Investments

The Company invests available cash primarily in U.S. Treasury securities, investment grade commercial paper, FDIC guaranteed certificates of deposit, common stock and corporate notes. Investments classified as available-for-sale securities are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss). Investments in trading securities are reported at fair value, with both realized and unrealized gains and losses recorded in other income (expense), in the Consolidated Statement of Operations. Investments in which the Company has the ability and intent, if necessary, to liquidate are classified as short-term.

The Company reviews its available-for-sale 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 statement of operations.

Inventories

Inventories

Inventories are valued at the lower of cost or net realizable value. 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establishes inventory reserves when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based on customer specifications.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:

	September 30, 2018		December 31, 2017
	(in thousands)
Raw materials	$	469	$	476
Work-in-process		1,875		2,334
Finished goods		218		220
	$	2,562	$	3,030

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.

In connection with the Company’s decision in 2016 to limit its focus to the optical and industrial sapphire markets and exit the LED market, the Company developed a plan to close its Malaysia facility, scale down and consolidate remaining operations in the U.S. and sell additional assets that would not be needed. The Company evaluated its U.S. and Malaysia asset portfolios to identify assets needed for its current business strategy and excess assets that were no longer needed. The Company determined it had excess machinery, equipment and facilities. Excess U.S. and Malaysia assets were evaluated based on assuming an orderly liquidation plan, which considers economic obsolescence and sales of comparable equipment, as it is the Company’s intention to sell these assets. Additionally, the Company evaluated its U.S. assets continuing to be used in operations using a cost and market approach to determine the current fair value.

As a result, for the year ended December 31, 2017, the Company recorded an impairment charge of $1.0 million on lower than expected sales prices for certain machinery and equipment held for sale, and identification of assets that will not be needed to support the Company’s current operations. Additionally, for the year ended December 31, 2017, the Company recorded an impairment charge of $4.0 million on its U.S. and Malaysia land and building assets on lower than expected sale price. At September 30, 2018, and at the end of the two preceding fiscal quarters, the Company reviewed the current fair value of its assets and concluded no adjustments were needed. 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 September 2018, the Company completed the sale of its 134,400 square-foot manufacturing and office facility located in Batavia, Illinois, with the net book value of $5.9 million. The selling price for the property was $6.7 million. The Company realized net proceeds of approximately $6.4 million after the payment of real estate taxes, brokerage and legal fees, transfer taxes and other expenses, and recorded a gain on sale of this asset of $504,000.

In the nine months ended September 30, 2018, the Company completed individual sales and held auctions for equipment and consumable assets located at each of its U.S. properties, resulting in the sale of a significant amount of its excess U.S. assets, which had a total net book value of $1.6 million. In the beginning of 2018, the Company intended to sell a certain number of its crystal growth furnaces. Due to the Company’s changed needs and business plan, it reduced the number of furnaces it wanted to sell. The difference in the number of furnaces it originally intended to sell and the number it actually disposed of, had a net book value of $236,000. The additional furnaces that the Company decided to retain were reclassified from current assets held for sale to fixed assets held and used at September 30, 2018. Additionally, in the nine months ended September 30, 2018, the Company completed sales of Malaysia equipment with a total net book value of $131,000. Based on these sales, a gain on disposal of equipment and consumable assets of $2.2 million was recorded for the nine months ended September 30, 2018. Unsold excess Malaysia equipment continued to be classified as current assets held for sale at September 30, 2018.

The Company is actively pursuing the sale of a parcel of land it owns in Batavia, Illinois, and the sale or lease of its 65,000 square-foot facility located in Penang, Malaysia. Although the Company cannot assure the timing of these sales, it is the Company’s intention to complete these sales within the next twelve-month period, hence, these properties were classified as current assets held for sale at September 30, 2018, and December 31, 2017.

The Company cannot guarantee that it will be able to successfully complete the sale or lease of any assets.

In September 2018, the Company completed the purchase of a property located in Bensenville, Illinois. The purchase price for the property was $2.3 million. Previously, the Bensenville property was leased by the Company and it was the headquarters of its operations and one of its growth facilities. Going forward, this will be the Company’s sole operating facility and will also be used for its fabrication operations. The Company used its cash on hand to purchase the property.

Net income (loss) per common share

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 share was the same as basic net income (loss) per share for the three and nine months ended September 30, 2018 and 2017, 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 26,812 shares of the Company’s common stock that were deemed anti-dilutive at September 30, 2018.

Recent accounting pronouncements

Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which modifies the lease recognition requirements and requires entities to recognize the assets and liabilities arising from leases on the balance sheet. ASU 2016-02 requires entities to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact, if any, of adopting ASU 2016-02 on its financial statements.

In March 2018, the FASB issued ASU No. 2018-05 (“ASU 2018-05), Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends ASC 740, Income Taxes, to provide guidance on accounting for tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company has decided to follow the guidance provided by ASU 2018-05 and will leave the one-year measurement period open to evaluate the impact of the Tax Act.

In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718, Compensation – Stock Compensation which currently only includes share-based payments to employees to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The guidance is effective for public companies for the interim and annual periods beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. At this time, the Company does not recognize the existence of any non-employee relationships involving share-based payments. The Company will continue to assess applicability of ASU 2018-07 prior to adoption.