Item 1. Financial Statements
Item 1 – Financial Statements
LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
( $ in thousands, except par value and share data)
September 30,
December 31,
2020
2019
(Unaudited)
(Audited)
ASSETS
Current assets:
Cash and cash equivalents
$
5,438
$
19,543
Restricted cash
5
5
Investments in debt securities- short term
11,566
4,415
Trade accounts receivable, net of allowance for doubtful accounts
182
303
Inventory
47
12
Prepaid expenses and other current assets
600
322
Total current assets
$
17,838
$
24,600
Investments in debt securities- long term
12,279
7,074
Property and equipment, net
8,694
8,819
Patents and trademarks, net
177
239
Equipment held for sale
-
585
Other assets
235
14
Total assets
$
39,223
$
41,331
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
316
$
132
Accrued liabilities
310
775
Total current liabilities
$
626
$
907
Long-term liabilities
Other long-term liabilities
899
856
Total liabilities
$
1,525
$
1,763
Shareholders' equity:
Preferred Stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 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 September 30, 2020 and December 31, 2019, respectively
914
914
Warrants
18,179
18,179
Additional paid-in capital
287,088
286,832
Accumulated deficit
(268,449
)
(266,284
)
Accumulated other comprehensive income
42
2
Non-controlling interest in subsidiary
(76
)
(75
)
Total shareholders' equity
$
37,698
$
39,568
Total liabilities and shareholders' equity
$
39,223
$
41,331
The accompanying notes are an integral part of the consolidated financial statements.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
( $ in thousands, except share and per share data)
(unaudited)
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020
2019
2020
2019
Revenue
Products
$
288
$
373
$
367
$
728
Licensing and royalties
39
48
64
48
Total revenue
327
421
431
776
Cost of sales
171
284
242
566
Gross profit
156
137
189
210
Operating expenses
Selling, marketing, general and administrative
1,096
1,380
2,953
4,088
Research and development
30
284
86
1,179
Impairment of long-lived assets
-
-
-
1,676
Gain on disposal of long-lived assets
-
(7
)
(35
)
(2
)
Total operating expenses
1,126
1,657
3,004
6,941
Operating loss
(970
)
(1,520
)
(2,815
)
(6,731
)
Lease income
132
-
352
-
Interest and investment income
61
125
297
344
Loss before income taxes
(777
)
(1,395
)
(2,166
)
(6,387
)
Income taxes
-
-
-
-
Net loss
(777
)
(1,395
)
(2,166
)
(6,387
)
Net loss attributable to non-controlling interest
1
-
1
1
Net loss attributable to Liquidmetal Technologies shareholders
$
(776
)
$
(1,395
)
$
(2,165
)
$
(6,386
)
Per common share basic and diluted:
Net loss per common share attributable to Liquidmetal Technologies 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
914,332,758
The accompanying notes are an integral part of the consolidated financial statements.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
($ in thousands, except share and per share data)
(unaudited)
For the Three Months
Ended September 30,
For the Nine Months
Ended September,
2020
2019
2020
2019
Net loss
$
(777
)
$
(1,395
)
$
(2,166
)
$
(6,387
)
Net unrealized (losses) gains on available-for-sale securities
(48
)
-
40
-
Other comprehensive income (loss), net of tax
(48
)
-
40
-
Comprehensive loss
$
(825
)
$
(1,395
)
$
(2,126
)
$
(6,387
)
Less: Comprehensive loss attributable to noncontrolling interests
1
-
1
1
Comprehensive loss attributable to Liquidmetal Technologies shareholders
$
(824
)
$
(1,395
)
$
(2,125
)
$
(6,386
)
The accompanying notes are an integral part of the consolidated financial statements.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
( $ in thousands, except per share data)
(unaudited)
For the Nine Months Ended
September 30,
2020
2019
Operating activities:
Net loss
$
(2,166
)
$
(6,387
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
303
848
Realized investment gains
(2
)
-
Bad debt expense
226
-
Stock-based compensation
256
415
Impairment of long-lived assets
-
1,676
Gain on disposal of long-lived assets
(35
)
(2
)
Changes in operating assets and liabilities:
Trade accounts receivable
(105
)
(192
)
Inventory
(35
)
(55
)
Prepaid expenses and other current assets
(188
)
(48
)
Other assets and liabilities
(178
)
-
Accounts payable and accrued liabilities
139
109
Deferred revenue
-
(30
)
Net cash used in operating activities
(1,785
)
(3,666
)
Investing Activities:
Purchases of property and equipment
(116
)
(630
)
Proceeds from disposal of fixed assets
110
272
Purchases of debt securities
(21,641
)
-
Proceeds from sales of debt securities
9,327
-
Net cash used in investing activities
(12,320
)
(358
)
Financing Activities:
Proceeds from exercise of stock options
-
14
Net cash provided by financing activities
-
14
Net decrease in cash, cash equivalents, and restricted cash
(14,105
)
(4,010
)
Cash, cash equivalents, and restricted cash at beginning of period
19,548
35,234
Cash, cash equivalents, and restricted cash at end of period
$
5,443
$
31,224
Supplemental Schedule of Non-Cash Investing Activities:
Settlement of contract liability from disposal of fixed assets
420
-
The accompanying notes are an integral part of the consolidated financial statements.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
1. Description of Business
Liquidmetal Technologies, Inc. (the “Company”) is a materials technology company that develops and commercializes products made from amorphous alloys. The Company’s family of alloys consists of a variety of bulk alloys and composites that utilize the advantages offered by amorphous alloys technology. The Company designs, develops, and sells products and custom parts from bulk amorphous alloys to customers in a wide range of industries. The Company also partners with third-party manufacturers and licensees to develop and commercialize Liquidmetal alloy products.
Amorphous alloys are, in general, unique materials that are distinguished by their ability to retain a random atomic structure when they solidify, in contrast to the crystalline atomic structure that forms in other metals and alloys when they solidify. Liquidmetal alloys are proprietary amorphous alloys that possess a combination of performance, processing, and potential cost advantages that the Company believes will make them preferable to other materials in a variety of applications. The amorphous atomic structure of bulk alloys enables them to overcome certain performance limitations caused by inherent weaknesses in crystalline atomic structures, thus facilitating performance and processing characteristics superior in many ways to those of their crystalline counterparts. The Company believes that the alloys and the molding technologies it employs may result in components, for many applications, that exhibit: exceptional dimensional control and repeatability that rivals precision machining, excellent corrosion resistance, brilliant surface finish, high strength, high hardness, high elastic limit, alloys that are non-magnetic, and the ability to form complex shapes common to the injection molding of plastics. Interestingly, all of these characteristics are achievable from the molding process, so design engineers often do not have to select specific alloys to achieve one or more of the characteristics as is the case with crystalline materials. The Company believes these advantages could result in Liquidmetal alloys supplanting high-performance alloys, such as titanium and stainless steel, and other incumbent materials in a wide variety of applications. Moreover, the Company believes these advantages could enable the introduction of entirely new products and applications that are not possible or commercially viable with other materials.
The Company’s revenues are derived from i) selling bulk Liquidmetal alloy products to customers who produce medical devices, automotive assemblies, sports and leisure goods, and non-consumer electronic devices, ii) selling tooling and prototype parts such as demonstration parts and test samples for customers with products in development, iii) product licensing and royalty revenue, and iv) research and development revenue. The Company expects that these sources of revenue will continue to significantly change the character of the Company’s revenue mix.
2 . Basis of Presentation and Recent Accounting Pronouncements
The accompanying unaudited interim consolidated financial statements as of and for the three and nine months ended September 30, 2020 and September 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 nine months ended September 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 nine month periods ended September 30, 2020 and 2019.
F air 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.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 September 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:
Fair Value
Level 1
Level 2
Level 3
Investments in debt securities (short-term)
$
11,566
$
7,580
$
3,986
$
-
Investments in debt securities (long-term)
12,279
-
12,279
-
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:
Fair Value
Level 1
Level 2
Level 3
Investments in debt securities (short-term)
$
4,415
$
705
$
3,710
$
-
Investments in debt securities (long-term)
7,074
908
6,166
-
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 (“Professor Li”).
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 and is scheduled to expire on April 30, 2025. 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 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.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 licensed to Eutectix specified equipment owned by the Company, including two injection molding machines, two diecasting machines, and other machines and equipment, all of which will be used to make product for Company customers and Eutectix customers. The licensed machines and equipment represented substantially all of the machinery and equipment then held by the Company. The Company has also licensed to Eutectix various patents and technical information related to the Company’s proprietary technology. Under the Agreement, Eutectix agreed to pay the Company a royalty of six percent (6%) of the net sales price of licensed products sold by Eutectix, and Eutectix will also manufacture for the Company product ordered by the Company. The 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.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
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):
Amortized Cost
Fair Value
Unrealized gains (losses)
September 30,
December 31,
September 30,
December 31,
September 30,
December 31,
Longest
Maturity Date
2020
2019
2020
2019
2020
2019
U.S. government and agency securities
2022
$
-
$
1,612
$
-
$
1,612
$
-
$
-
Corporate bonds
2025
23,803
7,474
23,845
7,476
42
2
Certificates of deposit
One-year
-
2,400
-
2,400
-
-
$
23,803
$
11,486
$
23,845
$
11,488
$
42
$
2
Income from these investments totaled $61 and $187 during the three and nine months ended September 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 September 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 September 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 September 30, 2020.
5. Trade Accounts Receivable
Trade accounts receivable were comprised of the following:
September 30,
December 31,
2020
2019
Trade accounts receivable
$
416
$
311
Less: Allowance for doubtful accounts
(234
)
(8
)
Trade accounts receivable
$
182
$
303
During the three and nine month periods ended September 30, 2020, the Company recorded an additional allowance for doubtful accounts of $226 for receivables related to products delivered to a customer at the end of 2019. The allowance is a result of financial uncertainties affecting the customer’s ability to make payments on outstanding invoices. The allowance was recorded as bad debt expense as a portion of selling, marketing, general and administrative expenses.
6. P repaid Expenses and Other Current Assets
Prepaid expenses and other current assets totaled $600 and $322 as of September 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:
September 30,
December 31,
2020
2019
Prepaid service invoices
$
36
$
42
Prepaid insurance premiums
321
198
Prepaid lease costs and receivables- short term
23
-
Interest and other receivables
220
82
Total
$
600
$
322
As of September 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 $4 in receivables for allocated utility costs. As of September 30, 2020, interest and other receivables are comprised of $130 in interest receivable from investments in debt securities and $90 in receivables due under completed fixed asset sales (refer to Note 8 below).
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
7 . Inventory
Inventory totaled $47 and $12 as of September 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:
September 30,
December 31,
2020
2019
Work in progress
$
47
$
12
Total
$
47
$
12
8 . Property and Equipment, net
Property and equipment consist of the following:
September 30,
December 31,
2020
2019
Land, building, and improvements
$
9,610
$
9,495
Machinery and equipment
1,304
1,482
Computer equipment
272
272
Office equipment, furnishings, and improvements
51
63
Total
11,237
11,312
Accumulated depreciation
(2,543
)
(2,493
)
Total property and equipment, net
$
8,694
$
8,819
Depreciation expense for three and nine months ended September 30, 2020 was $79 and $240, respectively. Depreciation expense for three and nine months ended September 30, 2019 was $265 and $785, respectively. For the three and nine months ended September 30, 2020, $0 and $0 of depreciation expense, respectively, was included in cost of sales and $79 and $240 was included in selling, marketing, general, and administrative expenses, respectively. For the three and nine months ended September 30, 2019, $24 and $75 of depreciation expense, respectively, was included in cost of sales and $241 and $710 was included in selling, marketing, general and administrative expenses, respectively.
During the three and nine months ended September 30, 2020, the Company disposed of certain manufacturing equipment for gross proceeds of $110. This resulted in a gain on disposal of $0 and $35 during the three and nine months ended September 30, 2020. Similar sales resulted in losses of $7 and $2 during the three and nine months ended September 30, 2019, respectively.
9. Equipment Held for Sale
The Company previously reclassified $585 in equipment, planned to be disposed of under the 2019 Restructuring Plan, from property and equipment to equipment held for sale on its consolidated balance sheet. The Company has executed a purchase agreement for the equipment, with a negotiated sales price of $600. The sale was finalized during the quarter ended June 30, 2020, following delivery and title transfer of the equipment to the buyer. As of September 30, 2020, the Company had received $510 in proceeds from the sale of this equipment, with the remaining $90 of the purchase price being recorded as a receivable within prepaid expenses and other current assets.
During October 2020, the remaining $90 of the purchase price was received, thus completing all elements of the purchase agreement for the equipment originally held for sale.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
10 . Patents and T rademarks, net
Net patents and trademarks totaled $177 and $239 as of September 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.
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 $63 for the three and nine months ended September 30, 2020, respectively. This compares to $21 and $63 for the three and nine months ended September 30, 2019, respectively.
11 . Other Assets
Other assets totaled $235 and $14 as of June 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:
September 30,
December 31,
2020
2019
Utility deposits
$
14
$
14
Prepaid lease costs and receivables- long term
221
-
Total
$
235
$
14
As of September 30, 2020, prepaid lease costs and receivables- long term are comprised of $68 in unamortized prepaid broker commissions that are not expected to be amortized within the next twelve months and $153 in straight-line rent accruals.
1 2 . Accrued Liabilities
Accrued liabilities totaled $310 and $775 as of September 30, 2020 and December 31, 2019, respectively. Included within these totals are the following:
September 30,
December 31,
2020
2019
Accrued payroll, vacation, and bonuses
$
166
$
169
Accrued severance
56
67
Accrued audit fees
88
119
Contract liability
-
420
Total
$
310
$
775
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, including details regarding the severance elements that the Company had adopted, were communicated to all impacted employees in July 2019. 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 September 30, 2020, payments totaling $217 had been made, resulting in a remaining liability under the 2019 Restructuring Plan of $56 as of September 30, 2020.
1 3 . Other Long- T erm L iabilities
Other long-term liabilities were $899 as of September 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 September 30, 2020 is $43 in tenant deposits.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
1 4 . Stock Compensation Plan s
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 remained in effect only with respect to the equity awards that had been granted prior to its expiration. During the three months ended September 30, 2020, all remaining awards under the 2002 Plan expired under their contractual terms. As of September 30, 2020 and December 31, 2019, there were 0 and 69,000 options, respectively, outstanding under the 2002 Plan.
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 nine months ended September 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 5,609,192 and 6,930,445 shares of the Company’s common stock as of September 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 nine months ended September 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 September 30, 2020 and December 31, 2019, respectively.
Stock based compensation expense attributable to these plans was $83 and $256 for the three and nine months ended September 30, 2020, respectively. This compares to $73 and $415 for the three and nine months ended September 30, 2019, respectively.
1 5 . Facility Lease
Amounts collected under the Facility Lease are comprised of base rents and reimbursements for direct facility expenses (property taxes and insurance), common area maintenance, and utilities. Amounts recorded to lease income are comprised of base rents and direct facility expenses, recorded on a straight-line basis over the lease term. Reimbursements for common area maintenance and utility expense are recorded as reductions to like expenses within sales, general, and administrative costs.
The future minimum rents due to the Company under the Facility Lease are as follows:
Year
Base Rents
2020
$
116
2021
474
2022
486
2023
651
2024
699
Thereafter
237
$
2,663
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
16. Consolidated Statements of Changes in Equity
The following table provides the Company’s changes in equity for the three months ended September 30, 2020:
Preferred
Shares
Common
Shares
Common
Stock
Warrants part of Additional Paid-in
Capital
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensve
Income (Loss)
Non-
Controlling
Interest
Total
Balance, June 30, 2020
-
914,449,957
$
914
$
18,179
$
287,005
$
(267,673
)
$
90
$
(75
)
$
38,440
Stock-based compensation
83
83
Net loss
(776
)
(1
)
(777
)
Other comprehensive loss
(48
)
(48
)
Balance, September 30, 2020
-
914,449,957
$
914
$
18,179
$
287,088
$
(268,449
)
$
42
$
(76
)
$
37,698
The following table provides the Company’s changes in equity for the nine months ended September 30, 2020:
Preferred
Shares
Common
Shares
Common
Stock
Warrants part of Additional Paid-in
Capital
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensve
Income
Non-
Controlling
Interest
Total
Balance, December 31, 2019
-
914,449,957
$
914
$
18,179
$
286,832
$
(266,284
)
$
2
$
(75
)
$
39,568
Stock-based compensation
256
256
Net loss
(2,165
)
(1
)
(2,166
)
Other comprehensive income
40
40
Balance, September 30, 2020
-
914,449,957
$
914
$
18,179
$
287,088
$
(268,449
)
$
42
$
(76
)
$
37,698
The following table provides the Company’s changes in equity for the three months ended September 30, 2019:
Preferred
Shares
Common
Shares
Common
Stock
Warrants part of Additional Paid-in
Capital
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensve
Income
Non-
Controlling
Interest
Total
Balance, June 30, 2019
-
914,359,124
$
914
$
18,179
$
286,632
$
(263,845
)
$
-
$
(75
)
$
41,805
Stock option exercises
-
-
-
-
Stock-based compensation
73
73
Net loss
(1,395
)
-
(1,395
)
Balance, September 30, 2019
-
914,359,124
$
914
$
18,179
$
286,705
$
(265,240
)
$
-
$
(75
)
$
40,483
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 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 nine months ended September 30, 2019:
Preferred
Shares
Common
Shares
Common
Stock
Warrants part of Additional Paid-in
Capital
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensve
Income
Non-
Controlling
Interest
Total
Balance, December 31, 2018
-
914,206,832
$
914
$
18,179
$
286,276
$
(258,854
)
$
-
$
(74
)
$
46,441
Stock option exercises
152,292
-
14
14
Stock-based compensation
415
415
Net loss
(6,386
)
(1
)
(6,387
)
Balance, September 30, 2019
-
914,359,124
$
914
$
18,179
$
286,705
$
(265,240
)
$
-
$
(75
)
$
40,483
1 7 . 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 September 30, 2020:
Unrealized gains
(losses) on
available-for-sale
securities
Total
Accumulated other comprehensive income (loss), net of tax, as of June 30, 2020
$
90
$
90
Other comprehensive loss before reclassifications
(48
)
(48
)
Amounts reclassified from accumulated other comprehensive income (loss)
-
-
Net increase in other comprehensive income (loss)
(48
)
(48
)
Accumulated other comprehensive income (loss), net of tax, as of September 30, 2020
$
42
$
42
The following table presents a summary of the changes in each component of AOCI for the nine months ended September 30, 2020:
Unrealized gains
(losses) on
available-for-sale
securities
Total
Accumulated other comprehensive income (loss), net of tax, as of December 31, 2019
$
2
$
2
Other comprehensive income before reclassifications
42
42
Amounts reclassified from accumulated other comprehensive income (loss)
(2
)
(2
)
Net increase in other comprehensive income (loss)
40
40
Accumulated other comprehensive income (loss), net of tax, as of September 30, 2020
$
42
$
42
There was no activity associated with these components of AOCI for the three and nine months ended September 30, 2019.
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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2020 and 2019
(numbers in thousands, except percentages, share and per share data)
(unaudited)
1 8 . Loss Per Common Share
Basic earnings per share (“EPS”) is computed by dividing earnings (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the applicable period. Diluted EPS reflects the potential dilution of securities that could share in the earnings.
Options to purchase 17,950,859 shares of common stock, at prices ranging from $0.07 to $0.38 per share, were outstanding at September 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 September 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 20,303,333 shares of common stock, at prices ranging from $0.07 to $0.38 per share, were outstanding at September 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 September 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.
1 9 . 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 Dongguan Yihao Metals Materials Technology Co., Ltd. (“Yihao”). Yihao is currently the Company’s primary outsourced manufacturer. As of September 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 $146 and $214 during the three and nine months ended September 30, 2020, respectively. Equipment and services procured from Eontec, and their affiliates, were $0 and $0 during the three and nine months ended September 30, 2019, respectively.
18
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.