Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2021
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OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File No. 001-31332
LIQUIDMETAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its
charter)
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Delaware
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33-0264467
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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20321 Valencia Circle
Lake Forest, CA 92630
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (949)
635-2100
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
every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) 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, a
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.
Large accelerated
filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth
company ☐
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 ☒
Securities registered pursuant to Section 12(b) of the Exchange
Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common stock, $0.001 par value per share
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LQMT
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OTCQB
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The number of common shares outstanding as of April 30, 2021 was
914,449,957.
LIQUIDMETAL TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2021
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of Liquidmetal Technologies,
Inc. contains “forward-looking statements” that may state our
management’s plans, future events, objectives, current
expectations, estimates, forecasts, assumptions or projections
about the company and its business. Any statement in this report
that is not a statement of historical fact is a forward-looking
statement, and in some cases, words such as “believes,”
“estimates,” “projects,” “expects,” “intends,” “may,”
“anticipates,” “plans,” “seeks,” and similar words or expressions
identify forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual outcomes
and results to differ materially from the anticipated outcomes or
results. These statements are not guarantees of future performance,
and undue reliance should not be placed on these statements. It is
important to note that our actual results could differ materially
from what is expressed in our forward-looking statements due to the
risk factors described in the section of our Annual Report on Form
10-K for the year ended December 31, 2020 entitled “Risk Factors,”
as well as the following risks and uncertainties:
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●
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Our ability to fund our operations in the long-term through
financing transactions on terms acceptable to us, or at all;
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Our history of operating losses and the uncertainty surrounding our
ability to achieve or sustain profitability;
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Our limited history of developing and selling products made from
our bulk amorphous alloys;
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Challenges associated with having products manufactured from our
alloys and the use of third parties for manufacturing;
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Our limited history of licensing our technology to third
parties;
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Lengthy customer adoption cycles and unpredictable customer
adoption practices;
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Our ability to identify, develop, and commercialize new product
applications for our technology;
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Competition from current suppliers of incumbent materials or
producers of competing products;
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Our ability to identify, consummate, and/or integrate strategic
partnerships;
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The potential for manufacturing problems or delays;
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Potential difficulties associated with protecting or expanding our
intellectual property position; and
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Economic and business uncertainties relating to the COVID-19
pandemic.
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We undertake no obligation, other than as required by applicable
law, to update publicly any forward-looking statements, whether as
a result of new information, future events or otherwise.
PART I
FINANCIAL INFORMATION
Item 1 – Financial
Statements
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except par value and share data)
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March 31,
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December 31,
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2021
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2020
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(Unaudited)
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(Audited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ |
1,229 |
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$ |
1,514 |
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Restricted cash
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5 |
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5 |
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Investments in debt securities- short term
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17,213 |
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14,720 |
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Trade accounts receivable, net of allowance for doubtful
accounts
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54 |
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271 |
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Inventory
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147 |
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43 |
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Prepaid expenses and other current assets
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376 |
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465 |
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Total current assets |
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$ |
19,024 |
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$ |
17,018 |
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Investments in debt securities- long term
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10,057 |
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12,768 |
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Property and equipment, net
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8,534 |
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8,614 |
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Patents and trademarks, net
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139 |
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158 |
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Other assets
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266 |
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251 |
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Total assets |
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$ |
38,020 |
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$ |
38,809 |
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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91 |
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205 |
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Accrued liabilities
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299 |
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315 |
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Deferred revenue
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41 |
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- |
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Total current liabilities |
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$ |
431 |
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$ |
520 |
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Long-term liabilities
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Other long-term liabilities
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899 |
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899 |
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Total liabilities |
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$ |
1,330 |
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$ |
1,419 |
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Shareholders' equity:
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Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0
shares issued and outstanding at March 31, 2021 and December 31,
2020, respectively |
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- |
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- |
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Common stock, $0.001 par value; 1,100,000,000 shares authorized;
914,449,957 and 914,449,957 shares issued and outstanding at
March 31, 2021 and December 31, 2020, respectively |
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914 |
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914 |
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Warrants
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18,179 |
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18,179 |
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Additional paid-in capital
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287,290 |
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287,183 |
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Accumulated deficit
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(269,617 |
) |
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(268,926 |
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Accumulated other comprehensive income (loss)
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- |
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116 |
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Non-controlling interest in subsidiary
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(76 |
) |
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(76 |
) |
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Total shareholders' equity |
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$ |
36,690 |
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$ |
37,390 |
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Total liabilities and shareholders' equity |
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$ |
38,020 |
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$ |
38,809 |
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The accompanying notes are an integral part of the consolidated
financial statements.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share and per share data)
(unaudited)
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For the Three Months
Ended March 31,
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2021
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2020
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Revenue
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Products
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$ |
63 |
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$ |
46 |
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Licensing and royalties
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9 |
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25 |
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Total revenue |
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72 |
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71 |
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Cost of sales
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55 |
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36 |
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Gross profit
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17 |
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35 |
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Operating expenses
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Selling, marketing, general and administrative
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879 |
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987 |
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Research and development
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22 |
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29 |
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Gain on disposal of long-lived assets
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- |
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(20 |
) |
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Total operating expenses |
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901 |
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996 |
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Operating loss
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(884 |
) |
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(961 |
) |
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Lease income
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132 |
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88 |
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Interest and investment income
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61 |
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127 |
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Loss before income taxes
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(691 |
) |
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(746 |
) |
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Income taxes
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- |
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- |
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Net loss
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(691 |
) |
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(746 |
) |
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Net loss attributable to non-controlling interest
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- |
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- |
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Net loss attributable to Liquidmetal Technologies
shareholders
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(691 |
) |
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(746 |
) |
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Per common share basic and diluted:
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Net loss per common share attributable to Liquidmetal Technologies
shareholders, basic and diluted
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$ |
(0.00 |
) |
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$ |
(0.00 |
) |
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Number of weighted average shares - basic and diluted
|
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|
914,449,957 |
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|
914,449,957 |
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The accompanying notes are an integral part of the consolidated
financial statements.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
($ in thousands, except share and per share data)
(unaudited)
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For the Three Months
Ended March 31,
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2021
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2020
|
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Net loss
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$ |
(691 |
) |
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$ |
(746 |
) |
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Other comprehensive loss, net of tax
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|
|
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|
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Net unrealized losses on available-for-sale securities
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(116 |
) |
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(95 |
) |
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Other comprehensive loss, net of tax
|
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(116 |
) |
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(95 |
) |
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Comprehensive loss
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$ |
(807 |
) |
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$ |
(841 |
) |
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Less: Comprehensive loss attributable to noncontrolling
interests
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|
- |
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- |
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Comprehensive loss attributable to Liquidmetal Technologies
shareholders
|
|
$ |
(807 |
) |
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$ |
(841 |
) |
The accompanying notes are an integral part of the consolidated
financial statements.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in thousands, except per share data)
(unaudited)
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For the Three Months Ended March 31,
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2021
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2020
|
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Operating activities:
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Net loss
|
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$ |
(691 |
) |
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$ |
(746 |
) |
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|
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Adjustments to reconcile net loss to net cash used in operating
activities:
|
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Depreciation and amortization
|
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|
99 |
|
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101 |
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Realized investment gains
|
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|
- |
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(1 |
) |
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Stock-based compensation
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|
107 |
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|
92 |
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Gain on disposal of long-lived assets
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|
- |
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(20 |
) |
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Changes in operating assets and liabilities:
|
|
|
|
|
|
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Trade accounts receivable
|
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|
217 |
|
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|
30 |
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Inventory
|
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(104 |
) |
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12 |
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Prepaid expenses and other current assets
|
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|
89 |
|
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29 |
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Other assets and liabilities
|
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(15 |
) |
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(80 |
) |
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Accounts payable and accrued liabilities
|
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(130 |
) |
|
|
(114 |
) |
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Deferred revenue
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|
41 |
|
|
|
- |
|
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Net cash used in operating activities
|
|
|
(387 |
) |
|
|
(697 |
) |
|
|
|
|
|
|
|
|
|
|
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Investing Activities:
|
|
|
|
|
|
|
|
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|
Purchases of property and equipment
|
|
|
- |
|
|
|
(93 |
) |
|
Proceeds from disposal of fixed assets
|
|
|
- |
|
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|
20 |
|
|
Purchases of debt securities
|
|
|
(4,857 |
) |
|
|
(1,654 |
) |
|
Proceeds from sales of debt securities
|
|
|
4,959 |
|
|
|
2,545 |
|
|
Net cash provided by investing activities
|
|
|
102 |
|
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
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|
Proceeds from exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
Net cash provided by financing activities
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents, and
restricted cash
|
|
|
(285 |
) |
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of
period
|
|
|
1,519 |
|
|
|
19,548 |
|
|
Cash, cash equivalents, and restricted cash at end of
period
|
|
$ |
1,234 |
|
|
$ |
19,669 |
|
The accompanying notes are an integral part of the consolidated
financial statements.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
1. Description of Business
Liquidmetal Technologies, Inc. (the “Company”) is a materials
technology company that develops and commercializes products made
from amorphous alloys. The Company’s family of alloys consists of a
variety of bulk alloys and composites that utilize the advantages
offered by amorphous alloys technology. The Company designs,
develops, and sells products and custom parts from bulk amorphous
alloys to customers in a wide range of industries. The Company also
partners with third-party manufacturers and licensees to develop
and commercialize Liquidmetal alloy products.
Amorphous alloys are, in general, unique materials that are
distinguished by their ability to retain a random atomic structure
when they solidify, in contrast to the crystalline atomic structure
that forms in other metals and alloys when they solidify.
Liquidmetal alloys are proprietary amorphous alloys that possess a
combination of performance, processing, and potential cost
advantages that the Company believes will make them preferable to
other materials in a variety of applications. The amorphous atomic
structure of bulk alloys enables them to overcome certain
performance limitations caused by inherent weaknesses in
crystalline atomic structures, thus facilitating performance and
processing characteristics superior in many ways to those of their
crystalline counterparts. The Company believes that the alloys and
the molding technologies it employs may result in components, for
many applications, that exhibit: exceptional dimensional control
and repeatability that rivals precision machining, excellent
corrosion resistance, brilliant surface finish, high strength, high
hardness, high elastic limit, alloys that are non-magnetic, and the
ability to form complex shapes common to the injection molding of
plastics. Interestingly, all of these characteristics are
achievable from the molding process, so design engineers often do
not have to select specific alloys to achieve one or more of the
characteristics as is the case with crystalline materials. The
Company believes these advantages could result in Liquidmetal
alloys supplanting high-performance alloys, such as titanium and
stainless steel, and other incumbent materials in a wide variety of
applications. Moreover, the Company believes these advantages could
enable the introduction of entirely new products and applications
that are not possible or commercially viable with other
materials.
The Company’s revenues are derived from i) selling bulk Liquidmetal
alloy products to customers who produce medical devices, automotive
assemblies, sports and leisure goods, and non-consumer electronic
devices, ii) selling tooling and prototype parts such as
demonstration parts and test samples for customers with products in
development, iii) product licensing and royalty revenue, and iv)
research and development revenue. The Company expects that these
sources of revenue will continue to significantly change the
character of the Company’s revenue mix.
2. Basis of Presentation and Recent Accounting
Pronouncements
The accompanying unaudited interim consolidated financial
statements as of and for the three months ended March 31, 2021 and
March 31, 2020 have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US
GAAP”) for interim financial information and in accordance with the
instructions to Form 10-Q. Accordingly, they do not include all of
the information and notes required by US GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. All intercompany
balances and transactions have been eliminated in consolidation.
Operating results for the three months ended March 31, 2021 are not
necessarily indicative of the results that may be expected for any
future periods or the year ending December 31, 2021. The
accompanying unaudited consolidated financial statements should be
read in conjunction with the Company's 2020 Annual Report on Form
10-K filed with the Securities and Exchange Commission (“SEC”) on
March 9, 2021.
Investments in debt securities
The Company will invest excess funds to maximize investment yield,
while maintaining liquidity and minimizing credit risk. Debt
securities are carried at fair value and consist primarily of
investments in obligations of the United States Treasury, various
U.S. and foreign corporations, and certificates of deposits. The
Company classifies its investments in debt securities as
available-for-sale with all unrealized gains or losses included as
part of other comprehensive income. The Company evaluates its debt
securities with unrealized losses on a quarterly basis for
potential other-than-temporary impairments in value. As a result of
this assessment, the Company did not recognize any
other-than-temporary impairment losses considered to be credit
related for the three months ended March 31, 2021 and 2020.
Fair Value Measurements
The estimated fair values of financial instruments reported in the
consolidated financial statements have been determined using
available market information and valuation methodologies, as
applicable. The fair value of cash and restricted cash approximate
their carrying value due to their short maturities and are
classified as Level 1 instruments within the fair value
hierarchy.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
Fair value is defined as the exchange price that would be received
for 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. Entities are required to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value based upon the following fair value
hierarchy:
|
Level 1 —
|
Quoted prices in active markets for identical assets or
liabilities;
|
|
Level 2 —
|
Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities; and
|
|
Level 3 —
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
|
As of March 31, 2021, the following table represents the Company’s
fair value hierarchy for items that are required to be measured at
fair value on a recurring basis:
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in debt securities (short-term)
|
|
$ |
17,213 |
|
|
|
12,837 |
|
|
|
4,376 |
|
|
|
- |
|
|
Investments in debt securities (long-term)
|
|
|
10,057 |
|
|
|
- |
|
|
|
10,057 |
|
|
|
- |
|
As of December 31, 2020, the following table represents the
Company’s fair value hierarchy for items that are required to be
measured at fair value on a recurring basis:
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in debt securities (short-term)
|
|
$ |
14,720 |
|
|
|
8,939 |
|
|
|
5,781 |
|
|
|
- |
|
|
Investments in debt securities (long-term)
|
|
|
12,768 |
|
|
|
- |
|
|
|
12,768 |
|
|
|
- |
|
Leases
The Company leases its previous manufacturing facility under a
long-term contract, which is accounted for as an operating lease.
The lease provides for a fixed base rent and variable payments
comprised of reimbursements for property taxes, insurance,
utilities, and common area maintenance. The lease has a term of
sixty-two months, exclusive of options to renew. In accordance with
ASC 842 Leases, lease income, which includes escalating
rents over the term of the lease, is recorded on a straight-line
basis over the expected lease term. The difference between lease
income and payments received is recorded as a rent receivable,
which is included as a prepaid expense in the consolidated balance
sheets. Amounts paid for broker commissions represent prepaid
direct lease costs, and will be amortized as an off-set to lease
income over the lease term.
Other recent pronouncements
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American Institute
of Certified Public Accountants and the SEC did not or are not
believed by management to have a material impact on the Company's
present or future consolidated financial statements.
3. Significant Transactions
2019 Restructuring Plan
In July 2019, the Company adopted a restructuring plan pursuant to
which the Company elected to wind down its prior manufacturing
operations at the Company’s Lake Forest, CA facility and proceeded
to outsource the manufacture of parts utilizing the Company’s
technology through its domestic and international manufacturing
partners (the “2019 Restructuring Plan”). In connection with the
2019 Restructuring Plan, the Company shifted its business strategy
from internal manufacture of parts and products for customers
toward the use and reliance of outsourced manufacturers, which will
initially be Dongguan Yihao Metals Materials Technology Co., Ltd.
(“Yihao”), a China-based company in which our largest beneficial
stockholder, CEO and Chairman, Professor Lugee Li ("Professor Li"),
has a material, indirect, equity interest.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
Manufacturing Facility Purchase
On February 16, 2017, the Company purchased a 41,000 square foot
manufacturing facility (the “Facility”) located in Lake Forest, CA,
where operations commenced during July 2017. The purchase price for
the Facility was $7,818. As a result of the 2019 Restructuring
Plan, the Company has discontinued manufacturing operations in the
Facility.
Facility Lease
On January 23, 2020, 20321 Valencia, LLC, a Delaware limited
liability company and wholly owned subsidiary of the Company,
entered into a lease agreement (the “Facility Lease”) pursuant to
which the Company leased to MatterHackers, Inc., a Delaware
corporation (“Tenant”), an approximately 32,534 square foot portion
of the Facility. The lease term is for 5 years and 2 months and is
scheduled to expire on April 30, 2025. The base rent payable under
the Facility Lease is $33 per month initially and is subject to
periodic increases up to a maximum of approximately $54 per month.
Tenant will pay approximately 79% of common operating expenses. The
Facility Lease has other customary provisions, including provisions
relating to default and usage restrictions. The Facility Lease
grants to Tenant a right to extend the lease for one additional
60-month period at market rental value.
2016 Purchase Agreement
On March 10, 2016, the Company entered into a Securities Purchase
Agreement (the "2016 Purchase Agreement") with Liquidmetal
Technology Limited, a Hong Kong company (the “Investor”), which is
controlled by the Company’s Chairman and CEO, Professor Li. The
2016 Purchase Agreement provided for the purchase by the Investor
of a total of 405,000,000 shares of the Company’s common stock for
an aggregate purchase price of $63,400. The transaction occurred in
multiple closings, with the Investor having purchased 105,000,000
shares at a purchase price of $8,400 (or $0.08 per share) at the
initial closing on March 10, 2016 and the remaining 200,000,000
shares at $0.15 per share and 100,000,000 shares at $0.25 per share
for an aggregate purchase price of $55,000 on October 26, 2016.
In addition to the shares issuable under the 2016 Purchase
Agreement, the Company issued to the Investor a warrant to acquire
10,066,809 shares of common stock (of which the right to exercise
2,609,913 of the warrant shares vested on March 10, 2016 and the
right to exercise the remaining 7,456,896 warrant shares vested on
October 26, 2016 at an exercise price of $0.07 per share). The
warrant will expire on the tenth anniversary of its issuance
date.
The 2016 Purchase Agreement also provided that, with certain
limited exceptions, if the Company issues any shares of common
stock at any time through the fifth anniversary of the 2016
Purchase Agreement, the Investor will have a preemptive right to
subscribe for and to purchase at the same price per share (or at
market price, in the case of issuance of shares pursuant to stock
options) the number of shares necessary to maintain its ownership
percentage of Company-issued shares of common stock.
Eontec License Agreement
On March 10, 2016, in connection with the 2016 Purchase Agreement,
the Company and DongGuan Eontec Hong Kong corporation
("Eontec"), entered into a Parallel License
Agreement (the "License Agreement") pursuant to which the
Company and Eontec agreed to cross-license their respective
technologies. The Company’s Chairman and CEO, Professor Li, is also
a major shareholder and Chairman of Eontec.
The License Agreement provides for the cross-license of certain
patents, technical information, and trademarks between the Company
and Eontec. In particular, the Company granted to Eontec a paid-up,
royalty-free, perpetual license to the Company’s patents and
related technical information to make, have made, use, offer to
sell, sell, export, and import products in certain geographic areas
outside of North America and Europe. In turn, Eontec granted to the
Company a paid-up, royalty-free, perpetual license to Eontec’s
patents and related technical information to make, have made, use,
offer to sell, sell, export, and import products in certain
geographic areas outside of specified countries in Asia. The
license granted by the Company to Eontec is exclusive (including to
the exclusion of the Company) in the countries of Brunei, Cambodia,
China (P.R.C and R.O.C.), East Timor, Indonesia, Japan, Laos,
Malaysia, Myanmar, Philippines, Singapore, South Korea, Thailand,
and Vietnam. The license granted by Eontec to the Company is
exclusive (including to the exclusion of Eontec) in North America
and Europe. The cross-licenses are non-exclusive in geographic
areas outside of the foregoing exclusive territories.
Beyond the License Agreement, the Company collaborates with Eontec
to accelerate the commercialization of amorphous alloy technology.
This includes but is not limited to developing technologies to
reduce the cost of amorphous alloys, working on die cast machine
technology platforms to pursue broader markets, sharing knowledge
to broaden our intellectual property portfolio, and utilizing
Eontec’s volume production capabilities as a third party contract
manufacturer.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
Eutectix Business Development Agreement
On January 31, 2020, the Company entered into a Business
Development Agreement (the “Business Development Agreement”) with
Eutectix LLC, a Delaware limited liability company ("Eutectix"),
which provides for collaboration, joint development efforts, and
the manufacturing of products based on the Company’s proprietary
amorphous metal alloys. Under the Business Devlopment Agreement,
the Company licensed to Eutectix specified equipment owned by the
Company, including two injection molding machines, two diecasting
machines, and other machines and equipment, all of which will be
used to make product for Company customers and Eutectix customers.
The licensed machines and equipment represented substantially all
of the machinery and equipment then held by the Company. The
Company has also licensed to Eutectix various patents and technical
information related to the Company’s proprietary technology. Under
the Business Development Agreement, Eutectix agreed to pay the
Company a royalty of six percent (6%) of the net sales price of
licensed products sold by Eutectix, and Eutectix will also
manufacture for the Company product ordered by the Company. The
Business Development Agreement has a term of five years, subject to
renewal provisions and the ability of either party to terminate
earlier upon specified circumstances.
Apple License Transaction
On August 5, 2010, the Company entered into a license transaction
with Apple Inc. (“Apple”) pursuant to which (i) the Company
contributed substantially all of its intellectual property assets
to a newly organized special-purpose, wholly-owned subsidiary,
called Crucible Intellectual Property, LLC (“CIP”), (ii) CIP
granted to Apple a perpetual, worldwide, fully-paid, exclusive
license to commercialize such intellectual
property in the field of consumer electronic products, as defined
in the license agreement, in exchange for a license fee, and
(iii) CIP granted back to the Company a perpetual, worldwide,
fully-paid, exclusive license to commercialize such intellectual
property in all other fields of use.
Under the agreements relating to the license transaction with
Apple, the Company was obligated to contribute, to CIP, all
intellectual property developed through February 2016. The Company
is also obligated to maintain certain limited liability company
formalities with respect to CIP at all times after the closing of
the license transaction.
Other License Transactions
The Company’s majority-owned Liquidmetal Golf subsidiary has the
exclusive right and license to utilize the Company’s Liquidmetal
alloy technology for purposes of golf equipment applications. This
right and license is set forth in an intercompany license agreement
between Liquidmetal Technologies and Liquidmetal Golf. This license
agreement provides that Liquidmetal Golf has a perpetual and
exclusive license to use Liquidmetal alloy technology for the
purpose of manufacturing, marketing, and selling golf club parts
and other products used in the sport of golf. The Company owns 79%
of the outstanding common stock of Liquidmetal Golf.
In March 2009, the Company entered into a license agreement with
Swatch Group, Ltd. (“Swatch”) under which Swatch was granted a
non-exclusive license to the Company’s technology to produce and
market watches and certain other luxury products. In March 2011,
this license agreement was amended to grant Swatch exclusive rights
as to watches, but non-exclusive as to Apple. The Company will
receive royalty payments over the life of the contract on all
Liquidmetal products produced and sold by Swatch. The license
agreement with Swatch will expire on the expiration date of the
last licensed patent.
4. Investments in debt securities
The following table sets forth amortized cost fair value, and
unrealized gains of investments in debt securities (short-term
and long-term):
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Unrealized gains
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Longest
Maturity Date
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
2024
|
|
$ |
26,495 |
|
|
$ |
26,222 |
|
|
$ |
26,495 |
|
|
$ |
26,338 |
|
|
$ |
- |
|
|
$ |
116 |
|
|
Certificates of deposit
|
One-year
|
|
|
775 |
|
|
|
1,150 |
|
|
|
775 |
|
|
|
1,150 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
$ |
27,270 |
|
|
$ |
27,372 |
|
|
$ |
27,270 |
|
|
$ |
27,488 |
|
|
$ |
- |
|
|
$ |
116 |
|
Income from these investments totaled $61 and $68 during the three
months ended March 31, 2021 and 2020, respectively, and was
included as a portion of interest and investment income on the
Company’s consolidated statements of operations.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
Based on the Company’s review of its debt securities in an
unrealized loss position at March 31, 2021, it determined that the
losses were primarily the result current economic factors,
impacting all global debt and equity markets, that are the result
of the global COVID-19 pandemic. The impact to the Company’s
investment portfolio is considered to be temporary, rather than a
deterioration of overall credit quality. As of March 31, 2021, all
investments are current on their schedule interest and dividend
payments. The Company does not intend to sell, and it is not more
likely than not that the Company will be required to sell, these
securities prior to recovering their amortized cost. As such, the
Company does not consider these securities to be
other-than-temporarily impaired at March 31, 2021.
5. Trade Accounts Receivable
Trade accounts receivable were comprised of the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Trade accounts receivable
|
|
$ |
288 |
|
|
$ |
505 |
|
|
Less: Allowance for doubtful accounts
|
|
|
(234 |
) |
|
|
(234 |
) |
|
Trade accounts receivable
|
|
$ |
54 |
|
|
$ |
271 |
|
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets totaled $376 and $465 as
of March 31, 2021 and December 31, 2020, respectively. Included
within these totals are the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid service invoices
|
|
$ |
86 |
|
|
$ |
76 |
|
|
Prepaid insurance premiums
|
|
|
146 |
|
|
|
233 |
|
|
Prepaid lease costs and receivables- short term
|
|
|
22 |
|
|
|
21 |
|
|
Interest and other receivables
|
|
|
122 |
|
|
|
135 |
|
|
Total
|
|
$ |
376 |
|
|
$ |
465 |
|
As of March 31, 2021, prepaid lease costs and receivables- short
term are comprised of $19 in prepaid broker commissions that are
expected to be amortized within the next twelve months and $3 in
receivables for allocated utility costs.
7. Inventory
Inventory totaled $147 and $43 as of March 31, 2021 and December
31, 2020, respectively. Included within these totals are the
following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
$ |
25 |
|
|
$ |
- |
|
|
Finished goods
|
|
|
122 |
|
|
|
43 |
|
|
Total
|
|
$ |
147 |
|
|
$ |
43 |
|
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
8. Property and Equipment, net
Property and equipment consist of the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, building, and improvements
|
|
$ |
9,610 |
|
|
$ |
9,610 |
|
|
Machinery and equipment
|
|
|
1,304 |
|
|
|
1,304 |
|
|
Computer equipment
|
|
|
272 |
|
|
|
272 |
|
|
Office equipment, furnishings, and improvements
|
|
|
51 |
|
|
|
51 |
|
|
Total
|
|
|
11,237 |
|
|
|
11,237 |
|
|
Accumulated depreciation
|
|
|
(2,703 |
) |
|
|
(2,623 |
) |
|
Total property and equipment, net
|
|
$ |
8,534 |
|
|
$ |
8,614 |
|
Depreciation expense for three months ended March 31, 2021 and 2020
was $80 and $79, respectively, and was included in selling,
marketing, general, and administrative expenses.
During the three months ended March 31, 2020, the Company disposed
of certain manufacturing equipment for gross proceeds of $20. This
resulted in a gain on disposal of $20 during the three months ended
March 31, 2020. No such sales occurred during the three months
ended March 31, 2021.
9. Equipment Held for Sale
The Company previously reclassified $585 in equipment, planned to
be disposed of under the 2019 Restructuring Plan, from property and
equipment to equipment held for sale on its consolidated balance
sheet. The Company has executed a purchase agreement for the
equipment, with a negotiated sales price of $600. The sale was
finalized during the quarter ended June 30, 2020, following
delivery and title transfer of the equipment to the buyer. During
October 2020, all amounts pertaining to the purchase price were
received, thus completing all elements of the purchase agreement
for the equipment originally held for sale.
10. Patents and Trademarks, net
Net patents and trademarks totaled $139 and $158 as of March 31,
2021 and December 31, 2020, respectively, and primarily consisted
of purchased patent rights and internally developed patents.
Purchased patent rights represent the exclusive right to
commercialize the bulk amorphous alloy and other amorphous alloy
technology acquired from California Institute of Technology
(“Caltech”), through a license agreement with Caltech and other
institutions. All fees and
other amounts payable by the Company for these rights and licenses
have been paid or accrued in full, and no further royalties,
license fees, or other amounts will be payable in the future under
the license agreement.
In addition to the purchased and licensed patents, the Company has
internally developed patents. Internally developed patents include
legal and registration costs incurred to obtain the respective
patents. The Company currently holds various patents and numerous
pending patent applications in the United States, as well as
numerous foreign counterparts to these patents outside of the
United States.
The Company amortizes capitalized patents and trademarks over an
average of 10 to 17 year periods. Amortization expense for patents
and trademarks was $19 and $21 for the three months ended March 31,
2021 and 2020, respectively.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
11. Other Assets
Other assets totaled $266 and $251 as of March 31, 2021 and
December 31, 2020, respectively. Included within these totals are
the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility deposits
|
|
$ |
14 |
|
|
$ |
14 |
|
|
Prepaid lease costs and receivables- long term
|
|
|
252 |
|
|
|
237 |
|
|
Total
|
|
$ |
266 |
|
|
$ |
251 |
|
As of March 31, 2021, prepaid lease costs and receivables- long
term are comprised of $58 in unamortized prepaid broker commissions
that are not expected to be amortized within the next twelve months
and $194 in straight-line rent accruals.
12. Accrued Liabilities
Accrued liabilities totaled $299 and $315 as of March 31, 2021 and
December 31, 2020, respectively. Included within these totals are
the following:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll, vacation, and bonuses
|
|
$ |
175 |
|
|
$ |
147 |
|
|
Accrued severance
|
|
|
56 |
|
|
|
56 |
|
|
Accrued audit fees
|
|
|
68 |
|
|
|
112 |
|
|
Total
|
|
$ |
299 |
|
|
$ |
315 |
|
13. Other Long-Term Liabilities
Other long-term liabilities were $899 as of March 31, 2021 and $899
as of December 31, 2020, and consisted of $856 of long-term, aged
payables to vendors, individuals, and other third parties that have
been outstanding for more than 5 years. The Company is in the
process of researching and resolving the balances for settlement
and/or escheatment in accordance with applicable state law. Also
included in the balance for each period is $43 in tenant
deposits.
14. Stock Compensation Plans
On June 28, 2012, the Company adopted the 2012 Equity Incentive
Plan (“2012 Plan”), with the approval of the shareholders, which
provides for the grant of stock options to officers, employees,
consultants, and directors of the Company and its subsidiaries. The
2012 Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, and for the granting to employees and
consultants of non-statutory stock options. In addition, the Plan
permits the granting of stock appreciation rights, or SARs, with or
independently of options, as well as stock bonuses and rights to
purchase restricted stock. A total of 30,000,000 shares of the
Company’s common stock may be granted under the 2012 Plan, and all
options granted under the 2012 Plan had exercise prices that were
equal to the fair market value on the date of grant. During the
three months ended March 31, 2020, the Company granted no options
to purchase shares of common stock. Under this plan, the Company
had outstanding grants of options to purchase 5,609,192 and
5,609,192 shares of the Company’s common stock as of March 31, 2021
and December 31, 2020, respectively.
On January 27, 2015, the Company adopted its 2015 Equity Incentive
Plan (“2015 Plan”), which provided for the grant of stock options
to officers, employees, consultants, and directors of the Company
and its subsidiaries. A total of 40,000,000 shares of the Company’s
common stock are available for issuance under the 2015 Plan. All
options granted under the 2015 Plan had exercise prices that were
equal to the fair market value on the dates of grant. During the
three months ended March 31, 2020, the Company granted no options
to purchase shares of common stock. Under this plan, the Company
had outstanding grants of options to purchase 12,341,667 and
12,341,667 shares of the Company’s common stock as of March 31,
2021 and December 31, 2020, respectively.
Stock based compensation expense attributable to these plans was
$107 and $92 for the three months ended March 31, 2021 and 2020,
respectively.
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
15. Facility Lease
Amounts collected under the Facility Lease are comprised of base
rents and reimbursements for direct facility expenses (property
taxes and insurance), common area maintenance, and utilities.
Amounts recorded to lease income are comprised of base rents and
direct facility expenses, recorded on a straight-line basis over
the lease term. Reimbursements for common area maintenance and
utility expense are recorded as reductions to like expenses within
sales, general, and administrative costs.
The future minimum rents due to the Company under the Facility
Lease are as follows:
|
Year
|
|
Base Rents
|
|
|
|
|
|
|
|
|
2021
|
|
$ |
357 |
|
|
2022
|
|
|
486 |
|
|
2023
|
|
|
651 |
|
|
2024
|
|
|
699 |
|
|
2025
|
|
|
237 |
|
|
Thereafter
|
|
|
- |
|
|
|
|
$ |
2,430 |
|
16. Consolidated Statements of Changes in Equity
The following table provides the Company’s changes in equity for
the three months ended March 31, 2021:
|
|
|
Preferred Shares
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Warrants part of
Additional Paid-in
Capital
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated Other
Comprehensve
Income (Loss)
|
|
|
Non- Controlling
Interest
|
|
|
Total
|
|
|
Balance, December 31, 2020
|
|
|
- |
|
|
|
914,449,957 |
|
|
$ |
914 |
|
|
$ |
18,179 |
|
|
$ |
287,183 |
|
|
$ |
(268,926 |
) |
|
$ |
116 |
|
|
$ |
(76 |
) |
|
$ |
37,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
107 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
107 |
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(691 |
) |
|
|
- |
|
|
|
- |
|
|
|
(691 |
) |
|
Other comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(116 |
) |
|
|
- |
|
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
- |
|
|
|
914,449,957 |
|
|
$ |
914 |
|
|
$ |
18,179 |
|
|
$ |
287,290 |
|
|
$ |
(269,617 |
) |
|
$ |
- |
|
|
$ |
(76 |
) |
|
$ |
36,690 |
|
The following table provides the Company’s changes in equity for
the three months ended March 31, 2020:
|
|
|
Preferred Shares
|
|
|
Common
Shares
|
|
|
Common
Stock
|
|
|
Warrants part of
Additional Paid-in
Capital
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated Other
Comprehensve
Income (Loss)
|
|
|
Non- Controlling
Interest
|
|
|
Total
|
|
|
Balance, December 31, 2019
|
|
|
- |
|
|
|
914,449,957 |
|
|
$ |
914 |
|
|
$ |
18,179 |
|
|
$ |
286,832 |
|
|
$ |
(266,284 |
) |
|
$ |
2 |
|
|
$ |
(75 |
) |
|
$ |
39,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
92 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
92 |
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(746 |
) |
|
|
- |
|
|
|
- |
|
|
|
(746 |
) |
|
Other comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(96 |
) |
|
|
- |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
- |
|
|
|
914,449,957 |
|
|
$ |
914 |
|
|
$ |
18,179 |
|
|
$ |
286,924 |
|
|
$ |
(267,030 |
) |
|
$ |
(94 |
) |
|
$ |
(75 |
) |
|
$ |
38,818 |
|
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2021 and 2020
(numbers in thousands, except percentages, share and per share
data)
(unaudited)
17. Accumulated Other Comprehensive Income (Loss)
(“AOCI”)
The following table presents a summary of the changes in each
component of AOCI for the three months ended March 31, 2021:
|
|
|
Unrealized gains
(losses) on available-for-
sale securities
|
|
|
Total
|
|
|
Accumulated other comprehensive income (loss), net of tax, as of
December 31, 2020
|
|
$ |
116 |
|
|
$ |
116 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
(116 |
) |
|
|
(116 |
) |
|
Amounts reclassified from accumulated other comprehensive income
(loss)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in other comprehensive income (loss)
|
|
|
(116 |
) |
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net of tax, as of
March 31, 2021
|
|
$ |
- |
|
|
$ |
- |
|
The following table presents a summary of the changes in each
component of AOCI for the three months ended March 31, 2020:
|
|
|
Unrealized gains
(losses) on available-for-
sale securities
|
|
|
Total
|
|
|
Accumulated other comprehensive income (loss), net of tax, as of
December 31, 2019
|
|
$ |
2 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
(95 |
) |
|
|
(95 |
) |
|
Amounts reclassified from accumulated other comprehensive income
(loss)
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase in other comprehensive income (loss)
|
|
|
(96 |
) |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net of tax, as of
March 31, 2020
|
|
$ |
(94 |
) |
|
$ |
(94 |
) |
18. Loss Per Common Share
Basic earnings per share (“EPS”) is computed by dividing earnings
(loss) attributable to common shareholders by the weighted average
number of common shares outstanding for the applicable period.
Diluted EPS reflects the potential dilution of securities that
could share in the earnings.
Options to purchase 17,950,859 shares of common stock, at prices
ranging from $0.07 to $0.38 per share, were outstanding at March
31, 2021, but were not included in the computation of diluted EPS
for the same period as the inclusion would have been antidilutive,
given the Company’s net loss. Warrants to purchase 10,066,809
shares of common stock, with a price of $0.07 per share,
outstanding at March 31, 2021, were not included in the computation
of diluted EPS for the same period as the inclusion would have been
antidilutive, given the Company’s net loss.
Options to purchase 18,191,859 shares of common stock, at prices
ranging from $0.07 to $0.38 per share, were outstanding at March
31, 2020, but were not included in the computation of diluted EPS
for the same period as the inclusion would have been antidilutive,
given the Company’s net loss. Warrants to purchase 10,066,809
shares of common stock, with a price of $0.07 per share,
outstanding at March 31, 2020, were not included in the computation
of diluted EPS for the same period as the inclusion would have been
antidilutive, given the Company’s net loss.
19. Related Party Transactions
On March 10, 2016, the Company entered into the 2016 Purchase
Agreement with Liquidmetal Technology Limited, providing for the
purchase of 405,000,000 shares of the Company’s common stock for an
aggregate purchase price of $63,400. Liquidmetal Technology Limited
was a newly formed company owned by Professor Li. In connection
with the 2016 Purchase Agreement and also on March 10, 2016, the
Company and Eontec, entered into a license agreement pursuant to
which the Company and Eontec entered into a cross-license of their
respective technologies. Eontec is a publicly held Hong Kong
corporation of which Professor Li is the Chairman and major
shareholder. Eontec is also an affiliate of Yihao. Yihao is
currently the Company’s primary outsourced manufacturer. As of
March 31, 2021, Professor Li is a greater-than 5% beneficial owner
of the Company and serves as the Company’s Chairman, President, and
Chief Executive Officer. Services procured from Eontec, and
their affiliates, were $121 and $23 during the three months ended
March 31, 2021 and 2020, respectively. As of March 31,
2021 and 2020, the Company has outstanding payables to Eontec,
and their affiliates, of $27 and $23, respectively.
Item
2 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This management’s discussion and analysis should be read
in conjunction with the consolidated financial statements and notes
included elsewhere in this Quarterly Report on
Form 10-Q. All amounts described in this section are in
thousands, except percentages, periods of time, and share and per
share data.
This management’s discussion and analysis, as well as
other sections of this Quarterly Report on Form 10-Q,
may contain “forward-looking statements” that involve
risks and uncertainties, including statements regarding our plans,
future events, objectives, expectations, estimates, forecasts,
assumptions, or projections. Any statement that is not a statement
of historical fact is a forward-looking statement, and in some
cases, words such as “believe,” “estimate,”
“project,” “expect,” “intend,” “may,”
“anticipate,” “plan,” “seek,” and similar
words or expressions identify forward-looking statements. These
statements involve risks and uncertainties that could cause actual
outcomes and results to differ materially from the anticipated
outcomes or results, and undue reliance should not be placed on
these statements. These risks and uncertainties include, but are
not limited to, the matters discussed in Part II herein, under the
heading “Item 1A. Risk Factors” in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2020 and other
risks and uncertainties discussed in other filings made with the
Securities and Exchange Commission (including risks described in
subsequent reports on Form 10-Q and
Form 8-K and other filings). We disclaim any intention
or obligation, other than as required by applicable law, to update
or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.
Overview
We are a materials technology company that develops and
commercializes products made from amorphous alloys. Our
Liquidmetal® family of alloys consists of a variety of proprietary
bulk alloys and composites that utilize the advantages offered by
amorphous alloy technology. We design, develop, and sell custom
products and parts from bulk amorphous alloys to customers in
various industries. We also partner with third-party manufacturers
and licensees to develop and commercialize Liquidmetal alloy
products.
Amorphous alloys are, in general, unique materials that are
distinguished by their ability to retain a random atomic structure
when they solidify, in contrast to the crystalline atomic structure
that forms in other metals and alloys when they solidify.
Liquidmetal alloys are proprietary amorphous alloys that possess a
combination of performance, processing, and potential cost
advantages that we believe will make them preferable to other
materials in a variety of applications. The amorphous atomic
structure of bulk alloys enables them to overcome certain
performance limitations caused by inherent weaknesses in
crystalline atomic structures, thus facilitating performance and
processing characteristics superior in many ways to those of their
crystalline counterparts. We believe the alloys and the molding
technologies we employ can result in components for many
applications that exhibit exceptional dimensional control and
repeatability that rivals precision machining, excellent corrosion
resistance, brilliant surface finish, high strength, high hardness,
high elastic limit, alloys that are non-magnetic, and the ability
to form complex shapes common to the injection molding of plastics.
All of these characteristics are achievable from the molding
process, so design engineers often do not have to select specific
alloys to achieve one or more of the characteristics as is the case
with crystalline materials. We believe these advantages could
result in Liquidmetal alloys supplanting high-performance alloys,
such as titanium and stainless steel, and other incumbent materials
in a wide variety of applications. Moreover, we believe these
advantages could enable the introduction of entirely new products
and applications that are not possible or commercially viable with
other materials.
In July 2019, we adopted a restructuring plan pursuant to which we
elected to wind down our manufacturing operations at our Lake
Forest, CA facility and proceeded to outsource the manufacture of
parts utilizing our technology through domestic and international
manufacturing partners (the “2019 Restructuring Plan”). In
connection with the 2019 Restructuring Plan, we have shifted our
business strategy from internal manufacture of parts and products
for customers toward the use and reliance of outsourced
manufacturers, which will initially be Dongguan Yihao Metals
Materials Technology Co., Ltd. (“Yihao”), a China-based company in
which our largest beneficial stockholder, CEO and Chairman,
Professor Lugee Li, holds a material, indirect, equity interest. We
will also seek to develop other manufacturers, both global and
domestic, to aid in the further advancement of our technology and
operations.
Licensing Transactions
Eontec License Agreement
On March 10, 2016, in connection with the Securities Purchase
Agreement (the “2016 Purchase Agreement”) with Liquidmetal
Technology Limited, a Hong Kong Company, we entered into a Parallel
License Agreement (the “License Agreement”) with DongGuan Eontec
Co., Ltd., a Hong Kong corporation (“Eontec”) pursuant to which we
each entered into a cross-license of our respective
technologies.
The License Agreement provides for the cross-license of certain
patents, technical information, and trademarks between us and
Eontec. In particular, we granted to Eontec a paid-up,
royalty-free, perpetual license to our patents and related
technical information to make, have made, use, offer to sell, sell,
export, and import products in certain geographic areas outside of
North America and Europe, and Eontec granted to us a paid-up,
royalty-free, perpetual license to Eontec’s patents and related
technical information to make, have made, use, offer to sell, sell,
export, and import products in certain geographic areas outside of
specified countries in Asia. The license granted by us to Eontec is
exclusive (including to the exclusion of us) in the countries of
Brunei, Cambodia, China (P.R.C and R.O.C.), East Timor, Indonesia,
Japan, Laos, Malaysia, Myanmar, Philippines, Singapore, South
Korea, Thailand, and Vietnam. The license granted by Eontec to us
is exclusive (including to the exclusion of Eontec) in North
America and Europe. The cross-licenses are non-exclusive in
geographic areas outside of the foregoing exclusive
territories.
Beyond the License Agreement, we collaborate with Eontec to
accelerate the commercialization of amorphous alloy technology.
This includes but is not limited to developing technologies to
reduce the cost of amorphous alloys, working on die cast machine
technology platforms to pursue broader markets, sharing knowledge
to broaden our intellectual property portfolio, and utilizing
Eontec’s volume production capabilities as a third party contract
manufacturer.
Eutectix Business Development Agreement
On January 31, 2020, we entered into a Business Development
Agreement (the “Agreement”) with Eutectix, LLC, a Delaware limited
liability company (“Eutectix”), which provides for collaboration,
joint development efforts, and the manufacturing of products based
on our proprietary amorphous metal alloys. Under the Agreement, we
have agreed to license to Eutectix specified equipment owned by us,
including two injection molding machines, the Machines, and other
machines and equipment, all of which will be used to make products
for our customers and Eutectix customers. The licensed machines and
equipment represent substantially all of the machinery and
equipment currently held by us. We have also licensed to Eutectix
various patents and technical information related to our
proprietary technology. Under the Agreement, Eutectix will pay us a
royalty of six percent (6%) of the net sales price of licensed
products sold by Eutectix, and Eutectix will also manufacture
products for us. The Agreement has a term of five years, subject to
renewal provisions and the ability of either party to terminate
earlier upon specified circumstances.
Apple License Transaction
On August 5, 2010, we entered into a license transaction with Apple
pursuant to which (i) we contributed substantially all of our
intellectual property assets to a newly organized special-purpose,
wholly-owned subsidiary, called Crucible Intellectual Property, LLC
(“CIP”), (ii) CIP granted to Apple a perpetual, worldwide,
fully-paid, exclusive license to commercialize such intellectual
property in the field of consumer electronic products, as defined
in the license agreement, in exchange for a license fee, and (iii)
CIP granted back to us a perpetual, worldwide, fully-paid,
exclusive license to commercialize such intellectual property in
all other fields of use.
Under the agreements relating to the license transaction with
Apple, we were obligated to contribute, to CIP, all intellectual
property developed by us through February 2016. We are also
obligated to maintain certain limited liability company formalities
with respect to CIP at all times after the closing of the license
transaction.
Other Material License Transactions
Our Liquidmetal Golf subsidiary has the exclusive right and license
to utilize our Liquidmetal alloy technology for purposes of golf
equipment applications. This right and license is set forth in an
intercompany license agreement between Liquidmetal Technologies and
Liquidmetal Golf. This license agreement provides that Liquidmetal
Golf has a perpetual and exclusive license to use Liquidmetal alloy
technology for the purpose of manufacturing, marketing, and selling
golf club components and other products used in the sport of golf.
We own 79% of the outstanding common stock of Liquidmetal Golf.
In March 2009, we entered into a license agreement with Swatch
Group, Ltd. (“Swatch”) under which Swatch was granted a
non-exclusive license to our technology to produce and market
watches and certain other luxury products. In March 2011, this
license agreement was amended to grant Swatch exclusive rights as
to watches and all third parties (including us), but non-exclusive
as to Apple. We will receive royalty payments over the life of the
contract on all Liquidmetal products produced and sold by Swatch.
The license agreement with Swatch will expire on the expiration
date of the last licensed patent.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. These estimates and assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances. Actual results could differ
materially from these estimates under different assumptions or
conditions.
We believe that the following accounting policies are the most
critical to our consolidated financial statements since these
policies require significant judgment or involve complex estimates
that are important to the portrayal of our financial condition and
operating results:
| |
•
|
Investments in debt securities
|
| |
•
|
Impairment of long-lived assets and definite-lived intangibles
|
| |
•
|
Share based compensation
|
Our Annual Report on Form 10-K for the year ended December 31, 2020
(the “2020 Annual Report”) contains further discussions on our
critical accounting policies and estimates.
Results of Operations
Comparison of the three months ended March 31, 2021 and
2020
|
|
|
For the three months ended March 31,
|
|
|
|
|
2021
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
in 000's
|
|
|
% of Revenue
|
|
|
in 000's
|
|
|
% of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$ |
63 |
|
|
|
|
|
|
$ |
46 |
|
|
|
|
|
|
Licensing and royalties
|
|
|
9 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
Total revenue
|
|
|
72 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
55 |
|
|
|
76 |
% |
|
|
36 |
|
|
|
51 |
% |
|
Gross profit
|
|
|
17 |
|
|
|
24 |
% |
|
|
35 |
|
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, marketing, general and administrative
|
|
|
879 |
|
|
|
1221 |
% |
|
|
987 |
|
|
|
1390 |
% |
|
Research and development
|
|
|
22 |
|
|
|
31 |
% |
|
|
29 |
|
|
|
41 |
% |
|
Gain on disposal of long-lived assets
|
|
|
- |
|
|
|
0 |
% |
|
|
(20 |
) |
|
|
-28 |
% |
|
Total operating expense
|
|
|
901 |
|
|
|
|
|
|
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(884 |
) |
|
|
|
|
|
|
(961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease income
|
|
|
132 |
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
Interest and investment income
|
|
|
61 |
|
|
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(691 |
) |
|
|
|
|
|
$ |
(746 |
) |
|
|
|
|
Revenue and operating expenses
Revenue. Total revenue increased to $72 for the three months
ended March 31, 2021 from $71 the three months ended March 31,
2020. The change was attributable to similar sales volumes
associated with new application development projects.
Cost of sales. Cost of sales was $55, or 76% of total
revenue, for the three months ended March 31, 2021, an increase
from $36, or 51% of total revenue, for the three months ended March
31, 2020. If we begin increasing our products revenues with
shipments of routine, commercial products and parts through third
party contract manufacturers, we expect our cost of sales
percentages to decrease, stabilize and be more predictable.
Gross profit. Our gross profit decreased to $17 for the
three month period ended March 31, 2021 from $35 for the three
month period ended March 31, 2020. Our gross profit as a percentage
of total revenue, decreased to 24% for the three month period ended
March 31, 2021 from 49% for the three month period ended March 31,
2020. Early prototype and pre-production orders generally result in
a higher cost mix, relative to revenue, than would otherwise be
incurred in an on-site production environment, with higher volumes
and more established operating processes, or through contract
manufacturers. As such, our gross profit percentages have
fluctuated and may continue to fluctuate based on volume and quoted
production prices per unit and may not be representative of our
future business. If we begin increasing our products revenues with
shipments of routine, commercial products and parts through future
orders to third party contract manufacturers, we expect our gross
profit percentages to stabilize, increase, and be more
predictable.
Selling, marketing, general and administrative. Selling,
marketing, general, and administrative expenses were $879 for the
three months ended March 31, 2021, compared to $987 for the three
months ended March 31, 2020. The decrease in expenses was
attributable to overall lower costs for employee compensation due
to headcount reductions associated with the 2019 Restructuring
Plan.
Research and development. Research and development expenses
were $22 for the three months ended March 31, 2021, compared to $29
for the three months ended March 31, 2020. We continue to perform
research and development of new Liquidmetal alloys and related
processing capabilities, albeit on a reduced basis in comparison
with prior periods.
Gain on disposal of fixed assets. During the three months
ended March 31, 2020, the Company recorded gains on the disposal of
fixed assets of $20. Similar gains were not recorded during the
three months ended March 31, 2021.
Operating loss. Operating loss was $884 for the three months
ended March 31, 2021. This compares to $961 for the three months
ended March 31, 2020. Fluctuations in our operating loss are
primarily attributable to variations in operating expenses, as
discussed above.
We continue to invest in our technology infrastructure to expedite
the adoption of our technology, but we have experienced long sales
lead times for customer adoption of our technology. Until that time
when we can either (i) increase our revenues with shipments of
routine, commercial products and parts through third party contract
manufacturers or (ii) obtain significant licensing revenues, we
expect to continue to have operating losses for the foreseeable
future.
Other income and expenses
Lease income. Lease income relates to straight-line rental
income received under the Facility Lease. Such amounts were $132
and $88 for the three months ended March 31, 2021 and 2020,
respectively.
Interest and investment income. Interest and investment
income relates to interest earned from our cash deposits and
investments in debt securities for the respective periods. Interest
and investment income was $61 and $127 for the three months ended
March 31, 2021 and 2020, respectively. The decrease during 2021 is
due continued volatility in corporate debt markets, which is
resulting in reduced yields.
Liquidity and Capital Resources
Cash used in operating activities
Cash used in operating activities totaled $387 and $697 for the
three months ended March 31, 2021 and 2020, respectively. The cash
was primarily used to fund operating expenses related to our
business and product development efforts.
Cash provided by (used in) investing activities
Cash provided by (used in) investing activities totaled $102 and
$818 for the three months ended March 31, 2021 and 2020,
respectively. Investing inflows primarily consist of proceeds from
the sale of debt securities. Investing outflows primarily consist
of purchases of debt securities and capital expenditures for
additional building improvements.
Cash provided by financing activities
Cash provided by financing activities totaled $0 and $0 for the
three months ended March 31, 2021 and 2020, respectively.
Financing arrangements and outlook
During 2016, we raised a total of $62,700 through the issuance of
405,000,000 shares of our common stock in multiple closings under
the 2016 Purchase Agreement. The Company has a relatively limited
history of selling bulk amorphous alloy products and components on
a mass-production scale. Furthermore, the ability of future
contract manufacturers to produce the Company’s products in desired
quantities and at commercially reasonable prices is uncertain and
is dependent on a variety of factors that are outside of the
Company’s control, including the nature and design of the
component, the customer’s specifications, and required delivery
timelines. These factors have previously required that the Company
engage in equity sales under various stock purchase agreements to
support its operations and strategic initiatives. As a result of
the funding under the 2016 Purchase Agreement, the Company
anticipates that its current capital resources, when considering
expected losses from operations, will be sufficient to fund the
Company’s operations for the foreseeable future.
Off Balance Sheet Arrangements
As of March 31, 2021, we did not have any off-balance sheet
arrangements.
Item
3 – Quantitative and Qualitative Disclosures about Market
Risk
None.
Item 4 –
Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer (Principal Executive Officer)
and Vice President of Finance (Principal Financial Officer), we
carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) as of March 31, 2021. Based on their
evaluation, our Chief Executive Officer and Vice President of
Finance have concluded that our disclosure controls and procedures
were effective as of March 31, 2021.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial
reporting (as that term is defined in Rules 13a-15(f) or
15d-15(f) under the Exchange Act) during the quarter ended March
31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART
II
OTHER INFORMATION
Item 1 – Legal Proceedings
None.
Item
1A – Risk Factors
For a detailed discussion of the risk factors that should be
understood by any investor contemplating an investment in our
stock, please refer to Part I, Item 1A “Risk Factors” in the 2020
Annual Report. There have been no material changes from the risk
factors previously disclosed in Part I, Item 1A “Risk Factors” in
the 2020 Annual Report.
Item
2 – Unregistered Sales of Equity Securities and Use of
Proceeds
During the period covered by this Quarterly Report on Form 10-Q, we
did not issue or sell any unregistered equity securities.
Item 3 –
Defaults Upon Senior Securities
None.
Item 4 – Mine
Safety Disclosures
None.
Item 5 – Other Information
None.
Item 6 –
Exhibits
The following documents are filed as exhibits to this Report:
Exhibit
Number Description of
Document
|
Exhibit
Number
|
|
Description of Document |
|
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|
31.1
|
|
Certification of Principal Executive
Officer, Lugee Li, as required by Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification of Principal Financial
Officer, Bryce Van, as required by Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer,
Lugee Li, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2
|
|
Certification of Vice President of Finance,
Bryce Van, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
101.1
|
|
The following financial statements from Liquidmetal Technologies,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2021 (unaudited), formatted in XBRL: (i) Consolidated Balance
Sheets as of March 31, 2021 and December 31, 2020, (ii)
Consolidated Statements of Operations for the three months ended
March 31, 2021 and 2020, (iii) Consolidated Statements of
Comprehensive Loss for the three months ended March 31, 2021 and
2020, (iv) Consolidated Statements of Cash Flows for the three
months ended March 31, 2021 and 2020, and (v) Notes to Consolidated
Financial Statements.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
| |
LIQUIDMETAL TECHNOLOGIES, INC.
|
|
| |
(Registrant)
|
|
| |
|
|
|
Date: May 4, 2021
|
/s/ Lugee Li
|
|
| |
Lugee Li
|
|
| |
President and Chief Executive Officer
|
|
| |
(Principal Executive Officer)
|
|
| |
|
|
| |
|
|
|
Date: May 4, 2021
|
/s/ Bryce Van
|
|
| |
Bryce Van
|
|
| |
Vice President of Finance
|
|
| |
(Principal Financial and Accounting Officer)
|
|
Liquidmetal Technologies (QB) (USOTC:LQMT)
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