenue. For the nine months ended September 30, 2020, the Company had four customers that accounted for approximately 22%, 15%, 12% and 10% of revenue. For the nine months ended September 30, 2019, the Company had three customers that accounted for approximately 21%18%, 16% and 12%13% of revenue. No other customer accounted for 10% or more of the Company’s revenues during the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020.

Customers individually representing more than 10% of trade receivables accounted for approximately 65%62% and 74%44% of accounts receivable as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

5. STOCKHOLDERS’ EQUITY

Common shares reserved

As of September 30, 2020,March 31, 2021, the Company had reserved 76,45065,103 shares of common stock for issuance upon the exercise of outstanding common stock options and vesting of RSUs. Also, 281,775279,505 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 September 30, 2020.March 31, 2021.

6. STOCK INCENTIVE PLANS

In August 2007, the Company adopted the Rubicon Technology Inc. 2007 Stock Incentive Plan, which was amended and restated effective in March 2011 (the “2007 Plan”), and which allowed for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance awards and bonus shares. The maximum number of shares that could be awarded under the 2007 Plan was 440,769 shares. Options granted under the 2007 Plan entitled the holder to purchase shares of the Company’s common stock at the specified option exercise price, which could not be less than the fair value of the common stock on the grant date. On June 24, 2016, the plan terminated with the adoption of the Rubicon Technology, Inc. 2016 Stock Incentive Plan, (the “2016 Plan”). Any existing awards under the 2007 Plan remain outstanding in accordance with their current terms under the 2007 Plan.

In June 2016, the Company’s stockholders approved adoption of the 2016 Plan effective as of March 17, 2016, which allows for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance awards and bonus shares. The Compensation Committee of the Board administers the 2016 Plan. The committee determines the type of award to be granted, the fair value, the number of shares covered by the award, and the time when the award vests and may be exercised.

Pursuant to the 2016 Plan, 281,775as of March 31, 2021 there are 279,505 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 September 30, 2020,March 31, 2021, and changes during the ninethree months then ended:

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 September 30, 2020,March 31, 2021, there was $46,960$74,775 of intrinsic value arising from 20,50018,250 stock options exercisable andor 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 nine months ended September 30,March 31, 2021 and 2020, the Company recorded $3,000$0 and $8,000, respectively, of stock option compensation expense. For the three and nine months ended September 30, 2019, the Company recorded $6,000 and $19,000,$3,000, respectively, of stock option compensation expense. As of September 30, 2020, the Company had $0.00 of totalMarch 31, 2021, there was no unrecognized compensation cost related to non-vested stock option awards granted under the Company’s stock-based plans.

A summaryAs of December 31, 2020 and March 31, 2021, the Company’sCompany did not have any non-vested options during the nine months ended September 30, 2020, is presented below:options.

For the three and nine months ended September 30, 2020, theThe Company recorded $30,000 and $30,000, respectively, ofdid not record any RSU expense related to Board compensation. Forfor the three months ended March 31, 2021 and nine months ended September 30, 2019, the Company recorded $0 and $7,000, respectively, of RSU expense.2020.

A summary of the Company’s RSUs forduring the nine month periodthree months ended September 30, 2020March 31, 2021, is presented below:

Every year at the Company’s annual meeting each member of the Board of Directors is issued an RSU and itwhich vests on the day of the following year at the nextyear’s annual meeting. When such RSU vests, it isthey are automatically converted into $10,000 of the Company’s common stock based upon the closing price the day before the following year’s annual meeting.

ForDuring the three and nine months ended September 30, 2020,March 31, 2021, the Company recorded $0 and $8,000, respectively, of stock compensation expense related to restricted stock. For the three and nine months ended September 30, 2019, the Company recorded $2,000 and $7,000, respectively, of stock compensation expense related to restricted stock.

The Company recognized an expense of $414,000 during the nine months ended September 30, 2019 for the granting ofawarded 31,550 shares to an officer of the Company aswith a bonus.fair value of approximately $341,000.

The Company’s board of directors are compensated partially in cash and partially in restricted stock. For the three months ended March 31, 2021 and 2020, no restricted stock shares were issued to our directors. As of March 31, 2021 and December 31, 2020, there were no outstanding non-vested restricted stock shares.

7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company experiences routine litigation in the normal course of its business. The management of the Company does not believe any pending litigation, will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. The magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in a material impact to the Company’s financial statements in future reporting periods.

8. INCOME TAXES

In 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which, among other provisions, reduced the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The SEC issued guidance, Staff Accounting Bulletin 118, on accounting for the tax effects of the Act. The guidance allows the Company to record provisional amounts for those impacts, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment. The Company has completed its accounting for the tax effects of enactment of the Act. The deemed inclusion from the repatriation tax increased from $3.9 million$3,900,000 at the time of provision to $5.0 million$5,000,000 at the time the calculation was finalized for the 2018 tax return. The increase of the inclusion related primarily to the refinement of Malaysia earnings and profits. As the Company is in a full valuation allowance position, an equal benefit adjustment was recorded for the impact of the increase of the deemed repatriation tax.

The Company is subject to taxation in the U.S., Malaysia and in a U.S. state jurisdiction. On a quarterly basis, the Company assesses the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment, and multiple factors, both positive and negative, are considered. For the period ended September 30, 2020,March 31, 2021, a valuation allowance has been included in the 20202021 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 September 30, 2020,March 31, 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. and Malaysia net deferred tax assets. Any U.S. and Malaysia tax benefits or tax expense recorded on the Company’s consolidated statementsstatement of operations will be offset with a corresponding adjustment from the use of the net operating loss (“NOL”) carry forwardcarryforward asset which currently has a full valuation allowance. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The tax provision for the nine months ended September 30, 2020, is based on an estimated combined statutory effective tax rate. The Company recorded for the three and nine months ended September 30, 2020, a tax expense of $3,000 and $12,000, respectively, for an effective tax rate of -1.59% and -1.71%, respectively. For the three and nine months ended September 30, 2020 the difference between the Company’s effective tax rate and the U.S. federal 21% statutory rate and state 6.2% (net of federal benefit) statutory rate was primarily related to the change in the Company’s U.S. and Malaysia valuation allowances, U.S. research and development credit, Malaysia foreign tax rate differential and Malaysia withholding taxes on intercompany loan interest.

9. SEGMENT INFORMATION

The Company has determined that it operates in two segments, the sapphire and pharmacy businesses.business.

Revenue is attributed by geographic region based on ship-to location of the Company’s customers. The following table summarizes revenue by geographic region:

The following table summarizes sales by product type:

The following table summarizesAs of March 31, 2021 and December 31, 2020, the Company held all of its assets by geographic region:in the United States.

Direct Dose Rx accounted for a loss of approximately $92,000$95,000 and $192,000$119,000 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and approximately $287,000 and $277,000 for the nine months ended September 30, 2020 and 2019, respectively. The Company established Direct Dose Rx in May 2019.

Direct Dose Rx assets are currently not material to the consolidated financial information of the Company and therefore there is limited disclosure relating specifically to them.

10. SUBSEQUENT EVENTS

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, 2019,2020, 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, 2019,2020, 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 consists of two primary operating subsidiaries, Rubicon Technology Worldwide LLC (“RTW”) and Rubicon DTP LLC dba Direct Dose Rx. We manage RTW's direct sales, growth, fabrication and ship from our facility located in Bensenville, Illinois. We manage Direct Dose’s operations from our leased facility in Indianapolis, Indiana.

Rubicon Technology Worldwide 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.

Direct Dose Rx is 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 117 states. The services offered by Direct Dose Rx benefits patients, skilled nursing facilities and hospitals by reducing the risk of hospital readmissions.

In addition to our current optical and industrial sapphire business and our Direct Dose Rx existing business,mail order pharmacy businesses, we are actively evaluating the acquisition of profitable companiesmaking investments, effecting a merger, consolidation or other business combination, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions outside of these markets to utilize our substantial NOL carry forwards.

Historically, a significant portion of the Company’s revenue has been derived from sales to relatively few customers. For the three months ended September 30, 2020, weMarch 31, 2021, the Company had three customers individually that accounted for approximately 24%19%, 18%15%, and 12%11% of revenue. For the three months ended September 30, 2019, weMarch 31, 2020, the Company had four customers individually that accounted for approximately 26%18%, 13%, 12% and 11% of revenue. For the nine months ended September 30, 2020, we had four customers individually that accounted for approximately 22%, 15%, 12% and 10% of revenue. For the nine months ended September 30, 2019, we had three customers individually that accounted for approximately 21%18%, 16% and 12%13% of revenue. No other customer accounted for 10% or more of the Company’s revenues during the three months ended March 31, 2021 and 2020. Our principal customers have been defense subcontractors, industrial manufacturers, fabricators, resellers and pharmacy benefit managers. No other customer accounted for 10% or more of our revenues during the three and nine months ended September 30, 2020 and 2019. 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 65%62% and 74%44% of accounts receivable as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

Revenue. 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.

We manage direct sales, grow and fabricate sapphire parts and ship from our facility located in Bensenville, Illinois. Previously, we leased this property, and it served as the headquartersCost of our operations and one of our growth facilities. In 2018, we vacated our leased Franklin Park, Illinois, facility due to the expiration of our lease, and completed the purchase of our Bensenville property, consolidating all of our operations into this facility.

goods sold. 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.

Sales, General and administrative expenses.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. 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 forwardscarryforwards as of December 31, 2019,2020, shows no impact on such utilization. In order to protect our NOL carry forwards,carryforwards, in December 2017,2020, we implemented aamended our stockholders’ rights plan.plan to extend it to December 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. and Malaysia deferred tax assets in order to measure only the portion of the deferred tax assets that are more likely than not to be realized based on the weight of all available evidence. Until an appropriate level of profitability is attained, we expect to maintain a full valuation allowance on our U.S. and Malaysia 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 SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019

The following table sets forth our consolidated statements of operations for the periods indicated:

The following table sets forth our consolidated statements of operations as a percentage of revenue for the periods indicated:

Revenue. Revenue was $1,118,000$729,000 and $583,000$1,160,000 for the three months ended September 30,March 31, 2021 and 2020, respectively, a decrease of $431,000. This decrease in revenue was due to a decline in revenue by RTW of $532,000, caused by the timing and 2019, respectively,fluctuations of shipments, and was offset by an increase of $535,000. This increase$101,000 in revenue was primarilyby Direct Dose due to an increase in orders from our opticalthe number of its customers.

Gross profit. Gross profit was $146,000 and industrial sapphire business of $372,000, due to fluctuations in demand and timing of orders. In addition our revenue$348,000 for the three months ended September 30,March 31, 2021 and 2020, includesrespectively, a decrease of $202,000. This decrease was primarily attributable to decreases in sales at RTW and slightly offset by an additional $163,000 of revenue from$8,000 increase in gross profit at Direct Dose Rx, which was launched on May 19, 2019.

Gross profit (loss). Gross profit was $292,000 and ($2,000) for the three months ended September 30, 2020 and 2019, respectively, an increase of $294,000. Gross profit primarily increased by $197,000 due to its increased sales, overall higher gross margins in the sapphire business, a decrease in production costs in its sapphire business of $73,000 as a result of the consolidation of our facilities and improved production efficiency, and $24,000 due to the growth in sales by Direct Dose Rx.

revenue.

General and administrative expenses. General and administrative expenses were $541,000$875,000 and $585,000$584,000 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, a decreasean increase of $44,000.$291,000. The decreaseincrease was primarily attributable to the eliminationaccrual of an executive bonus in the cost to manageamount of $221,000 and maintain the Company’s facilityan increase in Malaysia due to its sale and a decreaseconsulting fees of $60,000 in operating expenses at Direct Dose Rx.2021.