LIQUIDMETAL TECHNOLOGIES INC - Quarter Report: 2020 June (Form 10-Q)

 

 

Table of Contents

UNITED STATES

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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, 2020
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 No.  001-31332

 

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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.)

 

20321 Valencia Circle

Lake Forest, CA 92630

(Address of principal executive offices, zip code)

 

Registrant’s telephone number, including area code: (949) 635-2100

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes   ☒   No  ☐

 

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

 

Large accelerated filer ☐               Accelerated filer ☐             Non-accelerated filer ☒

 

Smaller reporting company ☒       Emerging growth company ☐

 

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

 

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

Yes   ☐    No  ☒

 

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

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	LQMT	OTCQB

 

The number of common shares outstanding as of July 31, 2020 was 914,449,957.

 

 

 

TABLE OF CONTENTS
PART I - Financial Information
	Item 1 – Financial Statements				4
		Consolidated Balance Sheets			4
		Consolidated Statements of Operations			5
		Consolidated Statements of Comprehensive Loss			6
		Consolidated Statements of Cash Flows			7
		Notes to Consolidated Financial Statements			8
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations				19
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk				24
	Item 4 – Controls and Procedures				24
PART II – Other Information
	Item 1 – Legal Proceedings				25
	Item 1A – Risk Factors				25
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds				25
	Item 3 – Defaults Upon Senior Securities				25
	Item 4 – Mine Safety Disclosures				25
	Item 5 – Other Information				25
	Item 6 – Exhibits				26
Signatures					27

 

		June 30,				December 31,
		2020				2019
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	20,526			$	19,543
Restricted cash			5				5
Investments in debt securities- short term			4,225				4,415
Trade accounts receivable, net of allowance for doubtful accounts			291				303
Inventory			23				12
Prepaid expenses and other current assets			359				322
Total current assets		$	25,429			$	24,600
Investments in debt securities- long term			5,071				7,074
Property and equipment, net			8,774				8,819
Patents and trademarks, net			197				239
Equipment held for sale			-				585
Other assets			219				14
Total assets		$	39,690			$	41,331
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable			103				132
Accrued liabilities			248				775
Total current liabilities		$	351			$	907
Long-term liabilities
Other long-term liabilities			899				856
Total liabilities		$	1,250			$	1,763
Shareholders' equity:
Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively			-				-
Common stock, $0.001 par value; 1,100,000,000 shares authorized; 914,449,957 and 914,449,957 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively			914				914
Warrants			18,179				18,179
Additional paid-in capital			287,005				286,832
Accumulated deficit			(267,673	)			(266,284	)
Accumulated other comprehensive income			90				2
Non-controlling interest in subsidiary			(75	)			(75	)
Total shareholders' equity		$	38,440			$	39,568
Total liabilities and shareholders' equity		$	39,690			$	41,331

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
			2020				2019				2020				2019
Revenue
Products		$	33			$	132			$	79			$	355
Licensing and royalties			-				-				25				-
Total revenue			33				132				104				355
Cost of sales			35				103				71				282
Gross profit (loss)			(2	)			29				33				73
Operating expenses
Selling, marketing, general and administrative			870				1,275				1,857				2,708
Research and development			27				406				56				895
Impairment of long-lived assets			-				1,676				-				1,676
(Gain) loss on disposal of long-lived assets			(15	)			5				(35	)			5
Total operating expenses			882				3,362				1,878				5,284
Operating loss			(884	)			(3,333	)			(1,845	)			(5,211	)
Lease income			132				-				220				-
Interest and investment income			109				109				236				219
Loss before income taxes			(643	)			(3,224	)			(1,389	)			(4,992	)
Income taxes			-				-				-				-
Net loss			(643	)			(3,224	)			(1,389	)			(4,992	)
Net loss attributable to non-controlling interest			-				1				-				1
Net loss attributable to Liquidmetal Technologies shareholders		$	(643	)		$	(3,223	)		$	(1,389	)		$	(4,991	)
Per common share basic and diluted:
Net loss per common share attributable to LiquidmetalTechnologies shareholders, basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.01	)
Number of weighted average shares - basic and diluted			914,449,957				914,359,124				914,449,957				914,319,575

 

		For the Three Months Ended June 30,								For the Six Months Ended June,
			2020				2019				2020				2019
Net loss		$	(643	)		$	(3,224	)		$	(1,389	)		$	(4,992	)
Net unrealized gains on available-for-sale securities			184				-				88				-
Other comprehensive income, net of tax			184				-				88				-
Comprehensive loss		$	(459	)		$	(3,224	)		$	(1,301	)		$	(4,992	)
Less: Comprehensive loss attributable to noncontrolling interests			-				1				-				1
Comprehensive loss attributable to Liquidmetal Technologies shareholders		$	(459	)		$	(3,223	)		$	(1,301	)		$	(4,991	)

 

		For the Six Months Ended June 30,
		2020				2019
Operating activities:
Net loss		$	(1,389	)		$	(4,992	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			203				562
Realized investment gains			(2	)			-
Stock-based compensation			173				342
Impairment of long-lived assets			-				1,676
(Gain) loss on disposal of long-lived assets			(35	)			5
Changes in operating assets and liabilities:
Trade accounts receivable			12				40
Inventory			(11	)			(56	)
Prepaid expenses and other current assets			143				163
Other assets and liabilities			(162	)			-
Accounts payable and accrued liabilities			(136	)			(202	)
Deferred revenue			-				6
Net cash used in operating activities			(1,204	)			(2,456	)
Investing Activities:
Purchases of property and equipment			(116	)			(597	)
Proceeds from disposal of fixed assets			20				5
Purchases of debt securities			(4,949	)			-
Proceeds from sales of debt securities			7,232				-
Net cash provided by (used in) investing activities			2,187				(592	)
Financing Activities:
Proceeds from exercise of stock options			-				14
Net cash provided by financing activities			-				14
Net increase (decrease) in cash, cash equivalents, and restricted cash			983				(3,034	)
Cash, cash equivalents, and restricted cash at beginning of period			19,548				35,234
Cash, cash equivalents, and restricted cash at end of period		$	20,531			$	32,200
Supplemental Schedule of Non-Cash Investing Activities:
Settlement of contract liability from disposal of fixed assets		$	420			$	-

 

1. Description of Business

 

Liquidmetal Technologies, Inc. (the “Company”) is a materials technology company that develops and commercializes products made from amorphous alloys. The Company’s family of alloys consists of a variety of bulk alloys and composites that utilize the advantages offered by amorphous alloys technology. The Company designs, develops, and sells products and custom parts from bulk amorphous alloys to customers in a wide range of industries. The Company also partners with third-party manufacturers and licensees to develop and commercialize Liquidmetal alloy products.

 

Amorphous alloys are, in general, unique materials that are distinguished by their ability to retain a random atomic structure when they solidify, in contrast to the crystalline atomic structure that forms in other metals and alloys when they solidify. Liquidmetal alloys are proprietary amorphous alloys that possess a combination of performance, processing, and potential cost advantages that the Company believes will make them preferable to other materials in a variety of applications. The amorphous atomic structure of bulk alloys enables them to overcome certain performance limitations caused by inherent weaknesses in crystalline atomic structures, thus facilitating performance and processing characteristics superior in many ways to those of their crystalline counterparts. The Company believes that the alloys and the molding technologies it employs may result in components, for many applications, that exhibit: exceptional dimensional control and repeatability that rivals precision machining, excellent corrosion resistance, brilliant surface finish, high strength, high hardness, high elastic limit, alloys that are non-magnetic, and the ability to form complex shapes common to the injection molding of plastics. Interestingly, all of these characteristics are achievable from the molding process, so design engineers often do not have to select specific alloys to achieve one or more of the characteristics as is the case with crystalline materials. The Company believes these advantages could result in Liquidmetal alloys supplanting high-performance alloys, such as titanium and stainless steel, and other incumbent materials in a wide variety of applications. Moreover, the Company believes these advantages could enable the introduction of entirely new products and applications that are not possible or commercially viable with other materials.

 

The Company’s revenues are derived from i) selling bulk Liquidmetal alloy products to customers who produce medical devices, automotive assemblies, sports and leisure goods, and non-consumer electronic devices, ii) selling tooling and prototype parts such as demonstration parts and test samples for customers with products in development, iii) product licensing and royalty revenue, and iv) research and development revenue. The Company expects that these sources of revenue will continue to significantly change the character of the Company’s revenue mix.

 

2. Basis of Presentation and Recent Accounting Pronouncements

 

The accompanying unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2020 and June 30, 2019 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. All intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for any future periods or the year ending December 31, 2020. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2020.

 

Investments in debt securities

 

The Company will invest excess funds to maximize investment yield, while maintaining liquidity and minimizing credit risk. Debt securities are carried at fair value and consist primarily of investments in obligations of the United States Treasury, various U.S. and foreign corporations, and certificates of deposits. The Company classifies its investments in debt securities as available-for-sale with all unrealized gains or losses included as part of other comprehensive income. The Company evaluates its debt securities with unrealized losses on a quarterly basis for potential other-than-temporary impairments in value. As a result of this assessment, the Company did not recognize any other-than-temporary impairment losses considered to be credit related for the three and six month periods ended June 30, 2020 and 2019.

 

Fair Value Measurements

 

The estimated fair values of financial instruments reported in the consolidated financial statements have been determined using available market information and valuation methodologies, as applicable. The fair value of cash, cash equivalents, and restricted cash approximate their carrying value due to their short maturities and are classified as Level 1 instruments within the fair value hierarchy.

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value based upon the following fair value hierarchy:

 

Level 1 —

Quoted prices in active markets for identical assets or liabilities;

 

Level 2 —

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3 —

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of June 30, 2020, the following table represents the Company’s fair value hierarchy for items that are required to be measured at fair value on a recurring basis:

 

 

 

As of December 31, 2019, 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:

 

 

Leases

 

The Company leases its previous manufacturing facility under a long-term contract, which is accounted for as an operating lease. The lease provides for a fixed base rent and variable payments comprised of reimbursements for property taxes, insurance, utilities, and common area maintenance. The lease has a term of sixty-two months, exclusive of options to renew. In accordance with ASC 842 Leases, lease income, which includes escalating rents over the term of the lease, is recorded on a straight-line basis over the expected lease term. The difference between lease income and payments received is recorded as a rent receivable, which is included as a prepaid expense in the consolidated balance sheets. Amounts paid for broker commissions represent prepaid direct lease costs, and will be amortized as an off-set to lease income over the lease term.

 

Other recent pronouncements

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

 

 

3. Significant Transactions

 

2019 Restructuring Plan

 

In July 2019, the Company adopted a restructuring plan pursuant to which the Company elected to wind down its prior manufacturing operations at the Company’s Lake Forest, CA facility and proceeded to outsource the manufacture of parts utilizing the Company’s technology through its domestic and international manufacturing partners (the “2019 Restructuring Plan”). In connection with the 2019 Restructuring Plan, the Company shifted its business strategy from internal manufacture of parts and products for customers toward the use and reliance of outsourced manufacturers, which will initially be Dongguan Yihao Metals Materials Technology Co., Ltd. (“Yihao”), a China-based company that is an affiliate of our largest beneficial stockholder, CEO and Chairman, Professor Lugee Li.

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

Manufacturing Facility Purchase

 

On February 16, 2017, the Company purchased a 41,000 square foot manufacturing facility (the “Facility”) located in Lake Forest, CA, where operations commenced during July 2017. The purchase price for the Facility was $7,818. As a result of the 2019 Restructuring Plan, the Company has discontinued manufacturing operations in the Facility.

 

Facility Lease

 

On January 23, 2020, 20321 Valencia, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, entered into a lease agreement (the “Facility Lease”) pursuant to which the Company leased to MatterHackers, Inc., a Delaware corporation (“Tenant”), an approximately 32,534 square foot portion of the Facility. The lease term is for 5 years and 2 months, with stated rights for early occupancy, with full occupancy commencing on March 1, 2020. The base rent payable under the Facility Lease is $32,534 per month initially and is subject to periodic increases up to a maximum of approximately $54,000 per month. Tenant will pay approximately 79% of common operating expresses. The Facility Lease has other customary provisions, including provisions relating to default and usage restrictions. The Facility Lease grants to Tenant a right to extend the lease for one additional 60-month period at market rental value.

 

2016 Purchase Agreement

 

On March 10, 2016, the Company entered into a Securities Purchase Agreement (the “2016 Purchase Agreement”) with Liquidmetal Technology Limited, a Hong Kong company (the “Investor”), which is controlled by the Company’s Chairman and CEO, Professor Lugee Li (“Professor Li”). The 2016 Purchase Agreement provided for the purchase by the Investor of a total of 405,000,000 shares of the Company’s common stock for an aggregate purchase price of $63,400. The transaction occurred in multiple closings, with the Investor having purchased 105,000,000 shares at a purchase price of $8,400 (or $0.08 per share) at the initial closing on March 10, 2016 and the remaining 200,000,000 shares at $0.15 per share and 100,000,000 shares at $0.25 per share for an aggregate purchase price of $55,000 on October 26, 2016.

 

In addition to the shares issuable under the 2016 Purchase Agreement, the Company issued to the Investor a warrant to acquire 10,066,809 shares of common stock (of which the right to exercise 2,609,913 of the warrant shares vested on March 10, 2016 and the right to exercise the remaining 7,456,896 warrant shares vested on October 26, 2016 at an exercise price of $0.07 per share). The warrant will expire on the tenth anniversary of its issuance date.

 

The 2016 Purchase Agreement also provided that, with certain limited exceptions, if the Company issues any shares of common stock at any time through the fifth anniversary of the 2016 Purchase Agreement, the Investor will have a preemptive right to subscribe for and to purchase at the same price per share (or at market price, in the case of issuance of shares pursuant to stock options) the number of shares necessary to maintain its ownership percentage of Company-issued shares of common stock.

 

Eontec License Agreement

 

On March 10, 2016, in connection with the 2016 Purchase Agreement, the Company and DongGuan Eontec Co., Ltd., a Hong Kong corporation (“Eontec”), entered into a Parallel License Agreement (the “License Agreement”) pursuant to which the Company and Eontec agreed to cross-license their respective technologies. The Company’s Chairman and CEO, Professor Li, is also a major shareholder and Chairman of Eontec.

 

The License Agreement provides for the cross-license of certain patents, technical information, and trademarks between the Company and Eontec. In particular, the Company granted to Eontec a paid-up, royalty-free, perpetual license to the Company’s patents and related technical information to make, have made, use, offer to sell, sell, export, and import products in certain geographic areas outside of North America and Europe. In turn, Eontec granted to the Company a paid-up, royalty-free, perpetual license to Eontec’s patents and related technical information to make, have made, use, offer to sell, sell, export, and import products in certain geographic areas outside of specified countries in Asia. The license granted by the Company to Eontec is exclusive (including to the exclusion of the Company) in the countries of Brunei, Cambodia, China (P.R.C and R.O.C.), East Timor, Indonesia, Japan, Laos, Malaysia, Myanmar, Philippines, Singapore, South Korea, Thailand, and Vietnam. The license granted by Eontec to the Company is exclusive (including to the exclusion of Eontec) in North America and Europe. The cross-licenses are non-exclusive in geographic areas outside of the foregoing exclusive territories.

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

Beyond the License Agreement, the Company collaborates with Eontec to accelerate the commercialization of amorphous alloy technology. This includes but is not limited to developing technologies to reduce the cost of amorphous alloys, working on die cast machine technology platforms to pursue broader markets, sharing knowledge to broaden our intellectual property portfolio, and utilizing Eontec’s volume production capabilities as a third party contract manufacturer.

 

Eutectix Business Development Agreement

 

On January 31, 2020, the Company entered into a Business Development Agreement (the “Agreement”) with Eutectix, LLC, a Delaware limited liability company (“Eutectix”), which provides for collaboration, joint development efforts, and the manufacturing of products based on the Company’s proprietary amorphous metal alloys. Under the Agreement, the Company has agreed to license to Eutectix specified equipment owned by the Company, including two injection molding machines, two diecasting machines, and other machines and equipment, all of which will be used to make product for Company customers and Eutectix customers. The licensed machines and equipment represent substantially all of the machinery and equipment currently held by the Company. The Company has also licensed to Eutectix various patents and technical information related to the Company’s proprietary technology. Under the Agreement, Eutectix will pay the Company a royalty of six percent (6%) of the net sales price of licensed products sold by Eutectix, and Eutectix will also manufacture for the Company product ordered by the Company. The Agreement has a term of five years, subject to renewal provisions and the ability of either party to terminate earlier upon specified circumstances.

 

Apple License Transaction

 

On August 5, 2010, the Company entered into a license transaction with Apple Inc. (“Apple”) pursuant to which (i) the Company contributed substantially all of its intellectual property assets to a newly organized special-purpose, wholly-owned subsidiary, called Crucible Intellectual Property, LLC (“CIP”), (ii) CIP granted to Apple a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in the field of consumer electronic products, as defined in the license agreement, in exchange for a license fee, and (iii) CIP granted back to the Company a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in all other fields of use.

 

Under the agreements relating to the license transaction with Apple, the Company was obligated to contribute, to CIP, all intellectual property developed through February 2016. The Company is also obligated to maintain certain limited liability company formalities with respect to CIP at all times after the closing of the license transaction.

 

Other License Transactions

 

On January 31, 2012, the Company 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 the Company’s licensees. On December 6, 2013, the Company and Engel entered into an Exclusivity Agreement for a ten year term whereby the Company agreed, with certain exceptions and limitations, that the Company and its licensees would purchase amorphous alloy injection molding machines exclusively from Engel.

 

The Company’s majority-owned Liquidmetal Golf subsidiary has the exclusive right and license to utilize the Company’s Liquidmetal alloy technology for purposes of golf equipment applications. This right and license is set forth in an intercompany license agreement between Liquidmetal Technologies and Liquidmetal Golf. This license agreement provides that Liquidmetal Golf has a perpetual and exclusive license to use Liquidmetal alloy technology for the purpose of manufacturing, marketing, and selling golf club parts and other products used in the sport of golf. The Company owns 79% of the outstanding common stock of Liquidmetal Golf.

 

In March 2009, the Company entered into a license agreement with Swatch Group, Ltd. (“Swatch”) under which Swatch was granted a non-exclusive license to the Company’s technology to produce and market watches and certain other luxury products. In March 2011, this license agreement was amended to grant Swatch exclusive rights as to watches, but non-exclusive as to Apple. The Company will receive royalty payments over the life of the contract on all Liquidmetal products produced and sold by Swatch. The license agreement with Swatch will expire on the expiration date of the last licensed patent.

 

 

4. Investments in debt securities

 

The following table sets forth amortized cost fair value, and unrealized gains (losses) of investments in debt securities (short-term and long-term):

 

 

Income from these investments totaled $58 and $126 during the three and six months ended June 30, 2020, respectively, and was included as a portion of interest and investment income on the Company’s consolidated statements of operations. There was no income for the same periods in 2019.

 

Based on the Company’s review of its debt securities in an unrealized loss position at June 30, 2020, it determined that the losses were primarily the result of current economic factors, impacting all global debt and equity markets, that are the result of the global COVID-19 pandemic. The impact to the Company’s investment portfolio is considered to be temporary, rather than a deterioration of overall credit quality. As of June 30, 2020, all investments are current on their schedule interest and dividend payments. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, these securities prior to recovering their amortized cost. As such, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2020.

 

5. Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets totaled $359 and $322 as of June 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:

 

 

As of June 30, 2020, prepaid lease costs and receivables- short term are comprised of $19 in prepaid broker commissions that are expected to be amortized within the next twelve months and $2 in receivables for allocated utility costs. As of June 30, 2020, interest and other receivables are comprised of $70 in interest receivable from investments in debt securities and $180 in receivables due under completed fixed asset sales (refer to Note 8 below).

 

 

6. Inventory

 

Inventory totaled $23 and $12 as of June 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:

 

 

 

7. Property and Equipment, net

 

Property and equipment consist of the following:

 

 

Depreciation expense for three and six months ended June, 2020 was $81 and $161, respectively. Depreciation expense for three and six months ended June 30, 2019 was $262 and $520, respectively. For the three and six months ended June 30, 2020, $0 and $0 of depreciation expense, respectively, was included in cost of sales and $81 and $161 was included in selling, marketing, general, and administrative expenses, respectively. For the three and six months ended June 30, 2019, $28 and $51 of depreciation expense, respectively, was included in cost of sales and $234 and $469 was included in selling, marketing, general and administrative expenses, respectively.

 

During the three and six months ended June 30, 2020, the Company disposed of certain manufacturing equipment for gross proceeds of $20. This resulted in a gain on disposal of $15 and $35 during the three and six months ended June 30, 2020. Similar sales resulted in losses of $5 and $5 during the three and six months ended June 30, 2019, respectively.

 

8. Equipment Held for Sale

 

The Company previously reclassified $585 in equipment, planned to be disposed of under the 2019 Restructuring Plan, from property and equipment to equipment held for sale on its consolidated balance sheet. The Company has executed a purchase agreement for the equipment, with a negotiated sales price of $600. The sale was finalized during the quarter ended June 30, 2020, following delivery and title transfer of the equipment to the buyer. The Company had received $420 in proceeds from the sale of this equipment during 2019, which was recorded as a contract liability as part of accrued liabilities as of December 31, 2019. Following the final transfer of title of the equipment, this amount was reclassified and the remaining $180 of the purchase price was recorded as a receivable, within prepaid expenses and other current assets, as of June 30, 2020.

 

9. Patents and Trademarks, net

 

Net patents and trademarks totaled $197 and $239 as of June 30, 2020, and December 31, 2019, respectively, and primarily consisted of purchased patent rights and internally developed patents.

 

Purchased patent rights represent the exclusive right to commercialize the bulk amorphous alloy and other amorphous alloy technology acquired from California Institute of Technology (“Caltech”), through a license agreement with Caltech and other institutions. All fees and other amounts payable by the Company for these rights and licenses have been paid or accrued in full, and no further royalties, license fees, or other amounts will be payable in the future under the license agreement.

     

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

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 $21 and $42 for the three and six months ended June 30 , 2020, respectively. This compares to $21 and $42 for the three and six months ended June 30, 2019, respectively.

 

10. Other Assets

 

Other assets totaled $219 and $14 as of June 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:

 

 

As of June 30, 2020, prepaid lease costs and receivables- long term are comprised of $74 in unamortized prepaid broker commissions that are not expected to be amortized within the next twelve months and $131 in straight-line rent accruals.

 

 

11. Accrued Liabilities

 

Accrued liabilities totaled $248 and $775 as of June 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:

 

 

In connection with the 2019 Restructuring Plan, the Company recorded severance expenses related to employees whose positions would be eliminated. The elements and impact of the 2019 Restructuring Plan were communicated to all impacted employees during July 2019, inclusive of outlining the severance elements that Company had adopted. As a result, total expense of $273 was recorded as a component of sales, general, and administrative expenses within the consolidated statement of operations for the year ended December 31, 2019. As of June 30, 2020, payments totaling $217 had been made, resulting in a remaining liability under the 2019 restructuring plan of $56 as of June 30, 2020.

 

 

12. Other Long-Term Liabilities  

 

Other long-term liabilities were $899 as of June 30, 2020 and $856 as of December 31, 2019, and consisted of $856 of long-term, aged payables to vendors, individuals, and other third parties that have been outstanding for more than 5 years. The Company is in the process of researching and resolving the balances for settlement and/or escheatment in accordance with applicable state law. Also included in the balance as of June 30, 2020 is $43 in tenant deposits.

 

 

13. Stock Compensation Plans

 

On April 4, 2002, our shareholders and Board of Directors adopted the 2002 Equity Incentive Plan (“2002 Plan”). The 2002 Plan provided for the grant of stock options to officers, employees, consultants, and directors of the Company and its subsidiaries. A total of 10,000,000 shares of our common stock were available to be granted under the 2002 Plan. The 2002 Plan expired by its terms in April 2012 and remains in effect only with respect to the equity awards that have been granted prior to its expiration. As of June 30, 2020 and December 31, 2019, there were 61,000 and 69,000 options, respectively, outstanding under the 2002 Plan.

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

On June 28, 2012, the Company adopted the 2012 Equity Incentive Plan (“2012 Plan”), with the approval of the shareholders, which provides for the grant of stock options to officers, employees, consultants, and directors of the Company and its subsidiaries. The 2012 Plan provides for the granting to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting to employees and consultants of non-statutory stock options. In addition, the Plan permits the granting of stock appreciation rights, or SARs, with or independently of options, as well as stock bonuses and rights to purchase restricted stock. A total of 30,000,000 shares of the Company’s common stock may be granted under the 2012 Plan, and all options granted under the 2012 Plan had exercise prices that were equal to the fair market value on the date of grant. During the six months ended June 30, 2020, the Company granted no options to purchase shares of common stock. Under this plan, the Company had outstanding grants of options to purchase 5,741,692 and 6,930,445 shares of the Company’s common stock as of June 30, 2020 and December 31, 2019, respectively.

 

On January 27, 2015, the Company adopted its 2015 Equity Incentive Plan (“2015 Plan”), which provided for the grant of stock options to officers, employees, consultants, and directors of the Company and its subsidiaries. A total of 40,000,000 shares of the Company’s common stock are available for issuance under the 2015 Plan. All options granted under the 2015 Plan had exercise prices that were equal to the fair market value on the dates of grant. During the six months ended June 30, 2020, the Company granted no options to purchase shares of common stock. Under this plan, the Company had outstanding grants of options to purchase 12,341,667 and 12,341,667 shares of the Company’s common stock as of June 30, 2020 and December 31, 2019, respectively.

 

Stock based compensation expense attributable to these plans was $81 and $173 for the three and six months ended June 30, 2020, respectively. This compares to $160 and $342 for the three and six months ended June 30, 2019, respectively.

 

 

14. Facility Lease

 

Amounts collected under the Facility Lease are comprised of base rents and reimbursements for direct facility expenses (property taxes and insurance), common area maintenance, and utilities. Amounts recorded to lease income are comprised of base rents and direct facility expenses, recorded on a straight-line basis over the lease term. Reimbursements for common area maintenance and utility expense are recorded as reductions to like expenses within sales, general, and administrative costs.

 

The future minimum rents due to the Company under the Facility Lease are as follows:

 

 

 

15. Consolidated Statements of Changes in Equity

 

The following table provides the Company’s changes in equity for the three months ended June 30, 2020:

 

 

 

The following table provides the Company’s changes in equity for the six months ended June 30, 2020:

 

 

 

The following table provides the Company’s changes in equity for the three months ended June 30, 2019:

 

 

 

LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2020 and 2019

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

(unaudited)

 

The following table provides the Company’s changes in equity for the six months ended June 30, 2019:

 

 

 

16. Accumulated Other Comprehensive Income (Loss) (“AOCI”)

 

The following table presents a summary of the changes in each component of AOCI for the three months ended June 30, 2020:

 

 

 

The following table presents a summary of the changes in each component of AOCI for the six months ended June 30, 2020:

 

 

There was no activity associated with these components of AOCI for the six months ended June 30, 2019.

 

 

17. Loss Per Common Share

 

Basic earnings per share (“EPS”) is computed by dividing earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the applicable period. Diluted EPS reflects the potential dilution of securities that could share in the earnings.

 

Options to purchase 18,144,359 shares of common stock, at prices ranging from $0.07 to $0.38 per share, were outstanding at June 30, 2020, but were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive, given the Company’s net loss. Warrants to purchase 10,066,809 shares of common stock, with a price of $0.07 per share, outstanding at June 30, 2020, were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive, given the Company’s net loss.

 

Options to purchase 26,088,360 shares of common stock, at prices ranging from $0.07 to $0.38 per share, were outstanding at June 30, 2019, but were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive, given the Company’s net loss. Warrants to purchase 10,066,809 shares of common stock, with a price of $0.07 per share, outstanding at June 30, 2019, were not included in the computation of diluted EPS for the same period as the inclusion would have been antidilutive, given the Company’s net loss.

 

18. Related Party Transactions

 

On March 10, 2016, the Company entered into the 2016 Purchase Agreement with Liquidmetal Technology Limited, providing for the purchase of 405,000,000 shares of the Company’s common stock for an aggregate purchase price of $63,400. Liquidmetal Technology Limited was a newly formed company owned by Professor Li. In connection with the 2016 Purchase Agreement and also on March 10, 2016, the Company and Eontec, entered into a license agreement pursuant to which the Company and Eontec entered into a cross-license of their respective technologies. Eontec is a publicly held Hong Kong corporation of which Professor Li is the Chairman and major shareholder. Eontec is also an affiliate of Yihao, which is currently the Company’s primary outsourced manufacturer. As of June 30, 2020, Professor Li is a greater-than 5% beneficial owner of the Company and serves as the Company’s Chairman, President, and Chief Executive Officer. Equipment and services procured from Eontec, and their affiliates, were $45 and $68 during the three and six months ended June 30, 2020, respectively. Equipment and services procured from Eontec, and their affiliates, were $0 and $0 during the three and six months ended June 30, 2019, respectively.