RUBICON TECHNOLO(RBCN) - 2022 Q4 - Annual Report

PART I Business Overview Rubicon Technology, Inc. specializes in monocrystalline sapphire, discontinued pharmacy operations, and completed a tender offer, cash distribution, and delisting in 2022 - Rubicon Technology, Inc. primarily operates through Rubicon Worldwide LLC (RTW), an advanced materials provider specializing in monocrystalline sapphire for optical and industrial systems[16][17] - The operations of Rubicon DTP LLC, doing business as Direct Dose Rx, a specialized pharmacy, were discontinued in June 2021[16][19] - In August 2022, Janel Corporation completed a tender offer to acquire 45% of Rubicon's outstanding common stock at $20.00 per share, followed by a cash distribution of $11.00 per share to all stockholders, totaling approximately $27.1 million[20] - The company possesses significant Net Operating Loss (NOL) carryforwards, which provide potential future tax savings, and is evaluating opportunities to utilize them[21] - Rubicon's common stock was delisted from the Nasdaq Capital Market effective December 30, 2022, and began trading on the OTCQB Capital Market on January 3, 2023[22] Sales Backlog | As of December 31, | 2022 | 2021 | | :----------------- | :------------ | :------------ | | Total Sales Backlog | $1,167,100 | $1,735,000 | - The company did not incur any research and development (R&D) expenses in 2022 and 2021, and has no plans for R&D expenditures in 2023[25] - Sales are concentrated among a small number of customers; in 2022, the top six customers accounted for approximately 72% of revenue from continuing operations, compared to 46% from the top three in 2021[28] - As of December 31, 2022, the company had 12 full-time employees, none of whom are represented by a labor union[31] Risk Factors The company faces significant operational, financial, and market risks, including potential losses, supply chain dependencies, volatile pricing, customer concentration, and tax asset utilization limits - The company has incurred significant losses in prior periods and may continue to do so, impacting its ability to attract and retain customers[34] Net Income (Loss) Trend | Year | Net Income (Loss) (millions) | | :--- | :--------------------------- | | 2022 | $0.9 | | 2021 | $(0.7) | | 2020 | $(1.1) | | 2019 | $(1.1) | | 2018 | $1.0 | | 2017 | $(17.8) | | 2016 | $(62.9) | - Reliance on a limited number of third parties for critical material and finishing steps (slicing and polishing of sapphire crystal) poses a risk to product costs, cash flow, and operational continuity[40] - Gross margins are subject to fluctuations due to product mix, increased competition, and historically volatile and depressed sapphire product prices, which have trended downward in recent years due to over-supply[41][43] - A substantial portion of revenue is derived from a small number of customers, making the company vulnerable to reduced order volumes or loss of major customers[44] - The company's operations are concentrated in a single facility in Bensenville, Illinois, making it susceptible to disruptions from natural disasters, power loss, or other catastrophic events[53] - The ability to utilize significant Net Operating Loss (NOL) carryforwards may be substantially limited by ownership changes as defined in the IRC or future changes to tax laws[55][56][57] - The trading price of the common stock has been and is likely to remain volatile, influenced by company-specific factors, market conditions, and the size of the public float[62] Unresolved Staff Comments Disclosure under this item is not required as the registrant is a smaller reporting company - Disclosure under this item is not required as the registrant is a smaller reporting company[69] Properties The company's sapphire operations are concentrated in a Bensenville, Illinois facility, secured by a 2022 business loan, and it completed a land sale in Batavia - All sapphire operations and executive functions are located in a 30,000 square-foot facility in Bensenville, Illinois, purchased in September 2018[70] - In 2022, the company secured a business loan of $1,620,000, collateralized by the Bensenville property[70] - The company completed the sale of a parcel of land in Batavia, Illinois, for $722,000 in September 2022, generating approximately $600,000 in net proceeds[71] Legal Proceedings The company is not involved in any legal proceedings expected to materially affect its financial condition or results of operations - Management believes there are no pending legal proceedings that will have a material adverse effect on the company's consolidated results of operations or financial condition[72] - There were no outstanding material legal matters as of December 31, 2022, and through the filing date[73] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[74] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Rubicon's common stock delisted from Nasdaq to OTCQB in late 2022, followed by a significant capital distribution, and termination of its share repurchase program - Rubicon's common stock was delisted from the Nasdaq Capital Market on December 30, 2022, and commenced trading on the OTCQB Capital Market on January 3, 2023, under the symbol 'RBCN'[77] Common Stock High and Low Sales Prices | Fiscal Year Ended December 31, 2022 | High | Low | | :---------------------------------- | :----- | :----- | | First Quarter | $9.39 | $8.61 | | Second Quarter | $9.68 | $8.58 | | Third Quarter | $17.74 | $2.14 | | Fourth Quarter | $2.39 | $1.26 | | Fiscal Year Ended December 31, 2021 | High | Low | | First Quarter | $11.84 | $9.18 | | Second Quarter | $11.92 | $9.42 | | Third Quarter | $11.00 | $8.60 | | Fourth Quarter | $10.75 | $8.65 | - As of February 28, 2023, there were 2,410,265 shares of common stock outstanding, held by approximately 12 stockholders of record[78] - The company has historically not paid cash dividends on its common stock. In August 2022, it returned $27,092,000 of capital to shareholders[79] - The share repurchase program, which had an additional $3,000,000 authorized in December 2020, was automatically terminated in July 2022 due to the Janel transaction, with no repurchase activity in 2022[83][84] Reserved This item is reserved and disclosure is not required as the registrant is a smaller reporting company - Disclosure under this item is not required as the registrant is a smaller reporting company[80] Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Rubicon's sapphire business, financial performance for 2022 and 2021, highlighting revenue decrease, gross profit increase, net income achievement, and significant liquidity changes due to capital distribution Overview of Business and Key Developments Rubicon's core business is monocrystalline sapphire, with pharmacy operations discontinued, and 2022 saw a tender offer, cash distribution, and delisting to OTCQB, while managing NOLs and customer concentration - Rubicon's primary business is monocrystalline sapphire through RTW, with Direct Dose Rx operations discontinued in June 2021[87][88][90] - In August 2022, Janel Corporation acquired 45% of outstanding common stock, leading to a $27.1 million cash distribution to stockholders[91] - The company voluntarily delisted from Nasdaq effective December 30, 2022, and began trading on the OTCQB Capital Market on January 3, 2023, citing cost reduction and reduced management burden[93] - Rubicon holds significant NOL carryforwards and is actively evaluating opportunities for their utilization[92] - Customer concentration remains high: in 2022, the top six customers accounted for approximately 72% of revenue from continuing operations, down from 46% from the top three in 2021, with one major customer's contribution decreasing from 22% to 4%[94] Revenue by Geographic Region | Geographic Region | 2022 Revenue (%) | 2021 Revenue (%) | | :---------------- | :--------------- | :--------------- | | North America | 82% | 90% | | Other Markets | 18% | 10% | Financial Operations Rubicon's revenue is from sapphire product sales, with cost of goods sold including manufacturing and outsourcing; gross profit is influenced by sales and costs, while G&A increased due to legal fees, and other income rose from grants and interest - Revenue is primarily from sales of optical and industrial sapphire products, recognized when the product is shipped and control transfers to the customer[96] - Cost of goods sold includes manufacturing materials, labor, overhead, depreciation, inventory reserves, outsourcing costs, freight, and warranties[97] - General and administrative expenses increased in 2022 due to higher legal and consulting fees related to strategic alternatives, partially offset by reductions in employee compensation and other expenses[109] - Sales and marketing expenses decreased in 2022 primarily due to a reduction in staffing[110] - The company recorded a significant gain on sale or disposal of assets in 2022, including equipment, excess consumable assets, and land[112] - Other income increased substantially in 2022, driven by $250,000 in grant revenues (Employee Retention Credit) and higher interest income[114] - A full valuation allowance is maintained against U.S. net deferred tax assets due to a cumulative loss position, resulting in no income tax expense recorded in 2022 and 2021[102][115] Stock-Based Compensation Expense | Year | Stock-Based Compensation Expense (thousands) | | :--- | :------------------------------------------- | | 2022 | $182 | | 2021 | $371 | Results of Operations In 2022, Rubicon achieved a net income of $935,000, reversing a 2021 net loss, despite decreased revenue, driven by improved gross profit, reduced operating expenses from asset sales, and increased other income Consolidated Statements of Operations (in thousands) | Metric | 2022 | 2021 | | :---------------------------------------------- | :------ | :------ | | Revenue | $3,587 | $4,061 | | Cost of goods sold | $2,147 | $2,798 | | Gross profit | $1,440 | $1,263 | | Operating expenses: | | | | General and administrative | $2,346 | $2,130 | | Sales and marketing | $136 | $210 | | Gain on sale or disposal of assets | $(1,410) | $(613) | | Other gain | $(217) | — | | Income (loss) from continuing operations | $585 | $(464) | | Other income | $334 | $5 | | Income (loss) before income taxes | $919 | $(459) | | Income (loss) from discontinued operations | $16 | $(271) | | Net income (loss) | $935 | $(730) | Net Income (Loss) Per Common Share | Metric | 2022 | 2021 | | :---------------------------------------------- | :----- | :----- | | Continuing operations (Basic) | $0.38 | $(0.19) | | Discontinued operations (Basic) | $0.01 | $(0.11) | | Continuing operations (Diluted) | $0.37 | $(0.19) | | Discontinued operations (Diluted) | $0.01 | $(0.11) | - Revenue from continuing operations decreased by $474,000 (11.7%) in 2022 compared to 2021, primarily due to reduced revenue from a major customer, partially offset by increases from other customers[105] - Gross profit from continuing operations increased by $177,000 (14.0%) in 2022, driven by improved production variances and increased use of previously reserved inventory, despite lower overall revenues[107] - General and administrative expenses increased by $216,000 (10.1%) in 2022, mainly due to a $547,000 rise in legal and consulting fees related to strategic alternatives, partially offset by reduced employee compensation and other G&A costs[109] - Gain on sale or disposal of assets increased by $797,000 in 2022, including a $1,332,000 gain from equipment and excess consumable assets and a $78,000 gain from land sale[112] - Other income increased by $329,000 in 2022, primarily due to $250,000 in grant revenues (Employee Retention Credit) and a $100,000 increase in interest income[114] Liquidity and Capital Resources Rubicon's cash significantly decreased in 2022 due to a $27.1 million capital distribution, despite positive cash flow from investing activities and a new $1.62 million business loan, with future capital raising potentially limited by tax attributes Cash and Cash Equivalents | As of December 31, | 2022 (thousands) | 2021 (thousands) | | :----------------- | :--------------- | :--------------- | | Cash and cash equivalents | $1,590 | $11,260 | - Cash used in operating activities from continuing operations was $521,000 in 2022, compared to $61,000 in 2021[121][123] - Net cash provided by investing activities was $16,722,000 in 2022, primarily from proceeds from the sale of property, equipment, and investments[125] - Net cash used in financing activities was $25,751,000 in 2022, mainly due to a $27,092,000 return of shareholder capital, partially offset by proceeds from a new mortgage loan[127] - The company entered into a business loan agreement and promissory note for $1,620,000 in August 2022, secured by its Bensenville facility[118] - Management believes existing cash and anticipated operating cash flows will be sufficient for at least the next twelve months, but future capital raising may be limited by the need to preserve tax attributes[129] Critical Accounting Policies and Estimates Rubicon's critical accounting policies involve significant judgment in revenue recognition, inventory valuation, investments, and estimates for doubtful accounts, grants, and long-lived assets, with a full valuation allowance for deferred tax assets due to cumulative losses - Revenue is recognized when performance obligations are satisfied, typically upon product shipment, as control, title, and risk of loss transfer to the customer[132] - Inventories are valued at the lower of cost or net realizable value, with reserves established for excess or obsolete items based on forecasted sales and market conditions[135] Excess and Obsolete Inventory Reserve | As of December 31, | 2022 (thousands) | 2021 (thousands) | | :----------------- | :--------------- | :--------------- | | Reserve Balance | $7,052 | $7,749 | | Reduction in Reserve | $697 | $159 | - Investments in equity securities are reported at fair value, with gains and losses recorded in other income (expense)[140] - The company recorded $250,000 in Grant Revenue and Grants Receivable in 2022 related to a pending Employee Retention Credit (ERC) claim for 2021, classified as a non-current asset[143] - Stock-based compensation expense was $182,000 in 2022 and $371,000 in 2021, primarily related to the Board of Directors and executive personnel[103] - A new business loan of $1,620,000 was entered into in August 2022, with a 6% interest rate and a 25-year amortization schedule, maturing in August 2027[154] - A full valuation allowance is maintained against net U.S. deferred tax assets due to a three-year cumulative loss position, indicating that realization of these assets is not 'more likely than not'[155] - The company had $1.1 million of unrecognized tax benefits as of December 31, 2022 and 2021, related to tax positions taken in 2012[156] Quantitative and Qualitative Disclosures About Market Risk Disclosure under this item is not required as the registrant is a smaller reporting company - Disclosure under this item is not required as the registrant is a smaller reporting company[161] Consolidated Financial Statements and Supplementary Data This section incorporates the company's audited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and related notes, prepared under U.S. GAAP - The Consolidated Financial Statements, related notes, and the report of the independent registered public accounting firm are incorporated by reference[162] Report of Independent Registered Public Accounting Firm - Marcum LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements for 2022 and 2021, stating they present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[272] - The valuation and presentation of inventory was identified as a critical audit matter due to the subjective judgments involved in establishing reserves for excess/obsolete inventory and classifying inventory as current or non-current[277] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability/Equity | Dec 31, 2022 | Dec 31, 2021 | | :--------------------- | :----------- | :----------- | | Cash and cash equivalents | $1,590 | $11,260 | | Short-term investments | — | $14,751 | | Total current assets | $2,877 | $28,217 | | Total assets | $5,959 | $30,986 | | Total current liabilities | $1,189 | $1,598 | | Long term debt, net | $1,566 | — | | Total liabilities | $2,755 | $1,598 | | Total stockholders' equity | $3,204 | $29,388 | Consolidated Statements of Operations Consolidated Statements of Operations (in thousands) | Metric | 2022 | 2021 | | :---------------------------------------------- | :------ | :------ | | Revenue | $3,587 | $4,061 | | Cost of goods sold | $2,147 | $2,798 | | Gross profit | $1,440 | $1,263 | | Operating expenses: | | | | General and administrative | $2,346 | $2,130 | | Sales and marketing | $136 | $210 | | Gain on sale or disposal of assets | $(1,410) | $(613) | | Other gain | $(217) | — | | Income (loss) from continuing operations | $585 | $(464) | | Other income | $334 | $5 | | Income (loss) before income taxes | $919 | $(459) | | Income (loss) from discontinued operations | $16 | $(271) | | Net income (loss) | $935 | $(730) | | Net income (loss) per common share: basic | | | | Continuing operations | $0.38 | $(0.19) | | Discontinued operations | $0.01 | $(0.11) | | Net income (loss) per common share: diluted | | | | Continuing operations | $0.37 | $(0.19) | | Discontinued operations | $0.01 | $(0.11) | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 2022 | 2021 | | :----------------------------------- | :---- | :---- | | Income (loss) from continuing operations | $919 | $(459) | | Income (loss) from discontinued operations | $16 | $(271) | | Net income (loss) | $935 | $(730) | | Other comprehensive income: | | | | Unrealized gain (loss) on investments, net of taxes | $1 | $(1) | | Other comprehensive gain (loss) | $1 | $(1) | | Comprehensive income (loss) | $936 | $(731) | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Metric | Jan 1, 2021 | Dec 31, 2021 | Dec 31, 2022 | | :----------------------------------- | :---------- | :----------- | :----------- | | Common stock (shares) | 2,971,283 | 2,995,680 | 3,011,917 | | Common stock (amount) | $29 | $29 | $29 | | Treasury stock (shares) | (549,028) | (549,028) | (549,028) | | Treasury stock (amount) | $(15,147) | $(15,147) | $(15,147) | | Additional paid-in capital | $376,456 | $376,640 | $349,520 | | Accumulated other comprehensive loss | — | $(1) | — | | Accumulated deficit | $(331,403) | $(332,133) | $(331,198) | | Total stockholders' equity | $29,935 | $29,388 | $3,204 | - A significant event in 2022 was the return of shareholder capital totaling $27,092,000, which reduced additional paid-in capital[288] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Metric | 2022 | 2021 | | :---------------------------------------------- | :------- | :------- | | Net cash used in operating activities from continuing operations | $(521) | $(61) | | Cash flows from discontinued operations | — | $(262) | | Net cash provided by investing activities | $16,722 | $640 | | Net cash used in financing activities | $(25,751) | $(187) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(9,550) | $130 | | Cash, cash equivalents and restricted cash, end of year | $1,710 | $11,260 | - Cash used in operating activities from continuing operations increased from $61,000 in 2021 to $521,000 in 2022[291] - Investing activities provided significant cash in 2022 ($16.7 million) due to proceeds from asset and investment sales[291] - Financing activities used a substantial amount of cash in 2022 ($25.8 million), primarily due to the return of shareholder capital[291] Notes to Consolidated Financial Statements Summary of Significant Accounting Policies - The company's core business is monocrystalline sapphire through RTW, with Direct Dose Rx operations discontinued in June 2021[294][295][296] - Cash equivalents include time deposits and money market accounts; $120,000 is restricted as 'payment reserves' for a loan[299] - The company's stock repurchase program was terminated in August 2022 following the Janel transaction, with no repurchase activity in 2022 or 2021[303][304] - Accounts receivable are net of an allowance for doubtful accounts, which was $6,000 in 2022 and $7,000 in 2021 for continuing operations[307] - Inventories are valued at the lower of cost or net realizable value, with an excess and obsolete inventory reserve of $7,052,000 in 2022 (down from $7,749,000 in 2021)[308][309] - Raw material inventories deemed unlikely for significant usage within the current year are reclassified as non-current; an additional $302,000 was reclassified in 2022[313] - The company completed the sale of land in Batavia, Illinois, for $722,000 in September 2022, which was previously classified as assets held for sale[319] - Grant revenue of $250,000 was recognized in 2022 for an Employee Retention Credit (ERC) claim for 2021, classified as a non-current receivable[320] Property and Equipment, Net (in thousands) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Machinery, equipment and tooling | $3,263 | $3,296 | | Buildings | $1,711 | $1,711 | | Information systems | $819 | $819 | | Land and land improvements | $594 | $594 | | Furniture and fixtures | $7 | $7 | | Total cost | $6,394 | $6,427 | | Accumulated depreciation and amortization | $(4,212) | $(4,126) | | Property and equipment, net | $2,182 | $2,301 | - A new business loan of $1,620,000 was secured in August 2022, with a 6% interest rate and a 25-year amortization schedule, maturing in August 2027[326] Long-Term Debt Maturities (in thousands) | Year | Principal Portion of Payment | Amort. Of Loan Costs | Debt, Net of Unamortized Loan Costs | | :--- | :------------------------- | :------------------- | :---------------------------------- | | 2023 | $29 | $(4) | $25 | | 2024 | $31 | $(4) | $27 | | 2025 | $33 | $(4) | $29 | | 2026 | $35 | $(4) | $31 | | 2027 | $1,483 | $(4) | $1,479 | | Total| $1,611 | $(20) | $1,591 | - The company is subject to concentration of credit risk in cash and cash equivalents, with $1,200,000 on deposit exceeding FDIC insured limits as of December 31, 2022[331] - Revenue recognition follows ASC Topic 606, with performance obligations satisfied at the point of product shipment[335] - A full valuation allowance is maintained on net deferred tax assets due to a cumulative loss position, and the company recognizes tax benefits from uncertain tax positions only if 'more likely than not' to be sustained[344][341] Segment Information Revenue by Geographic Region (in thousands) | Geographic Region | 2022 | 2021 | | :---------------- | :---- | :---- | | North America | $2,940 | $3,671 | | Asia | $567 | $349 | | Other | $80 | $41 | | Total revenue | $3,587 | $4,061 | - All revenues from continuing operations in 2022 and 2021 were from the sale of optical sapphire products and related materials[350] - All of the company's assets were located in the United States for the years ended December 31, 2022 and 2021[351] Investments - The company primarily invests available cash in U.S. Treasury securities, commercial paper, FDIC guaranteed CDs, common stock, equity-related securities, and corporate notes[352] - Investments in equity securities are reported at fair value, with realized and unrealized gains/losses recorded in other income (expense)[352] - There were no short-term investments as of December 31, 2022, compared to $14,751,000 in U.S. Treasury securities in 2021[353][354] Financial Assets Measured at Fair Value (in thousands) | Category | Dec 31, 2022 (Level 1) | Dec 31, 2021 (Level 1) | Dec 31, 2021 (Level 2) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | | Money market funds | $6 | $3,137 | — | | U.S. Treasury securities | — | — | $14,751 | | Total | $6 | $3,137 | $14,751 | Discontinued Operations: Closure of Direct Dose Rx - The Board of Directors decided to close Direct Dose Rx pharmacy operations effective June 24, 2021, with associated costs not material[360] Discontinued Operations Financials (in thousands) | Metric | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Revenues (discontinued operations) | — | $370 | | Operating Expense (discontinued operations) | $(16) | $641 | | Income/loss from operations, net of taxes | $16 | $(271) | Significant Customers - In 2022, six customers individually accounted for 11% to 15% of revenue from continuing operations, totaling approximately 72%[362] - In 2021, three customers individually accounted for 12% to 22% of revenue from continuing operations, totaling approximately 46%[362] - Customers representing over 10% of trade receivables accounted for approximately 74% and 80% of accounts receivable as of December 31, 2022 and 2021, respectively[363] Assets Held for Sale and Long-Lived Assets - The company assesses long-lived assets for impairment when circumstances indicate carrying value may not be recoverable, recognizing a loss if carrying value exceeds fair value[364] - The sale of land in Batavia, Illinois, for $722,000 was completed on September 19, 2022, yielding approximately $600,000 in net proceeds[365] Stockholders' Equity - In May 2017, stockholders approved a 1-for-10 reverse stock split and a reduction in authorized common stock to 8,200,000 shares[366] - In May 2018, authorized preferred stock was decreased from 5,000,000 to 1,000,000 shares[367] - As of December 31, 2022, 300 shares of common stock were reserved for outstanding options, and 320,273 shares were reserved for future equity grants under the 2016 Stock Incentive Plan[368] Stockholder Rights Agreement - The company entered into a Section 382 Rights Agreement on December 18, 2017, to protect its Net Operating Loss (NOL) carryforwards by deterring any person from acquiring 4.9% or more of outstanding common stock without Board approval[369] - The Rights become exercisable if a person becomes an 'Acquiring Person' (acquiring 4.9% or more of common stock) or upon commencement of a tender offer that would result in such acquisition[371] - In connection with the Janel transaction, Amendment No. 2 to the Rights Agreement was approved in June 2022, rendering the agreement inapplicable to the tender offer and extending its final expiration date to September 1, 2025[382] Stock Incentive Plans - The company operates under the Rubicon Technology Inc. 2016 Stock Incentive Plan, which allows for various equity awards and is administered by the Compensation Committee[383] Stock Incentive and Equity Plan Activity Summary | Metric | Jan 1, 2021 | Dec 31, 2021 | Dec 31, 2022 | | :----------------------------------- | :---------- | :----------- | :----------- | | Shares available for grant | 292,355 | 304,731 | 320,273 | | Number of options outstanding | 20,100 | 4,050 | 300 | | Weighted-average option exercise price | $9.71 | $14.16 | $44.10 | | Number of restricted stock shares issued | 99,570 | 99,570 | 99,570 | | Number of RSUs outstanding | 48,753 | 28,030 | — | - There were no option grants made in 2022, and as of December 31, 2022, only 300 options were outstanding, all fully vested with an exercise price of $44.10[385][386][388] - No RSUs were granted in 2022, and all outstanding RSUs vested in 2022, resulting in $151,000 of compensation expense recognized[389][393] Income Taxes - The U.S. Tax Cuts and Jobs Act reduced the corporate tax rate to 21% effective January 1, 2018[395] Income Tax Expense (in thousands) | Category | 2022 | 2021 | | :------- | :--- | :--- | | Current | — | — | | Deferred | — | — | | Total | — | — | - The effective tax rate was 0% in both 2022 and 2021, primarily due to a full valuation allowance on U.S. net deferred tax assets[398] Net Deferred Income Taxes (in thousands) | Deferred Tax Assets/Liabilities | Dec 31, 2022 | Dec 31, 2021 | | :------------------------------ | :----------- | :----------- | | Total deferred tax assets | $15 | $47 | | Deferred tax liability | $(15) | $(47) | | Net deferred tax liability | $— | $— | - As of December 31, 2022, the company had Federal NOL carryforwards of $189 million (expiring 2026), Illinois NOLs of $181 million (expiring 2024), and Indiana NOLs of $723,000 (expiring 2039)[401] - The company had $1.1 million of unrecognized tax benefits as of December 31, 2022 and 2021, related to tax positions taken in 2012[403] - The company is currently assessing a potential Malaysian withholding tax obligation related to the liquidation of Rubicon Malaysia operations[407] Commitments and Contingencies - The full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, but could materially impact future financial statements[409] - The company does not have any material operating lease agreements, and Direct Dose Rx's lease was terminated early in September 2021[410][411] - There are no outstanding material litigation matters as of December 31, 2022[413] Benefit Plan - The company sponsors a 401(k) savings plan, but made no employer matching contributions for the years ended December 31, 2022 and 2021[414] Subsequent Events - Timothy Brog resigned as a Class II director and CEO/President/Acting CFO effective February 22, 2023, receiving a $112,000 payment for assigning 57,593 shares of common stock[415] - Joseph Ferrara was appointed Executive Officer and Chief Financial Officer on February 24, 2023, with an annual salary of $200,000[415] Changes in and Disagreements with Accountants on Accounting and Financial Disclosures There were no changes in or disagreements with accountants on accounting and financial disclosures - There were no changes in or disagreements with accountants on accounting and financial disclosures[163] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[164] - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the 2013 COSO framework[168] - There were no changes in internal control over financial reporting during 2022 that materially affected, or are reasonably likely to materially affect, these controls[170] Other Information There is no other information to report under this item - None[171] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There is no disclosure required regarding foreign jurisdictions that prevent inspections - None[172] PART III Directors, Executive Officers and Corporate Governance Rubicon's Board of Directors, with recent executive changes, faced Nasdaq non-compliance on independent directors leading to delisting, and oversees risk management through its committees and Code of Ethics - The Board of Directors consists of four directors divided into three classes with staggered three-year terms, aiming for diversity in experience, skills, and expertise[174][175] - Timothy Brog resigned as CEO, President, and Acting CFO, and as a Class II director in late 2022/early 2023. Joseph Ferrara was appointed Executive Officer and Chief Financial Officer on February 24, 2023[181][182] - The company received Nasdaq notifications in October 2022 for non-compliance with independent director requirements, which contributed to its voluntary delisting from Nasdaq[186] - As of March 10, 2023, only Michael Mikolajczyk and Dennis Paul are determined to be independent directors, meaning a majority of the Board is not independent under Nasdaq rules[187] - The Board is led by an independent Chairman, Michael Mikolajczyk, to balance management and independent oversight[188] - The Board oversees risk management through its Audit, Compensation, and Nominating and Governance Committees, which are composed entirely of non-employee directors[189][191] - The company has a Code of Ethics applicable to all employees, officers, and directors[202] Executive Compensation Non-employee directors received cash fees in 2022, with no RSU grants; executive compensation for Timothy Brog included salary, a $350,000 bonus for the Janel transaction, and stock awards, with all equity awards vested by year-end - Non-employee directors received an annual cash fee of $20,000 in 2022, with the Chairman of the Board and Audit Committee Chairman each receiving an additional $5,000 annual cash retainer[209] - No restricted stock units (RSUs) were granted to non-employee directors in 2022[209] Non-Employee Director Compensation (2022) | Name | Fees earned or paid in cash ($) | Stock awards ($) | Total ($) | | :------------------- | :------------------------------ | :--------------- | :-------- | | Michael E. Mikolajczyk | 30,000 | 10,000 | 40,000 | | John Eidinger | 7,283 | — | 7,283 | | Darren Seirer | 7,283 | — | 7,283 | | Susan M. Westphal | 12,717 | 10,000 | 30,000 | | Jefferson Gramm | 12,717 | 10,000 | 30,000 | Summary Executive Compensation Table (in thousands) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :--------------- | :------------------------- | :-------- | | Timothy E. Brog | 2022 | 332,692 | 350,000 | 398,750 | — | 1,081,442 | | President, CEO & Acting CFO | 2021 | 350,000 | — | 341,055 | — | 691,055 | | Kevin T. Lusardi | 2021 | 19,048 | — | — | — | 19,048 | - Timothy Brog received a $350,000 bonus in 2022 for his assistance in the closing of the Stock Purchase and Sale Agreement with Janel Corporation, and waived his severance rights[222][226] - All outstanding equity awards were vested as of December 31, 2022, with no outstanding equity awards at fiscal year-end[225] - Equity compensation awards may vest upon a change in control, with the Compensation Committee determining treatment or full vesting if no assumption/substitution occurs[227] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of February 28, 2023, 320,273 shares were available for future equity issuance, with Janel Corporation as the largest beneficial owner (46.0%), and executive officers and directors owning 1.5% as a group Equity Compensation Plan Information (as of Dec 31, 2022) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under the equity compensation plans (excluding securities reflected in column (a)) (©) | | :---------------------------------------------- | :-------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 300 | $44.10 | 320,273 | - As of February 28, 2023, there were 2,410,265 shares of common stock outstanding[231] Security Ownership of Certain Beneficial Owners and Management (as of Feb 28, 2023) | Name of beneficial owner | Number of Shares beneficially owned | Percent | | :---------------------------------------- | :---------------------------------- | :------ | | Bandera Master Fund L.P. | 128,323 | 5.3% | | Janel Corporation | 1,108,000 | 46.0% | | Timothy Brog | 4,969 | 0.2% | | Darren Seirer | — | 0.0% | | Michael E. Mikolajczyk | 31,456 | 1.3% | | John Eidinger | — | 0.0% | | All executive officers and directors as a group (4 persons) | 36,425 | 1.5% | Certain Relationships and Related Transactions, and Director Independence The company has a policy for reviewing related party transactions, but faced Nasdaq non-compliance regarding independent directors in October 2022, with only two directors considered independent as of March 2023 - The Audit Committee administers a written policy for identifying and evaluating 'related party transactions' exceeding $120,000, requiring approval if deemed in the company's best interests[235][236] - The Board determined that a majority of directors were independent in 2021, as required by Nasdaq rules[237] - In October 2022, the company received notifications from Nasdaq regarding non-compliance with independent director requirements, including the majority independent board, and independent audit and compensation committees[240] - As of March 10, 2023, only Michael Mikolajczyk and Dennis Paul are considered independent directors, indicating the Board does not meet the Nasdaq standard for a majority of independent directors[241] Principal Accountant Fees and Services Marcum LLP was selected as the independent registered public accounting firm for fiscal year 2023, with audit fees of $221,883 in 2022 and $200,356 in 2021, and all services were pre-approved by the Audit Committee - Marcum LLP has been selected as the independent registered public accounting firm for fiscal year 2023 and has served since 2017[242] Audit Fees Billed by Marcum LLP | Fiscal Year | Audit Fees | | :---------- | :----------- | | 2022 | $221,883 | | 2021 | $200,356 | - There were no audit-related, tax, or other fees billed by Marcum LLP in fiscal years 2022 and 2021[245][246][247] - All audit and permissible non-audit services provided by Marcum LLP were pre-approved by the Audit Committee in fiscal years 2022 and 2021[248] PART IV Exhibits and Consolidated Financial Statement Schedules This section lists the consolidated financial statements, including the independent auditor's report, balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and notes, along with an index of exhibits - The consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, Cash Flows, and Notes, are filed as part of this report[250][251] - An index of exhibits filed or incorporated by reference is provided[251] Form 10-K Summary No Form 10-K Summary is provided - None[253]