##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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. 000-31332



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LIQUIDMETAL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)


|                                                                       |  |                                               
|---------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization) |  | 20-0121262(I.R.S. Employer
Identification No.)

100 North Tampa St., Suite 3150
Tampa, Florida 33602(address of principal executive office, zip code)

Registrants telephone number, including area code: (813) 314-0280

LIQUIDMETAL TECHNOLOGIES(Former Name)

---



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

Yes  x No  o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes  o No  x

As of August 14, 2003, there were 41,599,652 shares of the registrants common
stock, $0.001 par value, outstanding.

1



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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                        |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                     
|                                                  | Item 1  Financial Statements and Independent Accountants Report                            
|                                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                 
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY             
|                                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                       
|                                                  |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                  
|                                                  |                                                                                               | INDEPENDENT ACCOUNTANTS REPORT                                       
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 3  Quantitative and Qualitative Disclosures about Market Risk                          
|                                                  | Item 4  Controls and Procedures                                                             
|PART II OTHER INFORMATION                        
|                                                  | Item 1  Legal Proceedings.                                                                  
|                                                  | Item 2  Change in Securities and Use of Proceeds                                            
|                                                  | Item 4   Submission of Matters to a Vote of Security Holders                                
|                                                  | Item 6  Exhibits and Reports on Form 8-K                                                    
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|Ex-2.1 Agreement and Plan of Merger              
|Ex-3.1 Certificate of Incorporation              
|Ex-3.2 Bylaws                                    
|Ex-4.2 Form of Common Stock Certificate          
|Ex-10.1 Form of Indemnity Agreement              
|Ex- 15.0 Awareness Letter of Independent Auditors
|Ex-31.1 Section 302 Certification of CEO         
|Ex-31.2 Section 302 Certification of CFO         
|Ex-32.1 Section 906 Certification of CEO         
|Ex-32.2 Section 906 Certification of CFO         



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##### Table of Contents



TABLE OF CONTENTS

|                            |                                                                                                  |                                                                                    |    |    |    | 
|--------------------------- | ------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | -- | -- | -- | 
|PART I                      |                                                                                                  |                                                                                    |    |   
|                            | Item 1    Financial Statements and Independent Accountants Report                              |                                                                                    |    | 3  |   
|                            |                                                                                                  | Condensed Consolidated Balance Sheets (unaudited)                                  |    |    | 3  | 
|                            |                                                                                                  | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |    |    | 4  | 
|                            |                                                                                                  | Condensed Consolidated Statements of Shareholders Equity (unaudited)              |    |    | 5  | 
|                            |                                                                                                  | Condensed Consolidated Statements of Cash Flows (unaudited)                        |    |    | 6  | 
|                            |                                                                                                  | Notes to Condensed Consolidated Financial Statements (unaudited)                   |    |    | 8  | 
|                            |                                                                                                  | Independent Accountants Report                                                    |    |    | 19 | 
|                            | Item 2    Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                    |    | 20 |   
|                            | Item 3    Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                    |    | 28 |   
|                            | Item 4    Controls and Procedures                                                               |                                                                                    |    | 28 |   
|PART II  Other Information |                                                                                                  |                                                                                    |    |   
|                            | Item 1    Legal Proceedings                                                                     |                                                                                    |    | 29 |   
|                            | Item 2  Changes in Securities and Use of Proceeds                                               |                                                                                    |    | 29 |   
|                            | Item 4  Submission of Matters to a Vote of Security Holders                                     |                                                                                    |    | 29 |   
|                            | Item 6    Exhibits and Reports on Form 8-K                                                      |                                                                                    |    | 30 |   
|SIGNATURES                  |                                                                                                  |                                                                                    | 31 |   
|CERTIFICATIONS              |                                                                                                  |                                                                                    |    |   
|EXHIBIT INDEX               |                                                                                                  |                                                                                    |    |   

2



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##### Table of Contents






PART I
FINANCIAL INFORMATION




Item 1  Financial Statements and Independent Accountants Report




LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |              |        |        |  | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------ | -------- | ------ | ------------ | ------ | ------ |  | 
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        | June 30, |        | December 31,
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        | 2003     |        | 2002        
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|ASSETS                                              |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|CURRENT ASSETS:                                     |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    | Cash and cash equivalents                                                                                                                                                                                                 |                            | $                                          | 13,998  |        |          | $      | 26,003       |       
|                                                    | Marketable securities held-for-sale                                                                                                                                                                                       |                            |                                            |        |        |          |        | 3,068        |       
|                                                    | Trade receivables, net                                                                                                                                                                                                    |                            |                                            | 9,190   |        |          |        | 6,404        |       
|                                                    | Inventories                                                                                                                                                                                                               |                            |                                            | 4,270   |        |          |        | 2,506        |       
|                                                    | Prepaid expenses and other current assets                                                                                                                                                                                 |                            |                                            | 1,208   |        |          |        | 2,112        |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           | Total current assets       |                                            |         | 28,866 |          |        |              | 40,093 |       
|PROPERTY, PLANT AND EQUIPMENT, NET                  |                                                                                                                                                                                                                           |                            | 22,896                                     |         |        |          | 23,505 |             
|GOODWILL                                            |                                                                                                                                                                                                                           |                            | 184                                        |         |        |          | 184    |             
|OTHER INTANGIBLE ASSETS, NET                        |                                                                                                                                                                                                                           |                            | 911                                        |         |        |          | 785    |             
|OTHER ASSETS                                        |                                                                                                                                                                                                                           |                            | 337                                        |         |        |          | 438    |             
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           | Total assets               |                                            | $       | 52,994 |          |        | $            | 65,005 |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|LIABILITIES AND SHAREHOLDERS EQUITY                |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|CURRENT LIABILITIES:                                |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    | Accounts payable and accrued expenses                                                                                                                                                                                     |                            | $                                          | 7,975   |        |          | $      | 11,174       |       
|                                                    | Net liabilities of discontinued operations                                                                                                                                                                                |                            |                                            | 135     |        |          |        | 1,148        |       
|                                                    | Deferred revenue                                                                                                                                                                                                          |                            |                                            | 930     |        |          |        | 1,397        |       
|                                                    | Other liabilities, current portion                                                                                                                                                                                        |                            |                                            | 110     |        |          |        | 19           |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           | Total current liabilities  |                                            |         | 9,150  |          |        |              | 13,738 |       
|LONG-TERM
DEBT                                      |                                                                                                                                                                                                                           |                            | 5,449                                      |         |        |          |       |             
|OTHER LONG-TERM LIABILITIES, NET OF CURRENT PORTION |                                                                                                                                                                                                                           |                            | 257                                        |         |        |          | 74     |             
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           | Total liabilities          |                                            |         | 14,856 |          |        |              | 13,812 |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|COMMITMENTS AND CONTINGENCIES                       |                                                                                                                                                                                                                          
|MINORITY INTEREST                                   |                                                                                                                                                                                                                           |                            | 23                                         |         |        |          | 21     |             
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|SHAREHOLDERS EQUITY:                               |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    | Common stock, $0.001 per share; 100,000,000 shares authorized; 41,599,652
issued and outstanding at June 30, 2003 and no par value; 200,000,000
shares authorized; 41,009,245 issued and outstanding at December 31, 2002 |                            |                                            | 42      |        |          |        | 106,554      |       
|                                                    | Paid in capital                                                                                                                                                                                                           |                            |                                            | 127,339 |        |          |        | 20,326       |       
|                                                    | Unamortized stock-based compensation                                                                                                                                                                                      |                            |                                            | (395    | )      |          |        | (480         | )     
|                                                    | Accumulated deficit                                                                                                                                                                                                       |                            |                                            | (89,074 | )      |          |        | (76,940      | )     
|                                                    | Accumulated comprehensive income                                                                                                                                                                                          |                            |                                            | 203     |        |          |        | 1,712        |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           | Total shareholders equity |                                            |         | 38,115 |          |        |              | 51,172 |       
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             
|                                                    |                                                                                                                                                                                                                           |                            | Total liabilities and shareholders equity |         | $      | 52,994   |        |              | $      | 65,005 | 
|                                                    |                                                                                                                                                                                                                           |                            |                                            |         |        |          |        |             

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share data)
(unaudited)

|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |       |        |  
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------ | --------------------- | ----- | --------------------- | ------ | ----- | ----- | ---- | ------- | ------ | ------ | - | ------ | ----- | ------ | -
|                                                                                                |                                                                                                            |                                                               |        | For the Three         |       | For the Six          
|                                                                                                |                                                                                                            |                                                               |        | Months Ended June 30, |       | Months Ended June 30,
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                      
|                                                                                                |                                                                                                            |                                                               |        | 2003                  |       | 2002                  |        | 2003  |       | 2002
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |     
|REVENUE                                                                                         |                                                                                                            | $                                                             | 6,409  |                       |       | $                     | 2,144  |       |       | $    | 12,968  |        |        | $ | 3,607  |      
|COST OF SALES                                                                                   |                                                                                                            |                                                               | 6,389  |                       |       |                       | 1,187  |       |       |      | 10,272  |        |        |   | 1,869  |      
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|Gross profit                                                                                    |                                                                                                            |                                                               | 20     |                       |       |                       | 957    |       |       |      | 2,696   |        |        |   | 1,738  |      
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|OPERATING EXPENSES:                                                                             |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|                                                                                                |                                                                                                            | Selling, general, and administrative                          |        |                       | 4,704 |                       |        |       | 2,860 |      |         |        | 9,211  |   |        |       | 5,129  |  
|                                                                                                |                                                                                                            | Research and development                                      |        |                       | 2,809 |                       |        |       | 1,660 |      |         |        | 6,847  |   |        |       | 4,356  |  
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|                                                                                                |                                                                                                            | Total expenses                                                |        |                       | 7,513 |                       |        |       | 4,520 |      |         |        | 16,058 |   |        |       | 9,485  |  
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|LOSS BEFORE INTEREST, OTHER INCOME, INCOME TAXES,
MINORITY INTEREST AND DISCONTINUED
OPERATIONS |                                                                                                            |                                                               | (7,493 | )                     |       |                       | (3,563 | )     |       |      | (13,362 | )      |        |   | (7,747 | )    
|                                                                                                |                                                                                                            | Interest expense                                              |        |                       | (115  | )                     |        |       | (791  | )    |         |        | (178   | ) |        |       | (1,103 | )
|                                                                                                |                                                                                                            | Interest income                                               |        |                       | 102   |                       |        |       | 96    |      |         |        | 233    |   |        |       | 96     |  
|                                                                                                |                                                                                                            | Gain on sale of marketable securities held-for-sale           |        |                       | 1,178 |                       |        |       |      |      |         |        | 1,178  |   |        |       |       |  
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|LOSS BEFORE INCOME TAXES, MINORITY INTEREST
AND DISCONTINUED OPERATIONS                         |                                                                                                            |                                                               | (6,328 | )                     |       |                       | (4,258 | )     |       |      | (12,129 | )      |        |   | (8,754 | )    
|                                                                                                |                                                                                                            | Income taxes                                                  |        |                       | (8    | )                     |        |       |      |      |         |        | (8     | ) |        |       |       |  
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|LOSS BEFORE MINORITY INTEREST AND
DISCONTINUED OPERATIONS                                       |                                                                                                            |                                                               | (6,336 | )                     |       |                       | (4,258 | )     |       |      | (12,137 | )      |        |   | (8,754 | )    
|                                                                                                |                                                                                                            | Minority interest in loss (income) of consolidated subsidiary |        |                       | 10    |                       |        |       | (10   | )    |         |        | 3      |   |        |       | (10    | )
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|LOSS FROM CONTINUING OPERATIONS                                                                 |                                                                                                            |                                                               | (6,326 | )                     |       |                       | (4,268 | )     |       |      | (12,134 | )      |        |   | (8,764 | )    
|                                                                                                |                                                                                                            | Gain from disposal of discontinued retail golf segment, net   |        |                       |      |                       |        |       | 1,038 |      |         |        |       |   |        |       | 508    |  
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|NET LOSS                                                                                        |                                                                                                            |                                                               | (6,326 | )                     |       |                       | (3,230 | )     |       |      | (12,134 | )      |        |   | (8,256 | )    
|                                                                                                | Foreign exchange translation gain                                                                          |                                                               |        | 1,099                 |       |                       |        | 161   |       |      |         | 159    |        |   |        | 37    |       
|                                                                                                | Net
unrealized loss on marketable securities held-for-sale (including
transfer of realized gain of $1,178) |                                                               |        | (527                  | )     |                       |        |      |       |      |         | (1,668 | )      |   |        |      |       
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|COMPREHENSIVE LOSS                                                                              |                                                                                                            | $                                                             | (5,754 | )                     |       | $                     | (3,069 | )     |       | $    | (13,643 | )      |        | $ | (8,219 | )    
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|PER COMMON SHARE BASIC AND DILUTED:                                                             |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|                                                                                                | Loss from continuing operations                                                                            |                                                               | $      | (0.15                 | )     |                       | $      | (0.11 | )     |      | $       | (0.29  | )      |   | $      | (0.24 | )     
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|                                                                                                | Income from discontinued operations                                                                        |                                                               | $      | 0.00                  |       |                       | $      | 0.03  |       |      | $       | 0.00   |        |   | $      | 0.01  |       
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      
|                                                                                                | Net loss                                                                                                   |                                                               | $      | (0.15                 | )     |                       | $      | (0.09 | )     |      | $       | (0.29  | )      |   | $      | (0.23 | )     
|                                                                                                |                                                                                                            |                                                               |        |                       |       |                       |        |       |       |      |         |        |        |   |        |      

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Six months Ended June 30, 2003
(in thousands, except share data)
(unaudited)

|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |    |         |   |         |         |   |   |       |        |   |   |        |         |  
|-------------------------- | ------------------------------------------ |  | ---------- | ------- | ------ | - | ------- | -------- | ------- | - | ------- | ------- | ------------- | - | ----------- | -- | ------- | - | ------- | ------- | - | - | ----- | ------ | - | - | ------ | ------- | -
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Unamortized |    |         |   |         |         |   |   |       |        |   |   |       
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Stock-      |    |         |   |         |         |   |   |       |        |   |   |       
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Based       |    | Accumu- |   | Compre- |         |   |   |      
|                           |                                            |  | Common     |         | Common |   | Paid in |          | Compen- |   | lated   |         | hensive       |   |             |    |        
|                           |                                            |  | Shares     |         | Stock  |   | Capital |          | sation  |   | Deficit |         | Income (Loss) |   | Total      
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |            
|Balance, December 31, 2002 |                                            |  | 41,009,245 |         |        | $ | 106,554 |          |         | $ | 20,326  |         |               | $ | (480        | )  |         | $ | (76,940 | )       |   | $ | 1,712 |        |   | $ | 51,172 |        
|                           | Stock options exercised                    |  |            | 684,165 |        |   |         | 1,149    |         |   |         |        |               |   |             |   |         |   |         |        |   |   |       |       |   |   |        | 1,149   |  
|                           | Repurchase of shares                       |  |            | (93,758 | )      |   |         | (653     | )       |   |         |        |               |   |             |   |         |   |         |        |   |   |       |       |   |   |        | (653    | )
|                           | Change in par value due to
reincorporation |  |            |        |        |   |         | (107,008 | )       |   |         | 107,008 |               |   |             |   |         |   |         |        |   |   |       |       |   |   |        |        |  
|                           | Stock-based
compensation amortization      |  |            |        |        |   |         |         |         |   |         |        |               |   |             | 85 |         |   |         |        |   |   |       |       |   |   |        | 85      |  
|                           | Exercise of warrants                       |  |            |        |        |   |         |         |         |   |         | 5       |               |   |             |   |         |   |         |        |   |   |       |       |   |   |        | 5       |  
|                           | Foreign exchange translation
gain          |  |            |        |        |   |         |         |         |   |         |        |               |   |             |   |         |   |         |        |   |   |       | 159    |   |   |        | 159     |  
|                           | Unrealized loss on marketable
securities   |  |            |        |        |   |         |         |         |   |         |        |               |   |             |   |         |   |         |        |   |   |       | (1,668 | ) |   |        | (1,668  | )
|                           | Net loss                                   |  |            |        |        |   |         |         |         |   |         |        |               |   |             |   |         |   |         | (12,134 | ) |   |       |       |   |   |        | (12,134 | )
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |    |         |   |         |         |   |   |       |        |   |   |        |        
|Balance, June 30, 2003     |                                            |  | 41,599,652 |         |        | $ | 42      |          |         | $ | 127,339 |         |               | $ | (395        | )  |         | $ | (89,074 | )       |   | $ | 203   |        |   | $ | 38,115 |        
|                           |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |    |         |   |         |         |   |   |       |        |   |   |        |        

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
(unaudited)

|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |        |        |   | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------- | ------- | ------------------ | - | ------ | ------ | ------ | - | 
|                                                     |                                                                                                    |                                                               |         |         | For the Six Months
|                                                     |                                                                                                    |                                                               |         |         | Ended June 30,    
|                                                     |                                                                                                    |                                                               |         |         |                   
|                                                     |                                                                                                    |                                                               |         |         | 2003               |   | 2002  
|                                                     |                                                                                                    |                                                               |         |         |                    |   |       
|OPERATING ACTIVITIES:                                |                                                                                                    |                                                               |         |         |                    |   |        |       
|                                                     | Net loss                                                                                           |                                                               | $       | (12,134 | )                  |   | $      | (8,256 | )     
|                                                     | Gain on disposition of discontinued operations                                                     |                                                               |         |        |                    |   |        | (508   | )     
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|                                                     | Loss from continuing operations                                                                    |                                                               |         | (12,134 | )                  |   |        | (8,764 | )     
|                                                     | Adjustments to reconcile loss from continuing operations to net cash used
by operating activities: |                                                               |         |         |                    |   |        |        |       
|                                                     |                                                                                                    | Write-off
of property and equipment                           |         |         | 313                |   |        |        |       |  
|                                                     |                                                                                                    | Gain
on sale of marketable securities held-for-sale           |         |         | (1,178             | ) |        |        | (19    | )
|                                                     |                                                                                                    | Minority
interest in (loss) income of consolidated subsidiary |         |         | (3                 | ) |        |        | 10     |  
|                                                     |                                                                                                    | Depreciation and amortization                                 |         |         | 2,273              |   |        |        | 498    |  
|                                                     |                                                                                                    | Amortization of debt discount                                 |         |         |                   |   |        |        | 912    |  
|                                                     |                                                                                                    | Stock-based compensation                                      |         |         | 85                 |   |        |        | 1,585  |  
|                                                     |                                                                                                    | Bad debt expense                                              |         |         | 118                |   |        |        | 70     |  
|                                                     |                                                                                                    | Warranty expense                                              |         |         | 362                |   |        |        |       |  
|                                                     | Changes in operating assets and liabilities:                                                       |                                                               |         |         |                    |   |        |        |       
|                                                     |                                                                                                    | Accounts receivable                                           |         |         | (2,904             | ) |        |        | (1,236 | )
|                                                     |                                                                                                    | Inventories                                                   |         |         | (268               | ) |        |        | (182   | )
|                                                     |                                                                                                    | Prepaid expenses and other current assets                     |         |         | 904                |   |        |        | 229    |  
|                                                     |                                                                                                    | Other assets                                                  |         |         | 101                |   |        |        | 36     |  
|                                                     |                                                                                                    | Accounts payable and accrued expenses                         |         |         | (3,964             | ) |        |        | 108    |  
|                                                     |                                                                                                    | Deferred revenue                                              |         |         | (467               | ) |        |        | 72     |  
|                                                     |                                                                                                    | Other liabilities                                             |         |         |                   |   |        |        | (92    | )
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|Net cash used by continuing operations               |                                                                                                    |                                                               | (16,762 | )       |                    |   | (6,773 | )     
|Net cash used by discontinued operations             |                                                                                                    |                                                               | (1,013  | )       |                    |   | (2,268 | )     
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|Net cash used by operating activities                |                                                                                                    |                                                               | (17,775 | )       |                    |   | (9,041 | )     
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|INVESTING ACTIVITIES:                                |                                                                                                    |                                                               |         |         |                    |   |        |       
|                                                     | Purchases of property and equipment                                                                |                                                               |         | (2,616  | )                  |   |        | (2,758 | )     
|                                                     | Proceeds from sale of property and equipment                                                       |                                                               |         |        |                    |   |        | 129    |       
|                                                     | Proceeds from sale of marketable securities held-for-sale                                          |                                                               |         | 2,578   |                    |   |        |       |       
|                                                     | Purchase price of 51% investment in subsidiary, net of cash received of $407                       |                                                               |         |        |                    |   |        | 74     |       
|                                                     | Investment in patents and trademarks                                                               |                                                               |         | (167    | )                  |   |        | (78    | )     
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|Net cash used by investing activities                |                                                                                                    |                                                               | (205    | )       |                    |   | (2,633 | )     
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|FINANCING ACTIVITIES:                                |                                                                                                    |                                                               |         |         |                    |   |        |       
|                                                     | Proceeds from borrowings                                                                           |                                                               |         | 5,488   |                    |   |        | 3,500  |       
|                                                     | Repayment of borrowings                                                                            |                                                               |         |        |                    |   |        | (7,400 | )     
|                                                     | Repayment of other liabilities                                                                     |                                                               |         | (17     | )                  |   |        | (4     | )     
|                                                     | Proceeds from issuance of common stock (net of offering costs)                                     |                                                               |         |        |                    |   |        | 70,953 |       
|                                                     | Stock warrants exercised                                                                           |                                                               |         | 5       |                    |   |        |       |       
|                                                     | Stock options exercised                                                                            |                                                               |         | 899     |                    |   |        | 460    |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|Net cash provided by financing activities            |                                                                                                    |                                                               | 6,375   |         |                    |   | 67,509 |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|EFFECT OF FOREIGN EXCHANGE TRANSLATION               |                                                                                                    |                                                               | (400    | )       |                    |   | 135    |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                                    |                                                               | (12,005 | )       |                    |   | 55,970 |       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                                    |                                                               | 26,003  |         |                    |   | 2,230  |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                                    | $                                                             | 13,998  |         |                    | $ | 58,200 |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|SUPPLEMENTAL CASH FLOW INFORMATION                   |                                                                                                   
|Interest paid                                        |                                                                                                    | $                                                             | 145     |         |                    | $ | 439    |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       
|                                                     | Taxes paid                                                                                         |                                                               | $       | 126     |                    |   | $      |       |       
|                                                     |                                                                                                    |                                                               |         |         |                    |   |        |       

(continued)

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS - continued
(in thousands, except share data)
(unaudited)

During the six months ended June 30, 2003, the Company reclassified $1,496
of machines from property, plant and equipment to inventory because the
machines were sold in 2003.

During the six months ended June 30, 2003, the change in the foreign
exchange between the U.S. Dollar and the South Korean Won resulted in a $39
gain related to the note payable, a $525 gain related to property, plant and
equipment and a $5 loss related to minority interest in consolidated subsidiary.

During the six months ended June 30, 2003, an option holder surrendered
93,758 shares of the Companys common stock in-lieu of cash payment for the
option exercise price of $250 and income taxes payable by the option holder of
$403. The Company immediately canceled the common shares received in lieu of
cash payment upon receipt of the shares.

During the six months ended June 30, 2003, the Company entered into a
lease agreement for $291 of laboratory equipment that was recorded as a capital
lease obligation. During the six months ended June 30, 2002, the Company
entered into a lease agreement for $107 of office furniture that was recorded
as a capital lease obligation.

During the six months ended June 30, 2002, the Company incurred $223 of
costs related to its initial public offering that had not been paid as of June
30, 2002.

During the six months ended June 30, 2002, the Company recorded a net
addition to shareholders equity of $1,613 comprised of stock-based
compensation in the discontinued retail golf operations. Additionally, there
was a $98 foreign exchange loss effect in the discontinued retail golf
operations.

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)



|1. |  | Description of Business
|-- |  | -----------------------

Liquidmetal Technologies, Inc. and its subsidiaries (collectively, the
Company) are in the business of developing, manufacturing, and marketing
products made from amorphous alloys. Liquidmetal Technologies, Inc. markets
and sells Liquidmetal® alloy industrial coatings and also manufactures,
markets and sells products and components from bulk Liquidmetal alloys that can
be incorporated into the finished goods of its customers across a variety of
industries.

The Company classifies operations into two reportable segments:
Liquidmetal alloy industrial coatings and bulk Liquidmetal alloys. Liquidmetal
alloy industrial coatings are used primarily as a protective coating for
industrial machinery and equipment, such as drill pipe used by the oil drilling
industry and boiler tubes used by coal-burning power plants. Bulk Liquidmetal
alloys include market opportunities to manufacture and sell components for
electronic devices, medical devices, sporting goods, tooling and prototype
sampling, and metal processing equipment. In addition, such alloys are used to
generate research and development services revenue for developing uses related
primarily to defense and medical applications.

On May 21, 2003, the Company completed a reincorporation by transitioning
from a California corporation to a Delaware corporation. The reincorporation
was effected though the merger of the former California entity into its newly
created wholly owned Delaware subsidiary. In connection with the
reincorporation, the number of authorized common shares was reduced from 200,000,000
to 100,000,000. Additionally, the par value of the common stock was changed
from no par value common stock to common stock with a par value of $0.001 per
share. For purposes of these notes, the term Company refers to the
former California entity with respect to periods prior to May 21, 2003.



|2. |  | Basis of Presentation and Recent Accounting Pronouncements
|-- |  | ----------------------------------------------------------

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America (generally accepted accounting principles)
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles 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. In
addition, certain reclassifications have been made for consistent presentation.
Operating results for the six months ended June 30, 2003 are not necessarily
indicative of the results that may be expected for any future periods or the
year ending December 31, 2003. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March
31, 2003.

Stock-based compensation.The Company applies Accounting Principles Board
(APB) Opinion No. 25 for options when the exercise price of options granted
to employees is less than the fair value of the underlying stock on the date of
grant. The Company applies Statement of Financial Accounting Standards (SFAS)
No. 123 for options granted to nonemployees who perform services for the
Company.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

Had the
Company determined stock-based compensation cost based on the fair value at
the grant date for stock options consistent with the method of SFAS No. 123,
the Companys loss from continuing operations and basic and diluted loss per
share from continuing operations would have been as follows:

|                                                             |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |      |   |         |        |   |   |         |        |  
|------------------------------------------------------------ | ---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------------- | ------ | --------------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                             |                                          |                                                                                                                                                 |   | For the Three         |        | For the Six          
|                                                             |                                          |                                                                                                                                                 |   | Months Ended June 30, |        | Months Ended June 30,
|                                                             |                                          |                                                                                                                                                 |   |                       |        |                      
|                                                             |                                          |                                                                                                                                                 |   | 2003                  |        | 2002                  |   | 2003   |        | 2002
|                                                             |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |     
|Loss from continuing operations:                             |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        
|                                                             | As reported                              |                                                                                                                                                 | $ | (6,326                | )      |                       | $ | (3,230 | )      |      | $ | (12,134 | )      |   | $ | (8,256  | )     
|                                                             |                                          | Add: stock-based employee compensation expense
included in reported net loss, net of related tax effects                                        |   |                       | 27     |                       |   |        | 66     |      |   |         | 54     |   |   |         | 169    |  
|                                                             |                                          | Deduct: total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects |   |                       | (4,691 | )                     |   |        | (3,216 | )    |   |         | (5,287 | ) |   |         | (4,829 | )
|                                                             |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        
|                                                             | Proforma loss from continuing operations |                                                                                                                                                 | $ | (10,990               | )      |                       | $ | (6,380 | )      |      | $ | (17,367 | )      |   | $ | (12,916 | )     
|                                                             |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        
|Basic and diluted loss per share from continuing operations: |                                          |                                                                                                                                                 |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        
|                                                             | As reported                              |                                                                                                                                                 | $ | (0.15                 | )      |                       | $ | (0.11  | )      |      | $ | (0.29   | )      |   | $ | (0.24   | )     
|                                                             | Proforma                                 |                                                                                                                                                 |   | (0.26                 | )      |                       |   | (0.17  | )      |      |   | (0.42   | )      |   |   | (0.35   | )     

Recent Accounting Pronouncements.In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement
Obligations(SFAS No. 143). SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which such liabilities are incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs should be capitalized as part of
the carrying amount of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Adoption of SFAS No. 143 did not have a material impact on the Companys
financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated With Exit or Disposal Activities(SFAS No. 146). SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires costs associated with exit or disposal
activities to be recognized when the costs are incurred, rather than at a date
of commitment to an exit or disposal plan. SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material impact on the Companys
financial statements.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation
-Transition and Disclosure(SFAS No. 148) was issued by the FASB. This
standard amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this standard amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for financial statements for fiscal years ending
after December 15, 2002. The Company implemented SFAS No. 148 effective
January 1, 2003 regarding disclosure requirements for condensed financial

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

statements for interim periods. The Company has not yet determined whether it
will voluntarily change to the fair value based method of accounting for
stock-based employee compensation.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(Interpretation 45). Interpretation 45
changes the accounting for and the disclosure of guarantees. Interpretation 45
requires that guarantees meeting the characteristics described in the
Interpretation be initially recorded at fair value in contrast to FASB No. 5,
which requires recording a liability when a loss is probable and reasonably
estimable. The disclosure requirements of Interpretation 45 are effective for
financial statements and annual periods ending after December 31, 2002. The
initial recognition and initial measurement provisions of Interpretation 45 are
effective on a prospective basis to guarantees issued or modified after
December 30, 2002. The adoption of Interpretation 45 did not have a material
impact on the Companys financial statements.



|3. |  | Trade Receivables
|-- |  | -----------------

Trade receivables from continuing operations were comprised of the
following:

|                                      |                         |   |          |       |              |   |       |       | 
|------------------------------------- | ----------------------- | - | -------- | ----- | ------------ | - | ----- | ----- | 
|                                      |                         |   | June 30, |       | December 31,
|                                      |                         |   | 2003     |       | 2002        
|                                      |                         |   |          |       |             
|Accounts receivable                   |                         | $ | 9,607    |       |              | $ | 6,681 |      
|Less: Allowance for doubtful accounts |                         |   | (417     | )     |              |   | (277  | )    
|                                      |                         |   |          |       |              |   |       |      
|                                      | Account receivable, net |   | $        | 9,190 |              |   | $     | 6,404 | 
|                                      |                         |   |          |       |              |   |       |      



|4. |  | Inventories
|-- |  | -----------

Inventories from continuing operations were comprised of the following:

|                |                   |   |          |       |              |   |       |       | 
|--------------- | ----------------- | - | -------- | ----- | ------------ | - | ----- | ----- | 
|                |                   |   | June 30, |       | December 31,
|                |                   |   | 2003     |       | 2002        
|                |                   |   |          |       |             
|Raw materials   |                   | $ | 2,542    |       |              | $ | 1,585 |      
|Work in process |                   |   | 1,056    |       |              |   | 592   |      
|Finished goods  |                   |   | 672      |       |              |   | 329   |      
|                |                   |   |          |       |              |   |       |      
|                | Total inventories |   | $        | 4,270 |              |   | $     | 2,506 | 
|                |                   |   |          |       |              |   |       |      



|5. |  | Property, Plant and Equipment
|-- |  | -----------------------------

Property, plant and equipment consisted of the following:

|                                                                       |                                          |   |          |        |              |   |        |        | 
|---------------------------------------------------------------------- | ---------------------------------------- | - | -------- | ------ | ------------ | - | ------ | ------ | 
|                                                                       |                                          |   | June 30, |        | December 31,
|                                                                       |                                          |   | 2003     |        | 2002        
|                                                                       |                                          |   |          |        |             
|Machinery and equipment                                                |                                          | $ | 11,810   |        |              | $ | 11,002 |       
|Office and computer equipment, software, furnishings, and improvements |                                          |   | 3,031    |        |              |   | 2,465  |       
|Buildings                                                              |                                          |   | 11,211   |        |              |   | 11,084 |       
|Construction in process of machinery and equipment and plant           |                                          |   | 12       |        |              |   | 403    |       
|                                                                       |                                          |   |          |        |              |   |        |       
|                                                                       | Total                                    |   |          | 26,064 |              |   |        | 24,954 | 
|Accumulated depreciation                                               |                                          |   | (3,168   | )      |              |   | (1,449 | )     
|                                                                       |                                          |   |          |        |              |   |        |       
|                                                                       | Total property, plant and equipment, net |   | $        | 22,896 |              |   | $      | 23,505 | 
|                                                                       |                                          |   |          |        |              |   |        |       

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

Depreciation expense was approximately $884 and $146 for the three months
ended June 30, 2003 and 2002, respectively; and $2,232 and $450 for the six
months ended June 30, 2003 and 2002, respectively.



|6. |  | Other Intangible Assets
|-- |  | -----------------------

Other intangible assets consisted of the following:

|                                     |  |          |       |              |  |   |       |  
|------------------------------------ |  | -------- | ----- | ------------ |  | - | ----- | -
|                                     |  | June 30, |       | December 31,
|                                     |  | 2003     |       | 2002        
|                                     |  |          |       |             
|Purchased and licensed patent rights |  | $        | 458   |              |  | $ | 458   |  
|Internally developed patents         |  |          | 770   |              |  |   | 622   |  
|Trademarks                           |  |          | 66    |              |  |   | 56    |  
|                                     |  |          |       |              |  |   |       |  
|Total                                |  |          | 1,294 |              |  |   | 1,136 |  
|Accumulated amortization             |  |          | (383  | )            |  |   | (351  | )
|                                     |  |          |       |              |  |   |       |  
|Total intangible assets, net         |  | $        | 911   |              |  | $ | 785   |  
|                                     |  |          |       |              |  |   |       |  

Amortization expense was approximately $21 and $29 for the three months
ended June 30, 2003 and 2002, respectively; and $41 and $48 for the six months
ended June 30, 2003 and 2002, respectively. The estimated aggregate
amortization expense for each of the five succeeding years is as follows:

|             |  |                                |    | 
|------------ |  | ------------------------------ | -- | 
|December 31, |  | Aggregate Amortization Expense
|             |  |                               
|2004         |  | $                              | 78 | 
|2005         |  |                                | 75 | 
|2006         |  |                                | 74 | 
|2007         |  |                                | 74 | 
|2008         |  |                                | 74 | 



|7. |  | Product Warranty
|-- |  | ----------------

Due to the lack of historical information for warranty expense related to
bulk alloy products, management estimates product warranties as a percentage of
bulk alloy product sales earned during the period. During the three and six
months ended June 30, 2003, the Company recorded $124 and $362 of warranty
expense, respectively. The product warranty accrual balance is included in
accounts payable and accrued expenses and the warranty expense is included in
selling, general, and administrative expenses.



|8. |  | Long-term Debt
|-- |  | --------------

On February 4, 2003, our Korean subsidiary received 6,500,000 in South
Korean Won, or approximately $5,488, under a loan from Kookmin Bank of South
Korea. The principal and
interest under this loan is payable in equal monthly installments beginning
eighteen months from the origination date until the maturity date on December
20, 2007. During the first eighteen months from the origination date, interest
is payable on a monthly basis. The loan bears interest at an annual rate of
7.1%. In the event of delayed repayment, the interest increases to a maximum
of 21%, depending on the length of time the repayment is delayed.
This loan is collateralized by the plant facilities and certain
equipment in South Korea. Since this
loan is denominated in South Korea Won, the balance fluctuates with the
exchange rate between the U.S. Dollar and the South Korean Won, resulting in
the recognition of foreign exchange gains or losses that are included in other
comprehensive income (loss). At June 30, 2003,

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

the balance was $5,449 resulting in the recognition of a cumulative foreign
exchange gain of $39, which is included in the net foreign exchange gain
included in other comprehensive income (loss) for the six months ended June 30,
2003.



|9. |  | Discontinued Operations
|-- |  | -----------------------

On April 30, 2002, management terminated the operations of the retail golf
segment by completing the liquidation of substantially all of the
retail golf assets and liabilities. The disposition of the retail golf
operations represented the disposal of a business segment. Accordingly, the
accompanying condensed consolidated financial statements reflect the retail
golf segment as a discontinued operation for all periods presented.

During the three and six months ended June 30, 2003, there was no change
in the estimate of expenses associated with the disposal of the discontinued
retail golf operations. During the six months ended June 30, 2002, the Company
recorded a net gain change in estimate of $1,038 on the disposal of the
discontinued retail golf segment that was primarily due to a change in the
estimated value of stock-based compensation. The change in estimated value of
the stock-based compensation was a result of a decrease in the fair market
value of the common shares underlying the options granted to Paul Azinger of
$1,607 in June 2002. This gain was partially offset by other changes in the
estimated loss on disposal that included $312 of additional operating expenses,
$57 increase in the allowance for doubtful accounts and $200 primarily for the
reduction of the estimated disposal value of work-in-process inventory and
equipment.

At June 30, 2003, the net liabilities of the discontinued operations
consisted entirely of current liabilities. There were no assets associated
with discontinued retail golf operations at June 30, 2003.



|10. |  | Stock Compensation Plan
|--- |  | -----------------------

On April 4, 2002, the Companys shareholders and Board of Directors
adopted the 2002 Equity Incentive Plan (2002 Equity Plan). The 2002 Equity
Plan authorizes the grant of stock options to officers, employees, consultants
and directors of the Company and its subsidiaries. In addition, the plan
permits the granting of stock appreciation rights, with, or independently of,
options, as well as stock bonuses and rights to purchase restricted stock. A
total of 10,000,000 shares of common stock may be granted under the 2002 Equity
Plan. As of June 30, 2003, there are 375,684 options outstanding under the 2002
Equity Plan. The stock options are exercisable over a period determined by
the Board of Directors or the Compensation Committee, but no longer than 10
years.

Prior to the approval of the 2002 Equity Plan, options were primarily
granted under the Companys 1996 Stock Option Plan (1996 Company Plan). On
April 4, 2002, the Companys Board of Directors terminated the 1996 Company
Plan. The termination will not affect any outstanding options under the 1996
Company Plan and all such options will continue to remain outstanding and be
governed by the plan. No additional options may be granted under the 1996
Company Plan. As of June 30, 2003, there were 3,808,829 options outstanding
under the 1996 Company Plan.

On April 4, 2002, the Companys shareholders and Board of Directors
adopted the 2002 Non-employee Director Stock Option Plan (2002 Director
Plan). Only non-employee directors are eligible for grants under the 2002
Director Plan. A total of 1,000,000 shares of the Companys common stock may be
granted under the 2002 Director Plan. There are 200,000 options outstanding
under the 2002 Director Plan as of June 30, 2003.

Additionally, the Company has 2,221,508 options outstanding at June 30,
2003 which were granted outside the 1996 Company Plan, the 2002 Equity Plan and
the 2002 Director Plan.

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants for the six months ended June 30,
2003 and 2002, respectively: expected volatility of 100% for all periods;
dividend yield of 0.0% for all periods; expected option life of

12



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##### Table of Contents



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

approximately 5 years; and a risk-free interest rate ranging from 2.6% to 3.8%.

The following table summarizes the Companys stock option transactions for
the six months ended June 30, 2003:

|                                         |           |  |           |            |         |   |          |       |  
|---------------------------------------- | --------- |  | --------- | ---------- | ------- | - | -------- | ----- | -
|                                         |           |  |           |            |         |   | Weighted
|                                         |           |  | Number of |            | Average
|                                         |           |  | Shares    |            | Price  
|                                         |           |  |           |            |        
|Options outstanding at December 31, 2002 |           |  | 8,182,348 |            |         | $ | 5.37     |      
|                                         | Granted   |  |           | 158,556    |         |   |          | 9.17  |  
|                                         | Exercised |  |           | (684,165   | )       |   |          | (1.68 | )
|                                         | Forfeited |  |           | (1,050,718 | )       |   |          | (3.16 | )
|                                         |           |  |           |            |         |   |          |      
|Options outstanding at June 30, 2003     |           |  | 6,606,021 |            |         |   | 6.20     |      
|                                         |           |  |           |            |         |   |          |      

The following table summarizes the Companys stock option transactions for the six months ended June 30, 2002:

|                                         |           |  |           |          |         |   |          |       |  
|---------------------------------------- | --------- |  | --------- | -------- | ------- | - | -------- | ----- | -
|                                         |           |  |           |          |         |   | Weighted
|                                         |           |  | Number of |          | Average
|                                         |           |  | Shares    |          | Price  
|                                         |           |  |           |          |        
|Options outstanding at December 31, 2001 |           |  | 8,166,703 |          |         | $ | 4.53     |      
|                                         | Granted   |  |           | 467,314  |         |   |          | 15.03 |  
|                                         | Exercised |  |           | (283,873 | )       |   |          | (1.62 | )
|                                         | Forfeited |  |           | (298,068 | )       |   |          | (3.44 | )
|                                         |           |  |           |          |         |   |          |      
|Options outstanding at June 30, 2002     |           |  | 8,052,076 |          |         |   | 5.28     |      
|                                         |           |  |           |          |         |   |          |      

The weighted average fair value of options granted during the six months
ended June 30, 2003 and 2002, was $6.95 and $11.41, respectively. There were
4,621,476 options with a weighted average exercise price of $5.22 exercisable
at June 30, 2003 and 4,212,585 options with a weighted average exercise price
of $4.25 exercisable at June 30, 2002.

Included in the above tables are certain options granted where their
exercise prices were below the fair market value of the common stock at the
measurement date (in-the-money). In-the-money options of 557,765 with a
weighted average fair value of $4.54 were outstanding at
June 30, 2003 and 1,246,670 options with a weighted average fair value of $4.56 were outstanding
at June 30, 2002.

The following table summarizes the Companys stock options outstanding and
exercisable by ranges of option prices as of June 30, 2003:

|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ------------------ |  | ---------------- | --- | ----------- |  | ------------ | ----- | -------- |  |  | --------- |  |  | - | ----- | 
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  |                     |           |                    |  | Weighted Average |     | Weighted    |  | Number of    |       | Weighted
|Range of            |  | Number of options   |           | Remaining Contract |  | Average          |     | Options     |  | Average     
|Option Price        |  | Outstanding         |           | Life (Years)       |  | Option Price     |     | Exercisable |  | Option Price
|                    |  |                     |           |                    |  |                  |     |             |  |             
|$0.00 - $1.55       |  |                     | 376,345   |                    |  |                  | 7.5 |             |  | $            | 1.16  |          |  |  | 376,345   |  |  | $ | 1.16  | 
|$1.56 - $3.10       |  |                     | 300,774   |                    |  |                  | 4.8 |             |  |              | 2.33  |          |  |  | 300,774   |  |  |   | 2.33  | 
|$3.11 - $4.65       |  |                     | 2,260,299 |                    |  |                  | 7.5 |             |  |              | 4.65  |          |  |  | 1,977,389 |  |  |   | 4.65  | 
|$4.66 - $6.20       |  |                     | 2,702,785 |                    |  |                  | 7.9 |             |  |              | 6.20  |          |  |  | 1,743,336 |  |  |   | 6.20  | 
|$6.21 - $7.75       |  |                     | 7,540     |                    |  |                  | 9.4 |             |  |              | 7.25  |          |  |  |          |  |  |   |      | 
|$7.76 - $9.30       |  |                     | 15,637    |                    |  |                  | 7.0 |             |  |              | 8.87  |          |  |  | 3,226     |  |  |   | 9.30  | 
|$9.31 - $10.85      |  |                     | 203,065   |                    |  |                  | 9.4 |             |  |              | 10.41 |          |  |  |          |  |  |   |      | 
|$10.86 - $12.40     |  |                     | 339,040   |                    |  |                  | 8.1 |             |  |              | 12.40 |          |  |  | 132,314   |  |  |   | 12.40 | 
|$12.41
- $15.50     |  |                     | 400,536   |                    |  |                  | 8.5 |             |  |              | 15.04 |          |  |  | 88,092    |  |  |   | 15.04 | 
|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 
|Total Options       |  |                     | 6,606,021 |                    |  |                  | 7.7 |             |  |              | 6.20  |          |  |  | 4,621,476 |  |  |   | 5.22  | 
|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 

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##### Table of Contents



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)



|11. |  | Segment Reporting
|--- |  | -----------------

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information,requires companies to provide certain information about their
operating segments. In April 2002, the Company began classifying operations
into two reportable segments: Liquidmetal alloy industrial coatings and bulk
Liquidmetal alloys. Liquidmetal alloy industrial coatings are used primarily
as a protective coating for industrial machinery and equipment, such as drill
pipe used by the oil drilling industry and boiler tubes used by coal burning
power plants. The bulk Liquidmetal alloy segment includes market opportunities
to manufacture and sell casing components for electronic devices, medical
devices, sporting goods, tooling, prototype sampling, defense applications and
metal processing equipment. Primarily, the expenses incurred by the bulk
Liquidmetal alloy segment are research and development costs and selling
expenses associated with identifying and developing market opportunities. Bulk
Liquidmetal alloy products can be distinguished from Liquidmetal alloy coatings
in that the bulk Liquidmetal alloy can have significant thickness, up to
approximately one inch, which allows for its use in a wider variety of
applications other than a thin protective coating applied to machinery and
equipment. Revenue and expenses associated with research and development
services are included in the bulk Liquidmetal alloy segment. The accounting
policies of the reportable segments are the same as those described in Note 2
to the consolidated financial statements included in the Companys Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 2003.

Summarized financial information concerning the Companys reportable
segments is shown in the following tables:

|                                  |                                            |  |          |       |          |  |            |        |         |  |   |        |  
|--------------------------------- | ------------------------------------------ |  | -------- | ----- | -------- |  | ---------- | ------ | ------- |  | - | ------ | -
|                                  |                                            |  |          |       |          |  | Bulk Alloy |        | Segment
|                                  |                                            |  | Coatings |       | Products |  | Totals    
|                                  |                                            |  |          |       |          |  |           
|Three months ended June 30, 2003: |                                            |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue from external customers            |  | $        | 708   |          |  | $          | 5,701  |         |  | $ | 6,409  |  
|                                  | Gross profit (loss)                        |  |          | 337   |          |  |            | (317   | )       |  |   | 20     |  
|                                  | Total segment income (loss)                |  |          | 144   |          |  |            | (4,515 | )       |  |   | (4,371 | )
|                                  | Total identifiable assets at end of period |  |          | 882   |          |  |            | 35,432 |         |  |   | 36,314 |  
|Three months ended June 30, 2002: |                                            |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue from external customers            |  | $        | 1,336 |          |  | $          | 808    |         |  | $ | 2,144  |  
|                                  | Gross profit                               |  |          | 643   |          |  |            | 314    |         |  |   | 957    |  
|                                  | Total
segment income (loss)                |  |          | 463   |          |  |            | (2,080 | )       |  |   | (1,617 | )
|Six months ended June 30, 2003:   |                                            |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue from external customers            |  | $        | 1,480 |          |  | $          | 11,488 |         |  | $ | 12,968 |  
|                                  | Gross profit                               |  |          | 716   |          |  |            | 1,980  |         |  |   | 2,696  |  
|                                  | Total segment income (loss)                |  |          | 18    |          |  |            | (6,958 | )       |  |   | (6,940 | )
|Six months ended June 30, 2002:   |                                            |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue from external customers            |  | $        | 2,628 |          |  | $          | 979    |         |  | $ | 3,607  |  
|                                  | Gross profit                               |  |          | 1,255 |          |  |            | 483    |         |  |   | 1,738  |  
|                                  | Total segment income (loss)                |  |          | 926   |          |  |            | (5,035 | )       |  |   | (4,109 | )

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

Reconciling information between reportable segments and the Companys
net loss is shown in the following table:

|                                                                                                |                                                               |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        |        |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | - | --------------------- | ------ | --------------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------ | ------ | -
|                                                                                                |                                                               |   | For the Three         |        | For the Six          
|                                                                                                |                                                               |   | Months Ended June 30, |        | Months Ended June 30,
|                                                                                                |                                                               |   |                       |        |                      
|                                                                                                |                                                               |   | 2003                  |        | 2002                  |   | 2003   |        | 2002
|                                                                                                |                                                               |   |                       |        |                       |   |        |        |     
|Total segment loss                                                                              |                                                               | $ | (4,371                | )      |                       | $ | (1,617 | )      |      | $ | (6,940  | )      |   | $ | (4,109 | )     
|                                                                                                | General
and administrative expenses not allocated to segments |   |                       | (3,122 | )                     |   |        | (1,946 | )    |   |         | (6,422 | ) |   |        | (3,638 | )
|                                                                                                |                                                               |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        |       
|Loss before interest, other income, income taxes,
minority interest and discontinued operations |                                                               |   | (7,493                | )      |                       |   | (3,563 | )      |      |   | (13,362 | )      |   |   | (7,747 | )     
|                                                                                                | Interest expense                                              |   |                       | (115   | )                     |   |        | (791   | )    |   |         | (178   | ) |   |        | (1,103 | )
|                                                                                                | Interest income                                               |   |                       | 102    |                       |   |        | 96     |      |   |         | 233    |   |   |        | 96     |  
|                                                                                                | Gain on sale of marketable securities held-for-sale           |   |                       | 1,178  |                       |   |        |       |      |   |         | 1,178  |   |   |        |       |  
|                                                                                                | Income taxes                                                  |   |                       | (8     | )                     |   |        |       |      |   |         | (8     | ) |   |        |       |  
|                                                                                                | Minority interest in loss (income) of consolidated subsidiary |   |                       | 10     |                       |   |        | (10    | )    |   |         | 3      |   |   |        | (10    | )
|                                                                                                | Gain from disposal of discontinued retail golf segment, net   |   |                       |       |                       |   |        | 1,038  |      |   |         |       |   |   |        | 508    |  
|                                                                                                |                                                               |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        |       
|NET LOSS                                                                                        |                                                               | $ | (6,326                | )      |                       | $ | (3,230 | )      |      | $ | (12,134 | )      |   | $ | (8,256 | )     
|                                                                                                |                                                               |   |                       |        |                       |   |        |        |      |   |         |        |   |   |        |       

Excluded general and administrative expenses are attributable to the
Companys corporate headquarters. These expenses primarily include corporate
salaries, consulting, professional fees and facility costs. Research and
development expenses are included in the operating costs of the segment that
performed the research and development.

Reconciling information between reportable segments and the Companys
consolidated assets is shown in the following table:

|                          |                                           |   |          |        | 
|------------------------- | ----------------------------------------- | - | -------- | ------ | 
|                          |                                           |   | June 30,
|                          |                                           |   | 2003    
|                          |                                           |   |         
|Total segment assets      |                                           | $ | 36,314   |       
|                          | Cash and cash equivalents                 |   |          | 13,472 | 
|                          | Prepaid expenses and other current assets |   |          | 258    | 
|                          | Other property, plant and equipment       |   |          | 1,949  | 
|                          | Other intangible assets, net              |   |          | 911    | 
|                          | Other assets                              |   |          | 90     | 
|                          |                                           |   |          |       
|Total consolidated assets |                                           | $ | 52,994   |       
|                          |                                           |   |          |       

Assets excluded from segment assets include assets attributable to the
Companys corporate headquarters. The largest asset represents the Companys
cash balances, primarily generated from the Companys stock offering, proceeds
from the sale of marketable securities and proceeds from the Kookmin loan (See
note 8).



|12. |  | Income Taxes
|--- |  | ------------

The provision for income tax benefit (expense) for the six months ended
June 30, 2003 and 2002, respectively, is calculated, when applicable, through
the use of an estimated annual income tax rate based
on projected annualized income (loss). The Company estimated that the
effective tax rate for the six months ended June 30, 2003 is insignificant.
The

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##### Table of Contents



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

Company estimated an effective tax rate of 0% for the six months ended June 30,
2002 based on the Companys reported losses.



|13. |  | Income (Loss) Per Common Share
|--- |  | ------------------------------

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

|                               |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |   | 
|------------------------------ | ------------- |  | -------------- | - | -------------- |  | ---------- | - | ---- |  | ---------- | - |  |  | ---------- | - | 
|                               |               |  | Three Months   |   | Six Months    
|                               |               |  | Ended June 30, |   | Ended June 30,
|                               |               |  |                |   |               
|                               |               |  | 2003           |   | 2002           |  | 2003       |   | 2002
|                               |               |  |                |   |                |  |            |   |     
|Weighted average basic shares  |               |  | 41,586,986     |   |                |  | 37,697,190 |   |      |  | 41,409,218 |   |  |  | 36,395,648 |  
|Effect of dilutive securities: |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  
|                               | Stock options |  |                |  |                |  |            |  |      |  |            |  |  |  |            |  | 
|                               | Warrants      |  |                |  |                |  |            |  |      |  |            |  |  |  |            |  | 
|                               |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  
|Diluted shares                 |               |  | 41,586,986     |   |                |  | 37,697,190 |   |      |  | 41,409,218 |   |  |  | 36,395,648 |  
|                               |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  

The effect of outstanding options and warrants to purchase common stock
was excluded in the periods presented because the inclusion would have been
antidilutive.



|14. |  | Commitments
|--- |  | -----------

In March 1996, the Company entered into a distribution agreement whereby
it granted to a third party exclusive rights to market and sell golf products
incorporating Liquidmetal technology to certain Japanese sporting equipment
companies. The third party paid the Company a $1.0 million distribution fee as
part of this agreement, of which a portion was refundable according to a
formula based on the gross profit earned by the third party. The remaining
unearned distribution fee of $830 has not been refunded as of June 30, 2003.
On March 28, 2003, the distribution agreement was terminated and the Company
entered into a new agreement to pay to the same third party a commission on the
net sales price of all Liquidmetal golf equipment that is shipped by the
Company or its affiliates to Japanese golf companies for sale into the Japanese
end-market. This commission will apply to golf equipment shipped by the
Company or its affiliates during the period beginning on March 28, 2003 and
ending on March 28, 2006. If by March 28, 2006, the Company has not paid $350
in commission payments, the balance between commissions paid and $350 will be
paid by April 30, 2006, thereby guaranteeing the third party a $350 minimum
payment during the term of the agreement. The Company will recognize the
unearned distribution fee of $830 as revenue proportionately with the payment
of commissions under the new agreement.

On December 20, 2002, the Company entered into an agreement with a
third-party supplier to purchase raw materials during 2003 for a total of
$3,488, of which the Company had purchased $845 as of July 30, 2003. On July
30, the Company and the third-party agreed to cancel this purchase agreement.
On July 22, 2003, the Company entered into another agreement with a separate
third party supplier to purchase a different type of raw materials for a total
of $2,500 within twelve months from the date of this agreement.

During the second quarter of 2003, the Company sold notes receivable with
recourse. As of August 14, 2003, the Company has a $15
contingent obligation for a note receivable sold with recourse prior to June 30, 2003.

The Company is from time to time a party to certain legal proceedings
arising in the ordinary course of business. Although outcomes cannot be
predicted with certainty, the Company does not believe that any legal
proceedings to which it

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##### Table of Contents



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

is a party will have a material adverse effect on the Companys financial
position, results of operations, and cash flows.



|15. |  | Related Party Transactions
|--- |  | --------------------------

In June
2003, the Company entered into an exclusive ten-year license
agreement with LLPG, Inc. (LLPG), a corporation headed by a former director
of the Company. Under the terms of the agreement, LLPG has the right to
commercialize Liquidmetal alloys, particularly precious-metal based
compositions, in the jewelry and high-end luxury products market. The Company,
in turn, will receive royalty payments over the life of the contract on all
Liquidmetal products produced and sold by LLPG. In conjunction with its
technology licensing contract, LLPG purchased two proprietary Liquidmetal alloy
melting machines and three proprietary Liquidmetal alloy casting machines for a
total purchase price of $2,000.

On July 29, 2002, the Company invested $2,000 in Growell Metal, Inc.
(Growell Metal), a metals processing company located in South Korea and
publicly traded on South Koreas KOSDAQ stock market. The Company acquired
891,100 shares (or approximately 5%) of Growell Metals outstanding common
stock in this transaction. During the fourth quarter of 2002, Growell Metals
spin-off of its electronics division resulted in the creation of a new company
named Growell Electronics Inc (Growell Electronics). As a result of the
spin-off, 30% of the Companys 891,100 common shares of Growell Metal were
exchanged for an equal number of shares in the common stock of Growell
Electronics. During the year ended December 31, 2002, the Company sold its
shares in Growell Electronics for approximately $1,432, resulting in a realized
gain of $832. In April, 2003, the Company sold its remaining shares in Growell
Metal for approximately $2,578, resulting in a realized gain of approximately
$1,178 and the reversal of the accumulated unrealized gain of $1,668 which is
reported as other comprehensive loss in the accompanying condensed consolidated
statement of operations. Currently, Growell Metal holds 92,167 shares (or
approximately 0.2%) of the Companys outstanding common stock.

Under the terms of a supply agreement, the Company has engaged Growell
Metal to produce Liquidmetal alloy ingots (ingots) for the Company to
purchase and use as a raw material in the manufacturing of products and
components made of Liquidmetal alloys. The agreement is for a five-year period
beginning in June 2002. Under the terms of this cost-plus arrangement, Growell
Metal is paid a processing fee plus the cost of the raw materials used to
produce the ingots. During the six months ended June 30, 2003, Growell Metal
purchased $2,636 of raw materials from the Companys own raw material stock to
use in the production of the ingots. The Company purchased $3,149 of ingots
from Growell Metal during the six months ended June 30, 2002. The net profit
on the sale of the raw materials sold to Growell Metal is netted
against the cost of the ingots purchased from Growell Metal. At June 30, 2003,
the Company had a net payable to Growell Metal of $186 related to these
transactions.

During the first quarter of 2003, the Company sold $2,544 of casting
equipment to Growell Metal for use in the processing of bulk Liquidmetal alloy
products. As part of a five-year strategic agreement finalized in March 2003,
Growell Metal has the exclusive right to manufacture and market automotive
parts made from Liquidmetal alloys for customers in South Korea. The Company
will receive royalty payments from the sale of Liquidmetal alloy parts produced
and sold by Growell. At June 30, 2003, the Company had a receivable from
Growell Metal of $2,057 related to the sale of this equipment.

During the year ended December 31, 2002, the Company sold $1,569 of
furnace equipment to Growell Metal to produce ingots for the Company. The
accumulated profit on these sales, $80, was deferred and will be amortized
against cost of sales over the remaining term of the technology transfer
agreement between Growell Metal and the Company. The agreement is for a
two-year period beginning in February 2002. At June 30, 2003, the remaining
deferred profit was $32. During the six months ended June 30, 2003, the
Company sold $7 of products and services to Growell Metal related to the
maintenance of this furnace equipment. At June 30, 2003, the Company had a
receivable from Growell Metal of $157 related to the sale of this equipment to
Growell Metal.

17



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##### Table of Contents



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003 and 2002
(in thousands, except share data)
(unaudited)

The Company is a party to a license agreement with California Institute of
Technology (Caltech) under which the Company exclusively licenses from
Caltech certain inventions and technology relating to amorphous alloys.
Professor William Johnson, the Vice Chairman of the Companys Board of
Directors, is a professor at Caltech, and substantially all of the amorphous
alloy technology licensed to the Company under the Caltech license agreement
was developed in Professor Johnsons Caltech laboratory. During each of the
six months ended June 30, 2003 and 2002, the Company paid $50 to Caltech
representing, respectively, the second and final installments on the $150
aggregate fees related to this agreement. Additionally, the Company reimburses
Caltech for laboratory expenses incurred by Professor Johnsons Caltech
laboratory, which during the six months ended June 30, 2003, amounted to $22 in
reimbursements.



|16. |  | Cost Reduction Measures
|--- |  | -----------------------

During the second quarter of 2003, the Company initiated activities to
reduce the number of employees and
consolidate manufacturing and administrative facilities to improve operational
effectiveness and efficiency and reduce expenses. The total amount of the
charges expected to be incurred in connection with these actions
during the second and third quarters of 2003 is $1,112, including $288 for
write-off of certain property and equipment, $16
for termination of a lease contract, $32 for relocation of property and
equipment and other related expenses, and $776 for voluntary termination benefits
paid to an estimated 208 employees. The Company is
recognizing the costs associated with these activities when incurred. During
the three months ended June 30, 2003, the Company incurred $800
of selling, general,
and administrative expenses as a result of these cost reduction
measures,
including $288 for the write-off of certain property and equipment, $13 for
relocation of property and equipment, and $499 for voluntary termination
benefits to be paid to 152 employees that accepted a voluntary termination package
prior to June 30, 2003. All of these costs relate to the operations of the
bulk alloy segment.

Based on the Company's current business plan,
the Company anticipates that its current cash and cash equivalents, together with anticipated cash flow from
operations, will be sufficient to meet its projected cash needs for at least the next 12 months.
However, because the Company's business is based on commercializing an entirely new and unique technology,
its current business plan contains a variety of assumptions and expectations that are subject to uncertainty,
including assumptions and expectations about order flow, unit volumes, manufacturing efficiencies, product cost
and pricing, continuing technology improvements, customer adoption practices, and other relevant matters.  These
assumptions take into account recent significant cost reductions, as well as recent improvements to the manufacturing process.
The Company's assumptions and expectations could change rapidly and dramatically, especially when compared to more traditional
businesses whose expectations are rooted in historical experience.  If any of the Company's assumptions or expectations prove
to be incorrect or do not come to fruition, it is possible that available funds and cash generated from operations could become
strained in the early part of 2004, and the Company may therefore need to raise additional capital to fund its cash needs. There
is no assurance that additional capital, whether through selling additional debt or equity securities or obtaining a line of credit
or other loan, will be available to the Company or, if available, will be on acceptable terms.  If the Company issues additional
securities to raise funds, these securities may have rights, preferences, or privileges senior to those of the Company's common stock,
and current stockholders may experience dilution.

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INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors and Shareholders of
    Liquidmetal Technologies, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of
Liquidmetal Technologies, Inc. and subsidiaries (the Company) as of June 30,
2003, the related condensed consolidated statements of operations and
comprehensive loss for the three and six-month periods ended June 30, 2003 and
2002, of shareholders equity for the six months ended June 30, 2003, and of
cash flows for the six months ended June 30, 2003 and 2002. These financial
statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Liquidmetal Technologies, Inc. and subsidiaries as of December 31, 2002, and
the related consolidated statements of operations and comprehensive loss,
of shareholders equity and of cash flows for the year then ended (not presented
herein); and in our report dated February 4, 2003, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2002 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Tampa, Florida
July 15, 2003

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Liquidmetal Technologies, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition
And Results of Operations

This managements discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and notes included
elsewhere in this report on Form 10-Q.

This managements discussion and analysis, as well as other sections of
this report on Form 10-Q, may contain forward-looking statements that involve
risks and uncertainties, including statements regarding our plans, future
events, objectives, expectations, forecasts, or assumptions. 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, plans, seeks, and similar 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 under the caption Factors Affecting Future
Results in our Annual Report on Form 10-K for the fiscal year ended December
31, 2002 and other risks and uncertainties discussed in filings made with the
Securities and Exchange Commission (including risks described in subsequent
reports on Form 10-Q, Form 10-K, Form 8-K, and other filings). Liquidmetal
Technologies, Inc. disclaims any intention or obligation 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, manufactures, and
markets products made from amorphous alloys. Our Liquidmetal® family of
alloys consists of a variety of coatings, powders, bulk alloys, and composites
that utilize the advantages offered by amorphous alloy technology. We develop,
manufacture, and sell products and components from bulk amorphous alloys that
are incorporated into the finished goods of our customers, and we also market
and sell amorphous alloy industrial coatings. We have the exclusive right to
develop, manufacture, and sell what we believe are the only commercially viable
bulk amorphous alloys.

Amorphous alloys are 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 ordinary metals and alloys when
they solidify. Liquidmetal alloys possess a combination of performance,
processing, and cost advantages that we believe makes them preferable to other
materials in a variety of applications. The amorphous atomic structure of our
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. For example, our zirconium-titanium Liquidmetal
alloys are approximately 250% stronger than commonly used titanium alloys, such
as Ti-6Al-4V, but they have processing characteristics similar in many respects
to plastics. We believe these advantages could result in Liquidmetal alloys
supplanting other incumbent materials in a wide variety of applications.
Moreover, we believe these advantages will enable the introduction of entirely
new products and applications that are not possible or commercially viable with
other materials.

Our revenues are derived from two principal operating segments:
Liquidmetal alloy coatings and bulk Liquidmetal alloy products. Liquidmetal
alloy coatings are used primarily as a protective coating for industrial
machinery and equipment, such as drill pipe used by the oil drilling industry
and boiler tubes used in coal-burning power plants. The historical operating
information for the three and six months ended June 30, 2002 contained in this
section is based substantially on sales of Liquidmetal alloy coatings; however,
this is a diminishing percentage of our business. In the second half of 2002,
we began producing bulk Liquidmetal alloy components and products for
incorporation into our customers finished goods. Bulk Liquidmetal alloy
segment revenue includes sales of parts or components of electronic devices,
medical products, and sports and leisure goods; tooling and prototype parts
(including demonstration parts and test samples) for customers with products in
development; metal processing equipment; and research and development revenue
relating primarily to defense and medical applications. We have been focusing
our initial commercialization efforts for bulk Liquidmetal alloys primarily on
applications for products with high unit volumes that are sold in major
industries. We expect that these new sources of

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revenue will continue to significantly change the size and character of our
revenue mix.

The cost of sales for our Liquidmetal coatings segment consists primarily
of the costs of outsourcing our manufacturing to third parties. Consistent with
our expectations, our cost of sales has been increasing over historical results
as we further build our bulk Liquidmetal alloy business. Although we plan to
continue outsourcing the manufacturing of our coatings, we will internally
manufacture many products derived from our bulk Liquidmetal alloys and could
require continued capital expenses as we expand our manufacturing capabilities.

Selling, general, and administrative expenses currently consist primarily
of salaries and related benefits, travel, consulting and professional fees,
depreciation and amortization, insurance, office and administrative expenses,
and other expenses related to our operations.

Research and development expenses represent salaries, related benefits
expense, stock-based compensation, depreciation of research equipment,
consulting and contract services, expenses incurred for the design and testing
of new processing methods, expenses for the development of sample and prototype
products, and other expenses related to the research and development of
Liquidmetal alloys. Costs associated with research and development activities
are expensed as incurred. We plan to enhance our competitive position by
improving our existing technologies and developing advances in amorphous alloy
technologies. We believe that our research and development efforts will focus
on the discovery of new alloy compositions, the development of improved
processing technology, and the identification of new applications for our
alloys.

Our historical operations, prior to 2002, included our coatings business
and our retail golf operation conducted through our majority owned Liquidmetal
Golf subsidiary. On September 29, 2001, our board of directors and the board of
directors of Liquidmetal Golf voted to discontinue the retail golf operations
of Liquidmetal Golf in order to conform our operations to our broader corporate
business strategy, although Liquidmetal Golf continues to market and develop
golf club components for other golf club manufacturers. Pursuant to Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, we
reclassified our consolidated financial statements to reflect the
discontinuation of Liquidmetal Golfs retail golf operations. The revenue,
costs and expenses, assets and liabilities, and cash flows of the retail golf
business were segregated in our Consolidated Balance Sheets, Consolidated
Statements of Operations and Comprehensive Loss, and Consolidated Statements of
Cash Flows. The net operating results, net assets, and net cash flows of the
retail golf business were reported as discontinued operations in our annual
consolidated financial statements and in the condensed consolidated financial
statements included in this report on Form 10-Q. On April 30, 2002, management
terminated the operations of the retail golf segment by completing the
liquidation of the retail golf assets and liabilities.

In May 2003, we completed a reincorporation from a California corporation
to a Delaware corporation. The reincorporation changed the legal domicile of
our company but did not result in any change to our business, management,
employees, fiscal year, assets or liabilities, or location of facilities. As
part of the reincorporation, each share of the California corporation was
automatically converted into one share of the Delaware corporation.

The following discussion and analysis of our financial condition and
results of operations focuses on the historical results of our continuing
operations.

Results of Operations

Comparison of the three months ended June 30, 2003 and 2002

Revenue. Revenue increased $4.3 million to $6.4 million in the three
months ended June 30, 2003 from $2.1 million in the three months ended June 30,
2002. The revenue increase was due to the $4.9 million increase in revenue
earned by our bulk Liquidmetal alloys segment in the three months ended June
30, 2003. This increase in our bulk Liquidmetal alloy segment consisted of a
revenue increase of $3.4 million from the sale of metal processing equipment
primarily for use in the processing of bulk Liquidmetal alloy products, an
increase of $0.6 million from research and development services related
primarily to defense and medical applications, and an increase of $0.9 million
from the sale and prototyping of parts manufactured from bulk Liquidmetal
alloys. The increase in revenue earned by our bulk Liquidmetal alloy segment
was

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offset by a decrease of $0.6 million in the revenue earned by our coatings
business as compared to the three months ended June 30, 2002.

Cost of Sales. Cost of sales increased to $6.4 million, or
99.7% of revenue, during the three months ended June 30,2003 from $1.2 million,
or 55.4% of revenue, in the three months ended June 30, 2002. The cost of
sales as a percentage of revenue increased due to several factors, including:
our continued shift in revenue mix to a higher percentage of bulk alloy
products, which currently carry a lower margin than coatings; inadequate
pricing on one cell phone component that has since been re-priced; and a
higher percentage of plant operating costs allocated to manufacturing, as
opposed to research and development expense, compared to the same period of
2002. Additionally, during the second
quarter of 2003, $1.3
million of costs were incurred associated with the production of certain unprofitable parts that have now
been discontinued and $0.8 million for a part that is being phased out of
production. A factor that offsets the increased cost of sales as a percentage
of revenue is the lower percentage of costs of sales related to equipment sales
and certain research and development revenue included in the bulk Liquidmetal
alloy business during the three months ended June 30, 2003.

Although the cost to manufacture parts from our bulk Liquidmetal alloys is
variable and differs based on the unique design of each product, we expect
gross margin to improve in the upcoming quarters, based on experience and
development of new gate-keeping measures to more effectively determine which
products are profitably suited for us, along with continued improvements to
plant costs and manufacturing process. However, the cost of sales for the
products sold by the coatings business is expected to remain generally
consistent because Liquidmetal coatings products are produced by third parties
and sold wholesale to various industries.

Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased to $4.7 million, or 73% of revenue, in the
three months ended June 30, 2003 from $2.9 million, or 133% of revenue, in the
three months ended June 30, 2002. This increase was primarily a result of:
costs associated with restructuring our business which includes severance costs
of $0.5 million and costs for consolidating our manufacturing and
administrative facilities of $0.3 million; increased professional fees,
consultant fees, and contract services of $0.2 million; increased insurance
expense of $0.2 million; increased travel expenses of $0.1 million; increased
property rent of $0.2 million; increased product warranty expense of $0.1
million; and increased depreciation expense of $0.1 in the three months ended
June 30, 2003. These and other increases in selling, general and administrative
expenses are associated with the development of our bulk Liquidmetal alloy
business.

Research and Development Expenses. Research and development expenses
increased to $2.8 million, or 44% of revenue, in the three months ended June
30, 2003 from $1.7 million, or 77% of revenue, in the three months ended June
30, 2002. This increase was partially a result of expenses related to the
continued research and development of new Liquidmetal alloys and related
processing capabilities, including the hiring of additional research employees,
developing new manufacturing techniques, and the cost of supplies and prototype
samples for newly developed products. Salaries and wages increased $0.1
million; travel decreased $0.1 million; professional fees, consultant fees,
and contract services decreased $0.1 million; and laboratory and prototyping
expenses increased $1.2 million.

Interest Expense. Interest expense was $0.1 million, or 2% of revenue, in
the three months ended June 30, 2003 and was $0.8 million, or 37% of revenue,
in the three months ended June 30, 2002. During the three months ended June
30, 2003, the interest expense was primarily due to interest accrued on the
Kookmin Bank loan to our South Korean subsidiary funded on February 4, 2003.
During the three months ended June 30, 2002, the interest expense was primarily
due to the amortization of the fair value of warrants granted in connection
with subordinated promissory notes we issued in February 2001.

Interest Income.Interest income was $0.1 million, or 2% of revenue, in
the three months ended June 30, 2003 due to interest earned on short-term,
investment grade, interest-bearing securities. During the three months ended
June 30, 2002, interest income was $0.1 million, or 4% of revenue.

Comparison of the six months ended June 30, 2003 and 2002

Revenue. Revenue increased $9.4 million to $13.0 million in the six months
ended June 30, 2003 from $3.6 million in

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the six months ended June 30, 2002. The increase was due to the $10.5 million
increase in revenue earned by our bulk Liquidmetal alloys segment in the six
months ended June 30, 2003. This increase in our bulk Liquidmetal alloy
segment revenue consisted of a revenue increase of $6.3 million from the sale
of metal processing equipment primarily for use in the processing of bulk
Liquidmetal alloy products, an increase of $2.2 million from the sale and
prototyping of parts manufactured from bulk Liquidmetal alloys, and an increase
of $2.0 million from research and development services related primarily to
defense and medical applications. The increase in revenue earned by our bulk
Liquidmetal alloy segment was offset slightly by a decrease of $1.1 million in
the revenue earned by our coatings business as compared to the six months ended
June 30, 2002.

Cost of Sales. Cost of sales increased to $10.3 million, or 79% of
revenue, during the six months ended June 30,2003 from $1.9 million, or 52% of
revenue, in the six months ended June 30, 2002. The cost of sales as a
percentage of revenue increased due to several factors including: our continued
shift in revenue mix to a higher percentage of bulk alloy products, which
currently carry a lower margin than coatings; inadequate pricing on
one
cell phone component that has since been re-priced; and a higher percentage of
plant operating costs allocated to manufacturing, as opposed to research and
development expense, compared to the same period of 2002.
Additionally, during the second quarter of 2003, $1.3 million of
costs were incurred associated with the production of
certain unprofitable parts that have now been discontinued and $0.8 million for
a part that is being phased out of production. A factor that offsets the
increased cost of sales as a percentage of revenue is the lower percentage of
costs of sales related to equipment sales and certain research and development
revenue included in the bulk Liquidmetal alloy business during the six months
ended June 30, 2003.

Although the cost to manufacture parts from our bulk Liquidmetal alloys is
variable and differs based on the unique design of each product, we expect
gross margin to improve in the upcoming quarters, based on experience and
development of new gate-keeping measures to more effectively determine which
products are profitably suited for us, along with continued improvements to
plant costs and manufacturing process. However, the cost of sales for the
products sold by the coatings business is expected to remain generally
consistent because Liquidmetal coatings products are produced by third parties
and sold wholesale to various industries.

Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased to $9.2 million, or 71% of revenue, in the
six months ended June 30, 2003 from $5.1 million, or 142% of revenue, in the
six months ended June 30, 2002. This increase was primarily a result of:
increased wages of $0.5 million; severance costs of $0.5 million; costs for
consolidating our manufacturing and administrative facilities of $0.3 million;
increased professional fees, consultant fees, and contract services of $0.7
million; increased insurance expense of $0.4 million; increased travel expenses
of $0.3 million; increased property rent of $0.4 million; increased product
warranty expense of $0.4 million; and increased depreciation expense of $0.2
million in the six months ended June 30, 2003. These and other increases in
selling, general and administrative expenses are associated with the
development of our bulk Liquidmetal alloy business.

Research and Development Expenses. Research and development expenses
increased to $6.8 million, or 53% of revenue, in the six months ended June 30,
2003 from $4.4 million, or 121% of revenue, in the six months ended June 30,
2002. This increase was partially a result of expenses related to the continued
research and development of new Liquidmetal alloys and related processing
capabilities, including the hiring of additional research employees, developing
new manufacturing techniques, and contracting with consultants and providing
research grants to various institutions to advance the development of
Liquidmetal alloys. Salaries and wages increased $0.3 million; travel decreased
$0.1 million; professional fees, consultant fees, and contract services
increased $0.2 million; laboratory and prototyping expenses increased $1.5
million; depreciation of research equipment increased $0.4 million; and
research grants to educational institutions increased $0.2 million.

Interest
Expense. Interest expense was $0.2 million, or 1% of revenue, in
the six months ended June 30, 2003 and was $1.1 million, or 31% of revenue, in
the six months ended June 30, 2002. During the six months ended June 30, 2003,
the interest expense was primarily due to interest accrued on the Kookmin Bank
loan to our South Korean subsidiary funded on February 4, 2003. During the six
months ended June 30, 2002, the interest expense was primarily due to the
amortization of the fair value of warrants granted in connection with
subordinated promissory notes we issued in February 2001.

Interest Income.Interest income was $0.2 million, or 2% of revenue, in
the six months ended June 30, 2003 due to

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interest earned on short-term, investment grade, interest-bearing securities.
During the six months ended June 30, 2002, interest income was $0.1 million, or
3% of revenue.

LIQUIDITY AND CAPITAL RESOURCES

Our operating activities, including our discontinued retail golf
operations, used cash of $17.8 million for the six months ended June 30, 2003
and $9.0 million for the six months ended June 30, 2002. Cash used in operating
activities for the six months ended June 30, 2003 resulted from net cash used
by discontinued operations of $1.0 million and net cash used by continuing
operations of $16.8 million. Cash used in operating activities for the six
months ended June 30, 2002 resulted from net cash used by discontinued
operations of $2.3 million and net cash used by continuing operations of $6.8
million. We have working capital of $19.7 million as of June 30, 2003. Cash used
by continuing operations in the six months ended June 30, 2003 resulted
primarily from operating losses from continuing operations of $12.1 million, a
decrease in accounts payable and accrued liabilities of $4.0 million, and an
increase in accounts receivable of $2.9 million.

Our investing activities used cash of $0.2 million for the six months
ended June 30, 2003 for the acquisition of property and
equipment of $2.6 million and investment in patents and trademarks of $0.2 million. These
expenditures were partially offset by the net proceeds from the sale of
marketable securities of $2.6 million.

Our financing activities provided $6.4 million in cash for the six months
ended June 30, 2003, which consists of $5.5 million in proceeds from borrowings
from Kookmin Bank and $0.9 million in proceeds from exercised stock options.

We currently anticipate substantially lower capital expenditures for at
least the next 12 months, given the completion of construction and purchase of
manufacturing equipment for our plant in Pyongtaek, South Korea. We anticipate
that our capital expenditures will be approximately $4.0 to $5.0 million for
the full year 2003 for manufacturing equipment and the acquisition of
furniture, fixtures, and other business equipment. This amount is subject to
change, however, depending upon the nature and the amount of the orders that we
actually receive from customers.

Our capital requirements during the next 12 months will depend on numerous
factors, including the success of our existing products, the development of new
applications for Liquidmetal alloys, and the resources we devote to develop and
support our Liquidmetal alloy products. During the next 12 months, we expect to
continue to devote capital to our research and development activities, to
further develop and strengthen our manufacturing capabilities, and for working
capital and other general corporate purposes. These expenses and capital
expenditures will consume a material amount of our cash resources, including a
portion of the net proceeds of our initial public offering. Our liquidity is
not dependent upon the use of off-balance sheet financing arrangements, such as
securitization of receivables or obtaining access to assets through special
purpose entities.

We intend to continue to develop our manufacturing resources and
capabilities. Additionally, we anticipate growth in our working capital
requirements from our expanding bulk Liquidmetal alloy business. However, the
amount of these requirements will depend on the nature and amount of orders we
receive for the purchase of our bulk Liquidmetal alloy products.

Based on
our current business plan, we anticipate that our current cash and
cash equivalents, together with anticipated cash flow from operations,
will be sufficient to meet our projected cash needs for at least the
next 12 months. However, because our business is based on
commercializing an entirely new and unique technology, our current
business plan contains a variety of assumptions and expectations that
are subject to uncertainty, including assumptions and
expectations about order flow, unit volumes, manufacturing
efficiencies, product cost and pricing, continuing technology
improvements, customer adoption practices, and other relevant
matters. These assumptions take into account recent significant cost
reductions, as well as recent improvements to our manufacturing
process. Our assumptions and expectations could change rapidly and
dramatically, especially when compared to more traditional businesses
whose expectations are rooted in historical experience. If any of our
assumptions or expectations prove to be incorrect or do not come to
fruition, it is possible that our available funds and cash generated
from operations could become strained in the early part of 2004, and
we may therefore need to raise additional capital to fund our cash
needs. We cannot be certain that additional capital,
whether through selling additional debt or equity securities or
obtaining a line of credit or other loan, will be available to us or,
if available, will be on terms acceptable to us. If we issue
additional securities to raise funds, these securities may have
rights, preferences, or privileges senior to those of our common stock,
and our current stockholders may experience dilution.

In March 1996, we entered into a distribution agreement whereby we granted
to a third party exclusive rights to market

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and sell golf products incorporating Liquidmetal technology to certain Japanese
sporting equipment companies. The third party paid us a $1.0 million
distribution fee as part of this agreement, of which a portion was refundable
according to a formula based on the gross profit earned by the third party.
The remaining unearned distribution fee of $0.8 million has not been refunded
as of March 31, 2003, and we do not believe the third party is entitled to a
refund. On March 28, 2003, the distribution agreement was terminated and we
entered into a new agreement to pay to the same third party a commission on the
net sales price of all Liquidmetal golf equipment that is shipped by our
company or its affiliates to Japanese golf companies for sale into the Japanese
end-market. This commission will apply to golf equipment shipped by our
company or its affiliates during the period beginning on March 28, 2003 and
ending on March 28,2006. If, by March 28, 2006, we have not paid $0.4 million
in commission payments, the balance between commissions paid and $0.4 million
will be paid by April 30, 2006, thereby guaranteeing the third party a $0.4
million minimum payment during the term of the agreement. We will recognize
the unearned distribution fee of $0.8 million as revenue proportionately with
the payment of commissions under the letter agreement.

USE OF PROCEEDS

Pursuant to our Registration Statement on Form S-1 (Registration No.
333-73716), as amended, initially filed with the Securities and Exchange
Commission on November 20, 2001 and declared effective May 21, 2002, we closed
an initial public offering of 5,000,000 shares of common stock on May 28, 2002,
plus an additional 229,000 shares on June 10, 2002 pursuant to an overallotment
option, at a price of $15.00 per share (which sale is referred to herein as the
Offering). The Offering generated aggregate cash proceeds during the second
quarter 2002 of $78.4 million. The net proceeds were $70.7 million after
deducting underwriting commissions of $5.5 million and other transaction fees
of $2.2 million. The managing underwriters for the Offering were Merrill Lynch
& Co., UBS Warburg, and Robert W. Baird & Co.

As of June 30, 2003, we had used approximately $67.9 million of net
proceeds from the Offering. We used approximately $7.8 million of the net
proceeds from the Offering to repay all outstanding promissory notes and
accrued interest, $11.1 million to fund the construction of our manufacturing
facility in South Korea, $14.0 million to purchase equipment used to
manufacture Liquidmetal parts, $0.4 million to purchase assets related to
production and sale of equipment used in the production process of Liquidmetal
alloy products, and $0.3 million to purchase the 51% interest in our majority
owned Dongyang subsidiary. During the third quarter of 2002, we used $2.0
million to invest in the common stock of Growell Metal, which supplies a
portion of the Liquidmetal alloy ingots used in our manufacturing operations in
Korea, although we have since sold such stock. As of June 30, 2003, we used
approximately $30.2 million of the net proceeds for working capital, excluding
$2.1 million paid to Paul Azinger for amounts due under the terms of his
terminated endorsement agreement. We have invested the remaining net proceeds
of this offering in short-term, investment grade, interest-bearing securities.
We intend to use the remaining net proceeds of the offering for working capital
purposes.

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:



| |  |  | Our earnings and cash flows are subject to fluctuations due to changes
in non-U.S. currency exchange rates. We are exposed to non-U.S.
exchange rate fluctuations as the financial results of non-U.S.
subsidiaries are translated into U.S. dollars. As exchange rates vary,
those results, when translated, may vary from expectations and
adversely impact overall expected profitability. The cumulative
translation effects for subsidiaries using functional currencies other
than the U.S. dollar are included in accumulated foreign exchange
translation in shareholders equity. Movements in non-U.S. currency
exchange rates may affect our competitive position, as exchange rate
changes may affect business practices and/or pricing strategies of
non-U.S. based competitors.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | We record an accrual for potential product warranty costs. Due to the
lack of historical information for warranty expense related to bulk
alloy products, management estimates product warranties as a
percentage of bulk alloy product sales earned during the period. In
the event in future periods the actual product warranty costs
consistently exceed the estimate for product warranty costs, an
adjustment would be made and income would decrease in the period of
such determination. Likewise, in the event we determine that actual
product warranty costs are consistently lower than the estimate
for product warranty costs, an adjustment would be made and income
would increase in the period of such determination.                          
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We record an allowance for doubtful accounts as a contra-asset to our
trade receivables for estimated uncollectible accounts. Management
estimates the amount of potentially uncollectible accounts by
reviewing significantly past due customer balances relative to
historical information available for those customers. In the event, in
future periods, actual uncollectible accounts exceed the estimate for
uncollectible accounts, an adjustment would be made and income would
decrease in the period of such determination. Likewise, in the event,
in future periods, actual uncollectible accounts are lower than the
estimate for uncollectible accounts, an adjustment would be made and
income would increase in the period of such determination.
|
| |  |  | We value inventories at lower of cost or net realizable value.
Management has determined net realizable value to be equal to the
selling price of the products to be produced and sold less the cost
of disposal. In the event,
in future periods, the actual selling prices exceed the estimate for
selling prices less cost to sell, an adjustment would be made and income would increase
in the period of such determination. Likewise, in the event, in future
periods, actual selling prices are lower than the estimate for selling
prices, an adjustment would be made and income would decrease in the
period of such determination.                                                                                                                    
|
| |  |  | We record valuation allowances to reduce the deferred tax assets to
the amounts estimated to be realized. While we consider taxable income
in assessing the need for a valuation allowance, in the event we
determine we would be able to realize our deferred tax assets in the
future in excess of the net recorded amount, an adjustment would be
made and income increased in the period of such determination.
Likewise, in the event we determine we would not be able to realize
all or part of our deferred tax assets in the future, an adjustment
would be made and charged to income in the period of such
determination.                                                                                                                             

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligations.SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which such liabilities are incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs should be capitalized as part of
the carrying amount of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Adoption of SFAS No. 143 did not have a material impact on our financial
statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated With Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires costs associated with exit or disposal activities to be recognized
when the costs are incurred, rather than at a date of commitment to an exit or
disposal plan. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of SFAS No. 146 did not
have a material impact on our financial statements.

In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure,was issued by the FASB. This standard
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this standard amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the

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method of accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002. We implemented SFAS
No. 148 effective January 1, 2003 regarding disclosure requirements for
condensed financial statements for interim periods. We have not yet determined
whether we will voluntarily change to the fair value based method of accounting
for stock-based employee compensation.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(Interpretation 45). Interpretation 45
changes the accounting for and the disclosure of guarantees. Interpretation 45
requires that guarantees meeting the characteristics described in the
Interpretation be initially recorded at fair value in contrast to FASB No. 5,
which requires recording a liability when a loss is probable and reasonably
estimable. The disclosure requirements of Interpretation 45 are effective for
financial statements and annual periods ending after December 31, 2002. The
initial recognition and initial measurement provisions of Interpretation 45 are
effective on a prospective basis to guarantees issued or modified after
December 30, 2002. The adoption of Interpretation 45 did not have a material
impact on our financial statements.

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Item 3  Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various markets risks as a part of our operations, and
we anticipate that this exposure will increase as a result of our planned
growth. In an effort to mitigate losses associated with these risks, we may at
times enter into derivative financial instruments, although we have not
historically done so. These may take the form of forward sales contracts,
option contracts, foreign currency exchange contracts, and interest rate swaps.
We have not, and do not intend to, engage in the practice of trading
derivative securities for profit.

Interest Rates.We are exposed to market risks relating to changes in
interest rates. Some of the proceeds of our initial public offering are
invested in short-term, interest-bearing, investment grade securities. The
value of these securities will be subject to interest rate risk and could fall
in value if interest rates rise.

Commodity Prices.We are exposed to price risk related to anticipated
purchases of certain commodities used as raw materials by our businesses,
including titanium and zirconium. Although we do not currently enter into
commodity future, forward, and option contracts to manage the fluctuations in
prices of anticipated purchases, we may enter into such contacts in the future
as our business grows and as our purchases of these raw materials increase.

Foreign Exchange Rates.As a result of our operation of a manufacturing
facility in South Korea, a substantial portion of our costs will be denominated
in the South Korean won. Consequently, fluctuations in the exchange rates of
the South Korean won to the U.S. dollar will affect our costs of goods sold and
operating margins and could result in exchange losses. Although we do not
currently enter into foreign exchange hedge transactions, we may do so in the
future as our business grows.




Item 4  Controls and Procedures

Liquidmetal Technologies, Inc. (the Company) has carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rule 13a-15 under the
Securities Exchange Act of 1934, as amended), as of the end of the period
covered by this quarterly report. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that these disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company, including its consolidated subsidiaries,
required to be included in this quarterly report on Form 10-Q. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of our evaluation.

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PART II
OTHER INFORMATION




Item 1  Legal Proceedings.

We may be involved in various legal proceedings in the normal course of
business. We are not a party to any proceedings that involve amounts that
would have a material effect on our financial position or results of operations
if such proceedings were resolved unfavorably.




Item 2  Change in Securities and Use of Proceeds.

Pursuant to the our Registration Statement on Form S-1, as amended,
initially filed with the Securities and Exchange Commission on November 20,
2001 and declared effective May 21, 2002 (Registration No. 333-73716), we
closed an initial public offering of 5,000,000 shares of common stock on May
28, 2002, plus an additional 229,000 shares on June 10, 2002 pursuant to an
overallotment option, at a price of $15.00 per share (which sale is referred to
herein as the Offering). The Offering generated aggregate cash proceeds
during the 2002 second quarter of $78.4 million. The net proceeds were $70.7
million after deducting underwriting commissions of $5.5 million and other
transaction fees of $2.2 million. The managing underwriters for the Offering
were Merrill Lynch & Co., UBS Warburg and Robert W. Baird & Co.

As of June 30, 2003, we had used approximately $67.9 million of net
proceeds from the Offering. We used approximately $7.8 million
of the net proceeds from the
Offering to repay all of our outstanding promissory notes and accrued interest,
$11.1 million to fund the construction of our manufacturing facilities in
South Korea, $14.0 million to purchase equipment used to manufacture
Liquidmetal parts, $0.4 million to purchase assets related to the production
and sale of equipment used in the production process of Liquidmetal alloy
products, and $0.3 million to purchase the 51% interest in our
majority owned Dongyang subsidiary. During
the third quarter of 2002, we used $2.0 million to invest in the common stock
of Growell Metal, which supplies a portion of the Liquidmetal alloy ingots used
in our manufacturing process in Korea, although we have since sold
such stock. As of June 30, 2003, we used approximately $30.2 million of the net proceeds
for working capital, excluding $2.1 million paid to Paul Azinger for amounts
due under the terms of his endorsement agreement. We have invested the
remaining net proceeds of this offering in short-term, investment grade,
interest-bearing securities. We intend to use the remaining net proceeds of the
offering for working capital purposes.




Item 4   Submission of Matters to a Vote of Security Holders.

On May 20, 2003, Liquidmetal Technologies, Inc. (the Company) held its Annual
Meeting of Shareholders near the Companys principal executive offices in
Tampa, Florida. At the meeting, John Kang, William Johnson, and Tjoa Thian
Song were elected as directors to serve until the 2005 Annual Meeting of
Shareholders, and Henri Tchen and Jeffrey Oster were elected as directors to
serve until the 2006 Annual Meeting of Shareholders. Additionally, the
Companys shareholders approved (i) the reincorporation of the Company from
California to Delaware and the adoption of a new charter and bylaws in
connection with the reincorporation, and (ii) the ratification of Deloitte &
Touche LLP as the Companys principal independent public accountants for the
year 2003.

The voting results for the election of Directors were as follows:

|                                                                    |  |                                                                 |  |                                                          
|------------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ---------------------------------------------------------
|John Kang
William Johnson
Tjoa Thian Song
Henri Tchen
Jeffrey Oster |  | Votes For33,335,298
33,334,379
33,441,184
26,077,350
33,440,184 |  | Votes Withheld677,613
678,532
571,727
7,935,561  
572,727

The voting results for the proposal to reincorporate the Company from
California to Delaware were as follows:

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|                     |  |                       |  |                       
|-------------------- |  | --------------------- |  | ----------------------
|Votes For
25,406,567 |  | Votes Against
786,119 |  | Votes Abstaining
5,305

The voting results for the ratification of Deloitte & Touche LLP for 2003 were
as follows:

|                     |  |                      |  |                       
|-------------------- |  | -------------------- |  | ----------------------
|Votes For
33,990,089 |  | Votes Against
13,911 |  | Votes Abstaining
8,911




Item 6  Exhibits and Reports on Form 8-K.



|(a) |  | Exhibits
|--- |  | --------

The following documents are filed as an exhibit to this Report:

|        |  |                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                          
|Number  |  | Description of Document                                                                                                                  
|        |  |                                                                                                                                          
|2.1     |  | Agreement and Plan of Merger, dated May 21, 2003, between Liquidmetal
Technologies, Inc. and Liquidmetal Technologies.                   
|        |  |                                                                                                                                          
|3.1     |  | Certificate of Incorporation.                                                                                                            
|        |  |                                                                                                                                          
|3.2     |  | Bylaws.                                                                                                                                  
|        |  |                                                                                                                                          
|4.1     |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                               
|        |  |                                                                                                                                          
|4.2     |  | Form of Common Stock Certificate.                                                                                                        
|        |  |                                                                                                                                          
|10.1    |  | Form of Indemnity Agreement entered into between Liquidmetal
Technologies, Inc. and each of its directors and executive officers.        
|        |  |                                                                                                                                          
|15.0    |  | Awareness Letter from Independent Auditors                                                                                               
|        |  |                                                                                                                                          
|31.1    |  | Certification of Principal Executive Officer pursuant to Rule 13a-15 (e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                          
|31.2    |  | Certification of Principal Financial Officer pursuant to Rule 13a-15 (e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                          
|32.1    |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350                                                                      
|        |  |                                                                                                                                          
|32.2    |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350                                                                      



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



| | 1. |  | A Report on Form 8-K was filed on April 14, 2003 (Items 7 and 12.).
The report contained information regarding Liquidmetal Technologies,
Inc.s earnings release issued on April 14, 2003.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | A Report on Form 8-K was filed on May 1, 2003 (Items 7 and 12.). The
report contained information regarding Liquidmetal Technologies, Inc.s
earnings release issued on May 1, 2003.      

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                      |  |                                                                                                 
|--------------------- |  | ------------------------------------------------------------------------------------------------
|                      |  | LIQUIDMETAL TECHNOLOGIES
(Registrant)                                                           
|                      |  |                                                                                                 
|Date: August 14, 2003 |  | /s/ John Kang                                                                                   
|                      |  |                                                                                                 
|                      |  | John Kang
President & Chief Executive Officer
(Principal Executive Officer)                     
|                      |  |                                                                                                 
|Date: August 14, 2003 |  | /s/ Brian McDougall                                                                             
|                      |  |                                                                                                 
|                      |  | Brian McDougall
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)

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EXHIBIT INDEX

|        |  |                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                         
|Number  |  | Description of Document                                                                                                                 
|        |  |                                                                                                                                         
|2.1     |  | Agreement and Plan of Merger, dated May 21, 2003, between Liquidmetal
Technologies, Inc. and Liquidmetal Technologies.                  
|        |  |                                                                                                                                         
|3.1     |  | Certificate of Incorporation.                                                                                                           
|        |  |                                                                                                                                         
|3.2     |  | Bylaws.                                                                                                                                 
|        |  |                                                                                                                                         
|4.1     |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                              
|        |  |                                                                                                                                         
|4.2     |  | Form of Common Stock Certificate.                                                                                                       
|        |  |                                                                                                                                         
|10.1    |  | Form of Indemnity Agreement entered into between Liquidmetal
Technologies, Inc. and each of its directors and executive officers.       
|        |  |                                                                                                                                         
|15.0    |  | Awareness Letter from Independent Auditors                                                                                              
|        |  |                                                                                                                                         
|31.1    |  | Certification of Principal Executive Officer pursuant to Rule 13a-15(e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                         
|31.2    |  | Certification of Principal Executive Officer pursuant to Rule 13a-15(e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                         
|32.1    |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350                                                                     
|        |  |                                                                                                                                         
|32.2    |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350                                                                     

32