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LIQUIDMETAL TECHNOLOGIES INC - Quarter Report: 2013 June (Form 10-Q)

lqmt20130630_10q.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

  

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

  

  

  

For the quarterly period ended June 30, 2013 

 

 

 

OR 

 

 

 

 

  

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

 

 

 

For the transition period from          to          

 

Commission File No001-31332


LIQUIDMETAL TECHNOLOGIES, INC.

 (Exact name of Registrant as specified in its charter)

 

Delaware 

  

33-0264467 

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

30452 Esperanza

Rancho Santa Margarita, CA 92688

(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 electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such

files). 

Yes      No 

 

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

 

Large accelerated filer 

 

Accelerated filer 

 

Non-accelerated filer 

Smaller reporting company 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes       No  

 

The number of common shares outstanding as of July 31, 2013 was 369,548,451.

 

 
 

 

   

LIQUIDMETAL TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED
June 30, 2013



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 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, 2012 entitled “Risk Factors,” as well as the following risks and uncertainties:

 

 

 

Our ability to fund our operations in the short and long-term through financing transactions on terms acceptable to us, or at all;

 

 

 

Our history of operating losses and the uncertainty surrounding our ability to achieve or sustain profitability;

 

 

 

Our limited history of developing and selling products made from our bulk amorphous alloys;

 

 

 

Lengthy customer adoption cycles and unpredictable customer adoption practices;

 

 

 

Our ability to identify, develop, and commercialize new product applications for our technology;

 

 

 

Competition from current suppliers of incumbent materials or producers of competing products;

 

 

 

Our ability to identify, consummate, and/or integrate strategic partnerships;

 

 

 

The potential for manufacturing problems or delays; and

 

 

 

Potential difficulties associated with protecting or expanding our intellectual property position.

 

 

We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 
2

 

  

TABLE OF CONTENTS 

       

PART I - Financial Information 

 
       
 

Item 1 – Financial Statements

4

   

Consolidated Balance Sheets

 
   

Consolidated Statements of Operations

 
   

Consolidated Statements of Shareholders’ Deficit

 
   

Consolidated Statements of Cash Flows

 
   

Notes to Consolidated Financial Statements

 
       
 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

       
 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

22

       
 

Item 4 – Controls and Procedures

22

       

PART II – Other Information 

 
       
 

Item 1 – Legal Proceedings

23

       
 

Item 1A – Risk Factors

23

       
 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

23

       
 

Item 3 – Defaults Upon Senior Securities

23

       
 

Item 4 – Mine Safety Disclosures

23

       
 

Item 5 – Other Information

23

       
 

Item 6 – Exhibits

24

       

Signatures

   

25

 

 
3

 

 

PART I

FINANCIAL INFORMATION

Item 1 – Financial Statements

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

 

       

June 30,

   

December 31,

 
       

2013

   

2012

 
       

(Unaudited)

   

(Audited)

 

ASSETS

                   
                     

Current assets:

                 
 

Cash

  $ 4,208     $ 7,162  
 

Trade accounts receivable, net of allowance for doubtful accounts of $25 and $11, respectively

    141       64  
 

Prepaid expenses and other current assets

    598       689  
   

Total current assets

  $ 4,947     $ 7,915  

Property and equipment, net

    284       161  

Patents and trademarks, net

    810       869  

Other assets

    28       28  
   

Total assets

  $ 6,069     $ 8,973  
                     

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

               
                     

Current liabilities:

                 
 

Accounts payable

    143       154  
 

Accrued liabilities

    401       248  
 

Accrued dividends

    -       222  
 

Convertible notes, net of debt discount of $627 and $4,635, respectively

    373       2,365  
 

Embedded conversion feature liabilities on convertible notes

    878       3,934  
   

Total current liabilities

  $ 1,795     $ 6,923  
                     

Long-term liabilities:

               
 

Warrant liabilities

    1,970       2,766  
 

Other long-term liabilities

    856       856  
   

Total liabilities

  $ 4,621     $ 10,545  
                     

Shareholders' equity (deficit):

               
 

Convertible, redeemable Series A Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 and 506,936 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

     -        -  
 

Common stock, $0.001 par value; 500,000,000 shares and 400,000,000 authorized at June 30, 2013 and December 31, 2012, respectively; 350,868,867 and 242,074,324 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

     351        242  
 

Warrants

    18,179       18,179  
 

Additional paid-in capital

    178,214       169,891  
 

Accumulated deficit

    (195,288 )     (189,884 )
 

Noncontrolling interest in subsidiary

    (8 )     -  
   

Total shareholders' equity (deficit)

    1,448       (1,572 )
                     
   

Total liabilities and shareholders' equity (deficit)

  $ 6,069     $ 8,973  

 

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

 

 
4

 

  

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Revenue

                               

Products

  $ 150     $ 208     $ 265     $ 391  

Licensing and royalties

    -       6       7       19  

Total revenue

    150       214       272       410  
                                 

Cost of sales

    111       102       193       184  

Gross profit

    39       112       79       226  
                                 

Operating expenses

                               

Selling, marketing, general and administrative

    1,209       1,007       2,523       1,964  

Research and development

    224       211       460       399  

Manufacturing contract costs

    -       6,300       -       6,300  

Total operating expenses

    1,433       7,518       2,983       8,663  

Operating loss

    (1,394 )     (7,406 )     (2,904 )     (8,437 )
                                 

Change in value of warrants, gain (loss)

    286       (174 )     796       (174 )

Change in value of embedded conversion feature liabilities, gain

    1,378       -       3,056       -  

Debt discount amortization expense

    (2,108 )     -       (6,143 )     -  

Financing costs

    -       (1,355 )     -       (1,355 )

Interest expense

    (80 )     22       (221 )     (18 )

Interest income

    1       4       4       8  
                                 

Net loss before noncontrolling interest

    (1,917 )     (8,909 )     (5,412 )     (9,976 )

Noncontrolling interest

    8       -       8       -  

Net loss

  $ (1,909 )   $ (8,909 )   $ (5,404 )   $ (9,976 )
                                 
                                 

Per common share basic and diluted

  $ (0.01 )   $ (0.05 )   $ (0.02 )   $ (0.06 )
                                 

Number of weighted average shares - basic and diluted

    335,472,213       171,651,573       309,073,707       162,679,410  

 

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

 

 
5

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

For the Six Months Ended June 30, 2013

(in thousands, except share data)

(unaudited)

 

     

Preferred Shares

   

Common

Shares 

   

Common

Stock 

   

Warrants

part of Additional

Paid-in

Capital

   

Additional

Paid-in

Capital 

   

Accumulated

Deficit 

   

Non

Controlling Interest

   

Total

 

Balance, December 31, 2012

    506,936       242,074,324     $ 242     $ 18,179     $ 169,891     $ (189,884 )   $ -     $ (1,572 )
                                                                   
 

Conversion of preferred stock

    (506,936 )     16,896,070       17               (17 )                     -  
 

Common stock issuance

            91,898,473       92               7,878                       7,970  
 

Stock-based compensation

                                    84                       84  
 

Restricted stock issued to officer

                                    156                       156  
 

Dividend distribution

                                    222                       222  
 

Net loss

                                            (5,404 )     (8 )     (5,412 )
                                                                   
                                                                   

Balance, June 30, 2013

    -       350,868,867     $ 351     $ 18,179     $ 178,214     $ (195,288 )   $ (8 )   $ 1,448  

 

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

 

 
6

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

(unaudited)

 

         

Six Months Ended June 30,

 
         

2013

   

2012

 
                       

Operating activities:

               
 

Net loss before noncontrolling interest

  $ (5,412 )   $ (9,976 )
                       
 

Adjustments to reconcile net loss before noncontrolling interest to net cash provided (used in) operating activities:

               
   

Depreciation and amortization

    106       59  
   

Bad debt expense

    14       -  
   

Stock-based compensation

    84       48  
   

Resticted stock compensation issued to officer

    156       156  
   

Gain from change in value of warrants

    (796 )     174  
   

Gain from change in value of embedded conversion feature liabilities

    (3,056 )     -  
   

Manufacturing contract costs

    -       6,300  
   

Financing costs

    -       1,355  
   

Debt discount amortization

    6,143       -  
   

Non -cash interest

    221       -  
                       
 

Changes in operating assets and liabilities:

               
   

Trade accounts receivable

    (91 )     150  
   

Prepaid expenses and other current assets

    (294 )     141  
   

Other assets

    -       20  
   

Accounts payable and accrued expenses

    142       (243 )
   

Deferred revenue

    -       (67 )
   

Other liabilities

    -       247  
     

Net cash used in operating activities

    (2,783 )     (1,636 )
                       

Investing Activities:

               
 

Purchases of property and equipment

    (165 )     (3 )
 

Investment in patents and trademarks

    (6 )     -  
     

Net cash used in investing activities

    (171 )     (3 )
                       

Financing Activities:

               
 

Proceeds from short-term debt

    -       1,050  
 

Repayment of short-term debt

    -       (1,050 )
 

Proceeds from exercise of stock options

    -       38  
 

Proceeds from stock issuance

    -       3,000  
     

Net cash provided by financing activities

    -       3,038  
                       
 

Net increase (decrease) in cash

    (2,954 )     1,399  
                       

Cash at beginning of period

    7,162       122  

Cash at end of period

  $ 4,208     $ 1,521  
                       

Supplemental Schedule of Non-Cash Investing and Financing Activities:

               
 

Offering cost in relation to common stock issuance

    -       2,905  
 

Cashless exercise of warrants

    -       6,259  
 

Pre-installment payment of convertible debt and interest through common stock issuance

    6,180       -  
 

Dividends paid in common stock upon preferred stock conversion

    222       -  
 

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

 

 
7

 

  

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except 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 alloy technology. The Company designs, develops and sells products and components from bulk amorphous alloys to customers in various 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 structures that form 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 the Company’s 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. For example, in laboratory testing, zirconium-titanium Liquidmetal alloys are approximately 250% stronger than commonly used titanium alloys such as Ti-6Al-4V, but they also have some of the beneficial processing characteristics more commonly associated with plastics. 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 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, which include non-consumer electronic devices, aerospace parts, medical products, automotive components, oil and gas exploration, and sports and leisure goods, 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.

 

2. Basis of Presentation and Recent Accounting Pronouncements

 

The accompanying unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles 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 and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for any future periods or the year ending December 31, 2013. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2013.

 

Revenue Recognition

 

Revenue is recognized pursuant to applicable accounting standards including FASB ASC Topic 605 (“ASC 605”), Revenue Recognition. ASC 605 summarizes certain points of the SEC staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements and provides guidance on revenue recognition issues in the absence of authoritative literature addressing a specific arrangement or a specific industry.

 

The Company’s revenue recognition policy complies with the requirements of ASC 605. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable, (iv) collection is probable and (v) all obligations have been substantially performed pursuant to the terms of the arrangement. Revenues are derived primarily from the sales and prototyping of Liquidmetal mold and bulk alloys as well as licensing and royalties for the use of the Liquidmetal brand and bulk Liquidmetal alloys. Revenue is deferred and included in liabilities when the Company receives cash in advance for goods not yet delivered or if the licensing term has not begun.

 

License revenue arrangements in general provide for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These rights typically include the grant of an exclusive or non-exclusive right to manufacture and/or sell products covered by patented technologies owned or controlled by the Company. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined period of time.

 

Licensing revenues that are one time fees upon the granting of the license are recognized when (i) the license term begins in a manner consistent with the nature of the transaction and the earnings process, (ii) collectability is reasonably assured or upon receipt of an upfront fee, and (iii) all other revenue recognition criteria have been met. Pursuant to the terms of these types of licensing agreements, the Company has no further obligation with respect to the grant of the license once the license is granted. Licensing revenues that are related to royalties are recognized as the royalties are earned over the related period.

 

 
8

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

Fair Value Measurements

 

The estimated fair values of amounts reported in the consolidated financial statements have been determined using available market information and valuation methodologies, as applicable. The fair value of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their carrying value due to their short maturities. The fair value of non-current assets and liabilities approximate their carrying value unless otherwise stated. The carrying amounts reported for debt obligations approximate fair value due to the effective interest rate of these obligations reflecting the Company’s current borrowing rate.

 

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.

 

The Company has one Level 2 financial instrument, warrants that are recorded at fair value on a periodic basis. Warrants are evaluated under the hierarchy of FASB ASC Subtopic 480-10, FASB ASC Paragraph 815-25-1 and FASB ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of such warrants is estimated using the Black-Scholes option pricing model. The foregoing warrants have certain anti-dilution and exercise price reset provisions which qualify the warrants to be classified as a liability under FASB ASC 815 (see note 8).

 

The Company has one Level 3 financial instrument, an embedded derivative that is recorded at fair value on a periodic basis. The embedded derivative is evaluated under the hierarchy of FASB ASC Subtopic 480-10, FASB ASC Paragraph 815-25-1 and FASB ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of such embedded derivative is estimated using the Monte Carlo simulation model. The foregoing embedded derivative has certain anti-dilution and exercise price reset provisions which qualify the embedded derivative to be classified as a liability under FASB ASC 815 (see note 7).

 

As of June 30, 2013, 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

 
                                 

Embedded conversion feature liability

  $ 878       -       -     $ 878  

Warrant liabilities

  $ 1,970       -     $ 1,970       -  
 

Recent Accounting Pronouncements

 

In June 2011, the FASB issued guidance regarding the presentation of comprehensive income. The new guidance eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity is required to present either a continuous statement of net income and other comprehensive income or two separate but consecutive statements.  The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company adopted the guidance beginning on January 1, 2012.

 

In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company adopted the guidance beginning on January 1, 2012.

 

 
9

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA 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

 

July 2012 Private Placement

 

On July 2, 2012, the Company entered into a private placement transaction (the “July 2012 Private Placement”) pursuant to which the Company issued $12,000 in principal amount of senior convertible notes that were due on September 1, 2013. The notes were convertible into shares of the Company’s common stock at a conversion price of $0.352 per share. The notes bore interest at 8% per annum and were payable in twelve equal monthly installments of principal and interest beginning on October 1, 2012. Each monthly installment payment may have been made in cash, shares of the Company’s common stock, or a combination thereof. If paid in shares, such shares were valued at the lower of (i) the then applicable conversion price or (ii) a price that is 87.5% of the arithmetic average of the ten (or in some cases fewer) lowest weighted average prices of the Company’s common stock during the twenty trading day period ending two trading days before the payment date or the date on which the Company elected to pay in shares, whichever was lower. As of June 30, 2013, the Company had issued 142,069,891 shares of common stock in satisfaction of the first eleven monthly installments under the July 2012 Private Placement (see note 7). As of July 18, 2013, the notes under the July 2012 Private Placement were paid off in full through issuance of common stock (see note 15).

 

As a part of the July 2012 Private Placement, the Company issued warrants to purchase 18,750,000 shares of the Company’s common stock at an exercise price of $0.384 per share, and such warrants first became exercisable on January 2, 2013 which was six months of the issuance date thereof. In the event that the Company issues or sells shares of the Company’s common stock at a price per share that is less than the exercise price then in effect, the exercise price of the warrants will be reduced based on a weighted-average formula. In addition, on the two year anniversary of the issuance date, the then applicable exercise price may be reset to equal the lesser of (i) the then current exercise price or (ii) 87.5% of the arithmetic average of the ten lowest weighted average prices of the common stock during the twenty trading day period ending two trading days immediately preceding the reset date. All of the warrants will expire on July 2, 2017 (see note 8).

 

June 2012 Visser MTA Agreement

 

On June 1, 2012, the Company entered into a Master Transaction Agreement (the “Visser MTA Agreement”) with Visser Precision Cast, LLC (“Visser”) relating to a strategic transaction for manufacturing services and financing.

 

Under the manufacturing and service component of the Visser MTA Agreement, the Company has agreed to engage Visser as a perpetual, exclusive manufacturer of non-consumer electronic products and to not, directly or indirectly, conduct manufacturing operations, subcontract for the manufacture of products or components or grant a license to any other party to conduct manufacturing operations, except for certain limited exceptions. Further, the Company has agreed to sublicense to Visser, on a fully-paid up, royalty-free, irrevocable, perpetual, worldwide basis, all intellectual property rights held by the Company. In addition, Visser has a right of first refusal over any proposed transfer by the Company of its technology pursuant to any license, sublicense, sale or other transfer, other than a license to a machine or alloy vendor.

 

Under the financing component of the Visser MTA Agreement, the Company issued and sold to Visser in a private placement transaction (i) 30,000,000 shares of common stock at a purchase price of $0.10 per share resulting in proceeds of $3,000, (ii) warrants to purchase 15,000,000 shares of common stock (subsequently increased to 17,980,455 shares under the anti-dilution provision of the warrants (see note 8), at an original exercise price of $0.22 per share (subsequently reduced to $0.18 per share under the anti-dilution provision of the warrants (see note 8), which expire on June 1, 2017 and (iii) a secured convertible promissory note (the “Promissory Note”) in the aggregate principal amount of up to $2,000 which was convertible into shares of common stock at a conversion rate of $0.22 per share. The Promissory Note was issued pursuant to a $2,000 loan facility made available by Visser, but no borrowings were made by the Company under this loan facility, and the deadline for making borrowings under the facility expired on November 15, 2012. All of the shares of common stock issuable upon exercise of the warrants are subject to a lock-up period through December 31, 2016.

 

The warrants under the Visser MTA Agreement contain certain anti-dilution and exercise price reset provisions which results in liability accounting under FASB ASC 815 (see note 8). In relation to the financing cost component to the Visser transaction, the Company performed a prorated allocation of the fair value of the warrants on the Promissory Note and the common stock based on their relative fair values. The Company capitalized deferred financing costs in relation to the Promissory Note totaling $1,789 and offset additional paid-in capital for $2,905 in relation to the warrants. The Company assessed the value of the deferred financing costs as of the quarter ended June 30, 2012 and determined that the value was impaired due to the limitations on the Company’s ability to request advances as discussed above. Therefore, the Company expensed the deferred financing costs totaling $1,355 as of the quarter ended June 30, 2012.

 

In connection with the Visser MTA Agreement, the Company performed a valuation analysis of the manufacturing service and financing components of the Visser MTA Agreement as part of the bundled contract. The Company has assessed and determined that while these components may have market values on a standalone basis, the values of the manufacturing component and sublicense component were deemed immaterial for accounting purposes. Further, the Company’s weighted average market stock price was approximately $0.31 per share at the time of share issuances to Visser. As the actual share purchase price related to the financing component of the Visser MTA Agreement was $0.10 per share, the $0.21 per share difference was treated as manufacturing contract costs and $6,300 was expensed as operating expenses during the second quarter ended June 30, 2012.

 

 
10

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

On January 17, 2012, February 27, 2012, March 28, 2012 and April 25, 2012, the Company issued 8% unsecured, bridge promissory notes to Visser that were due upon demand in the amounts of $200, $200, $350 and $300, respectively. The aggregate principal amount of $1,050 and accrued interest under the bridge promissory notes were all paid off on June 1, 2012 by utilizing a portion of the proceeds received under the financing component of the Visser MTA Agreement.

 

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. Additionally, in connection with the license transaction, Apple required the Company to complete a statement of work related to the exchange of Liquidmetal intellectual property information. The Company recognized a portion of the one-time license fee upon receipt of the initial payment and completion of the foregoing requirements under the license transaction. The remaining portion of the one-time license fee was recognized at the completion of the required statement of work.

 

Under the agreements relating to the license transaction with Apple, the Company is obligated to contribute all intellectual property that it developed through February 2012 (and subsequently amended to extend through February 2014) to CIP. 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

 

On January 31, 2012, the Company and Engel Austria Gmbh (“Engel”) entered into a Supply and License Agreement for a five year term whereby Engel was granted a non-exclusive license to manufacture and sell injection molding machines to the Company’s licensees. 

 

On November 16, 2011, the Company and Materion Brush Inc. (“Materion”) entered into a Development Agreement to evaluate, analyze and develop amorphous alloy feedstock to be supplied in commercial quantities.  Further, on June 17, 2012, the Company entered into a Sales Representation Agreement with Materion whereby Materion shall promote the sale of Liquidmetal’s products for certain commissions.  This agreement is for a two year initial term with annual, automatic renewals. To date, there have been no commission payments related to this agreement.

 

The Company’s 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 components and other products used in the sport of golf. The Company owns 79% of the outstanding common stock in Liquidmetal Golf.

 

In June 2003, the Company entered into an exclusive license agreement with LLPG, Inc. (“LLPG”). Under the terms of the agreement, LLPG has the right to commercialize Liquidmetal alloys, particularly precious-metal based compositions, in jewelry and high-end luxury product markets. The Company, in turn, will receive royalty payments over the life of the contract on all Liquidmetal products produced and sold by LLPG. The exclusive license agreement with LLPG expires on December 31, 2021.

 

In March 2009, the Company entered into a license agreement with Swatch Group, Ltd. (“Swatch”) under which Swatch was granted a perpetual 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, and the Company’s license agreement with LLPG was simultaneously amended to exclude watches from LLPG’s rights. 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. Liquidity and Capital Resources

 

The Company’s cash used in operations was $2,783 for the six months ended June 30, 2013, and cash used in investing activities was $171 for the six months ended June 30, 2013. There were no cash related financing activities during the six months ended June 30, 2013. As of June 30, 2013, the Company’s cash balance was $4,208.

 

 
11

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

On July 2, 2012, the Company entered into the July 2012 Private Placement pursuant to which it issued $12,000 in principal amount of Senior Convertible Notes that were due on September 1, 2013 and warrants to the purchasers of such Senior Convertible Notes giving such purchasers the right to purchase up to an aggregate of 18,750,000 shares of the Company’s common stock at an exercise price of $0.384 per share (see note 3). At June 30, 2013, the outstanding principal under the Senior Convertible Notes was $1,000. As of July 18, 2013, the notes under the July 2012 Private Placement were paid off in full through issuance of common stock (see note 15).

 

The Company anticipates that its current capital resources, together with income from operations, will be sufficient to fund the Company’s operations through the end of the first quarter of 2014. The Company has a relatively limited history of producing bulk amorphous alloy components and products on a mass-production scale. Furthermore, Visser’s ability 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. Such factors will likely require that the Company raise additional funds to support the Company’s operations beyond the first quarter of 2014. There is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted. If funding is insufficient at any time in the future, the Company may be required to alter or reduce the scope of the Company’s operations or to cease operations entirely. As a result of these and other factors, the Company’s independent registered public accounting firm has indicated, in their audit opinion on the Company’s 2012 consolidated financial statements, that there is substantial doubt about the Company’s ability to continue as a going concern.

 

5. Prepaid Expenses and Other Current Assets

 

On July 2, 2012, the Company entered into the July 2012 Private Placement (see note 3). In connection with this transaction, the Company capitalized legal and banking fees totaling $1,033 as deferred issuance costs. These deferred issuance costs will be amortized as debt discount amortization over the fourteen month term of the Senior Convertible Notes issued in the transaction. Deferred issuance costs are included in prepaid expenses and other current assets in the Company’s consolidated balance sheet and were $54 as of June 30, 2013, reflecting $133 and $345 of amortization expensed during the three and six months ended June 30, 2013, respectively. The deferred issuance costs were $399 as of December 31, 2012.

 

6. Patents and Trademarks, net

 

Net patents and trademarks totaled $810 and $869 as of June 30, 2013 and December 31, 2012, respectively, and it primarily consists 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 $32 and $65 for the three and six months ended June 30, 2013, respectively. Amortization expense for patents and trademarks was $32 and $70 for the three and six months ended June 30, 2012, respectively.

 

7. Convertible Note and Embedded Conversion Feature Liability

 

On July 2, 2012, the Company entered into the July 2012 Private Placement pursuant to which it issued $12,000 in principal amount of Senior Convertible Notes that were due on September 1, 2013 (see note 3). Pursuant to ASC 815-40, due to the anti-dilution provision of the notes, the conversion feature of the notes is not indexed to the Company’s owned stock and should be bifurcated and recognized as a derivative liability in the consolidated balance sheets and measured at fair value. The notes bore interest at 8% per annum and were payable in twelve equal monthly installments of principal and interest beginning on October 1, 2012. At June 30, 2013, the Company had $1,000 of principal outstanding and no unpaid accrued interest. As of July 18, 2013, the notes under the July 2012 Private Placement were paid off in full through issuance of common stock (see note 15).

 

The embedded conversion feature liability and warrants issued in connection with the Senior Convertible Notes were valued utilizing the Monte Carlo simulation and Black Sholes pricing model at $8,865 and $5,053, respectively, totaling $13,918 as of July 2, 2012. $12,000 of this total was recorded as debt discount and the excess of the face value of the embedded conversion feature liability and warrants of $1,918 was booked to debt discount amortization on July 2, 2012.

 

Pursuant to the terms of the Senior Convertible Notes, the Company opted to pay the first eleven monthly installment payments due prior to June 30, 2013 with shares of the Company’s common stock. As of June 30, 2013, the Company had issued 142,069,891 shares of common stock at a weighted average conversion price of $0.0822 for the first eleven installment payments due prior to June 30, 2013, consisting of $11,000 principal and $660 of interest.

 

 
12

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

Interest expense on the Senior Convertible Notes was $80 and $221 for the three and six months ended June 30, 2013, respectively, and the balance on the notes (net of debt discount) was $373 as of June 30, 2013 as follows:

 

   

Convertible Note

   

Debt Discount

   

Net Total

 
                         

Beginning Balance - December 31, 2012

  $ 7,000     $ (4,635 )   $ 2,365  

Installment Payments in Shares

    (6,000 )     -       (6,000 )

Amortization

    -       4,008       4,008  

Ending Balance - June 30, 2013

  $ 1,000     $ (627 )   $ 373  

 

As of June 30, 2013, the Company re-valued the embedded derivatives under the Senior Convertible Notes with the Monte Carlo simulation model under the following assumptions: (i) expected life of 0.17 years, (ii) volatility of 88.36%, (iii) risk-free interest rate of 0.03%, and (iv) dividend rate of 0. As of June 30, 2013, the embedded derivative was valued at $878 and the decrease in value of $3,056 from December 31, 2012 was recorded as a change in value of embedded conversion feature liability for the six months ended June 30, 2013. The embedded derivatives are classified as embedded conversion feature liability on convertible notes in the consolidated balance sheet as follows:

 

   

June 30, 2013

 
         

Beginning Balance - January 1, 2013

  $ 3,934  

Change in value of embedded conversion feature liability, gain

    (3,056 )

Ending Balance - June 30, 2013

  $ 878  

 

8. Warrant Liability

 

Pursuant to FASB ASC 815, the Company is required to report the value of certain warrants as a liability at fair value and record the changes in the fair value of the warrant liabilities as a gain or loss in its statement of operations due to the price-based anti-dilution rights of the warrants.

 

During June 2012, the Company issued warrants to purchase a total of 15,000,000 shares to Visser under the Visser MTA Agreement (see note 3). These warrants had an original exercise price of $0.22 per share and expire on June 1, 2017 and were originally valued at $4,260. The foregoing warrants have certain anti-dilution and exercise price reset provisions which qualify the warrants to be classified as a liability under FASB ASC 815. As a result of paying down our convertible notes with common stock, which resulted in an anti-dilution impact, the exercise price of these warrants were reduced to $0.21 as of December 31, 2012 and $0.18 as of June 30, 2013. In addition, the number of shares to be issued under the warrants as a result of the anti-dilution provision increased to 15,776,632 and 17,980,455 as of December 31, 2012 and June 30, 2013, respectively. As of June 30, 2013, these warrants were valued at $1,005 under the Black Sholes valuation model utilizing the following assumptions: (i) expected life of 3.92 years, (ii) volatility of 152%, (iii) risk-free interest rate of 1.41%, and (iv) dividend rate of 0. The change in warrant value for these warrants for the three and six months ended June 30, 2013 was a gain of $100 and $255, respectively.

 

On July 2, 2012, the Company issued warrants to purchase a total of 18,750,000 shares related to the July 2012 Private Placement (see note 3). These warrants have an exercise price of $0.384 per share and expire on July 2, 2017 and were originally valued at $5,053. The foregoing warrants have certain anti-dilution and exercise price reset provisions which qualify the warrants to be classified as a liability under FASB ASC 815. As of June 30, 2013, these warrants were valued at $965 under the Black Sholes valuation model utilizing the following assumptions: (i) expected life of 4.01 years, (ii) volatility of 152%, (iii) risk-free interest rate of 1.41%, and (iv) dividend rate of 0. The change in warrant value for these warrants for the three and six months ended June 30, 2013 was a gain of $186 and $541, respectively.

 

 
13

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

The following table summarizes the change in the Company’s warrant liability as of June 30, 2013:

 

   

Visser MTA

   

July 2, 2012

         
   

Agreement

   

Private Placement

   

Total

 
                         

Beginning Balance - December 31, 2012

  $ 1,260     $ 1,506       2,766  

Change in value of warrant liability, gain

    (255 )     (541 )     (796 )

Ending Balance - June 30, 2013

  $ 1,005     $ 965     $ 1,970  

 

The Company had warrants to purchase 66,510,012 and 64,306,189 shares outstanding as of June 30, 2013 and December 31, 2012, respectively. Of these, warrants to purchase 36,730,455 shares were valued and classified as a liability under FASB ASC 815 (see note 11).

 

9. Other Long-term Liabilities  

 

Other long-term liabilities balance was $856 as of June 30, 2013 and December 31, 2012, and consists 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 write-off.

 

10. Stock Compensation Plan

 

Under the Company’s 2002 Equity Incentive Plan which provided for the grant of stock options to officers, employees, consultants and directors of the Company and its subsidiaries, the Company granted options to purchase the Company’s common stock. All options granted under this plan had exercise prices that were equal to the fair market value on the date of grant. During the six months ended June 30, 2013, the Company did not grant any options under this plan. The Company had grants of options to purchase 3,320,000 and 3,392,000 shares of the Company’s common stock as of June 30, 2013 and December 31, 2012, respectively.

 

On June 28, 2012, the Company adopted the 2012 Equity Incentive Plan, with the approval of the shareholders, which provided for the grant of stock options to officers, employees, consultants and directors of the Company and its subsidiaries. All options granted under this plan had exercise prices that were equal to the fair market value on the dates of grant. During the six months ended June 30, 2013, the Company granted options to purchase 12,867,500 shares of common stock. Under this plan, the Company had grants of options to purchase 12,677,500 and 330,000 shares of the Company’s common stock as of June 30, 2013, and December 31, 2012, respectively.

 

11. Shareholders’ Equity

 

Common stock

 

In June 2012, the Company issued 30,000,000 shares of common stock to Visser in connection with the Visser MTA Agreement (see note 3).

 

Pursuant to the terms of the Company’s Senior Convertible Notes issued in the July 2012 Private Placement, the Company opted to pay the first eleven monthly installment payments due prior to June 30, 2013 with shares of the Company’s common stock. As of June 30, 2013, the Company had issued 142,969,891 shares of common stock at a weighted average conversion price of $0.0822 for the first eleven installment payments on the Senior Convertible Notes (see notes 3 and 7).

 

During the six months ended June 30, 2013, the holders of the Company’s Series A Preferred Stock converted all of the outstanding 506,936 shares of preferred stock into 16,896,070 shares of the Company’s common stock (see “Preferred stock” below). After giving effect to such conversion, the Company has no shares of preferred stock outstanding.

 

On February 28, 2013, the Company’s stockholders approved an amendment to the Certificate of Incorporation of the Company increasing the number of authorized shares of common stock from 400 million shares to 500 million shares.

 

Preferred stock

 

On May 1, 2009, pursuant to a Securities Purchase and Exchange Agreement, the Company issued 500,000 shares of convertible Series A-1 Preferred Stock with an original issue price of $5.00 per share and 2,625,000 shares of Series A-2 Preferred Stock with an original issue price of $5.00 per share as part of a financing transaction. In October 2009, the Company entered into an agreement with various investors to issue 180,000 shares of Series A-1 Preferred Stock with identical terms as the Series A-1 Preferred Stock issued on May 1, 2009.

 

The Series A Preferred Stock and any accrued and unpaid dividends thereon was convertible, at the option of the holder of the Series A Preferred Stock, into common stock of the Company at a conversion price of $.10 per share in the case of the Series A-1 Preferred Stock and a conversion price of $.22 per share in the case of the Series A-2 Preferred Stock (in both cases subject to adjustments for any stock dividends, splits, combinations and similar events).

 

 
14

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

As of December 31, 2012, the Company had 506,936 of Series A Preferred Stock outstanding, representing 105,231 and 401,705 shares of Series A-1 and Series A-2 Preferred Stock, respectively. Preferred stock as of December 31, 2012 was $0 due to an insignificant balance, and accrued dividends on the Series A Preferred Stock as of December 31, 2012 was $222.

 

During the six months ended June 30, 2013, all of the holders of the Company’s Series A Preferred Stock converted all of the outstanding shares of preferred stock and accrued dividends into 16,896,070 shares of the Company’s common stock. Therefore, as of June 30, 2013, the Company no longer had any outstanding Preferred Stock and the related $222 accrued dividends were reclassified to additional paid-in capital as of June 30, 2013.

 

Warrants

 

In connection with the Series A Preferred Stock issuances, warrants to purchase 29,779,557 shares of the Company’s common stock were outstanding as of December 31, 2012 and June 30, 2013. These warrants do not contain anti-dilution provisions and are reflected as equity as they do not meet the criteria under FASB ASC 815 for liability treatment. Warrants classified as equity were recorded at $18,179 as of December 31, 2012 and June 30, 2013. All of such warrants have an exercise price of $0.49 and expire on July 15, 2015.

 

Non-Controlling Interest

 

The Company’s Liquidmetal Golf subsidiary has the exclusive right and license to utilize the Company’s Liquidmetal alloy technology for purposes of golf equipment applications. Liquidmetal Technologies owns 79% of the outstanding common stock in Liquidmetal Golf. As of June 30, 2013, non-controlling interest was a deficit of $8. The December 31, 2012 non-controlling interest balance was immaterial and not recorded.

 

12. 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 periods. Diluted EPS reflects the potential dilution of securities that could share in the earnings.

 

Options to purchase 15,997,500 shares of common stock at prices ranging from $0.08 to $4.57 per share were outstanding at June 30, 2013, but were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive. Warrants to purchase 66,510,012 shares of common stock with prices ranging from $0.20 to $0.49 per share outstanding at June 30, 2013 were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive.

 

Options to purchase 4,171,800 shares of common stock at prices ranging from $0.09 to $15.00 per share were outstanding at June 30, 2012, but were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive. Warrants to purchase 44,779,557 shares of common stock with prices ranging from $0.22 to $0.49 per share outstanding at June 30, 2012, were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive. 16,896,073 shares of common stock issuable upon conversion of the Company’s convertible preferred stock with conversion prices ranging from $0.10 and $0.22 per share outstanding at June 30, 2012 were not included in the computation of diluted EPS for the same period because the inclusion would have been antidilutive.

 

Shares issuable upon conversion or installment payments made with common stock under the July 2012 Private Placement Senior Convertible Notes were not included in the computation of diluted EPS for the periods June 30, 2013 and December 31, 2012 because the inclusion would have been antidilutive.

 

13. Commitments and Contingencies

 

The Company leases its office and warehouse facility under a lease agreement that expires on April 30, 2016. Rent payments are subject to escalations through the end of the lease term. Rent expense was $50 and $90 for the three and six months ended June 30, 2013, respectively. Rent expense was $50 and $99 for the three and six months ended June 30, 2012, respectively.

 

14. Related Party Transactions

 

On August 5, 2011, the Company signed a Stock Purchase Agreement (the “Stock Purchase Agreement”) with IMG Materials Group, LLC (“IMG”), a California limited liability company which is majority owned by Mr. Kang, a former Chief Executive Officer and Chairman of the Company, to sell all of the stock of the Company’s former Chinese subsidiary, Advanced Metals Materials (“AMM”) for $720. As part of the consideration, the Company received a $200 Promissory Note due August 5, 2012, bearing an interest rate of 8% per annum. In conjunction with the Stock Purchase Agreement, the Company also entered into a license agreement (the “IMG License Agreement”) with IMG to license certain patents and technical information for the limited purpose of manufacturing certain licensed products with the Company’s existing first generation, die cast machines. The IMG License Agreement granted a non-exclusive license to certain product categories, as well as an exclusive license to specific types of consumer eyewear products and obligated IMG to pay the Company a running royalty based on its sales of licensed products through August 5, 2021. The Company recognized $0 in royalty revenues from IMG during the three and six months ended June 30, 2013.

 

 
15

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2013 and 2012

(numbers in thousands, except share and per share data)

(unaudited)

 

On December 31, 2012, IMG and the Company signed an amendment to the IMG License Agreement whereby the $200 Promissory Note from IMG along with the accrued interest of $21 was forgiven in exchange for the return of the eyewear license to the Company. The Company accounted for this transaction as an exchange of non-monetary assets and reclassified the $221 to eyewear license fee. While the Company continues to maintain an active interest in leveraging the eyewear license for prospective opportunities in the eyewear industry from both a products and licensing perspective, the Company determined that there was insufficient historical market data on the potential license applications presently available to provide a reasonable basis to fair value the license and its period of useful life. Therefore, the Company recognized a $221 impairment loss for accounting purposes for the year ended December 31, 2012.

 

During 2012, the Company incurred $2 in legal fees, to defend Mr. Kang, as the former Representative Director of our Korean subsidiary, against allegations relating to the Company’s Korean subsidiary’s involvement in customs reporting violations in South Korea that allegedly occurred in 2007 and 2008. The Company had agreed to reimburse Mr. Kang’s legal fees incurred on this issue through December 31, 2012.

 

On February 1, 2012, Mr. Tony Chung, the Company’s Chief Financial Officer, converted his 10,000 shares of Series A-1 Preferred Stock into a total of 565,344 shares of the Company’s common stock, including dividends received in the form of common stock. On June 13, 2013, Mr. Chung purchased 1,324,999 shares of Company’s common stock at an average share price of $0.078.

 

In February 2013, Mr. Abdi Mahamedi, the Company’s Chairman, converted his 58,600 shares of Series A-1 Preferred Stock and 260,710 shares of Series A-2 Preferred Stock into a total of 10,387,883 shares of the Company’s common stock, including dividends received in the form of common stock. Mr. Mahamedi is a greater-than-5% beneficial owner of the Company.

 

The Company has an exclusive license agreement with LLPG, Inc. (“LLPG”), a corporation owned principally by Jack Chitayat, former director of the Company. Under the terms of the agreement, LLPG has the right to commercialize Liquidmetal alloys, particularly precious-metal based compositions, in jewelry and high-end luxury product markets.  The Company, in turn, will receive royalty payments over the life of the contract on all Liquidmetal products produced and sold by LLPG.    The exclusive license agreement with LLPG expires on December 31, 2021. There were no revenues recognized from product sales and licensing fees from LLPG during 2013 and 2012.

 

On February 27, 2013, Mr. Chitayat converted his 28,928 shares of Series A-1 Preferred Stock and 109,528 shares of Series A-2 Preferred Stock into a total of 4,626,840 shares of the Company’s common stock, including dividends received in the form of common stock. Mr. Chitayat is a greater-than-5% beneficial owner of the Company.

 

On January 17, 2012, February 27, 2012, March 28, 2012 and April 25, 2012, the Company issued 8% unsecured, bridge promissory notes to Visser Precision Cast, LLC that were due upon demand in the amounts of $200, $200, $350 and $300, respectively. The aggregate principal amount of $1,050 and accrued interest under the bridge promissory notes were all paid off on June 1, 2012 by utilizing a portion of the proceeds received under the financing component of the Visser MTA Agreement (see note 3). Visser is a greater-than-5% beneficial owner of the Company.

 

15. Subsequent Event

 

On July 17, 2013, the Company and each of the holders of the Senior Convertible Notes due on September 1, 2013 in the original aggregate principal amount of $12.0 million (see note 3) agreed to cause all remaining principal and interest under the Senior Convertible Notes to be converted into an aggregate of 18,679,584 shares of the Company’s common stock in full satisfaction of the notes.  The shares were delivered to the holders of the notes on July 18, 2013.  As a result of this conversion, the Senior Convertible Notes were paid off in full and is no longer outstanding as of July 18, 2013.

 

 
16

 

 

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 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, forecasts, or assumptions. 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 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 under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 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). Liquidmetal Technologies disclaims any intention or obligation 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 products and components 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 our 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. For example, in laboratory testing, our zirconium-titanium Liquidmetal alloys are approximately 250% stronger than commonly used titanium alloys such as Ti-6Al-4V, but they also have some of the beneficial processing characteristics more commonly associated with plastics. 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 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.

 

Our revenues are derived from (i) selling our bulk Liquidmetal alloy products, which include non-consumer electronic devices, aerospace parts, medical products, automotive components, oil and gas exploration, and sports and leisure goods, (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.  

 

Our cost of sales consists primarily of the costs of outsourcing our manufacturing to third parties. Selling, general, and administrative expenses currently consist primarily of salaries and related benefits, travel, consulting and professional fees, depreciation and amortization, insurance, office and administrative expenses, and other expenses related to our operations.

 

Research and development expenses represent salaries, related benefits expense, depreciation of research equipment, consulting and contract services, expenses incurred for the design and testing of new processing methods, expenses for the development of sample and prototype products, and other expenses related to the research and development of Liquidmetal bulk alloys. Costs associated with research and development activities are expensed as incurred. We plan to enhance our competitive position by improving our existing technologies and developing advances in amorphous alloy technologies. We believe that our research and development efforts will focus on the discovery of new alloy compositions, the development of improved processing technology, and the identification of new applications for our alloys.

 

Licensing Transactions

 

Transaction with Visser Precision Cast, LLC

 

On June 1, 2012, we entered into a Master Transaction Agreement (the “Visser MTA Agreement”) with Visser Precision Cast, LLC (“Visser”) relating to a strategic transaction for manufacturing services and financing.

 

Under the manufacturing and service component of the Visser MTA Agreement, we have agreed to engage Visser as a perpetual, exclusive manufacturer of non-consumer electronic products and to not, directly or indirectly, conduct manufacturing operations, subcontract for the manufacture of products or components or grant a license to any other party to conduct manufacturing operations, except for certain limited exceptions. Further, we have agreed to sublicense to Visser, on a fully-paid up, royalty-free, irrevocable, perpetual, worldwide basis, all intellectual property rights held by us. In addition, Visser has a right of first refusal over any proposed transfer of our technology pursuant to any license, sublicense, sale or other transfer, other than a license to a machine or alloy vendor.

 

 
17

 

  

Under the Visser MTA Agreement, we issued and sold to Visser in a private placement transaction (i) 30,000,000 shares of common stock at a purchase price of $0.10 per share resulting in proceeds of $3,000, and (ii) warrants to purchase 15,000,000 shares of common stock (subsequently increased to 17,980,455 shares under the anti-dilution provisions of the warrants) at an original exercise price of $0.22 per share (subsequently reduced to $0.18 per share under the anti-dilution provisions of the warrants), which expire on June 1, 2017. All of the shares of common stock issuable upon exercise of the warrants are subject to a lockup period through December 31, 2016.

 

Apple License Transaction

 

On August 5, 2010, we entered into a license transaction with Apple Inc. (“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. Additionally, in connection with the license transaction, Apple required us to complete a statement of work related to the exchange of Liquidmetal intellectual property information. We recognized a portion of the one-time license fee upon receipt of the initial payment and completion of the foregoing requirements under the license transaction. The remaining portion of the one-time license fee was recognized at the completion of the required statement of work.

 

Under the agreements relating to the license transaction with Apple, we are obligated to contribute all intellectual property that we developed through February 2012 (and subsequently amended to extend through February 2014) to CIP. 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 License Transactions

 

On January 31, 2012, we entered into a Supply and License Agreement for a five year term with Engel Austria Gmbh (“Engel”) whereby Engel was granted a non-exclusive license to manufacture and sell injection molding machines to our licensees. 

 

On November 16, 2011, we entered into a Development Agreement with Materion Brush Inc. (“Materion”) to evaluate, analyze and develop amorphous alloy feedstock to be supplied in commercial quantities.  Further, on June 17, 2012, we entered into a Sales Representation Agreement with Materion whereby Materion shall promote the sale of our products for certain commissions.  This agreement is for a two year initial term with annual, automatic renewals. To date, there have been no commission payments related to this agreement.

 

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 us 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 in Liquidmetal Golf.

 

In June 2003, we entered into an exclusive license agreement with LLPG, Inc. (“LLPG”). Under the terms of the agreement, LLPG has the right to commercialize Liquidmetal alloys, particularly precious-metal based compositions, in jewelry and high-end luxury product markets. We, in turn, will receive royalty payments over the life of the contract on all Liquidmetal products produced and sold by LLPG. The exclusive license agreement with LLPG expires on December 31, 2021.

 

In March 2009, we entered into a license agreement with Swatch Group, Ltd. (“Swatch”) under which Swatch was granted a perpetual 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 our license agreement with LLPG was simultaneously amended to exclude watches from LLPG’s rights. 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.

 

 
18

 

 

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:

 

 

Revenue recognition  

 

Impairment of long-lived assets and definite-lived intangibles  

 

Deferred tax assets   

 

 

Valuation of embedded convertible feature liability and warrants  

 

Debt discount  

 

Share based compensation   

 

Our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”), contains further discussions on our critical accounting policies and estimates.

 

 
19

 

 

Results of Operations  

 

Comparison of the three and six months ended June 30, 2013 and 2012

 

     

For the three months

ended June 30,

 

For the six months

ended June 30,

     

2013

         

2012

         

2013

         

2012

       
     

in 000's

% of Products Revenue

 

in 000's

% of Products Revenue

 

in 000's

% of Products Revenue

 

in 000's

% of Products Revenue

                                                                   

Revenue:

                                                               
 

Products

  $ 150             $ 208             $ 265             $ 391          
 

Licensing and royalties

    -               6               7               19          
 

Total revenue

    150               214               272               410          
                                                                   

Cost of sales

    111       74 %     102       49 %     193       73 %     184       47 %
 

Gross margin

    39       26 %     112       54 %     79       30 %     226       58 %
                                                                   

Selling, marketing general and administrative

    1,209       806 %     1,007       484 %     2,523       952 %     1,964       502 %

Research and development

    224       149 %     211       101 %     460       174 %     399       102 %

Manufacturing contract costs

    -               6,300               -               6,300          
 

Operating loss

    (1,394 )             (7,406 )             (2,904 )             (8,437 )        
                                                                   

Change in value of warrants, gain (loss)

    286               (174 )             796               (174 )        

Change in value of embedded conversion feature liabilities, gain

    1,378               -               3,056               -          

Debt discount amortization expense

    (2,108 )             -               (6,143 )             -          

Financing costs

    -               (1,355 )             -               (1,355 )        

Interest expense

    (80 )             22               (221 )             (18 )        

Interest income

    1               4               4               8          

 

In discussing our results of our operations, we have categorized the specific items of our statements of operations into various categories to facilitate the understanding of our core business operations. Explanations of each category as well as analyses of specific items contained in that category are discussed below:

 

Operating revenue and expenses

 

The “Operating revenue and expenses” category of statements of operations items represent those items that pertain to our core operations in the bulk alloy manufacturing and licensing business as follows:

 

Revenue. Total revenue decreased to $150 for the three months ended June 30, 2013 from $214 for the three months ended June 30, 2012. Total revenue also decreased for the six months ended June 30, 2013 to $272 from $410 for the same period in 2012. The decrease for the respective periods was primarily attributable to a decrease in general prototype and other revenue.

 

Cost of sales. Cost of sales was $111 or 74% of products revenue, for the three months ended June 30, 2013 from $102, or 49% of products revenue, for the three months ended June 30, 2012. Cost of sales was $193 or 73% of products revenue, for the six months ended June 30, 2013 from $184, or 47% of products revenue, for the six months ended June 30, 2012. The cost to manufacture parts from our bulk alloys manufacturing business is variable and differs based on the unique design of each product. In addition, much of our current product mix consists of prototype parts and other revenue which have variable cost percentages relative to products revenue. Therefore, our cost of sales as a percentage of products revenue may not be representative of our future cost percentages. When and if we begin increasing our products revenues with shipments of routine, commercial parts through our third party contract manufacturer, we expect our cost of sales percentages to stabilize and be more predictable.

 

Gross margin. Our gross margin decreased to $39 from $112 for the three month periods ended June 30, 2013, and 2012, respectively. Our gross margin percentage decreased to 26% from 54% for the three month periods ended June 30, 2013, and 2012, respectively. As discussed above under “Cost of sales”, much of our current product mix consists of prototype parts and other revenue which have variable cost percentages relative to revenue. As such, our gross margin percentages may not be representative of our future business. When and if we begin increasing our revenues with shipments of routine, commercial parts through our third party contract manufacturer, we expect our gross margin percentages to stabilize and be more predictable.

 

 
20

 

 

Selling, Marketing, General, and Administrative. Selling, marketing, general and administrative expense increased to $1,209 and $2,523 for the three and six months ended June 30, 2013, respectively, from $1,007 and $1,964 for the three and six months ended June 30, 2012, respectively. The increase during the respective periods was mainly due to additional payroll expenses for new hires including an Executive Vice President of Business Development and Operations and a Sales Engineer to facilitate the adoption of our technology.

 

Research and Development. Research and development expenses increased to $224 and $460 for the three and six months ended June 30, 2013, respectively, from $211 and $399 for the three and six months ended June 30, 2012, respectively. The increase from prior year was mainly due to the hiring of our Vice President of Engineering at the end of 2012. We continue to perform research and development of new Liquidmetal alloys and related processing capabilities, develop new manufacturing techniques, and contract with consultants to advance the development of Liquidmetal alloys.

 

Manufacturing Contract Costs. Manufacturing contract costs consisted of $6,300 for the three and six months ended June 30, 2012 related to the discount pricing that Visser received under the Visser MTA Agreement (see note 3 “June 2012 Visser MTA Agreement” in the accompanying footnote to the financial statements). The $6,300 was determined by taking the $0.21 difference between the Company’s weighted average $0.31 stock price at the time of issuances of our common stock to Visser and the $0.10 per share actual purchase price, multiplied by the 30,000,000 shares issued to Visser. No such costs were incurred in 2013. 

 

Operating loss. Operating loss was $1,394 and $2,904 for the three and six month periods ended June 30, 2013, respectively. Excluding the one-time manufacturing contract costs, loss was $1,106 and $2,137 for the three and six month periods ended June 30, 2012, respectively. The increase in our loss is primarily attributable to the increase 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 where we can either i) increase our revenues with shipments of routine, commercial parts through our third party contract manufacturer or ii) obtain significant licensing revenues, we expect to have operating losses for the foreseeable future.

 

Non-operational expenses

 

Our statement of operations contains various, significant items that are non-operational in nature. These categories of expenses may have significant gains and losses based on the volatility of our stock price as follows:

 

Change in Value of Warrants. The change in value of warrants was a non-cash gain of $286 and $796 for the three and six months ended June 30, 2013, respectively. The change in value of warrants for both the three and six months ended June 30, 2012 was a non-cash loss of $174. These gains and losses result from periodic valuation adjustments related to our stock price fluctuations for warrants issued in connection with the Visser MTA Agreement and our senior convertible notes issued as part of the July 2012 Private Placement (as discussed below). Changes in the value of our warrants are non-cash and do not affect the operations of our business.

 

Change in Value of Embedded Conversion Feature Liability. Change in value of embedded conversion feature liability was a non-cash gain of $1,378 and $3,056 for the three and six months ended June 30, 2013,respectively. The change in value of embedded conversion feature liability is due to changes in our stock price associated with the valuation of our embedded conversion feature liability related to the Senior Convertible Notes issued as part of the July 2012 Private Placement, as well as the gradual decrease in the embedded conversion feature liability in conjunction with the amortization of our Senior Convertible Notes (see note 3 in the accompanying footnote to the financial statements).

 

Debt Discount Amortization. Debt discount amortization expense was $2,108 and $6,143 of non-cash expense for the three and six months ended June 30, 2013, respectively (See Consolidated Statements of Cashflows in the accompanying financial statements). Debt discount amortization primarily relates to the amortization of $12,000 of original debt discount over the term of the Senior Convertible Notes issued as part of the July 2012 Private Placement along with its issuance cost. The amount includes amortization of debt discount of $1,673 and $4,353 for the three and six months ended June 30, 2013, respectively, under the effective interest method, as well as $435 and $1,790 of expense for the three and six months period ended June 30, 2013, respectively, related to the additional issuance of stock at a discount in relation to the amortization of our Senior Convertible Notes.

 

Financing Costs. Financing costs consisted of $1,355 for the three and six months ended June 30, 2012 related to the recording of our warrant liability for the issuance of warrants to purchase 15,000,000 shares of our common stock to Visser at an exercise price of $0.22 per share and expiring on June 1, 2017 under the Visser MTA Agreement (see note 3 in the accompanying footnote to the financial statements). No such financing costs were incurred in 2013.

 

Interest Expense. Interest expense for the three and six month ended June 30, 2013 was $80 and $221, respectively, and consists of the 8% interest related to the Senior Convertible Notes issued as part of the July 2012 Private Placement. Interest expense was a benefit of $22 for the three months ended June 30, 2012 and an expense of $18 for the six months ended June 30, 2012 due to the forgiveness of $68 of 2012 interest expense in exchange for the early payment of a note to a former licensee.

 

Interest Income. Interest income relates to interest earned from our cash deposit for the respective periods.

 

 
21

 

 

Liquidity and Capital Resources 

 

Our cash used in operations was $2,783 for the six months ended June 30, 2013,and cash used in investing activities was $171 for the six months ended June 30, 2013. There were no cash related financing activities for the six months ended June 30, 2013. As of June 30, 2013, our cash balance was $4,208.

 

On July 2, 2012, we entered into a private placement transaction (the “July 2012 Private Placement”) pursuant to which we issued $12,000 in principal amount of Senior Convertible Notes that were due on September 1, 2013 and warrants to the purchasers of such notes giving such purchasers the right to purchase up to an aggregate of 18,750,000 shares of our common stock at an exercise price of $0.384 per share. At June 30, 2013, the outstanding principal under the Senior Convertible Notes was $1,000. As of July 18, 2013, the notes under the July 2012 Private Placement were paid off in full through issuance of common stock (see note 15).

 

We anticipate that our current capital resources, together with income from operations, will be sufficient to fund our operations through the end of the first quarter of 2014. We have a relatively limited history of producing bulk amorphous alloy components and products on a mass-production scale. Furthermore, Visser’s ability to produce our products in desired quantities and at commercially reasonable prices is uncertain and is dependent on a variety of factors that are outside of our control, including the nature and design of the component, the customer’s specifications, and required delivery timelines. Such factors will likely require that we raise additional funds to support our operations beyond the first quarter of 2014. There is no assurance that we will be able to raise such additional funds on acceptable terms, if at all. If we raise additional funds by issuing securities, existing stockholders may be diluted. If funding is insufficient at any time in the future, we may be required to alter or reduce the scope of our operations or to cease operations entirely. As a result of these and other factors, our independent registered public accounting firm has indicated, in their audit opinion on our 2012 consolidated financial statements, that there is substantial doubt about our ability to continue as a going concern.

 

Off Balance Sheet Arrangements 

 

As of June 30, 2013, we did not have any off-balance sheet arrangements.

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

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 Chief Financial Officer (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) as of June 30, 2013. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2013.

 

Changes in Internal Control over Financial Reporting.

 

On April 1, 2013, we implemented Great Plains ERP system to facilitate all of our financial reporting systems and controls. There have been no other changes to our internal control over financial reporting that occurred during the quarter ended June 30, 2013, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

 
22

 

 

PART II

OTHER INFORMATION

Item 1 – Legal Proceedings

 

There are no material legal proceedings currently pending.

 

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 2012 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 issued the following securities which were not registered under the Securities Act of 1933, as amended:

 

 

1.

As previously described in a Form 8-K filed on July 3, 2012, we completed on July 2, 2012, a private placement of $12.0 million in senior convertible notes (the “Notes”). During the period covered by this Quarterly Report on Form 10-Q, we issued an aggregate of 45,106,115 shares of our common stock to the five holders of the Notes in satisfaction of $3 million in monthly installment payments that were due under the Notes during the period. We also issued, after the period covered by this Quarterly Report and through the date on which this Quarterly Report is filed, an aggregate of 18,679,584 shares of our common stock to the holders of the Notes in satisfaction of the $1 million final installment payment due under the Notes. Through the date on which this Quarterly Report is filed, we have issued an aggregate of 160,749,475 shares of common stock to the holders of the Notes in satisfaction of principal and interest under the Notes. The foregoing issuances were made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, including pursuant to Rule 506 thereunder. Such issuances were made solely to “accredited investors” under Rule 506 and were made without any form of general solicitation and with full access to any information requested by the holders of the Notes (in connection with the private placement in which the Notes were offered and sold) regarding the Company or the securities offered in the private placement.

 

 

Item 3 – Defaults Upon Senior Securities

 

None.

 

Item 4 – Mine Safety Disclosures

 

None.

 

Item 5 – Other Information

 

None.

 

 
23

 

 

Item 6 – Exhibits

 

The following documents are filed as exhibits to this Report:

 

 

Exhibit

Number      Description of Document                              

 

31.1

 

Certification of Principal Executive Officer, Thomas Steipp, as required by Section 302 of the Sarbanes-Oxley Act of 2002

     

31.2

 

Certification of Principal Financial Officer, Tony Chung, as required by Section 302 of the Sarbanes-Oxley Act of 2002

     

32.1

 

Certification of Chief Executive Officer, Thomas Steipp, 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 Chief Financial Officer, Tony Chung, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     

101

 

The following financial statements from Liquidmetal Technologies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (unaudited), formatted in XBRL: (i) Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, (iii) Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2013, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.

 

 
24

 

 

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: August 6, 2013

/s/ Thomas Steipp

 

 

Thomas Steipp

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

Date: August 6, 2013

/s/ Tony Chung

 

 

Tony Chung

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

25