##### 



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, 2002                                            
|  |  |                                                                                         
|  |  | 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

(Exact name of Registrant as specified in its charter)


|                                                                         |  |                                               
|------------------------------------------------------------------------ |  | ----------------------------------------------
|California(State or other jurisdiction of
incorporation or organization) |  | 33-0264467(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



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of 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 o   No x

As of August 9, 2002, there were 40,993,245 shares of the registrants common
stock, no par value, outstanding.

1



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##### 

TABLE OF CONTENTS



|                           |                                                                                               |                                                                        |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- |  |  |  |  |  | 
|PART I                    
|                           | 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 (DEFICIENCY)
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                       
|                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                           | Item 3  Quantitative and Qualitative Disclosures about Market Risk                          
|PART II OTHER INFORMATION 
|                           | Item 2  Change in Securities and Use of Proceeds.                                           
|                           | Item 6  Exhibits and Reports on Form 8-K.                                                   
|SIGNATURES                
|EXHIBIT INDEX             
|Joint Venture Agreement   
|Agreement for Subscription
|Certificate of CEO        
|Certificate of CFO        

TABLE OF CONTENTS

|                                                                                               |  |  |  |                                                                                    |  |  |  | 
|---------------------------------------------------------------------------------------------- |  |  |  | ---------------------------------------------------------------------------------- |  |  |  | 
|PART I                                                                                        
|Item 1 
Financial Statements and Independent Accountants Report                              |  |  |  |                                                                                   
|                                                                                               |  |  |  | Condensed Consolidated Balance Sheets (unaudited)                                  |  |  |  | 
|                                                                                               |  |  |  | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |  |  |  | 
|                                                                                               |  |  |  | Condensed Consolidated Statements of Shareholders Equity (Deficiency) (unaudited) |  |  |  | 
|                                                                                               |  |  |  | Condensed Consolidated Statements of Cash Flows (unaudited)                        |  |  |  | 
|                                                                                               |  |  |  | Notes to Condensed Consolidated Financial Statements (unaudited)                   |  |  |  | 
|                                                                                               |  |  |  | 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                            |  |  |  |                                                                                   
|PART II  Other Information                                                                   
|Item 2  Changes in Securities and Use of Proceed                                              |  |  |  |                                                                                   
|Item 6  Exhibits and Reports on Form 8-K                                                      |  |  |  |                                                                                   
|SIGNATURES                                                                                    
|EXHIBIT INDEX                                                                                 

2



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##### 






PART I

FINANCIAL INFORMATION




Item 1  Financial Statements and Independent Accountants Report




LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)
(unaudited)

|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |              |   |        |        |  
|------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | ------------------------------------------------- | - | -------- | ------ | ------------ | - | ------ | ------ | -
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   | June 30, |        | December 31,
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   | 2002     |        | 2001        
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   |                           | ASSETS                                            |   |          |        |              |   |        |        |  
|CURRENT ASSETS:                                         |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        | Cash and cash equivalents                                                                                                                                                   |   | $                         | 58,200                                            |   |          | $      | 2,230        |  
|                                                        | Trade receivables (net of allowance for doubtful accounts
of $70 in 2002 and $30 in 2001)                                                                                   |   |                           | 2,148                                             |   |          |        | 911          |  
|                                                        | Inventories                                                                                                                                                                 |   |                           | 885                                               |   |          |        | 503          |  
|                                                        | Prepaid expenses and other current assets                                                                                                                                   |   |                           | 866                                               |   |          |        | 967          |  
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   | Total current assets      |                                                   |   | 62,099   |        |              |   | 4,611  |       
|PROPERTY, PLANT AND EQUIPMENT, NET                      |                                                                                                                                                                             |   | 3,457                     |                                                   |   |          | 1,163  |             
|INTANGIBLE ASSETS, NET                                  |                                                                                                                                                                             |   | 935                       |                                                   |   |          | 723    |             
|OTHER ASSETS                                            |                                                                                                                                                                             |   | 156                       |                                                   |   |          | 183    |             
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   | Total assets              |                                                   | $ | 66,647   |        |              | $ | 6,680  |       
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   |                           | LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY) |   |          |        |              |   |        |        |  
|CURRENT LIABILITIES:                                    |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        | Accounts payable and accrued expenses                                                                                                                                       |   | $                         | 3,484                                             |   |          | $      | 2,706        |  
|                                                        | Net liabilities of discontinued operations                                                                                                                                  |   |                           | 3,263                                             |   |          |        | 7,492        |  
|                                                        | Deferred revenue                                                                                                                                                            |   |                           | 902                                               |   |          |        | 830          |  
|                                                        | Other liabilities                                                                                                                                                           |   |                           | 94                                                |   |          |        | 167          |  
|                                                        | Current portion of notes payable to shareholders                                                                                                                            |   |                           |                                                  |   |          |        | 2,988        |  
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   | Total current liabilities |                                                   |   | 7,743    |        |              |   | 14,183 |       
|OTHER LONG-TERM LIABILITIES                             |                                                                                                                                                                             |   | 84                        |                                                   |   |          |       |             
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   | Total liabilities         |                                                   |   | 7,827    |        |              |   | 14,183 |       
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|COMMITMENTS AND CONTINGENCIES                           |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|MINORITY INTEREST                                       |                                                                                                                                                                             |   | 154                       |                                                   |   |          |       |             
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|SHAREHOLDERS EQUITY (DEFICIENCY):                      |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        | Preferred stock, no par value; 10,000,000 shares authorized
and none outstanding at June 30, 2002 and 456,857 outstanding at December 31, 2001                              |   |                           |                                                  |   |          |        | 5,577        |  
|                                                        | Common stock, no par value; 200,000,000 shares authorized
and 40,993,245 issued and outstanding at June 30, 2002 and 35,023,515 issued
and outstanding at December 31, 2001 |   |                           | 106,519                                           |   |          |        | 29,752       |  
|                                                        | Paid in capital                                                                                                                                                             |   |                           | 20,857                                            |   |          |        | 22,401       |  
|                                                        | Unamortized stock-based compensation                                                                                                                                        |   |                           | (1,975                                            | ) |          |        | (6,717       | )
|                                                        | Accumulated deficit                                                                                                                                                         |   |                           | (66,844                                           | ) |          |        | (58,588      | )
|                                                        | Accumulated foreign exchange translation gain                                                                                                                               |   |                           | 109                                               |   |          |        | 72           |  
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|                                                        |                                                                                                                                                                             |   |                           | Total shareholders equity (deficiency)           |   |          | 58,666 |              |   |        | (7,503 | )
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             
|Total liabilities and shareholders equity (deficiency) |                                                                                                                                                                             | $ | 66,647                    |                                                   |   | $        | 6,680  |             
|                                                        |                                                                                                                                                                             |   |                           |                                                   |   |          |        |             

See notes to condensed consolidated financial statements.

3



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##### 






LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

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

|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |        |       | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------- | ------ | --------------------- | ----- | --------------------- | ------ | ------ | --- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                                                       |                                                               |                |        | For the Three         |       | For the Six          
|                                                                                       |                                                               |                |        | Months Ended June 30, |       | Months Ended June 30,
|                                                                                       |                                                               |                |        |                       |       |                      
|                                                                                       |                                                               |                |        | 2002                  |       | 2001                  |        | 2002   |     | 2001
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |     
|REVENUE                                                                                |                                                               | $              | 2,144  |                       |       | $                     | 1,022  |        |     | $    | 3,607  |        |       | $ | 1,896  |       
|COST OF SALES                                                                          |                                                               |                | 1,187  |                       |       |                       | 531    |        |     |      | 1,869  |        |       |   | 973    |       
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|Gross Profit                                                                           |                                                               |                | 957    |                       |       |                       | 491    |        |     |      | 1,738  |        |       |   | 923    |       
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|OPERATING EXPENSES:                                                                    |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       | Selling, general and administrative                           |                |        | 2,860                 |       |                       |        | 634    |     |      |        | 5,129  |       |   |        | 1,049  |      
|                                                                                       | Research and development                                      |                |        | 1,660                 |       |                       |        | 270    |     |      |        | 4,356  |       |   |        | 522    |      
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       |                                                               | Total expenses |        |                       | 4,520 |                       |        |        | 904 |      |        |        | 9,485 |   |        |        | 1,571 | 
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|LOSS BEFORE INTEREST EXPENSE AND INCOME,
MINORITY INTEREST AND DISCONTINUED
OPERATIONS |                                                               |                | (3,563 | )                     |       |                       | (413   | )      |     |      | (7,747 | )      |       |   | (648   | )     
|                                                                                       | Interest expense                                              |                |        | (791                  | )     |                       |        | (299   | )   |      |        | (1,103 | )     |   |        | (487   | )    
|                                                                                       | Interest income                                               |                |        | 96                    |       |                       |        |       |     |      |        | 96     |       |   |        |       |      
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|LOSS BEFORE MINORITY INTEREST AND
DISCONTINUED OPERATIONS                              |                                                               |                | (4,258 | )                     |       |                       | (712   | )      |     |      | (8,754 | )      |       |   | (1,135 | )     
|Minority interest in income of consolidated subsidiary                                 |                                                               |                | (10    | )                     |       |                       |       |        |     |      | (10    | )      |       |   |       |       
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|LOSS FROM CONTINUING OPERATIONS                                                        |                                                               |                | (4,268 | )                     |       |                       | (712   | )      |     |      | (8,764 | )      |       |   | (1,135 | )     
|DISCONTINUED OPERATIONS:                                                               |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       | Loss from operations of discontinued retail golf segment, net |                |        |                      |       |                       |        | (2,251 | )   |      |        |       |       |   |        | (4,138 | )    
|                                                                                       | Gain from disposal of discontinued retail golf segment, net   |                |        | 1,038                 |       |                       |        |       |     |      |        | 508    |       |   |        |       |      
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|NET LOSS                                                                               |                                                               |                | (3,230 | )                     |       |                       | (2,963 | )      |     |      | (8,256 | )      |       |   | (5,273 | )     
|                                                                                       | Foreign exchange translation gain (loss)                      |                |        | 161                   |       |                       |        | (2     | )   |      |        | 37     |       |   |        | (1     | )    
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|COMPREHENSIVE LOSS                                                                     |                                                               | $              | (3,069 | )                     |       | $                     | (2,965 | )      |     | $    | (8,219 | )      |       | $ | (5,274 | )     
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|PER COMMON SHARE BASIC AND DILUTED:                                                    |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       | Loss from continuing operations                               |                | $      | (0.11                 | )     |                       | $      | (0.02  | )   |      | $      | (0.24  | )     |   | $      | (0.04  | )    
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       | Income (loss) from discontinued operations                    |                | $      | 0.03                  |       |                       | $      | (0.07  | )   |      | $      | 0.01   |       |   | $      | (0.13  | )    
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       
|                                                                                       | Net loss                                                      |                | $      | (0.09                 | )     |                       | $      | (0.09  | )   |      | $      | (0.23  | )     |   | $      | (0.16  | )    
|                                                                                       |                                                               |                |        |                       |       |                       |        |        |     |      |        |        |       |   |        |       

See notes to condensed consolidated financial statements.

4



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LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)
For the Six Months Ended June 30, 2002
(in thousands, except per share data)
(unaudited)

|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   |              |       |         |   |          |        |         |   |         |    |  |   |        |        |  
|-------------------------- | --------------------------------------------------------------------- |  | --------- | -------- | --------- | - | ------ | ------ | ------ |  | ---------- | --------- | ------- | - | ------- | ------ | ----------- | - | ------ | ------ | - | - | ------------ | ----- | ------- | - | -------- | ------ | ------- | - | ------- | -- |  | - | ------ | ------ | -
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   |              |       |         |   |          |        |         |   | Accumu- |    |  |   |       
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   | Unamortized  |       |         |   |          |        | lated   |   |         |    | 
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   | Stock-option |       |         |   |          |        | Foreign |   |         |    | 
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   | Based        |       | Accumu- |   | Exchange |        |         |   |        
|                           |                                                                       |  | Preferred |          | Preferred |   | Common |        | Common |  | Paid in    |           | Compen- |   | lated   |        | Translation |   |        |        |  
|                           |                                                                       |  | Shares    |          | Stock     |   | Shares |        | Stock  |  | Capital    |           | sation  |   | Deficit |        | Gain (Loss) |   | Total 
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |       
|Balance, December 31, 2001 |                                                                       |  | 456,857   |          |           | $ | 5,577  |        |        |  | 35,023,515 |           |         | $ | 29,752  |        |             | $ | 22,401 |        |   | $ | (6,717       | )     |         | $ | (58,588  | )      |         | $ | 72      |    |  | $ | (7,503 | )     
|                           | Common stock issued                                                   |  |           |         |           |   |        |       |        |  |            | 5,229,000 |         |   |         | 78,435 |             |   |        |       |   |   |              |      |         |   |          |       |         |   |         |   |  |   |        | 78,435 |  
|                           | Transaction expenses of
initial public offering
including commissions |  |           |         |           |   |        |       |        |  |            |          |         |   |         | (7,705 | )           |   |        |       |   |   |              |      |         |   |          |       |         |   |         |   |  |   |        | (7,705 | )
|                           | Stock options exercised                                               |  |           |         |           |   |        |       |        |  |            | 283,873   |         |   |         | 460    |             |   |        |       |   |   |              |      |         |   |          |       |         |   |         |   |  |   |        | 460    |  
|                           | Conversion of preferred stock
to common stock                         |  |           | (456,857 | )         |   |        | (5,577 | )      |  |            | 456,857   |         |   |         | 5,577  |             |   |        |       |   |   |              |      |         |   |          |       |         |   |         |   |  |   |        |       |  
|                           | Stock-based
compensation                                              |  |           |         |           |   |        |       |        |  |            |          |         |   |         |       |             |   |        | (1,544 | ) |   |              | 1,544 |         |   |          |       |         |   |         |   |  |   |        |       |  
|                           | Unamortized stock option
based compensation                           |  |           |         |           |   |        |       |        |  |            |          |         |   |         |       |             |   |        |       |   |   |              | 3,198 |         |   |          |       |         |   |         |   |  |   |        | 3,198  |  
|                           | Foreign exchange translation
gain (loss)                              |  |           |         |           |   |        |        |        |  |            |          |         |   |         |       |             |   |        |       |   |   |              |      |         |   |          |       |         |   |         | 37 |  |   |        | 37     |  
|                           | Net loss                                                              |  |           |         |           |   |        |       |        |  |            |          |         |   |         |       |             |   |        |       |   |   |              |      |         |   |          | (8,256 | )       |   |         |   |  |   |        | (8,256 | )
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   |              |       |         |   |          |        |         |   |         |    |  |   |        |       
|Balance, June 30, 2002     |                                                                       |  |          |          |           | $ |       |        |        |  | 40,993,245 |           |         | $ | 106,519 |        |             | $ | 20,857 |        |   | $ | (1,975       | )     |         | $ | (66,844  | )      |         | $ | 109     |    |  | $ | 58,666 |       
|                           |                                                                       |  |           |          |           |   |        |        |        |  |            |           |         |   |         |        |             |   |        |        |   |   |              |       |         |   |          |        |         |   |         |    |  |   |        |       

See notes to condensed consolidated financial statements.

5



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LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

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

|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |        |      |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------------------ | ------ | ---- | ------ | ------ | ---- | -
|                                                     |                                                                                                    |                                                        |        | For the Six Months
|                                                     |                                                                                                    |                                                        |        | Ended June 30,    
|                                                     |                                                                                                    |                                                        |        |                   
|                                                     |                                                                                                    |                                                        |        | 2002               |        | 2001
|                                                     |                                                                                                    |                                                        |        |                    |        |     
|OPERATING ACTIVITIES:                                |                                                                                                    |                                                        |        |                    |        |      |        |       
|                                                     | Net loss                                                                                           |                                                        | $      | (8,256             | )      |      | $      | (5,273 | )   
|                                                     | Loss from operations and (gain) loss on disposition of discontinued operations                     |                                                        |        | (508               | )      |      |        | 4,138  |     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|                                                     | Income (loss) from continuing operations                                                           |                                                        |        | (8,764             | )      |      |        | (1,135 | )   
|                                                     | Adjustments to reconcile loss from continuing operations to net cash used
by operating activities: |                                                        |        |                    |        |      |        |        |     
|                                                     |                                                                                                    | Gain on sale of property and equipment                 |        |                    | (19    | )    |        |        |     |  
|                                                     |                                                                                                    | Minority interest in income of consolidated subsidiary |        |                    | 10     |      |        |        |     |  
|                                                     |                                                                                                    | Depreciation and amortization                          |        |                    | 498    |      |        |        | 44   |  
|                                                     |                                                                                                    | Amortization of debt discount                          |        |                    | 912    |      |        |        | 323  |  
|                                                     |                                                                                                    | Stock-based compensation                               |        |                    | 1,585  |      |        |        |     |  
|                                                     |                                                                                                    | Bad debt expense                                       |        |                    | 70     |      |        |        |     |  
|                                                     | Changes in operating assets and liabilities:                                                       |                                                        |        |                    |        |      |        |        |     
|                                                     |                                                                                                    | Accounts receivable                                    |        |                    | (1,236 | )    |        |        | (106 | )
|                                                     |                                                                                                    | Inventories                                            |        |                    | (182   | )    |        |        | (12  | )
|                                                     |                                                                                                    | Prepaid expenses and other current assets              |        |                    | 229    |      |        |        | (115 | )
|                                                     |                                                                                                    | Other assets                                           |        |                    | 36     |      |        |        |     |  
|                                                     |                                                                                                    | Accounts payable and accrued expenses                  |        |                    | 108    |      |        |        | 208  |  
|                                                     |                                                                                                    | Unearned revenue                                       |        |                    | 72     |      |        |        |     |  
|                                                     |                                                                                                    | Other liabilities                                      |        |                    | (92    | )    |        |        | (87  | )
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|Net cash used by continuing operations               |                                                                                                    |                                                        | (6,773 | )                  |        |      | (880   | )     
|Net cash used by discontinued operations             |                                                                                                    |                                                        | (2,268 | )                  |        |      | (5,565 | )     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|Net cash used by operating activities                |                                                                                                    |                                                        | (9,041 | )                  |        |      | (6,445 | )     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|INVESTING ACTIVITIES:                                |                                                                                                    |                                                        |        |                    |        |      |        |       
|                                                     | Purchases of property and equipment                                                                |                                                        |        | (2,758             | )      |      |        | (95    | )   
|                                                     | Proceeds from sale of property and equipment                                                       |                                                        |        | 129                |        |      |        |       |     
|                                                     | Purchase price of 51% investment in subsidiary, net of cash received of $407                       |                                                        |        | 74                 |        |      |        |       |     
|                                                     | Investment in patents and trademarks                                                               |                                                        |        | (78                | )      |      |        | (17    | )   
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|Net cash used by investing activities                |                                                                                                    |                                                        | (2,633 | )                  |        |      | (112   | )     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|FINANCING ACTIVITIES:                                |                                                                                                    |                                                        |        |                    |        |      |        |       
|                                                     | Proceeds from borrowings                                                                           |                                                        |        | 3,500              |        |      |        | 3,000  |     
|                                                     | Repayment of borrowings                                                                            |                                                        |        | (7,400             | )      |      |        |       |     
|                                                     | Repayment of other liabilities                                                                     |                                                        |        | (4                 | )      |      |        |       |     
|                                                     | Proceeds from issuance of common stock (net of offering costs)                                     |                                                        |        | 70,953             |        |      |        | 3,477  |     
|                                                     | Stock options exercised                                                                            |                                                        |        | 460                |        |      |        | 425    |     
|                                                     | Repurchase of common stock by subsidiaries, net                                                    |                                                        |        |                   |        |      |        | (22    | )   
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|Net cash provided by financing activities            |                                                                                                    |                                                        | 67,509 |                    |        |      | 6,880  |       
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|EFFECT OF FOREIGN EXCHANGE TRANSLATION               |                                                                                                    |                                                        | 135    |                    |        |      | (1     | )     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                                    |                                                        | 55,970 |                    |        |      | (322   | )     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                                    |                                                        | 2,230  |                    |        |      | 124    |       
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                                    | $                                                      | 58,200 |                    |        | $    | 446    |       
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       
|SUPPLEMENTAL CASH FLOW INFORMATION                   |                                                                                                    |                                                        |        |                    |        |      |        |       
|                                                     | Interest paid                                                                                      |                                                        | $      | 439                |        |      | $      | 10     |     
|                                                     |                                                                                                    |                                                        |        |                    |        |      |        |       

6



---



##### 



LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

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

The Company has incurred $223 of expenses related to the initial public
offering that have not been paid as of June 30, 2002. In 2002, the Company
entered into a lease agreement for $107 of office furniture that was recorded
as a capital lease obligation. In 2001, the Company received such office
furniture and recorded it as an accrued liability.

In 2001, $2,006 of notes payable and accrued interest was converted into
the Companys common stock. In 2001, the Company recorded paid in capital of
$1,692 comprised of discounts on notes payable. In 2001, Liquidmetal Golf
transferred and assigned to the Company two subordinated promissory notes in
exchange for the Companys common stock in the amount of $2,000.

In 2002 and 2001, respectively, the Company recorded a net addition to
shareholders equity of $1,613 and $577 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.

7



---



##### 



LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)



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

Liquidmetal Technologies (Liquidmetal Technologies) and its subsidiaries
(collectively the Company) are in the business of developing, manufacturing,
and marketing products made from amorphous alloys. Liquidmetal Technologies
markets and sells Liquidmetal® alloy industrial coatings and also makes
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 products made from bulk Liquidmetal
alloys. The 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. Products made from bulk Liquidmetal alloys include potential market
opportunities to manufacture and sell casing components for electronic devices,
medical devices, sporting goods and defense applications. In the three months
and six months ended June 30, 2001, the Company derived a majority of its
revenue from the operation of its retail golf segment, now accounted for as a
discontinued operation. The retail golf segment marketed golf clubs
manufactured with the Companys bulk Liquidmetal alloy. The
Company outsourced the manufacturing of the golf clubs.



|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, 2002 are not necessarily
indicative of the results that may be expected for any future periods or the
year ending December 31, 2002. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
Companys Registration Statement on Form S-1, as amended, filed with the
Securities and Exchange Commission on November 20, 2001 and declared effective
May 21, 2002 (Registration No. 333-73716).

New Accounting Pronouncements.In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinationsand SFAS No. 142, Goodwill and Other
Intangible Assets.SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill be
replaced with periodic tests of the goodwills impairment and that intangible
assets other than goodwill should be amortized over their useful lives.
Implementation of SFAS No. 141 and SFAS No. 142 is required for fiscal year
2002. The adoption of SFAS No. 141 and 142 did not have a material impact on
the Companys financial statements.

In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations.SFAS 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 is not
expected to have a material impact on the Companys financial statements.

8



---



##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)

Issued in October 2001, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,replaces SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting
Results of OperationsReporting the Effects of Disposal of a Segment of a
Business,for the disposal of segments of a business. SFAS No. 144 requires
that those long-lived assets be measured at the lower of the carrying amount or
fair value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The provisions of
SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, are to be applied
prospectively. In 2002, the Company adopted SFAS No. 144 which did not result
in a material impact to the Companys financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this Statement
related to the rescission of Statement 4 are required to be applied in fiscal
years beginning after May 15, 2002. The provisions in paragraphs 8 and 9(c) of
this Statement related to Statement 13 are required to be applied to
transactions occurring after May 15, 2002. Any gain or loss on extinguishment
of debt that was classified as an extraordinary item in prior periods presented
that does not meet the criteria in APB No. 30 for classification as an
extraordinary item is required to be reclassified. All other provisions of
this Statement are effective for financial statements issued on or after May
15, 2002. The Company elected to early adopt SFAS No. 145 during the six month
period ended June 30, 2002. The effect of adopting SFAS No. 145 was to
increase interest expense by $532, increase net loss from continuing operations
by $532, and to increase basic and diluted loss from continuing operations per
share by $0.01.



|3. |  | Inventories
|-- |  | -----------

At June 30, 2002, inventories from continuing operations were comprised of
$364 of coatings finished goods and $521 of raw materials. At December 31,
2001, inventories from continuing operations were comprised of $317
of coatings
finished goods and $186 of raw materials.

9



---



##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)



|4. |  | Property, Plant and Equipment
|-- |  | -----------------------------

Property, plant and equipment consisted of the following:

|                                                             |                                          |   |          |       |              |   |      |       | 
|------------------------------------------------------------ | ---------------------------------------- | - | -------- | ----- | ------------ | - | ---- | ----- | 
|                                                             |                                          |   | June 30, |       | December 31,
|                                                             |                                          |   | 2002     |       | 2001        
|                                                             |                                          |   |          |       |             
|Machinery and equipment                                      |                                          | $ | 1,563    |       |              | $ | 234  |      
|Computer equipment                                           |                                          |   | 299      |       |              |   | 126  |      
|Office equipment, furnishings and improvements               |                                          |   | 400      |       |              |   | 253  |      
|Construction in process of machinery and equipment and plant |                                          |   | 1,667    |       |              |   | 808  |      
|                                                             |                                          |   |          |       |              |   |      |      
|                                                             | Total                                    |   |          | 3,929 |              |   |      | 1,421 | 
|Accumulated depreciation                                     |                                          |   | (472     | )     |              |   | (258 | )    
|                                                             |                                          |   |          |       |              |   |      |      
|                                                             | Total property, plant and equipment, net |   | $        | 3,457 |              |   | $    | 1,163 | 
|                                                             |                                          |   |          |       |              |   |      |      

Depreciation expense was approximately $146 and $17 for the three months
ended June 30, 2002 and 2001; and $450 and $32 for the six months ended June
30, 2002 and 2001, respectively.



|5. |  | Intangible Assets
|-- |  | -----------------

Intangible assets consisted of the following:

|                                     |                              |   |          |       |              |   |      |     | 
|------------------------------------ | ---------------------------- | - | -------- | ----- | ------------ | - | ---- | --- | 
|                                     |                              |   | June 30, |       | December 31,
|                                     |                              |   | 2002     |       | 2001        
|                                     |                              |   |          |       |             
|Purchased and licensed patent rights |                              | $ | 450      |       |              | $ | 420  |    
|Internally developed patents         |                              |   | 555      |       |              |   | 506  |    
|Trademarks                           |                              |   | 63       |       |              |   | 66   |    
|Goodwill                             |                              |   | 184      |       |              |   |     |    
|                                     |                              |   |          |       |              |   |      |    
|                                     | Total                        |   |          | 1,252 |              |   |      | 992 | 
|Accumulated amortization             |                              |   | (317     | )     |              |   | (269 | )  
|                                     |                              |   |          |       |              |   |      |    
|                                     | Total intangible assets, net |   | $        | 935   |              |   | $    | 723 | 
|                                     |                              |   |          |       |              |   |      |    

Amortization expense was approximately $29 and $6 for the three months
ended June 30, 2002 and 2001; and $48 and $12 for the six months ended June 30,
2002 and 2001, respectively.

On June 28, 2002, the Company acquired a 51% interest in Chusik Hoesa
Dongyang Yudoro (Dongyang). The results of Dongyangs operations have
been included in the consolidated financial statements since that date. The
aggregate purchase price was $333 and was purchased with cash.

10



---



##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)

The following table summarizes the estimated fair values of the net assets
held by Dongyang as of June 28, 2002:

|                                   |                     |   |      |     | 
|---------------------------------- | ------------------- | - | ---- | --- | 
|Cash                               |                     | $ | 407  |    
|Accounts receivable                |                     |   | 71   |    
|Inventories                        |                     |   | 200  |    
|Other current assets               |                     |   | 126  |    
|Property, plant and equipment, net |                     |   | 34   |    
|Other long-term assets             |                     |   | 9    |    
|                                   |                     |   |      |    
|                                   | Total assets        |   |      | 847 | 
|Total liabilities                  |                     |   | (554 | )  
|                                   |                     |   |      |    
|                                   | Net assets acquired |   | $    | 293 | 
|                                   |                     |   |      |    

The difference between the purchase price of $333 and the Companys
investment in 51% of the net assets of Dongyang was assigned to Goodwill in the
amount of $184.



|6. |  | Notes Payable to Shareholders
|-- |  | -----------------------------

The notes payable activity for the six months ended June 30, 2002 is shown
in the following table:

|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   |  | 
|--------------------------------- | ---------------------------------------------------- | - | ------------ | ------ | ---------- | - | ---------- |  | ---- | - | ------ | - | -------- | - | - |  | 
|                                  |                                                      |   | December 31, |        |            |   |            |  |      |   |        |   | June 30,
|                                  |                                                      |   | 2001         |        | Borrowings |   | Repayments |  | 2002
|                                  |                                                      |   |              |        |            |   |            |  |     
|Kang/Salas 8.5%, principal $1,500 |                                                      | $ | 1,400        |        |            | $ |           |  |      | $ | (1,400 | ) |          | $ |  | 
|Tjoa 8.5%, principal $1,500       |                                                      |   | 1,500        |        |            |   |           |  |      |   | (1,500 | ) |          |   |  | 
|Kang 8.0%, principal $2,000       |                                                      |   |             |        |            |   | 2,000      |  |      |   | (2,000 | ) |          |   |  | 
|Tjoa 8.0%, principal $1,000       |                                                      |   | 1,000        |        |            |   |           |  |      |   | (1,000 | ) |          |   |  | 
|Kang 8.0%, principal $750         |                                                      |   |             |        |            |   | 750        |  |      |   | (750   | ) |          |   |  | 
|Tjoa 8.0%, principal $750         |                                                      |   |             |        |            |   | 750        |  |      |   | (750   | ) |          |   |  | 
|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   | 
|                                  |                                                      |   | 3,900        |        |            |   | 3,500      |  |      |   | (7,400 | ) |          |   |  | 
|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   | 
|                                  | Less debt discount                                   |   |              | (912   | )          |   |            |  |      |   |        |   |          |   |   |  | 
|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   | 
|                                  |                                                      |   | 2,988        |        |            |   |            |  |      |   |        |   |          |   |   | 
|                                  | Less current portion                                 |   |              | (2,988 | )          |   |            |  |      |   |        |   |          |   |   |  | 
|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   | 
|                                  | Notes payable less current portion, net of discounts |   | $            |       |            |   |            |  |      |   |        |   |          |   |   |  | 
|                                  |                                                      |   |              |        |            |   |            |  |      |   |        |   |          |   |   | 

Kang 8.0%, principal $2,000- On March 12, 2002, the Company borrowed
$2,000 on an unsecured basis from Mr. John Kang that was due on the earlier of
May 1, 2003 or the closing of an initial public offering. The Company elected
to repay the note upon the closing of the initial public offering.

Kang 8.0%, principal $750- On April 3, 2002, the Company borrowed $750 on
an unsecured basis from Mr. John Kang that was due on the earlier of July 1,
2003 or the closing of the initial public offering. The Company elected to
repay the note upon the closing of an initial public offering.

Tjoa 8.0%- On April 3, 2002, the Company borrowed $750 on an unsecured
basis from Mr. Tjoa that was due on the earlier of July 1, 2003 or the closing
of an initial public offering. The Company elected to repay the note upon the
closing of the initial public offering.

Total interest expense, including the debt discount amortization on the
notes payable to shareholders, was $791 and $299 for the three months ended
June 30, 2002 and 2001, respectively; and $1,103 and $487 for the six months
ended June 30, 2002 and 2001, respectively. Included in the total interest
expense is $532 of accelerated amortization of the remaining unamortized debt discount upon the early repayment of the Kang/Salas
8.5% and the Tjoa 8.5% promissory notes in May of 2002.

11



---



##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)



|7. |  | Discontinued Operations
|-- |  | -----------------------

On April 30, 2002, management terminated the operations of the retail golf
segment by means of liquidating substantially all of the retail golf assets and
liabilities. The disposition of the retail golf operations represents 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.

Subsequent to April 30, 2002, the Company had 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 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.

Net liabilities of the discontinued operations of the retail golf segment
have been segregated on the balance sheets presented, the components of which
are as follows:

|                                           |                             |                   |        |          |       |              |        |       |       | 
|------------------------------------------ | --------------------------- | ----------------- | ------ | -------- | ----- | ------------ | ------ | ----- | ----- | 
|                                           |                             |                   |        | June 30, |       | December 31,
|                                           |                             |                   |        | 2002     |       | 2001        
|                                           |                             |                   |        |          |       |             
|Assets:                                    |                             |                   |        |          |       |              |        |      
|                                           | Cash                        |                   | $      | 114      |       |              | $      | 317   |      
|                                           | Accounts receivable, net    |                   |        | 150      |       |              |        | 321   |      
|                                           | Inventories                 |                   |        |         |       |              |        | 1,468 |      
|                                           | Property
and equipment, net |                   |        |         |       |              |        | 78    |      
|                                           |                             |                   |        |          |       |              |        |      
|                                           |                             | Total assets      |        |          | 264   |              |        |       | 2,184 | 
|                                           |                             |                   |        |          |       |              |        |      
|Liabilities:                               |                             |                   |        |          |       |              |        |      
|                                           | Current liabilities         |                   |        | 3,527    |       |              |        | 9,676 |      
|                                           |                             |                   |        |          |       |              |        |      
|                                           |                             | Total liabilities |        |          | 3,527 |              |        |       | 9,676 | 
|                                           |                             |                   |        |          |       |              |        |      
|Net liabilities of discontinued operations |                             | $                 | (3,263 | )        |       | $            | (7,492 | )    
|                                           |                             |                   |        |          |       |              |        |      

12



---



##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)

The results of operations for all periods presented have been restated for
discontinued operations. The operating results of the discontinued operations
are as follows:

|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |        |  
|--------------------------------------------------- | --------------------------- | - | --------------------- | ----- | --------------------- | - | ------ | ------ | ---- | - | --- | --- |  | - | ------ | ------ | -
|                                                    |                             |   | For the Three         |       | For the Six          
|                                                    |                             |   | Months Ended June 30, |       | Months Ended June 30,
|                                                    |                             |   |                       |       |                      
|                                                    |                             |   | 2002                  |       | 2001                  |   | 2002   |        | 2001
|                                                    |                             |   |                       |       |                       |   |        |        |     
|Net sales                                           |                             | $ |                      |       |                       | $ | 1,343  |        |      | $ |    |     |  | $ | 1,963  |       
|Cost of sales                                       |                             |   |                      |       |                       |   | 1,014  |        |      |   |    |     |  |   | 1,423  |       
|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |       
|                                                    | Gross profit                |   |                       |      |                       |   |        | 329    |      |   |     |    |  |   |        | 540    |  
|Operating expenses                                  |                             |   |                      |       |                       |   | 2,580  |        |      |   |    |     |  |   | 4,678  |       
|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |       
|Loss from operations                                |                             |   |                      |       |                       |   | (2,251 | )      |      |   |    |     |  |   | (4,138 | )     
|Gain on disposal                                    |                             |   | 1,038                 |       |                       |   |       |        |      |   | 508 |     |  |   |       |       
|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |       
|                                                    | Net income (loss)           |   |                       | 1,038 |                       |   |        | (2,251 | )    |   |     | 508 |  |   |        | (4,138 | )
|Foreign exchange translation
loss during the period |                             |   |                      |       |                       |   | (2     | )      |      |   | (98 | )   |  |   | (1     | )     
|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |       
|                                                    | Comprehensive income (loss) |   | $                     | 1,038 |                       |   | $      | (2,253 | )    |   | $   | 410 |  |   | $      | (4,139 | )
|                                                    |                             |   |                       |       |                       |   |        |        |      |   |     |     |  |   |        |       



|8. |  | Income Taxes
|-- |  | ------------

The provision for income tax benefit (expense) for the six months ended
June 30, 2002 and 2001, respectively, was calculated through the use of the
estimated annual income tax rates based on projected annualized income (loss).
The Company estimated an effective tax rate of 0% during the six months ended
June 30, 2002 and 2001, respectively, based on the Companys reported losses.



|9. |  | 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,
|                               |               |  |                |   |               
|                               |               |  | 2002           |   | 2001           |  | 2002       |   | 2001
|                               |               |  |                |   |                |  |            |   |     
|Weighted average basic shares  |               |  | 37,697,190     |   |                |  | 33,046,818 |   |      |  | 36,395,648 |   |  |  | 32,124,827 |  
|Effect of dilutive securities: |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  
|                               | Stock options |  |                |  |                |  |            |  |      |  |            |  |  |  |            |  | 
|                               | Warrants      |  |                |  |                |  |            |  |      |  |            |  |  |  |            |  | 
|                               |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  
|Diluted shares                 |               |  | 37,697,190     |   |                |  | 33,046,818 |   |      |  | 36,395,648 |   |  |  | 32,124,827 |  
|                               |               |  |                |   |                |  |            |   |      |  |            |   |  |  |            |  

The conversion of preferred stock to common stock was not included in the
computation of diluted EPS for the three months and six months ended June 30,
2001 as the inclusion would be antidilutive. The conversion of the preferred
stock to common stock upon the closing of the initial public offering on May 28,
2002 was included in the basic EPS for the three months and six months ended
June 30, 2002. The effect of outstanding options and warrants to purchase
common stock was excluded in all period presented because the inclusion would
have been antidilutive.



|10. |  | Initial Public Offering
|--- |  | -----------------------

Pursuant to the Companys Registration Statement on Form S-1, as amended,
filed with the Securities and Exchange Commission on November 20, 2001 and
declared effective May 21, 2002, (Registration No. 333-73716), the Company
closed an initial public offering of 5,000,000 registered 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 net cash proceeds for the Company during
the second quarter 2002 of approximately $70,730, net of underwriting commissions of
$5,490 and other transaction fees of approximately $2,215. The managing
underwriters for the Offering were Merrill Lynch & Co., UBS Warburg and Robert
W. Baird & Co.

13



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##### 



LIQUIDMETAL TECHNOLOGIES AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)



|11. |  | Segment Reporting and Major Customers
|--- |  | -------------------------------------

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
products made from bulk Liquidmetal alloys. The 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. Products made from bulk Liquidmetal
alloys include potential market opportunities to manufacture and sell casing
components for electronic devices, medical devices, sporting goods and defense
applications. Primarily, the expenses incurred by the bulk Liquidmetal alloy
segment are research and development costs and selling expenses associated with
identifying and developing potential 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 their 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 Prospectus filed with the
Securities and Exchange Commission on November 20, 2001 and
declared effective May 21, 2002, (Registration No. 333-73716), pursuant to Rule 424(b)(1)
of the Securities Act of 1933.

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, 2002: |                                                                                      |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue to external customers                                                        |  | $        | 1,335 |          |  | $          | 809    |         |  | $ | 2,144  |  
|                                  | Gross profit (loss)                                                                  |  |          | 643   |          |  |            | 314    |         |  |   | 957    |  
|                                  | Income (loss) before minority interest, interest expense and discontinued operations |  |          | 463   |          |  |            | (2,080 | )       |  |   | (1,617 | )
|                                  | Total identifiable assets at end of period                                           |  |          | 1,650 |          |  |            | 6,475  |         |  |   | 8,125  |  
|                                 
|Three months ended June 30, 2001: |                                                                                      |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue to external customers                                                        |  | $        | 1,022 |          |  | $          |       |         |  | $ | 1,022  |  
|                                  | Gross profit (loss)                                                                  |  |          | 494   |          |  |            | (3     | )       |  |   | 491    |  
|                                  | Income (loss) before minority interest, interest expense and discontinued operations |  |          | 94    |          |  |            | 9      |         |  |   | 103    |  
|                                  | Total identifiable assets at end of period                                           |  |          | 1,048 |          |  |            | 47     |         |  |   | 1,095  |  
|                                 
|Six months ended June 30, 2002:   |                                                                                      |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue to external customers                                                        |  | $        | 2,628 |          |  | $          | 979    |         |  | $ | 3,607  |  
|                                  | Gross profit (loss)                                                                  |  |          | 1,255 |          |  |            | 483    |         |  |   | 1,738  |  
|                                  | Income (loss) before minority interest, interest expense and discontinued operations |  |          | 926   |          |  |            | (5,035 | )       |  |   | (4,109 | )
|                                  | Total identifiable assets at end of period                                           |  |          | 1,650 |          |  |            | 6,475  |         |  |   | 8,125  |  
|                                 
|Six months ended June 30, 2001:   |                                                                                      |  |          |       |          |  |            |        |         |  |   |       
|                                  | Revenue to external customers                                                        |  | $        | 1,849 |          |  | $          | 47     |         |  | $ | 1,896  |  
|                                  | Gross profit (loss)                                                                  |  |          | 900   |          |  |            | 23     |         |  |   | 923    |  
|                                  | Income (loss) before minority interest, interest expense and discontinued operations |  |          | 122   |          |  |            | 28     |         |  |   | 150    |  
|                                  | Total identifiable assets at end of period                                           |  |          | 1,048 |          |  |            | 47     |         |  |   | 1,095  |  

14



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##### 



LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)

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

|                                                                                         |                                                                   |   |                       |        |                       |   |        |        |      |   |        |        |   |   |        |        |  
|---------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | - | --------------------- | ------ | --------------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                         |                                                                   |   | For the Three         |        | For the Six          
|                                                                                         |                                                                   |   | Months Ended June 30, |        | Months Ended June 30,
|                                                                                         |                                                                   |   |                       |        |                      
|                                                                                         |                                                                   |   | 2002                  |        | 2001                  |   | 2002   |        | 2001
|                                                                                         |                                                                   |   |                       |        |                       |   |        |        |     
|Total segment income (loss) before interest expense and
discontinued operations          |                                                                   | $ | (1,617                | )      |                       | $ | 103    |        |      | $ | (4,109 | )      |   | $ | 150    |       
|                                                                                         | General and administrative expenses                               |   |                       | (1,946 | )                     |   |        | (516   | )    |   |        | (3,638 | ) |   |        | (798   | )
|                                                                                         |                                                                   |   |                       |        |                       |   |        |        |      |   |        |        |   |   |        |       
|Consolidated
loss before interest expense, minority interest and discontinued operations |                                                                   |   | (3,563                | )      |                       |   | (413   | )      |      |   | (7,747 | )      |   |   | (648   | )     
|                                                                                         | Interest expense                                                  |   |                       | (791   | )                     |   |        | (299   | )    |   |        | (1,103 | ) |   |        | (487   | )
|                                                                                         | Interest income                                                   |   |                       | 96     |                       |   |        |       |      |   |        | 96     |   |   |        |       |  
|                                                                                         | Minority interest in income of consolidated subsidiary            |   |                       | (10    | )                     |   |        |       |      |   |        | (10    | ) |   |        |       |  
|                                                                                         | Loss from operations of the discontinued retail golf segment, net |   |                       |       |                       |   |        | (2,251 | )    |   |        |       |   |   |        | (4,138 | )
|                                                                                         | Gain from disposal of discontinued retail golf segment, net       |   |                       | 1,038  |                       |   |        |       |      |   |        | 508    |   |   |        |       |  
|                                                                                         |                                                                   |   |                       |        |                       |   |        |        |      |   |        |        |   |   |        |       
|CONSOLIDATED NET LOSS                                                                    |                                                                   | $ | (3,230                | )      |                       | $ | (2,963 | )      |      | $ | (8,256 | )      |   | $ | (5,273 | )     
|                                                                                         |                                                                   |   |                       |        |                       |   |        |        |      |   |        |        |   |   |        |       

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

|                                      |                                           |   |          |        |          |   |       |       | 
|------------------------------------- | ----------------------------------------- | - | -------- | ------ | -------- | - | ----- | ----- | 
|                                      |                                           |   | June 30, |        | June 30,
|                                      |                                           |   | 2002     |        | 2001    
|                                      |                                           |   |          |        |         
|Total segment assets                  |                                           | $ | 8,125    |        |          | $ | 1,095 |      
|                                      | Cash and cash equivalents                 |   |          | 56,397 |          |   |       | 446   | 
|                                      | Prepaid expenses and other current assets |   |          | 497    |          |   |       | 165   | 
|                                      | Other property, plant & equipment         |   |          | 803    |          |   |       | 225   | 
|                                      | Other assets                              |   |          | 73     |          |   |       | 34    | 
|                                      | Intangibles, net                          |   |          | 752    |          |   |       | 603   | 
|                                      |                                           |   |          |        |          |   |       |      
|Total assets of continuing operations |                                           |   | 66,647   |        |          |   | 2,568 |      
|                                      | Net assets of discontinued operations     |   |          |       |          |   |       | 2,377 | 
|                                      |                                           |   |          |        |          |   |       |      
|Total consolidated assets             |                                           | $ | 66,647   |        |          | $ | 4,945 |      
|                                      |                                           |   |          |        |          |   |       |      

Certain customers in the Companys coatings segment accounted
for more than 10% of revenues from continuing operations as follows:

|                        |  |                       |    |                       |  |      |    |      |  |  |    |   |  |  |    |  
|----------------------- |  | --------------------- | -- | --------------------- |  | ---- | -- | ---- |  |  | -- | - |  |  | -- | -
|                        |  | For the Three         |    | For the Six          
|                        |  | Months Ended June 30, |    | Months Ended June 30,
|                        |  |                       |    |                      
|                        |  | 2002                  |    | 2001                  |  | 2002 |    | 2001
|                        |  |                       |    |                       |  |      |    |     
|Grant Prideco           |  |                       | 13 | %                     |  |      | 33 | %    |  |  | 23 | % |  |  | 26 | %
|TAFA, Inc.              |  |                       | 13 | %                     |  |      | 14 | %    |  |  | 11 | % |  |  | 13 | %
|Smith International     |  |                       | 15 | %                     |  |      | 14 | %    |  |  | 13 | % |  |  | 15 | %
|Hardface Alloys, Inc.   |  |                       | 11 | %                     |  |      | 10 | %    |  |  | 6  | % |  |  | 9  | %
|Texas Steel Conversions |  |                       | 9  | %                     |  |      |   |      |  |  | 10 | % |  |  |   |  

The principal markets for the Companys products from continuing
operations have been in the United States. Revenues earned outside of the
United States, primarily in Korea, were $279 for the three months and six
months ended June 30, 2002.

Long-lived assets, which include net property, plant and equipment,
located in the United States amounted to $803 and $1,078 at June 30, 2002 and
December 31, 2001, respectively. The Company had long-lived assets of $2,654
and $808 located in Korea at June 30, 2002 and December 31, 2001, respectively.

15



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##### 



LIQUIDMETAL TECHNOLOGIES AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three months and Six Months Ended June 30, 2002 and 2001
(In Thousands, Except Share Data)



|12. |  | Related Party Transactions
|--- |  | --------------------------

Related party transactions include subordinated promissory notes issued to
certain shareholders, the related interest incurred on the notes and the
repayment of such notes (see Note 6). Additionally, two of the holders of the
shareholder promissory notes (see Note 6) are directors and one such note
holder is an officer of the Company. The Company has a consulting agreement
with a former employee and officer that provides for the payment of annual
consulting fees of $50 through the year ended December 31, 2005. For this same
former employee and officer, the Company has an accrued severance balance of
$75 at June 30, 2002 and $167 at December 31, 2001. A company managed and
partially owned by one of our board of directors provides technical support
services and computer equipment to the Company. As of June 30, 2002, the
Company had incurred $37 of expenses and equipment purchases related to this
arrangement.

A company partially owned and managed by an employee of the Company
purchased primarily work-in-process inventory and equipment in the discontinued
retail golf segment in the amount of $250 in March, 2002. Of this amount, $50
remained receivable from the employee at March 31, 2002. The proceeds from the
transaction were considered in determining the net realizable value of the
inventory of the discontinued retail golf segment. During the second quarter
of 2002, both parties agreed to rescind the transaction. The effect of this
rescission is included as an increase of $200 to the loss on disposal of the
discontinued retail golf segment as of June 30, 2002.

On July 29, 2002, the Company invested $2,000 in Growell Metal, Inc.
(Growell), a metals processing company located in South Korea and publicly
traded on South Koreas KOSDAQ stock market. The Company
acquired an estimated 5% of Growells outstanding common stock in
this transaction. The Company has accounted for this investment as an available for sale security in
accordance with SFAS No. 115 Accounting for Certain Investments in Debt and Equity
Securities.Currently, Growell holds 92,167 shares (or approximately 0.002%) of
the Companys common stock.

The Company has engaged Growell to produce Liquidmetal alloy ingots for
the Company to purchase and use as a raw material in the production of products
and components. During the second quarter of 2002, the Company sold a machine
to Growell for $129 to be used in the production of Liquidmetal alloy ingots to
be purchased by the Company.

During the second quarter of 2002, the Company provided to Growell
Telecom, Inc. (Growell Telecom), a public company located in South Korea and
an affiliate of Growell, technical support services for $37 and sample products
for $23. Prior to June 30, 2002, Growell Telecom issued a purchase order
to the Company for production quantities of casing components.

16



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##### 



Independent Accountants Report

To the Board of Directors and Shareholders of
Liquidmetal Technologies

We have reviewed the accompanying condensed consolidated balance sheet of
Liquidmetal Technologies and subsidiaries (the Company) as of June 30, 2002,
the related condensed consolidated statements of operations and comprehensive
loss, and cash flows for the three-month and six-month periods ended June 30,
2002 and 2001 and the condensed consolidated statements of shareholders equity
(deficiency) for the six months ended June 30, 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 and subsidiaries as of December 31, 2001, and the
related consolidated statements of operations and comprehensive loss,
shareholders equity (deficiency), and cash flows for the year then ended (not
presented herein) and in our report dated April 4, 2002, 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, 2001 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 19, 2002

17



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##### 






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

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

This discussion should be read in the conjunction with the condensed
consolidated financial statements and notes included elsewhere in this report
and the Companys Registration Statement on Form S-1, as amended, filed with
the Securities and Exchange Commission on November 20, 2001 and declared
effective May 21, 2002 (Registration No. 333-73716).

This managements discussion and analysis, as well as other sections of this
report of 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 may include: our
limited operating history in developing and manufacturing products from bulk
amorphous alloys; the adoption of our alloys by customers; the commercial
success of our customers products; our ability to identify, develop, and
commercialize new applications for our alloys; competition with suppliers of
incumbent materials; the development of new materials that render our alloys
obsolete; the ability to manage our anticipated growth; our limited direct
experience in manufacturing bulk alloy products; scaling-up our manufacturing
facilities; protecting our intellectual property; problems associated with
manufacturing and selling our alloys outside of the United States; 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
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 in the business of developing, manufacturing, and marketing
products made from amorphous alloys. We market and sell Liquidmetal alloy
industrial coatings and make products from bulk Liquidmetal alloys that can be
incorporated into the finished goods of our customers. Since our inception in
1987, we have marketed and sold industrial coatings made from our proprietary
amorphous alloys. In 1993, we acquired an exclusive license to commercialize
what we believe is the worlds first commercially viable bulk
Liquidmetal alloy,
and we began selling products made from this alloy in 1997.

The historical operating information contained in this section is based
substantially on our coatings business, which we believe will constitute a
diminishing percentage of our business in the near future. We only recently
began producing bulk Liquidmetal alloy components and products for incorporation
into our customers finished goods. While we anticipate this business will
generate substantially all of our revenue in the near future, we have generated
minimal revenue from this marketing effort to date. We will be focusing our
initial commercialization efforts primarily on applications for products with
high unit volumes that are sold in major industries. We expect that these new
sources of revenues will significantly change the current size and character of
our revenue mix.

The cost of sales for our Liquidmetal coatings consists primarily of the
costs incurred in outsourcing our manufacturing to a third party. We expect
that our cost of sales will change significantly from historical results as we
further develop our bulk Liquidmetal alloy business. Although we plan to continue
outsourcing the manufacturing of our coatings, we intend to internally
manufacture applications derived from our bulk Liquidmetal alloys. By
manufacturing our products in our own facilities with our own equipment, we
expect to reduce costs, protect know-how, and achieve efficiencies. However, we
expect to incur substantial capital expenses as we establish our manufacturing
capabilities.

Selling, general, and administrative expenses currently consist primarily
of marketing and advertising, salaries and related benefits, stock-based
compensation, professional fees, administrative expenses, and other expenses
related to our operations. While many of these same expenses will continue, we
expect that the amounts incurred of these expenses will

18



---



##### 



increase significantly in support of the expanding operations, facilities, and
applications offered. For example, we intend to hire additional personnel to
manage our manufacturing activities and the sales and marketing of new
applications.

Research and development expenses represent salaries, related benefits
expense, stock-based compensation, expenses incurred for the design and testing
of new processing methods, 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. We expect these research and development efforts
to increase significantly, as will our expenses relating to these efforts.

Our historical operations 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 business
strategy. 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 revenues,
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 the condensed consolidated financial
statements included in this Form 10-Q. On April 30, 2002, management
terminated the operations of the retail golf segment by means of liquidating
the retail golf assets and liabilities.

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, 2002 and 2001

Revenues.Revenues increased to $2.1 million in the three months ended
June 30, 2002 from $1.0 million in the three months ended June 30, 2001. This
increase was primarily due to increased revenue recognized from research and
development contracts with the Department of Defense related to our bulk
Liquidmetal alloys, the prototyping of bulk Liquidmetal alloy parts for
customers and increased sales of our Liquidmetal alloy coatings to the
hard-faced coatings industry resulting from increased marketing efforts.
Revenues from research and development contracts increased to $0.5 million in
the three months ended June 30, 2002 from $0.0 million in the three months
ended June 30, 2001 and revenue from the sales of Liquidmetal coatings products
increased $0.3 million. The balance of the increase in revenue was
attributable to $0.2 million from the sale of molds and tools related to the
prototyping of samples for our customers as well as $0.1 million in revenue
recognized from equipment sales through our newly acquired subsidiary, Chusik
Hoesa Dongyang Yudoro, as discussed further in the Liquidity and Capital
Resources section below.

Cost of Sales.Cost of sales increased to $1.2 million, or 55% of revenue,
in the three months ended June 30, 2002 from $0.5 million, or 52% of revenue,
in the three months ended June 30, 2001. This increase was primarily a result
of increased costs to support our research and development contracts and costs
related to sales of our Liquidmetal alloy coatings. The increase in cost of
sales as a percentage of revenue was the result of increased materials costs
required for the research and development contracts in the three months ended
June 30, 2002.

Selling, General, and Administrative Expenses.Selling, general, and
administrative expenses increased to $2.9 million, or 133% of revenue, in the
three months ended June 30, 2002, from $0.6 million, or 62% of revenue, in the
three months ended June 30, 2001. This increase was primarily a result of
increased wages of $1.1 million, increased professional fees of $0.3 million,
increased insurance expenses of $0.1 million, and increased travel expenses of
$0.2 million. These and other increases in selling, general and administrative
expenses represent the continued additions to our corporate infrastructure
required to prepare for and support the anticipated growth of our bulk
Liquidmetal alloy business.

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Research and Development Expenses.Research and development expenses
increased to $1.7 million, or 77% of revenue, in the three months ended June
30, 2002 from $0.3 million, or 26% of revenue, in the three months ended June
30, 2001. 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 to
advance the development of Liquidmetal alloys. Specifically, salaries and
wages increased $0.4 million, travel related expenses increased $0.2 million,
laboratory and prototyping expenses increased $0.3 million, and contracted
services increased $0.2 million.

Interest (Expense) Income, Net.Interest expense, net, increased to $0.7
million, or 32% of revenue, in the three months ended June 30, 2002 from $0.3
million, or 29% of revenue, in the three months ended June 30, 2001. This
increase was primarily due to the amortization of the fair value of warrants
granted in connection with subordinated promissory notes issued in February
2001. In the three months ended June 30, 2002, these subordinated promissory
notes were paid, requiring the unamortized fair value of the warrants granted
in connection with these subordinated promissory notes to be expensed fully in
the three months ended June 30, 2002 in the amount totaling $0.5 million. Also
in the three months ended June 30, 2002, we earned $0.1 million in interest
income from the investment of the net proceeds of our initial public offering.

Comparison of the six months ended June 30, 2002 and 2001

Revenues.Revenues increased to $3.6 million in the six months ended June
30, 2002 from $1.9 million in the six months ended June 30, 2001. This increase
was primarily due to increased sales of our Liquidmetal alloy coatings to the
hard-faced coatings industry resulting from increased marketing efforts and
revenue recognized from research and development contracts with the Department
of Defense related to our bulk Liquidmetal alloys. Revenues from the sales of
Liquidmetal coatings products increased $0.8 million and revenues from our
research and development contracts increased $0.6 million. The balance of the
increase in revenue was attributable to $0.2 million from the sale of molds and
tools related to the prototyping of samples for our customers as well as $0.1
million in revenue recognized from equipment sales through our newly acquired
subsidiary, Chusik Hoesa Dongyang Yudoro, as discussed further in the Liquidity
and Capital Resources section below.

Cost of Sales.Cost of sales increased to $1.9 million, or 52% of revenue,
in the six months ended June 30, 2002 from $1.0 million, or 51% of revenue, in
the six months ended June 30, 2001. This increase was primarily a result of
increased costs to support the increased sales of our Liquidmetal alloy
coatings and increased costs to support our research and development contracts.
The increase in cost of sales as a percentage of revenue was the result of
increased materials costs required for the research and development contracts
in the three months ended June 30, 2002.

Selling, General, and Administrative Expenses.Selling, general, and
administrative expenses increased to $5.1 million, or 142% of revenue, in the
six months ended June 30, 2002 from $1.0 million, or 55% of revenue, in the six
months ended June 30, 2001. This increase was primarily a result of increased
wages of $2.0 million, increased stock-based compensation of $0.1 million,
increased insurance expenses of $0.1 million, increased professional fees of
$0.6 million, and increased travel expenses of $0.4 million. These and other
increases in selling, general and administrative expenses represent the
continued additions to our corporate infrastructure required to prepare for and
support the anticipated growth of our bulk Liquidmetal alloy business.

Research and Development Expenses.Research and development expenses
increased to $4.4 million, or 121% of revenue, in the six months ended June 30,
2002 from $0.5 million, or 28% of revenue, in the six months ended June 30,
2001. 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 to advance the
development of Liquidmetal alloys. Salaries and wages increased $0.8 million,
travel related expenses increased $0.3 million, laboratory and prototyping
expenses increased $0.7 million, and contracted services increased $0.2
million. The increase in research and development expenses in the six months
ended June 30, 2002 also included $0.2 million in accelerated depreciation
attributable to the acceleration of the estimated useful lives of certain
capitalized research and development equipment and $1.4 million of stock-based
compensation expense primarily triggered by modifications made to accelerate
the remaining vesting periods of stock options in connection with the hiring of
certain consultants as employees in March 2002.

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Interest (Expense) Income, Net.Interest expense, net increased to $1.0
million, or 28% of revenue, in the six months ended June 30, 2002 from $0.5
million, or 26% of revenue, in the six months ended June 30, 2001. This
increase was primarily due to the amortization of the fair value of warrants
granted in connection with subordinated promissory notes we issued in February
2001. In the six months ended June 30, 2002, these subordinated promissory
notes were paid, requiring the unamortized fair value of the warrants granted
in connection with these subordinated promissory notes to be expensed fully in
the six months ended June 30, 2002 in an amount totaling $0.5 million. Also in
the three months ended June 30, 2002, we earned $0.1 million in interest income
from the investment of the net proceeds of our initial public offering.

LIQUIDITY AND CAPITAL RESOURCES

Our operating activities, including our discontinued retail golf
operations, used cash of $9.0 million for the six months ended June 30, 2002
and used cash of $6.4 million for the six months ended June 30, 2001. Cash used
in operating activities for the six months ended June 30, 2002 resulted
primarily from net cash used by discontinued operations of $2.3 million and net
cash used by continuing operations of $6.8 million. Cash used in operating
activities for the six months ended June 30, 2001, resulted primarily from net
cash used by discontinued operations of $5.6 million and net cash used by
continuing operations of $0.9 million. We have working capital of $54.4 million
as of June 30, 2002.

Our investing activities used cash of $2.6 million for the six months
ended June 30, 2002 primarily for the acquisition of machinery and equipment in
connection with the construction and development of our South Korean
manufacturing facility totaling $2.5 million, net of proceeds from the sale of
property and equipment of $0.1 million. Included in the investing activities
for the six months ended June 30, 2002 was the investment of $0.3 million,
resulting in $0.1 million net of cash received, in Chusik Hoesa Dongyang Yudoro
(Dongyang), a South Korean company, whereby we acquired 51% of the
outstanding stock of Dongyang. Dongyang manufactures equipment critical to the
manufacturing of our bulk Liquidmetal alloys. The acquisition of a controlling
interest in Dongyang allows us to better control the manufacturing equipment
supply chain relating to the manufacture of our bulk Liquidmetal alloys. We
also invested $0.1 million in patents and trademarks related to our Liquidmetal
alloys during the six months ended June 30, 2002. Investing activities used
cash of $0.1 million for the six months ended June 30, 2001 primarily from the
acquisition of furniture and equipment.

Our financing activities provided $67.5 million in cash for the six months
ended June 30, 2002 and primarily included $71.0 million, net of transaction
costs paid, received from our initial public offering. Included in the financing activities is $3.5 million of cash borrowed through
the issuance of debt prior to the initial public offering and $7.4 million used
to repay all of the outstanding debt obligations of our Company. Also received
in the six months ended June 30, 2002 was $0.5 million from the exercise of
stock options. Financing activities provided $6.9 million in cash for the six
months ended June 30, 2001. This amount includes $3.5 million from the sale of
shares of our common stock, $0.4 million from exercises of options to purchase
shares of our common stock, and $3.0 million from the issuance of promissory
notes.

We currently anticipate significant capital expenditures for at least the
next 12 months, primarily for the construction and development of manufacturing
facilities. In addition to our first leased manufacturing facility in Incheon,
South Korea, we have finished construction of a new plant in Pyoungtaek, South
Korea, which is approximately 13,000 square feet in size. This plant is
immediately adjacent to a larger 153,000 square foot plant that is currently
under construction. We expect the 153,000 square foot plant to be completed by
the end of the third quarter of 2002. The larger plant was originally intended
to be 110,000 in square feet, but due to economies of adding additional square
footage while under construction, we expanded the size of the facility to
accommodate additional manufacturing equipment. We also currently intend to
build-out our leased facility in Pinellas County, Florida to provide research,
development, and testing capabilities, as well as possible prototype
manufacturing capabilities. We anticipate that our capital expenditures will be
approximately $20 to $25 million over the next six months, and approximately
$10 to $15 million in 2003 for the construction and equipping of our
manufacturing facilities and for 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.

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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
devote substantial capital to expand our sales and marketing capabilities, to
expand our research and development activities, to develop or acquire
additional manufacturing facilities, and for working capital and other general
corporate purposes. These additional 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 significant 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. We believe
the net proceeds received from our initial public offering, together with our
anticipated cash flows from our bulk Liquidmetal alloy business, will be
sufficient to fund our long-term liquidity requirements. We may, however, need
to raise additional funds through private or public debt or equity financings,
although there is no guarantee that additional capital will be available or, if
available, will be an terms acceptable to us.

We are a party to a distribution agreement whereby we 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 us a $1.0 million distribution fee as part of this
distribution agreement, of which a portion was refundable according to a
formula based on the gross profit earned by the third party. None of the
distribution fee has been refunded, and we do not believe it is entitled to be
refunded.

USE OF PROCEEDS

Pursuant to the Companys Registration Statement on Form S-1, as amended,
filed with the Securities and Exchange Commission on November 20, 2001 and
declared effective May 21, 2002, (Registration No. 333-73716), the Company
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 for
the Company 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, 2002, the Company used approximately $7.8 million of its net proceeds from the
Offering to repay all of its outstanding promissory notes and accrued interest.
Additionally, the Company used $0.8 million to partially fund the construction
of our manufacturing facilities in South Korea, $0.6 million to purchase
equipment used to manufacture Liquidmetal parts, and $0.3 million that was used
to purchase the 51% interest in Dongyang. As of June 30, 2002, the Company
used approximately $2.6 million of the net proceeds for working capital
excluding $1.1 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 the construction
of our manufacturing facility in South Korea, additional equipment used to
manufacture Liquidmetal parts, and working capital purposes. Additionally,
management may determine to fund all or a portion of the costs of any
acquisitions of complementary businesses we determine to pursue in the future
with proceeds from the Offering, although there are no assurances that we will
be able to successfully identify or consummate any such acquisitions.

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.

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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:



| |  |  | We have accounted for our retail golf business as a discontinued
operation. In calculating the loss on disposal of our retail golf
business, we made certain estimates with regard to the valuation of
the assets and liabilities of the retail golf business. Estimates were
made for the collectability of accounts receivables, the liquidation
value of inventories, the liquidation of certain other operating
assets, and the estimated future losses of the retail golf business
through the estimated disposal date of April 30, 2002. Also included
in the loss on disposal is our estimate of stock option compensation
expense attributable to an endorsement contract. The estimated stock
option expense is based in part on an estimated future common stock
price. If the market price of our common stock fluctuates from our
estimate over the remaining life of the endorsement contract, the
estimated stock option expense may be subject to significant
volatility. To the degree actual results vary from any of these
estimates or management adjusts the estimates, the accounting of the
loss on disposal of discontinued operations may increase or decrease
and cash received from the liquidation of these assets may not meet
our estimates. During the six months ended June 30, 2002, the Company
recorded a $1.6 million reduction to the estimated loss on disposal of
the discontinued retail golf segment due to a change in the estimated
stock option value attributable to options granted pursuant to an
endorsement agreement. The change in the estimated stock option value
was due to a change in the market price of the underlying common
stock.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We have recorded stock-based compensation expense related to the
issuance of stock options to non-employees. To the extent that these
non-employees have not completed the services required to earn the
options, we are required to value these option grants based on their
fair market value, which is based in part on the underlying market
price of our common stock at the time the financial statements are
presented. If the market price of our common stock increases over the
period in which the non-employees earn the stock option awards, the
expense attributable to these stock options increases and is charged
against income. Due to the number of options issued to non-employees,
material amounts could be charged against earnings and could cause
significant volatility in future earnings if the market price of our
common stock increases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | 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 in consideration. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | 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 July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinationsand SFAS No. 142, Goodwill and Other
Intangible Assets.SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill be
replaced with periodic tests of the goodwills impairment and that intangible
assets other than goodwill should be amortized over their useful lives.
Implementation of SFAS No. 141 and SFAS No. 142 is required for fiscal year
2002. The adoption of SFAS No. 141 and 142 did not have a material impact on
the Companys financial statements.

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In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations.SFAS 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 is not
expected to have a material impact on the Companys financial statements.

Issued in October 2001, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,replaces SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of OperationsReporting
the Effects of Disposal of a Segment of a Business,for the disposal of
segments of a business. SFAS No. 144 requires that those long-lived assets be
measured at the lower of the carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The provisions of SFAS No. 144 are effective
for financial statements issued for fiscal years beginning after December 15,
2001 and, generally, are to be applied prospectively. In 2002, the Company
adopted SFAS No. 144 which did not result in a material impact to the Companys
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this Statement
related to the rescission of Statement 4 are required to be applied in fiscal
years beginning after May 15, 2002. The provisions in paragraphs 8 and 9(c) of
this Statement related to Statement 13 are required to be applied to
transactions occurring after May 15, 2002. Any gain or loss on extinguishment
of debt that was classified as an extraordinary item in prior periods presented
that does not meet the criteria in APB No. 30 for classification as an
extraordinary item is required to be reclassified. All other provisions of
this Statement are effective for financial statements issued on or after May
15, 2002. The Company elected to early adopt SFAS No. 145 during the six
months ended June 30, 2002. The effect of adopting SFAS No. 145 was to
increase interest expense by $0.5 million, increase net loss from continuing
operations by $0.5 million, and to increase basic and diluted loss from
continuing operations per share by $0.01.

RELATED PARTY TRANSACTIONS

In May 2002, we paid a total of $7.8 million to certain shareholders and
directors of the Company in full payment of subordinated promissory notes held
by them. The holders of these notes were John Kang, Ricardo Salas and Tjoa
Thian Song, each of whom are directors and shareholders of the Company. John
Kang is also our president and chief executive officer. We believe that the
terms and conditions of these notes, including their interest rates, were more
favorable to us than the terms and conditions that we could have obtained from clearly
independent third parties.

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A company partially
owned and managed by an employee of the Company purchased primarily
work-in-process inventory and equipment in the discontinued retail
golf segment in the amount of $250 in March, 2002. Of this amount,
$50 remained receivable from the employee at March 31, 2002. The
proceeds from the transaction were considered in determining the net
realizable value of the inventory of the discontinued retail golf
segment. During the second quarter of 2002, both parties agreed to
rescind the transaction. The effect of this recission is included as
an increase of $200 to the loss on disposal of the discontinued retail
golf segment as of June 30, 2002.

We are currently a
party to a consulting agreement with a company that is
owned by a director and former executive officer of the Company. This
agreement provides for the payment by the Company of consulting fees of $50,000
per year through December 31, 2005. Additionally, a company managed and
partially owned by one of our directors provides technical support services and
computer equipment to the Company. Fees incurred pursuant to this consulting
agreement and to these technical supports services were not
significant during the three months and six months ended June 30, 2002.

Consistent with our strategy of pursuing strategic transactions and
relationships, on July 29, 2002, we invested $2 million in Growell Metal Inc.
(Growell), a South Korean metals processing company. This investment took
the form of a purchase of Growells common stock directly from Growell, which is a public company whose
common stock is traded on South Koreas KOSDAQ stock market. We
acquired an estimated 5% of Growells outstanding common stock in this
transaction. The specific
purpose of this investment was to solidify and bolster our supply chain in
anticipation of an expected significant ramp-up in our manufacturing
activities. Prior to our investment in Growell, we engaged Growell to produce
and sell to us Liquidmetal alloy ingots that will be used to produce products
and components in our South Korean manufacturing facilities. We expect that,
for the near term, Growell will supply a significant portion of the ingots to
be used in our manufacturing operations, and our investment in Growell will
enable Growell to develop the capabilities to meet our expected demand.

We also expect that affiliates of Growell could be valuable customers of
Liquidmetal alloy finished goods. In particular, Growell Telecom, Inc.
(formerly known as Jascom Co., Ltd.), a South Korean public company and an
affiliate of Growell Metal, has issued a purchase order to us for production
quantities of casing components for a combination MP3/CD player. Growell Metal
holds 92,167 shares (or approximately 0.002%) of the outstanding common stock
of our Company. None of our executive officers or directors holds any shares
of Growell Metal.




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 this offering may be 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.

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PART II OTHER INFORMATION




Item 2  Change in Securities and Use of Proceeds.

Pursuant to the Companys Registration Statement on Form S-1, as amended,
filed with the Securities and Exchange Commission on November 20, 2001 and
declared effective May 21, 2002 (Registration No. 333-73716), the Company
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 for the Company 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, 2002, the Company used approximately $7.8 million of its
net proceeds from the Offering to repay all of its outstanding promissory notes
and accrued interest thereon. Additionally, the Company used $0.8 million to
partially fund the construction of our manufacturing facilities in South Korea,
$0.6 million to purchase equipment used to manufacture
Liquidmetal parts, and
$0.3 million to purchase the 51% interest in Dongyang. As of June 30, 2002,
the Company used approximately $2.6 million of the net proceeds for working
capital, excluding $1.1 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 the
construction of our manufacturing facility in South Korea, additional equipment
used to manufacture Liquidmetal parts, and working capital purposes.
Additionally, management may determine to fund all or a portion of the costs of
any acquisitions of complementary businesses we determine to pursue in the
future with proceeds from the Offering, although there are no assurances that
we will be able to successfully identify or consummate any such acquisitions. See Liquidity and Capital Resources in Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in this
Form 10-Q for further discussion.




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     |  | Joint Venture Agreement, dated June 26, 2002, by and among Liquidmetal
Korea Co., Ltd, Juh Ho Suh, Yong Woo Gi, Hi Su Kim, Ju Yong Lee and Chusik
Hoesa Dongyang Yudoro.
|        |  |                                                                                                                                                                         
|2.2     |  | Agreement for Subscription of New Stock, dated July 22, 2002, between
Growell Metal Inc. and Liquidmetal Technologies.                                                  
|        |  |                                                                                                                                                                         
|99.1    |  | Certificate of Chief Executive Officer pursuant to 18 U. S. C. 1350.                                                                                                    
|        |  |                                                                                                                                                                         
|99.2    |  | Certificate of Chief Financial Officer pursuant to 18 U. S. C. 1350.                                                                                                    

(b)   Reports on Form 8-K

The Company filed no reports on Form 8-K during the quarter ended June 30,
2002.

26



---



##### 









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 12, 2002 | /s/ John Kang      
|                      |                     |  |  |                                                                                                 
|                      |                     |  |  | John Kang
President & Chief Executive Officer
(Principal Executive Officer)                     
|                      |                     |  |  |                                                                                                 
|Date: August 12, 2002 | /s/ Brian
McDougall
|                      |                     |  |  |                                                                                                 
|                      |                     |  |  | Brian McDougall
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)

27



---



##### 






EXHIBIT INDEX

|        |  |                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                         
|Number  |  | Description of Document                                                                                                                                                 
|        |  |                                                                                                                                                                         
|2.1     |  | Joint Venture Agreement, dated June 26, 2002, by and among Liquidmetal
Korea Co., Ltd, Juh Ho Suh, Yong Woo Gi, Hi Su Kim, Ju Yong Lee and Chusik
Hoesa Dongyang Yudoro.
|        |  |                                                                                                                                                                         
|2.2     |  | Agreement for Subscription of New Stock, dated July 22, 2002, between
Growell Metal Inc. and Liquidmetal Technologies.                                                  
|        |  |                                                                                                                                                                         
|99.1    |  | Certificate of Chief Executive Officer pursuant to 18 U. S. C. 1350.                                                                                                    
|        |  |                                                                                                                                                                         
|99.2    |  | Certificate of Chief Financial Officer pursuant to 18 U. S. C. 1350.                                                                                                    

28