This management's discussion and analysis should be read in conjunction with the
consolidated financial statements and notes included elsewhere in this Quarterly
Report on Form 10-Q. All amounts described in this section are in thousands,
except percentages, periods of time, and share and per share data.



This management's discussion and analysis, as well as other sections of this
Quarterly Report on Form 10-Q, may contain "forward-looking statements" that
involve risks and uncertainties, including statements regarding our plans,
future events, objectives, expectations, estimates, forecasts, assumptions, or
projections. Any statement that is not a statement of historical fact is a
forward-looking statement, and in some cases, words such as "believe,"
"estimate," "project," "expect," "intend," "may," "anticipate," "plan," "seek,"
and similar words or expressions identify forward-looking statements. These
statements involve risks and uncertainties that could cause actual outcomes and
results to differ materially from the anticipated outcomes or results, and undue
reliance should not be placed on these statements. These risks and uncertainties
include, but are not limited to, the matters discussed in Part II herein, under
the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2020 and other risks and uncertainties discussed
in other filings made with the Securities and Exchange Commission (including
risks described in subsequent reports on Form 10-Q and Form 8-K and other
filings). We disclaim any intention or obligation, other than as required by
applicable law, to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.





Overview



We are a materials technology company that develops and commercializes products
made from amorphous alloys. Our Liquidmetal® family of alloys consists of a
variety of proprietary bulk alloys and composites that utilize the advantages
offered by amorphous alloy technology. We design, develop, and sell custom
products and parts from bulk amorphous alloys to customers in various
industries. We also partner with third-party manufacturers and licensees to
develop and commercialize Liquidmetal alloy products.



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



In July 2019, we adopted a restructuring plan pursuant to which we elected to
wind down our manufacturing operations at our Lake Forest, CA facility and
proceeded to outsource the manufacture of parts utilizing our technology through
domestic and international manufacturing partners (the "2019 Restructuring
Plan"). In connection with the 2019 Restructuring Plan, we have shifted our
business strategy from internal manufacture of parts and products for customers
toward the use and reliance of outsourced manufacturers, which will initially be
Dongguan Yihao Metals Materials Technology Co., Ltd. ("Yihao"), a China-based
company in which our largest beneficial stockholder and Chairman, Professor
Lugee Li, holds a material, indirect, equity interest. We will also seek to
develop other manufacturers, both global and domestic, to aid in the further
advancement of our technology and operations.



Licensing Transactions



Eontec License Agreement



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



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



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

Eutectix Business Development Agreement





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



Apple License Transaction



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



Under the agreements relating to the license transaction with Apple, we were
obligated to contribute, to CIP, all intellectual property developed by us
through February 2016. We are also obligated to maintain certain limited
liability company formalities with respect to CIP at all times after the closing
of the license transaction.

Other Material License Transactions





Our Liquidmetal Golf subsidiary has the exclusive right and license to utilize
our Liquidmetal alloy technology for purposes of golf equipment applications.
This right and license is set forth in an intercompany license agreement between
Liquidmetal Technologies and Liquidmetal Golf. This license agreement provides
that Liquidmetal Golf has a perpetual and exclusive license to use Liquidmetal
alloy technology for the purpose of manufacturing, marketing, and selling golf
club components and other products used in the sport of golf. We own 79% of the
outstanding common stock of Liquidmetal Golf.



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

Critical Accounting Policies and Estimates





The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates and assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results could differ materially from
these estimates under different assumptions or conditions.



We believe that the following accounting policies are the most critical to our
consolidated financial statements since these policies require significant
judgment or involve complex estimates that are important to the portrayal of our
financial condition and operating results:



  • Revenue recognition
  • Impairment of long-lived assets and definite-lived intangibles
  • Deferred tax assets
  • Share based compensation




Our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020
Annual Report") contains further discussions on our critical accounting policies
and estimates.



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Results of Operations

Comparison of the three and six months ended June 30, 2021 and 2020





                                  For the three months ended June 30,                                    For the six months ended June 30,
                     2021                                  2020                              2021                              2020
                   in 000's         % of Revenue         in 000's       % of Revenue       in 000's        % of Revenue      in 000's       % of Revenue


Revenue:
Products           $     231                            $       33                        $      294                         $      79
Licensing and
royalties                 12                                     -                                21                                25
Total revenue            243                                    33                               315                               104

Cost of sales            154                   63 %             35                106 %          209                  66 %          71                 68 %
Gross profit
(loss)                    89                   37 %             (2 )               -6 %          106                  34 %          33                 32 %

Selling,
marketing,
general and
administrative           849                  349 %            870               2636 %        1,728                 549 %       1,857               1786 %
Research and
development               38                   16 %             27                 82 %           60                  19 %          56                 54 %
Gain on disposal
of long-lived
assets                     -                    0 %            (15 )              -45 %            -                   0 %         (35 )              -34 %
Total operating
expense                  887                                   882                             1,788                             1,878

Operating loss          (798 )                                (884 )                          (1,682 )                          (1,845 )

Lease income             132                                   132                               264                               220
Interest and
investment
income                    41                                   109                               102                               236

Net loss           $    (625 )                          $     (643 )                      $   (1,316 )                       $  (1,389 )

Revenue and operating expenses





Revenue. Total revenue increased to $243 for the three months ended June 30,
2021 from $33 for the three months ended June 30, 2020. Total revenue increased
to $315 for the six months ended June 30, 2021 from $104 for the six months
ended June 30, 2020. The increase for both period was attributable to higher
general production shipments of products made by our contract manufacturers and
increases in payments under development projects, following the Company's
transition to outsourced manufacturing in 2020.



Cost of sales. Cost of sales was $154, or 63% of total revenue, for the three
months ended June 30, 2021, an increase from $35, or 106% of total revenue, for
the three months ended June 30, 2020. Cost of sales was $209, or 66% of total
revenue, for the six months ended June 30, 2021, an increase from $71, or 68% of
total revenue, for the six months ended June 30, 2020. The increase for both
periods was attributable to higher revenues and stable gross profit percentages.
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) increased to $89 for the three
month period ended June 30, 2021 from $(2) for the three month period ended June
30, 2020. Our gross profit (loss) as a percentage of total revenue, increased to
37% for the three month period ended June 30, 2021 from (6)% for the three month
period ended June 30, 2020. Our gross profit (loss) increased to $106 for the
six month period ended June 30, 2021 from $33 for the six month period ended
June 30, 2020. Our gross profit (loss) as a percentage of total revenue,
increased to 34% for the six month period ended June 30, 2021 from 32% for the
six month period ended June 30, 2020. Early prototype and pre-production orders
generally result in a higher cost mix, relative to revenue, than would otherwise
be incurred in an on-site production environment, with higher volumes and more
established operating processes, or through contract manufacturers. As such, our
gross profit percentages have fluctuated and may continue to fluctuate based on
volume and quoted production prices per unit and may not be representative of
our future business. If we begin increasing our products revenues with shipments
of routine, commercial products and parts through future orders to third party
contract manufacturers, we expect our gross profit percentages to stabilize,
increase, and be more predictable.



Selling, marketing, general and administrative. Selling, marketing, general, and
administrative expenses were $849 and $1,728 for the three and six months ended
June 30, 2021, respectively, compared to $870 and $1,857 for the three and six
months ended June 30, 2020, respectively. The decrease in expenses was primarily
attributable to lower general operating costs as the Company continues to scale
its expense structure.



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Research and development. Research and development expenses were $38 and $60 for
the three and six months ended June 30, 2021, respectively, compared to $27 and
$56 for the three and six months ended June 30, 2020. We continue to perform
research and development of new Liquidmetal alloys and related processing
capabilities, albeit on a reduced basis in comparison with prior periods.



Gain on disposal of fixed assets. During the three and six months ended June 30,
2020, the Company recorded gains on the disposal of fixed assets of $15 and $35,
respectively. Similar gains were not recorded during the three and six months
ended June 30, 2021.



Operating loss. Operating loss was $798 and $1,682 for the three and six months
ended June 30, 2021, respectively. This compares to $884 and $1,845 for the
three and six months ended June 30, 2020, respectively. Fluctuations in our
operating loss are primarily attributable to variations in operating expenses,
as discussed above.



We continue to invest in our technology infrastructure to expedite the adoption
of our technology, but we have experienced long sales lead times for customer
adoption of our technology. Until that time when we can either (i) increase our
revenues with shipments of routine, commercial products and parts through third
party contract manufacturers or (ii) obtain significant licensing revenues, we
expect to continue to have operating losses for the foreseeable future.



Other income and expenses



Lease income. Lease income relates to straight-line rental income received under
the Facility Lease. Such amounts were $132 and $264 for the three and six months
ended June 30, 2021, respectively. This compares to $132 and $220 for the three
and six months ended June 30, 2020, respectively.



Interest and investment income. Interest and investment income relates to
interest earned from our cash deposits and investments in debt securities for
the respective periods. Interest and investment income was $41 and $102 for the
three and six months ended June 30, 2021, respectively. This compares to
interest and investment income of $109 and $236 during the three and six months
ended June 30, 2020, respectively. The decrease during 2021 is due continued
volatility in corporate debt markets, which is resulting in reduced yields.

Liquidity and Capital Resources

Cash used in operating activities





Cash used in operating activities totaled $724 and $1,204 for the six months
ended June 30, 2021 and 2020, respectively. The cash was primarily used to fund
operating expenses related to our business and product development efforts.

Cash provided by investing activities





Cash provided by investing activities totaled $10,135 and $2,187 for the six
months ended June 30, 2021 and 2020, respectively. Investing inflows primarily
consist of proceeds from the sale of debt securities. Investing outflows
primarily consist of purchases of debt securities and capital expenditures for
additional building improvements.

Cash provided by financing activities

Cash provided by financing activities totaled $0 and $0 for the six months ended June 30, 2021 and 2020, respectively.

Financing arrangements and outlook





During 2016, we raised a total of $62,700 through the issuance of 405,000,000
shares of our common stock in multiple closings under the 2016 Purchase
Agreement. The Company has a relatively limited history of selling bulk
amorphous alloy products and components on a mass-production scale. Furthermore,
the ability of future contract manufacturers to produce the Company's products
in desired quantities and at commercially reasonable prices is uncertain and is
dependent on a variety of factors that are outside of the Company's control,
including the nature and design of the component, the customer's specifications,
and required delivery timelines. These factors have previously required that the
Company engage in equity sales under various stock purchase agreements to
support its operations and strategic initiatives. As a result of the funding
under the 2016 Purchase Agreement, the Company anticipates that its current
capital resources, when considering expected losses from operations, will be
sufficient to fund the Company's operations for the foreseeable future.



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