**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q/AAmendment No. 2**

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| **ý**                                        | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                     |
|---------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                        | ** ** | ** **                                                                                                                                                                                                       |
| **For the quarterly period ended June 30,  2005** |
| ** **                                        | ** ** | ** **                                                                                                                                                                                                       |
| **OR**                                            |
| ** **                                        | ** ** | ** **                                                                                                                                                                                                       |
| **o**                                             | ** ** | **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 itscharter**)**

 
| **Delaware**                                                               | ** ** | **33-0264467**                        |
|----------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)            |       | (I.R.S. Employer  Identification No.) |
|                                                                       |       |                                  |
| **25800  Commercentre Drive, Suite 100****Lake  Forest, California 92630** |
| (address of principal executive office,  zip code)                         |

 

Registrant’s telephone number, including area code: **(949) 206-8000**

 

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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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for at least the past 90 days.

 

Yes  ý    No  o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

Yes  ý    No  o

 

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

 

Yes  o    No  ý

 

As of July 11, 2005, there were 41,609,652 shares of the registrant’scommon stock, $.001 par value, outstanding.

 

 

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**LIQUIDMETAL TECHNOLOGIES, INC.AMENDMENT NO. 2 TO FORM 10-QFOR THE QUARTER ENDED JUNE 30, 2005**

** **

**EXPLANATORY NOTE**

 

Weare filing this Amendment No. 2 to our Quarterly Report on Form 10-Q forthe quarter ended June 30, 2005, as filed with the U.S. Securities and ExchangeCommission (SEC) on August 15, 2005 and as amended by Amendment No. 1 on August30, 2005, in response to a request by the SEC to (1) make certain changes tothe disclosure in Item 4 thereof and (2) revise the certifications required bySEC Rule 13a-14(a) as contained therein.

 

Otherthan the changes referred to above, all other information included in the abovedescribed Form 10-Q, as amended, remains unchanged.  This amendment does not reflect eventsoccurring after the filing of such Form 10-Q and does not modify orupdate the disclosures therein in any way other than as required to reflect theamendment as described above and set forth below.

 

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**Item4 – Controls and Procedures**

 

 Evaluation of disclosurecontrols and procedures. During the course of the audit of the financial statements ofLiquidmetal Technologies, Inc. (the “Company”) for the fiscal years endedDecember 31, 2001, 2002, and 2003, it was determined that revenues from certainequipment sales made by the Company to Growell Metal Co., Ltd. in thethird and fourth quarters of 2002 and the first quarter of 2003 shouldnot have been recognized in those periods****.  It was also**** determinedthat certain amounts relating to sales made to Samsung in December 2002, to JSTechnologies in September 2002, and AM Corporation in December 2002 should nothave been recognized.  It also ****was determined thatcompensation expense related to certain stock options granted in 2001 and 2002were not calculated in accordance with generally accepted accounting principlesunder APB Opinion No. 25, SFAS No. 123, and EITF 00-23.** **These determinations and the associated restatement of previouslyissued financial statements, as described more fully elsewhere in the Form 10-Kfor the year ended December 31, 2003, filed on November 10, 2004, suggest that,at the time of the subject transactions and the preparation of the Company’sfinancial statements for the relevant periods, the Company’s disclosurecontrols and procedures (as defined in Rule 13a-15 under the SecuritiesExchange Act of 1934) were not effective as of the end of the periodcovered by such Form 10-K.

 

Liquidmetal Technologies, Inc. (the “Company”)carried out an evaluation, under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer andVice President of Finance, of the effectiveness as of June 30, 2005 of thedesign and operation of the Company’s disclosure controls and procedures pursuantto Rule 13a-15 under the Securities Exchange Act of 1934, as amended.  Basedon that evaluation, the Chief Executive Officer and Vice President of Financehave concluded that these disclosure controls and procedures, as of June 30,2005, were not effective.  Thisdetermination was based primarily on the material weaknesses in internalcontrols over financial reporting identified below.  

**** ****

****Update on Management’s Assessment of InternalControl Over Financial Reporting********.The time and resources committed to the restatement of prior periods’ financialstatements (as aforementioned) delayed the Company’s internal timetable withrespect to its documentation, assessment and evaluation of internal controlover financial reporting, which are required to be undertaken to comply withSection 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”).  Due in part to the issues described in theforegoing paragraph, management’s assessment of the effectiveness of theCompany’s internal control over financial reporting has been substantiallydelayed and is not complete, which in turn has prevented the Company’sindependent registered public accounting firm, Stonefield Josephson, Inc. (“Stonefield”)from being able to satisfactorily complete an audit of the Company’s internalcontrol over financial reporting pursuant to SOX 404.  Based on the foregoing, Stonefield hasdisclaimed an opinion on the Company’s internal control over financialreporting.****

**** ****

****Inattempting to complete its assessment of internal control over financialreporting, management used the criteria established in “Internal Control -Integrated Framework” issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO).  Althoughmanagement has not yet completed its review and assessment of all of theCompany’s internal controls over financial reporting, based on the review andassessment efforts that have actually been completed, management has identifiedseveral control deficiencies that existed during and as of the year endedDecember 31, 2004, some of which have been determined to be material weaknessesin internal control over financial reporting. As a result of the material weaknesses identified below, management hasconcluded that it did not maintain effective internal control over financial reportingas of December 31, 2004, based on the criteria established in COSO.****

**** ****

****We haveidentified the following material weaknesses in connection with our ongoingassessment of internal controls as follows:****

 

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1.***Lack of adequatesegregation of duties in accounts payable and accounts receivable involvingcash receipts and deposits, bank reconciliations, cash disbursements,purchasing, and accounts receivable reconciliations***:

 

Afterthe Company completely moved its accounting function from Tampa, Florida toLake Forest, California in July 2004 and reduced the size of its accountingstaff, duties such as booking of cash receipts, bank reconciliations andjournal entries for corporate accounting were primarily being done by twoaccountants.  During the course of theCompany’s audit for its 2004 fiscal year (which audit occurred during the firstthree months of 2005) and in the course of the Company’s efforts to completethe assessment required by SOX 404 at the same time, it was determined thatthis lack of segregation could contribute to preventing detection of potentialfraud or misstatements of financial information.  Accordingly, beginning in the second quarterof 2005, the Company started taking steps to evaluate its overall accountingduties and segregate these functions for better internal controlstructure.  For example, the Companybegan segregating the cash receipts booking and bank reconciliation among thetwo accountants, as well as segregating invoice entry and  check run function.  Additionally, as discussed below, beginningin the second quarter of 2005, the Company augmented its supervisory reviewprocess to mitigate the potential for fraud and misstatements.  The Company has not identified any adjustmentsas a result of this lack of segregation of duties.

 

2.***Lack of adequatecontrols and monitoring of payroll processing, currently outsourced to a thirdparty provider:***

 

Thismaterial weakness existed throughout 2004 as the Company utilized the services ofa third party payroll processor that was not certified under SAS 70 (Type II).During the course of the Company’s audit for its 2004 fiscal year, it wasdetermined that the risk of using a third party payroll provider that is notSAS 70 certified may contribute to misstatements of payroll and relatedfinancial information.  The Companyintends to remediate this weakness by retaining the services of ADP for payrollprocessing.  ADP is certified under SAS70 (Type II).

 

3.***Lack of documentation toevidence reviews of certain reconciliations***:

 

Duringthe course of the Company’s audit for the 2004 fiscal year, which auditoccurred in January 2005, the Company discovered that certain reconciliations,including bank statements and general ledger accounts, were not fullydocumented because the supervisors performing the review on suchreconciliations occasionally omitted their signature evidencing theirreview.  It was determined at the timethat this lack of documentation may result in certain accounting documents notbeing properly reviewed or there being no evidence of review.  Beginning in the second quarter of 2005, theCompany began taking steps to require that all reviews of reconciliations bysupervisors are evidenced by a supervisor signature and that that allaccounting documents are subject to proper review.  For example, the Company started utilizing a “Preparedby, Reviewed by, Checked by” stamp and required all reconciliations to haveevidence of the review prior to closing month end.

 

4.***Lack of documentation ofauthorization of transactions***:

 

Duringthe course of the Company’s audit for the 2004 fiscal year, the Companydiscovered that, although accounting transactions  may have been authorized by the appropriatepersons, the authorizing person occasionally omitted his signature on therelevant documents or approval forms to evidence his authorization.  This lack of documentation on invoices,purchase requisitions and expense reports may result in certain transactionsnot being properly approved, so in the second quarter of 2005, the Companybegan implementing additional procedures for ensuring that all accountingdocuments are subject to proper approval as well as indication of theapproval.  For example, the Company beganutilizing a “Prepared by, Reviewed by, Checked by” stamp and required that alldocuments have evidence of the approval prior to entry into the Company’saccounting system.

 

5.***Manual performance ofnumerous procedures that could be automated using current reporting systems***:

 

TheCompany uses the SAP system for financial reporting.  During the course of the audit for the 2004fiscal year, it was determined that the Company was manually performingnumerous procedures that could be automated by using the current SAPsystem.  For example, a sales ordermodule in SAP could be utilized to automate the entire order fulfillmentprocess.  While SAP contains many modulesand features which would allow the Company to 

 

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automate certain operationaland accounting procedures and thereby minimize the potential for human error,utilization of such modules would require significant investment in upgradingand maintaining the SAP system. Considering the Company’s current size andlimited resources, management has determined that it is not prudent to makethis investment at the current time. Nevertheless, beginning in the second quarter of 2005 and continuingthereafter, the Company has been taking various steps to minimize the potentialfor human error caused by manual procedures. For example, the Company has established specific procedures for properreview and approval of transactions as outlined in paragraphs 3 and 4above  and expanded utilization of othersoftware tools such as programmed spreadsheets.

 

6.***Material adjustments tothe accounting records and financial statements as of and for the year endedDecember 31, 2004 that were not initially identified by the Company’s internalcontrol over financial reporting:***

 

Duringthe course of the Company’s SOX 404 assessment efforts during the first severalmonths of 2005, the Company and its auditors identified a number of necessarymaterial adjustments to the Company’s accounting records for 2004.  For example, certain adjustments were bookedto properly value complex debt instruments associated with the refinancing ofthe Company’s debt.  In addition, certainadjustments were booked to impair the Company’s assets which are based onManagement forecasts and overall assessment of the Company’s business.  The Company believes that these adjustmentswere a result of the Company’s focus during 2004 on completing the Company’sthree-year re-audit of its 2001, 2002, and 2003 fiscal years.  As a result of the Company’s SOX 404assessment efforts, the Company has identified these adjustments and hasimplemented additional controls to timely review and assess accounting issuesand prevent the need for such adjustments. While there can be no assurance thatadjustments to financial statements will not occur in the future, with thecompletion of the three-year re-audit, the Company believes that it will beable to devote its resources to completing its accounting assessments andentries timely and effectively.

 

7.***Management’sdocumentation of the evaluation of the significance of numerous controldeficiencies and significant deficiencies identified, which could rise to thelevel of a material weakness, has not been completed:***

 

TheCompany is continuing to diligently work to document and evaluate its internalcontrols under the requirements of SOX 404 during 2005.

 

8.***The company hadinadequate controls related to timely performance of its assessment of internalcontrol over financial reporting:***

 

TheCompany is diligently working to complete its assessment of its internalcontrols over financial reporting under the requirements of SOX 404 during2005.

 

****9.*********Assurance Consulting 3, the independent third partyengaged to help document and assess the Company’s internal controls, hasidentified numerous and significant deficiencies, including those identifiedabove, which management has not completed evaluating whether they would rise tothe level of a material weakness in accordance to the PCAOB Audit Standard No.2.*****

 

****The Company will review these deficiencies during itsassessment of internal controls under the requirements of SOX 404 during 2005.****

 

****Managementbelieves that it has taken appropriate steps to address these materialdeficiencies subsequent to March 31, 2005, including hiring an independentconsulting firm (Assurance Consulting 3) to identify and propose remedialactions to address and mitigate the deficiencies.****

 

Changes in internal controls.  The Company made variousmaterial changes in its internal control over financial reporting during thesecond quarter ended June 30, 2005. These material changes are described in paragraphs 1, 3, 4, and 5 aboveunder the caption “Update on Management’s Assessment of Internal Control OverFinancial Reporting.” 

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned hereuntoduly authorized.

 
|                  |   | LIQUIDMETAL TECHNOLOGIES, INC.                |
|-----------------------|--------|-----------------------------------------------|
|                  |   | (Registrant)                                  |
|                  |   |                                          |
| Date:  March 16, 2006 |   | /s/  Ricardo A. Salas                         |   |
|                  |   | Ricardo  A. Salas                             |
|                  |   | President  and Chief Executive Officer        |
|                  |   | (Principal  Executive Officer)                |
|                  |   |                                          |
|                  |   |                                          |
| Date:  March 16, 2006 |   | /s/  Young Ham                                |   |
|                  |   | Young  Ham                                    |
|                  |   | Chief  Financial Officer                      |
|                  |   | (Principal  Financial and Accounting Officer) |
|                       |        |                                               |  |  |

 

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