What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-04 · 52 added, 46 removed, 103 unchanged (49% of the section changed)

27 unchanged sentences

In July 2019, the Company adopted the 2019 Restructuring Plan pursuant to which the Company elected to wind down its prior manufacturing operations at the Company’s Lake Forest, CA facility and seek to outsource the manufacture of parts utilizing the Company’s technology through domestic and international manufacturing partners.

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 Yihao, a China-based company that is an affiliate of our largest beneficial stockholder our CEO and Chairman, Professor Lugee Li.

Licensing Transactions

Eontec License Agreement

On March 10, 2016, in connection with the 2016 Purchase Agreement, we entered into a Parallel License Agreement (the “License Agreement”) with DongGuan Eontec Co., Ltd., a Hong Kong corporation (“Eontec”) pursuant to which we each entered into a cross-license of our respective technologies.

On March 10, 2016, in connection with the 2016 Purchase Agreement, we entered into the License Agreement with Eontec pursuant to which we each entered into a cross-license of our respective technologies.

The License Agreement provides for the cross-license of certain patents, technical information, and trademarks between us and Eontec.

6 unchanged sentences

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.

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

Under the agreements relating to the license transaction with Apple, we were obligated to contribute, to CIP, all intellectual property that we developed through February 2012.

2 unchanged sentences

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

Since that time, we and Engel have agreed on an injection molding machine configuration that can be commercially supplied and supported by Engel.

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We own 79% of the outstanding common stock of Liquidmetal Golf.

In March 2009, we entered into a license agreement with Swatch Group, Ltd.

(“Swatch”) under which Swatch was granted a non-exclusive license to our technology to produce and market watches and certain other luxury products.

In March 2009, we entered into a license agreement with Swatch under which Swatch was granted a non-exclusive license to our technology to produce and market watches and certain other luxury products.

In March 2011, this license agreement was amended to grant Swatch exclusive rights as to watches and all third parties (including us), but non-exclusive as to Apple.

1 unchanged sentence

The license agreement with Swatch will expire on the expiration date of the last licensed patent.

On January 31, 2020, we entered into the Agreement with 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 licensed to Eutectix specified equipment owned by the Company, including two injection molding machines, two diecasting machines, and other machines and equipment, all of which will be used to make product for Company customers and Eutectix customers.

The licensed machines and equipment represent substantially all of the machinery and equipment then held by the Company.

The Company has also licensed to Eutectix various patents and technical information related to the Company’s proprietary technology.

Under the 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.

Critical Accounting Policies and Estimates

11 unchanged sentences

Results of Operations

Comparison of the three and six months ended June 30, 2020 and 2019

For the three months ended June 30,

For the six months ended June 30,

Comparison of the three and nine months ended September 30, 2020 and 2019

For the three months ended September 30,

For the nine months ended September 30,

Licensing and royalties

1 unchanged sentence

Cost of sales

Gross profit (loss)

Selling, marketing, general and administrative

1 unchanged sentence

Impairment of long-lived assets

(Gain) loss on disposal of long-lived assets

Gain on disposal of long-lived assets

Total operating expense

2 unchanged sentences

Revenue and operating expenses

Total revenue decreased to $33 for the three months ended June 30, 2020 from $132 for the three months ended June 30, 2019.

Total revenue decreased to $104 for the six months ended June 30, 2020 from $355 for the six months ended June 30, 2019.

The decrease was attributable to lower volumes associated with the Company’s continued transition from internal manufacturing to outsourced manufacturing.

As a result, product revenues during 2020 are expected to be volatile and will likely not be indicative of future results.

Total revenue decreased to $327 for the three months ended September 30, 2020 from $421 for the three months ended September 30, 2019.

Total revenue decreased to $431 for the nine months ended September 30, 2020 from $776 for the nine months ended September 30, 2019.

The decrease was attributable to lower product sale volumes associated with the Company’s continued transition from internal manufacturing to outsourced manufacturing.

During the three months ended September 30, 2020, the Company began making routine deliveries under production orders, which will continue through at least the first half of 2021.

In the event the Company can continue to deliver under these orders, through outsourced manufacturing supply chains, and add additional orders, revenue streams are expected to increase, stabilize and become more predictable.

Cost of sales .

Cost of sales was $35, or 106% of total revenue, for the three months ended June 30, 2020, a decrease from $103, or 78% of products revenue, for the three months ended June 30, 2019.

Cost of sales was $71, or 68% of total revenue, for the six months ended June 30, 2020, a decrease from $282, or 79% of products revenue, for the six months ended June 30, 2019.

The decrease in our cost of sales as a percentage of products revenue for the three and six months ended June 30, 2020 was primarily attributable to lower production volumes during 2020 and the timing of licensing revenues.

If we begin increasing our products revenues with shipments of routine, commercial products and parts through third party contract manufacturers, we expect our cost of sales percentages to decrease, stabilize and be more predictable.

Gross profit (loss) .

Our gross profit (loss) decreased to $(2) for the three month period ended June 30, 2020 from $29 for the three month period ended June 30, 2019.

Our gross profit as a percentage of total revenue, decreased to (6)% for the three month period ended June 30, 2020 from 22% for the three month period ended June 30, 2019.

Our gross profit (loss) decreased to $33 for the six month period ended June 30, 2020 from $73 for the six month period ended June 30, 2019.

Our gross profit as a percentage of total revenue, increased to 32% for the six month period ended June 30, 2020 from 21% for the six month period ended June 30, 2019.

Early prototype and pre-production orders generally result in a higher cost mix, relative to revenue, than would otherwise be incurred in an on-site production environment, with higher volumes and more established operating processes, or through contract manufacturers.

As such, our gross profit percentages have fluctuated and may continue to fluctuate based on volume and quoted production prices per unit and may not be representative of our future business.

If we begin increasing our products revenues with shipments of routine, commercial products and parts through future orders to third party contract manufacturers, we expect our gross profit percentages to stabilize, increase, and be more predictable.

Cost of sales was $171, or 52% of total revenue, for the three months ended September 30, 2020, a decrease from $284, or 67% of total revenue, for the three months ended September 30, 2019.

Cost of sales was $242, or 56% of total revenue, for the nine months ended September 30, 2020, a decrease from $566, or 73% of products revenue, for the nine months ended September 30, 2019.

The decrease in our cost of sales as a percentage of products revenue for the three and nine months ended September 30, 2020 was primarily attributable to more predictable costs associated with established volume manufacturers.

If we are able to sustain and increase shipments of routine, commercial products and parts through third party contract manufacturers, we expect our cost of sales percentages to decrease, stabilize, and be more predictable.

Gross profit .

Our gross profit increased to $156 for the three month period ended September 30, 2020 from $137 for the three month period ended September 30, 2019.

Our gross profit as a percentage of total revenue, increased to 48% for the three month period ended September 30, 2020 from 33% for the three month period ended September 30, 2019.

Our gross profit decreased to $189 for the nine month period ended September 30, 2020 from $210 for the nine month period ended September 30, 2019.

Our gross profit as a percentage of total revenue, increased to 44% for the nine month period ended September 30, 2020 from 27% for the nine month period ended September 30, 2019.

Our gross profit percentages have fluctuated and may continue to fluctuate based on production volumes and quoted production prices per unit and may not be representative of our future business.

If we are able to sustain and increase shipments of routine, commercial products and parts through future orders to third party contract manufacturers, we expect our gross profit percentages to stabilize, increase, and be more predictable.

Selling, marketing, general and administrative .

Selling, marketing, general, and administrative expenses were $870 and $1,857 for the three and six months ended June 30, 2020, respectively, compared to $1,275 and $2,708 for the three and six months ended June 30, 2019, respectively.

Selling, marketing, general, and administrative expenses were $1,096 and $2,953 for the three and nine months ended September 30, 2020, respectively, compared to $1,380 and $4,088 for the three and nine months ended September 30, 2019, respectively.

The decrease in expenses was attributable to overall lower costs for employee compensation due to headcount reductions associated with the 2019 Restructuring Plan.

These decreases were off-set by an increase in bad debt expense.

Research and development .

Research and development expenses were $27 and $56 for the three and six months ended June 30, 2020, respectively, compared to $406 and $895 for the three and six months ended June 30, 2019, respectively.

Research and development expenses were $30 and $86 for the three and nine months ended September 30, 2020, respectively, compared to $284 and $1,179 for the three and nine months ended September 30, 2019, respectively.

The decrease in expense was mainly due to reductions in employee compensation, and associated development initiatives, due to headcount reductions associated with the 2019 Restructuring Plan.

Going forward, we will continue to perform research and development of new Liquidmetal alloys and related processing capabilities, albeit on a reduced basis in comparison with prior periods.

(Gain) loss on disposal of fixed assets.

During the three and six months ended June 30, 2020, the Company recorded gains on the disposal of fixed assets of $15 and $35, respectively.

This compares to losses on disposal of fixed assets of $5 and $5 during the three and six months ended June 30, 2019.

Gain on disposal of fixed assets.

During the three and nine months ended September 30, 2020, the Company recorded gains on the disposal of fixed assets of $0 and $35, respectively.

This compares to gains on disposal of fixed assets of $7 and $2 during the three and nine months ended September 30, 2019.

Operating loss .

Operating loss was $884 and $1,845 for the three and six months ended June 30, 2020, respectively.

This compares to $3,333 and $5,211 for the three and six months ended June 30, 2019, respectively.

Operating loss was $970 and $2,815 for the three and nine months ended September 30, 2020, respectively.

This compares to $1,520 and $6,731 for the three and nine months ended September 30, 2019, respectively.

Fluctuations in our operating loss are primarily attributable to variations in operating expenses, as discussed above.

4 unchanged sentences

Lease income relates to straight-line rental income received under the Facility Lease.

Such amounts were $132 and $220 for the three and six months ended June 30, 2020, respectively.

No such income was recorded during the three and six months ended June 30, 2019.

Such amounts were $132 and $352 for the three and nine months ended September 30, 2020, respectively.

No such income was recorded during the three and nine months ended September 30, 2019.

Interest and investment income.

Interest and investment income relates to interest earned from our cash deposits and investments in debt securities for the respective periods.

Interest and investment income was $109 and $236 for the three and six months ended June 30, 2020, respectively.

This compares to interest and investment income of $109 and $219 during the three and six months ended June 30, 2019, respectively.

Interest and investment income was $61 and $297 for the three and nine months ended September 30, 2020, respectively.

This compares to interest and investment income of $125 and $344 during the three and nine months ended September 30, 2019, respectively.

Liquidity and Capital Resources

Cash used in operating activities

Cash used in operating activities totaled $1,204 and $2,456 for the six months ended June 30, 2020 and 2019, respectively.

Cash used in operating activities totaled $1,785 and $3,666 for the nine months ended September 30, 2020 and 2019, respectively.

The cash was primarily used to fund operating expenses related to our business and product development efforts.

Following the completion of the 2019 Restructuring Plan, cash used in operating activities for the six months ended June 30, 2020 will be reflective of cash usages going forward.

Cash provided by ( used in ) investing activities

Cash provided by (used in) investing activities totaled $2,187 and $(592) for the six months ended June 30, 2020 and 2019, respectively.

Investing inflows primarily consist of proceeds from the sale of debt securities.

Following the completion of the 2019 Restructuring Plan, cash used in operating activities for the nine months ended September 30, 2020 are expected to be reflective of cash usages going forward.

Cash used in investing activities

Cash used in investing activities totaled $12,320 and $358 for the nine months ended September 30, 2020 and 2019, respectively.

Investing inflows primarily consist of proceeds from the sale of debt securities and proceeds from the sale of fixed assets.

Investing outflows primarily consist of purchases of debt securities and capital expenditures for additional production equipment and building improvements.

Cash provided by financing activities

Cash provided by financing activities totaled $0 and $14 for the six months ended June 30, 2020 and 2019, respectively.

Cash provided by financing activities totaled $0 and $14 for the nine months ended September 30, 2020 and 2019, respectively.

Cash provided by financing activities is comprised of cash received for the issuance of shares following the exercise of stock options.

5 unchanged sentences

As a result of the funding under the 2016 Purchase Agreement, the Company anticipates that its current capital resources, when considering expected losses from operations, will be sufficient to fund the Company’s operations for the foreseeable future.

As of September 30, 2020, the Company had recorded $5,443 in cash and restricted cash, as well as $23,845 in investments in debt securities.

The Company views the total of this as readily available sources of liquidity in the event needed to advance the Company’s existing strategy, and/or pursue an alternative strategy.

Off Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements.

As of September 30, 2020, we did not have any off-balance sheet arrangements.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis