UNITED
STATES


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
      1934For
      the quarterly period ended September 30, 2010OR ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from
              
  to





Commission File No. 
001-31332




LIQUIDMETAL TECHNOLOGIES,
INC.


(Exact name of
Registrant as specified in its charter)







Delaware
              
              33-0264467(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)





30452
      Esperanza


Rancho
      Santa Margarita, CA 92688


(Address
      of principal executive office, zip
code)




Registrant’s
telephone number, including area code: (949)
635-2100





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
the past 90 days.


Yes  x    No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such


files).


Yes    ̈   No 
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated filer  ̈
                  Accelerated
      filer  ̈
                  Non-accelerated
      filer  ̈
                  Smaller
      reporting company x




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


Yes
   ̈    No  x




The
number of common shares outstanding as of November 4, 2010 was
84,849,172.





LIQUIDMETAL
TECHNOLOGIES, INC.


FORM
10-Q


FOR THE QUARTER ENDED SEPTEMBER 30,
2010





FORWARD-LOOKING
INFORMATION




Statements
in this report concerning the future sales, expenses, profitability, financial
resources, product mix, market demand, product development and other statements
in this report concerning the future results of operations, financial condition
and business of Liquidmetal Technologies, Inc. are "forward-looking" statements
as defined in the Securities Act of 1933 and the  Securities Exchange
Act of 1934. Investors are cautioned that the Company's actual results in the
future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's operations
and business environment, including competition, the need for increased
acceptance of products, our ability to continue to develop and extend our brand
identity, our ability to anticipate and adapt to a competitive market, ability
to effectively manage rapidly expanding operations, the amount and timing of
operating costs and capital expenditures relating to expansion of our business,
our operations and infrastructure, our ability to provide superior customer
service, our dependence upon key personnel and the like. The Company's most
recent filings with the Securities and Exchange Commission, including our Annual
Report on Form 10-K for the year ended December 31, 2009, contain additional
information concerning many of these risk factors, and copies of these filings
are available from the Company upon request and without
charge.


2


TABLE
OF CONTENTS





PART
      I - Financial InformationItem
      1 – Financial Statements
                4Condensed
      Consolidated Balance Sheets (unaudited)
                4Condensed
      Consolidated Statements of Operations and Comprehensive Income (Loss)
      (unaudited)
                5Condensed
      Consolidated Statements of Shareholders’ Deficiency
      (unaudited)
                6Condensed
      Consolidated Statements of Cash Flows (unaudited)
                7Notes
      to Condensed Consolidated Financial Statements (unaudited)
                9Item
      2 – Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                23Item
      3 – Quantitative and Qualitative Disclosures about Market
    Risk
                28Item
      4 – Controls and Procedures
                28PART
      II – Other InformationItem
      1 – Legal Proceedings
                29Item
      1A – Risk Factors
                29Item
      2 – Unregistered Sales of Equity Securities and Use of
      Proceeds
                29Item
      3 – Defaults Upon Senior Securities
                29Item
      4 – Removed and Reserved
                29Item
      5 – Other Information
                29Item
      6 – Exhibits
                29Signatures
                31




3


PART
I


FINANCIAL
INFORMATION


Item
1 – Financial Statements





LIQUIDMETAL
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share data)





September 30,
                      
                      
                      December 31,2010
                      
                      
                      2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      3,157
                      
                      
                      $
                      151Trade
      accounts receivables, net of allowance for doubtful accounts of $0 and
      $1,314
                      
                      
                      1,142
                      
                      
                      
                      1,180Inventories
                      
                      
                      948
                      
                      
                      
                      982Prepaid
      expenses and other current assets
                      
                      
                      731
                      
                      
                      
                      594Total
      current assets
                      
                      
                      5,978
                      
                      
                      
                      2,907Property,
      plant and equipment, net
                      
                      
                      5,168
                      
                      
                      
                      5,668Other
      intangibles, net
                      
                      
                      1,156
                      
                      
                      
                      1,232Other
      assets
                      
                      
                      390
                      
                      
                      
                      633Total
      assets
                      
                      
                      12,692
                      
                      
                      
                      10,440LIABILITIES AND SHAREHOLDERS'
      DEFICIENCYCurrent
      liabilities:Accounts
      payable and accrued expenses
                      
                      
                      6,452
                      
                      
                      
                      9,111Deferred
      revenue
                      
                      
                      39
                      
                      
                      
                      31Short-term
      debt
                      
                      
                      415
                      
                      
                      
                      896Long-term
      debt, current portion
                      
                      
                      -
                      
                      
                      
                      1,393Warrant
      liabilities
                      
                      
                      26,786
                      
                      
                      
                      3,975Conversion
      feature liabilities
                      
                      
                      -
                      
                      
                      
                      444Other
      liabilities, current portion
                      
                      
                      133
                      
                      
                      
                      141Total
      current liabilities
                      
                      
                      33,825
                      
                      
                      
                      15,991Long-term
      debt, net of current portion
                      
                      
                      9,850
                      
                      
                      
                      12,661Other
      long-term liabilities, net of current portion
                      
                      
                      647
                      
                      
                      
                      155Total
      liabilities
                      
                      
                      44,322
                      
                      
                      
                      28,807Shareholders'
      deficiency:Liquidmetal
      Technologies, Inc. shareholders' deficiencyPreferred
      stock, $0.001 par value; 10,000,000 shares authorized; 2,486,095 and
      3,183,663 shares issued and outstanding as of both September 30, 2010 and
      December 31, 2009
                      
                      
                      3
                      
                      
                      
                      4Common
      stock, $0.001 par value; 300,000,000 shares authorized; 84,763,338 and
      47,583,102 shares issued and outstanding as of both September 30, 2010 and
      December 31, 2009
                      
                      
                      79
                      
                      
                      
                      48Additional
      paid-in capital
                      
                      
                      147,120
                      
                      
                      
                      142,135Accumulated
      deficit
                      
                      
                      (180,827
                      )
                      
                      
                      (162,777
                      )Accumulated
      other comprehensive income
                      
                      
                      1,442
                      
                      
                      
                      1,441Total
      Liquidmetal Technologies, Inc. shareholders' deficiency
                      
                      
                      (32,183
                      )
                      
                      
                      (19,149
                      )Noncontrolling
      interest
                      
                      
                      553
                      
                      
                      
                      782Total
      shareholders' deficiency
                      
                      
                      (31,630
                      )
                      
                      
                      (18,367
                      )Total
      liabilities and shareholders' deficiency
                      
                      $
                      12,692
                      
                      
                      $
                      10,440





The
accompanying notes are an integral part of the condensed consolidated financial
statements.


4





LIQUIDMETAL
TECHNOLOGIES, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)


(in
thousands, except per share data)


(unaudited)





For the Three Months Ended
                            
                            
                            For the Nine Months EndedSeptember 30,
                            
                            
                            September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Revenue
                            
                            $
                            17,309
                            
                            
                            $
                            4,209
                            
                            
                            $
                            22,213
                            
                            
                            $
                            11,320Cost
      of sales
                            
                            
                            1,604
                            
                            
                            
                            2,909
                            
                            
                            
                            5,376
                            
                            
                            
                            6,945Gross
      profit
                            
                            
                            15,705
                            
                            
                            
                            1,300
                            
                            
                            
                            16,837
                            
                            
                            
                            4,375Operating
      expensesSelling,
      general, and administrative
                            
                            
                            2,444
                            
                            
                            
                            1,341
                            
                            
                            
                            5,088
                            
                            
                            
                            4,286Research
      and development
                            
                            
                            331
                            
                            
                            
                            349
                            
                            
                            
                            804
                            
                            
                            
                            897Total
      operating expenses
                            
                            
                            2,775
                            
                            
                            
                            1,690
                            
                            
                            
                            5,892
                            
                            
                            
                            5,183Income
      (loss) from operations
                            
                            
                            12,930
                            
                            
                            
                            (390
                            )
                            
                            
                            10,945
                            
                            
                            
                            (808
                            )Loss
      from extinguishment of debt
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,471
                            )Change
      in value of warrants, (loss) gain
                            
                            
                            (27,199
                            )
                            
                            
                            2,015
                            
                            
                            
                            (24,361
                            )
                            
                            
                            8,138Change
      in value of conversion feature, gain
                            
                            
                            15
                            
                            
                            
                            474
                            
                            
                            
                            444
                            
                            
                            
                            1,434Other
      income
                            
                            
                            18
                            
                            
                            
                            -
                            
                            
                            
                            81
                            
                            
                            
                            -Interest
      expense
                            
                            
                            (2,504
                            )
                            
                            
                            (1,055
                            )
                            
                            
                            (5,053
                            )
                            
                            
                            (4,760
                            )Net
      (loss) income before income taxes
                            
                            
                            (16,740
                            )
                            
                            
                            1,044
                            
                            
                            
                            (17,944
                            )
                            
                            
                            2,533Income
      taxes
                            
                            
                            -
                            
                            
                            
                            (75
                            )
                            
                            
                            -
                            
                            
                            
                            (120
                            )Net
      (loss) income
                            
                            
                            (16,740
                            )
                            
                            
                            969
                            
                            
                            
                            (17,944
                            )
                            
                            
                            2,413Net
      loss attributable to noncontrolling interest
                            
                            
                            114
                            
                            
                            
                            39
                            
                            
                            
                            250
                            
                            
                            
                            59Net
      (loss) income attributable to Liquidmetal Technologies,
    Inc.
                            
                            
                            (16,626
                            )
                            
                            
                            1,008
                            
                            
                            
                            (17,694
                            )
                            
                            
                            2,472Other
      comprehensive (loss) income:Foreign
      exchange translation gain
                            
                            
                            108
                            
                            
                            
                            393
                            
                            
                            
                            1
                            
                            
                            
                            316Comprehensive
      (loss) income
                            
                            $
                            (16,518
                            )
                            
                            $
                            1,401
                            
                            
                            $
                            (17,693
                            )
                            
                            $
                            2,788Per
      common share basic and diluted:Net
      (loss) income attributable to
                              Liquidmetal
      Technologies, Inc. - basic
                            
                            $
                            (0.23
                            )
                            
                            $
                            0.02
                            
                            
                            $
                            (0.31
                            )
                            
                            $
                            0.05Net
      (loss) income attributable to
                              Liquidmetal
      Technologies, Inc. - diluted
                            
                            $
                            (0.23
                            )
                            
                            $
                            0.01
                            
                            
                            $
                            (0.31
                            )
                            
                            $
                            0.01Number
      of weighted average shares - basic
                            
                            
                            72,928
                            
                            
                            
                            46,595
                            
                            
                            
                            56,329
                            
                            
                            
                            45,610Number
      of weighted average shares - diluted
                            
                            
                            72,928
                            
                            
                            
                            192,404
                            
                            
                            
                            56,329
                            
                            
                            
                            191,418





The
accompanying notes are an integral part of the condensed consolidated financial
statements.





5




LIQUIDMETAL
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY


For
the Nine Months Ended September 30, 2010


(in
thousands, except per share data)


(unaudited)





Liquidmetal
      Technologies, Inc.Preferred
                      Shares
                    
                    
                    Common
                      Shares
                    
                    
                    Preferred
                      Stock
                    
                    
                    Common
                      Stock
                    
                    
                    Additional
                      Paid-in
                      Capital
                    
                    
                    Accumulated
                      Deficit
                    
                    
                    Accumulated
                      Other
                      Compre-
                      hensive
                      Income
      (Loss)
                    
                    
                    Non-
                      controlling
                      Interest
                    
                    
                    TotalBalance,
      December 31, 2009
                    
                    
                    3,183,663
                    
                    
                    
                    47,583,102
                    
                    
                    
                    4
                    
                    
                    
                    48
                    
                    
                    
                    142,135
                    
                    
                    
                    (162,777
                    )
                    
                    
                    1,441
                    
                    
                    
                    782
                    
                    
                    
                    (18,367
                    )Conversion
      of preferred stocks
                    
                    
                    (697,568
                    )
                    
                    
                    17,219,681
                    
                    
                    
                    (1
                    )
                    
                    
                    17
                    
                    
                    
                    (16
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Conversion
      of warrants
                    
                    
                    -
                    
                    
                    
                    4,849,775
                    
                    
                    
                    -
                    
                    
                    
                    5
                    
                    
                    
                    2,547
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,552Restricted
      shares issued
                    
                    
                    -
                    
                    
                    
                    13,870,307
                    
                    
                    
                    -
                    
                    
                    
                    8
                    
                    
                    
                    2,038
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,046Common
      stock issued in lieu of cash
                    
                    
                    -
                    
                    
                    
                    907,141
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    116
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    117Conversion
      of notes payable
                    
                    
                    -
                    
                    
                    
                    333,332
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    200
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    200Dividends
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (356
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (356
                    )Minority
      interest contribution in a subsidiary
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    21
                    
                    
                    
                    21Stock-based
      compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    100
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    100Foreign
      exchange translation gain (loss)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    1Net
      ( loss)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (17,694
                    )
                    
                    
                    -
                    
                    
                    
                    (250
                    )
                    
                    
                    (17,944
                    )Balance,
      September 30, 2010
                    
                    
                    2,486,095
                    
                    
                    
                    84,763,338
                    
                    
                    
                    3
                    
                    
                    
                    79
                    
                    
                    
                    147,120
                    
                    
                    
                    (180,827
                    )
                    
                    
                    1,442
                    
                    
                    
                    553
                    
                    
                    
                    (31,630
                    )




The
accompanying notes are an integral part of the condensed consolidated financial
statements.


6


LIQUIDMETAL
TECHNOLOGIES, INC.  AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands, except per share data)


(unaudited)





For the Nine Months Ended
                    September 30,2010
                  
                  
                  2009Operating
      activities:Net
      (loss) income attributable to Liquidmetal Technologies,
    Inc.
                  
                  $
                  (17,694
                  )
                  
                  $
                  2,472Adjustments
      to reconcile loss (income) from operations to net cash provided for (used
      in) operating activities:Gain
      on disposal of asset
                  
                  
                  51
                  
                  
                  
                  -Loss
      attributable to noncontrolling interest of consolidated
      subsidiary
                  
                  
                  (250
                  )
                  
                  
                  (59
                  )Depreciation
      and amortization
                  
                  
                  868
                  
                  
                  
                  772Loss
      on extinguishment of debt
                  
                  
                  -
                  
                  
                  
                  1,471Amortization
      of debt discount
                  
                  
                  3,522
                  
                  
                  
                  2,633Stock-based
      compensation
                  
                  
                  101
                  
                  
                  
                  262Bad
      debt expense
                  
                  
                  61
                  
                  
                  
                  29Warranty
      recovery
                  
                  
                  (176
                  )
                  
                  
                  (92
                  )Loss
      (gain) from change in value of warrants
                  
                  
                  24,361
                  
                  
                  
                  (8,138
                  )Gain
      from change in value of conversion feature
                  
                  
                  (444
                  )
                  
                  
                  (1,434
                  )Changes
      in operating assets and liabilities:Trade
      accounts receivable
                  
                  
                  (22
                  )
                  
                  
                  (142
                  )Inventories
                  
                  
                  35
                  
                  
                  
                  (292
                  )Prepaid
      expenses and other current assets
                  
                  
                  (137
                  )
                  
                  
                  (240
                  )Other
      assets
                  
                  
                  (52
                  )
                  
                  
                  (306
                  )Accounts
      payable and accrued expenses
                  
                  
                  (2,018
                  )
                  
                  
                  1,213Deferred
      revenue
                  
                  
                  8
                  
                  
                  
                  11Other
      liabilities
                  
                  
                  485
                  
                  
                  
                  (14
                  )Net
      cash provided by (used in) operating activities
                  
                  
                  8,699
                  
                  
                  
                  (1,854
                  )Investing
      Activities:Purchases
      of property and equipment
                  
                  
                  (190
                  )
                  
                  
                  (412
                  )Investment
      in patents and trademarks
                  
                  
                  (29
                  )
                  
                  
                  (277
                  )Net
      cash used in investing activities
                  
                  
                  (219
                  )
                  
                  
                  (689
                  )Financing
      Activities:Proceeds
      from borrowings
                  
                  
                  9,563
                  
                  
                  
                  13,747Repayment
      of borrowings
                  
                  
                  (17,274
                  )
                  
                  
                  (26,520
                  )Proceeds
      from issuance of convertible preferred stocks
                  
                  
                  -
                  
                  
                  
                  15,328Proceeds
      from issuance of comon stocks
                  
                  
                  2,046
                  
                  
                  
                  -Warrants
      exercised
                  
                  
                  1,002
                  
                  
                  
                  -Cash
      distributions
                  
                  
                  -
                  
                  
                  
                  (9
                  )Minority
      interest in subsidiary's joint venture
                  
                  
                  21
                  
                  
                  
                  -Net
      cash (used in) provided by financing activities
                  
                  
                  (4,642
                  )
                  
                  
                  2,546Effect
      of foreign exchange translation
                  
                  
                  (832
                  )
                  
                  
                  (39
                  )Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  3,006
                  
                  
                  
                  (36
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  151
                  
                  
                  
                  157Cash
      and cash equivalents at end of period
                  
                  $
                  3,157
                  
                  
                  $
                  121





The
accompanying notes are an integral part of the condensed consolidated financial
statements.





7




LIQUIDMETAL
TECHNOLOGIES, INC.  AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)


(in
thousands, except per share data)


(unaudited)





During
the nine months ended September 30, 2010, $200 of the Company’s 8% Senior
Convertible Notes due January 2011 was converted into 333,332 shares of the
Company’s common stock at a conversion price of $0.60 per share.




8




LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





1.  Basis
of Presentation / Description of Business





The
accompanying condensed balance sheet as of December 31, 2009, which has been
derived from audited financial statements, and the unaudited interim 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.  All intercompany balances and transactions have been
eliminated.  Operating results for the nine months ended September 30,
2010 are not necessarily indicative of the results that may be expected for any
future periods or the year ending December 31, 2010.  The accompanying
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-K filed with the Securities and Exchange
Commission on August 20, 2010.





Liquidmetal
Technologies, Inc. (“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 manufactures,
markets and sells products and components from bulk Liquidmetal alloys that can
be incorporated into the finished goods of its customers across a variety of
industries.   The Company also partners with third-party
licensees and distributors to develop and commercialize Liquidmetal alloy
products.





The
Company classifies operations into two reportable segments: Liquidmetal alloy
industrial coatings and bulk Liquidmetal alloys (see Note 10). Liquidmetal alloy
industrial coatings are used primarily as a protective coating for industrial
machinery and equipment, such as drill pipes used by the oil drilling industry
and boiler tubes used by coal-burning power plants. Bulk Liquidmetal alloys
include potential market opportunities to manufacture and sell products and
components for electronic devices, medical devices, defense applications, and
sporting goods.  In addition, the bulk Liquidmetal alloys segment
includes tooling and prototype sampling.  Furthermore, such alloys are
used to generate research and development services revenue for developing uses
related primarily to defense and medical applications as well as potential
license fees, royalties, and other compensation from strategic partnering
transactions.





In July
2007, the Company transferred substantially all of the assets of its Liquidmetal
alloy industrial coatings business to a newly formed, newly capitalized
subsidiary named Liquidmetal Coatings, LLC, a Delaware limited liability company
(“LMC”), and LMC assumed substantially all of the assets and liabilities of the
coatings business.  The transfer included the thermal spray coatings
assets and liabilities acquired under a purchase agreement with Foster Wheeler
Energy Services in June 2007.  The Company initially held a 69.25%
ownership interest in LMC, however, during 2010, LMC failed to redeem its
preferred units by the specified time and was required to issue additional
shares to its noteholders. (See Note 9)  As a result, the Company’s
ownership interest in LMC decreased to 66.56%.  The results of
operation of LMC are consolidated and comprise our Liquidmetal alloy industrial
coatings segment for financial reporting purposes.





In May
2010, LMC entered into a joint venture agreement with IMCO Alloys Private
Limited (“IMCO”) to create a subsidiary named Liquidmetal Coatings Solutions
India Private Limited (“LMCSI”) and engage in application services of
Liquidmetal products as a protective coating.  Initially, under the
joint venture agreement, LMC held 80% and IMCO held 20% of the outstanding Class
A Shares of LMCSI.  LMC may, at its option, subscribe to Class B
Shares of the Company.  In September 2010, LMC provided approximately
$80 in capital equipment and was issued 358,204 Class B Shares of
LMCSI.  As a result, LMC holds 88.6% and IMCO holds 11.4% ownership
interest in LMCSI as of September 30, 2010.


9


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





2.  Basis
of Presentation and Recent Accounting Pronouncements




Translation of Foreign
Currency




The Company
applies Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 830,
Foreign Currency,for translating foreign currency into US
dollars in our consolidation of the financial statements.  Upon
consolidation of the Company’s foreign subsidiaries into the Company’s
consolidated financial statements, any balances with the subsidiaries
denominated in the foreign currency are translated at the exchange rate at
period-end. The financial statements of Liquidmetal Technologies Korea have been
translated based upon Korean Won as the functional currency. Liquidmetal
Technologies Korea’s assets and liabilities were translated using the exchange
rate at period end and income and expense items were translated at the average
exchange rate for the reporting period. The resulting translation adjustment was
included in other comprehensive (loss) income.




Recent Accounting
Pronouncements




In
January 2010, the FASB issued new authoritative guidance to require additional
disclosures for fair value measurements including the following: (1) amounts
transferred in and out of Level 1 and 2 fair value measurements, which is
effective for interim and annual reporting periods beginning after December 15,
2009 (“Part I”), and (2) activities in Level 3 fair value measurements including
purchases, sales, issuances and settlements, which is effective for interim and
annual reporting periods beginning after December 15, 2010 (“Part II”). The
Company adopted Part I of the revised guidance for fair value measurements
disclosures, which did not have a significant effect on our unaudited Condensed
Consolidated Financial Statements as of the beginning of fiscal 2010.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues  Task Force), the AICPA and the SEC did not or are not believed
by management to have a material impact on our Company's present or future
consolidated financial statements.





3.  Liquidity





The
Company has experienced losses from continuing operations during the last three
fiscal years and has an accumulated deficit of $180,827 as of September 30,
2010.  Cash provided by operations for the nine months ended September 30,
2010 was $8,699.  As of September 30, 2010, the Company’s principal
source of liquidity is $3,157 of cash and $1,142 of trade accounts
receivable.




On May 1,
2009, the Company completed a financing transaction (the “Transaction”) whereby
aggregate cash of $2,500 and principal and accrued interest of $20,625 due under
the previously issued 8% Convertible Subordinated Notes due January 2010 (the
“Prior Notes”) were exchanged for 500,000 shares of convertible Series A-1
Preferred Stock with an original issue price of $5.00 per share, 2,625,002
shares of Series A-2 Preferred Stock with an original issue price of $5.00 per
share, and $7,500 of new 8% Senior Secured Convertible Subordinated Notes due
January 3, 2011 (the “January 2011 Notes”).  The Transaction was
consummated pursuant to a Securities Purchase and Exchange Agreement, dated
May 1, 2009, among the exchanging note holders and investors.  On
August 5, 2010, the Company repaid in full all principal and interest on the
January 2011 Notes.  All security interests in Company assets securing
such obligations under the January 2011 Notes were released and
terminated.  (See Note 7)





On May
28, 2010, the Company issued $2,000 of 13% Subordinated Promissory Note
(“January 2011 Subordinated Note”) due on the earlier date of January 3, 2011 or
the date on which all outstanding amounts are due under the Company’s 8% January
2011 Notes.  On August 5, 2010, the Company repaid in full all
principal and accrued interest of $2,046 on the January 2011 Subordinated
Note.  In connection with the repayment, on August 10, 2010, the
Company entered into a Subscription Agreement pursuant to which the Company
issued 7,870,307 shares of the Company’s common stock to the noteholder for an
aggregate price of $2,046. (See Note 7)





On August
5, 2010, the Company entered into a licensing agreement with Apple Inc.
(“Apple”) pursuant to which (i) the Company contributed substantially all
of its intellectual property assets to a newly organized special-purpose,
wholly-owned subsidiary, called Crucible Intellectual Property (“CIP”),
(ii) CIP granted to Apple a perpetual, worldwide, fully-paid, exclusive
license to commercialize such intellectual property in the field of consumer
electronic products in exchange for a license fee, and (iii) CIP granted
back to the Company a perpetual, worldwide, fully-paid, exclusive license to
commercialize such intellectual property in all other fields of
use.  Upon closing of the foregoing transaction, the Company was paid
a portion of the license fee which was used to pay off noteholders and fund
operations.   90 days after the closing date and upon completion
of certain support milestones, the Company shall be paid the remaining portion
of the license fee.


10


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





As of
September 30, 2010, the Company has outstanding liens on assets of its South
Korean subsidiary by various creditors in South Korea for past-due trade
payables totaling $2,175, which are held by creditors in South Korea, as of
September 30, 2010.  The Company is currently working to resolve the
matter with each creditorby seeking a forbearance
or compromise.  If it cannot repay the amounts due or obtain
forbearance or compromise, the creditors may seek to foreclose on the Company’s
assets located in Korea.





4.  Fair
Value of Financial Instruments





The fair
value of cash and cash equivalents and trade receivables approximates its
carrying value due to its short maturity.  The estimated fair value of
long-term debt was determined by discounting future cash flows using rates
currently available to us for debt with similar terms and remaining
maturities.





Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Entities are required to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value based upon the following fair value hierarchy:





Level
      1 —
                Quoted
      prices in active markets for identical assets or
    liabilities;Level
      2 —
                Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets or liabilities;
      andLevel
      3 —
                Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities.





The
following table summarizes the financial liabilities measured at fair value on a
recurring basis as of September 30, 2010 and December 31, 2009:





Level
                    
                    
                    September, 2010
                    
                    
                    December 31, 2009Warrant
      Liabilities
                    
                    2
                    
                    
                    $
                    26,786
                    
                    
                    $
                    3,975Conversion
      Feature Liabilities
                    
                    2
                    
                    
                    $
                    -
                    
                    
                    $
                    444





The
warrant liabilities and conversion feature liabilities are recorded at fair
value based on upon valuation models with utilize relevant factors such as
expected life, volatility of the Company’s stock prices, risk free interest and
dividend rate.





The
Company calculated that the estimated fair value of the long term debt is not
significantly different than the carrying value of the debt.





5.  Inventories





Inventories
are accounted for using the moving average basis and at standard cost, which
approximate cost on a first-in, first-out basis and are valued at the lower of
cost or market.  Inventories were comprised of the
following:


11


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





September 30,
                    
                    
                    December 31,2010
                    
                    
                    2009(Unaudited)Raw
      materials
                    
                    $
                    632
                    
                    
                    $
                    675Work
      in process
                    
                    
                    88
                    
                    
                    
                    94Finished
      goods
                    
                    
                    228
                    
                    
                    
                    213Total
      inventories
                    
                    $
                    948
                    
                    
                    $
                    982





6.  Product
Warranty





Management
estimates product warranties as a percentage of certain bulk alloy product sales
earned during the period.  As of September 30, 2010, the Company used
5% of bulk alloy product sales as an estimate of warranties to be
claimed.  The percentage is based on industry averages and historical
information.  Additionally, as of September 30, 2010 the Company used
1% of coatings applications sales as estimates of warranties to be
claimed.





During
the three and nine months ended September 30, 2010, the Company recorded $28 and
$176 of net gain on warranty, respectively. During the three and nine months
ended September 30, 2009, the Company recorded $0 and $92 of net gain on
warranty, respectively.  The warranty accrual balance is included in
accounts payable and accrued expenses.





7.  Notes
Payable





Unsecured Subordinated
Notes





On May
17, 2006, September 21, 2006, and December 1, 2006, the Company issued 8%
Unsecured Subordinated Notes due August 2007 in the aggregate principal amount
of $4,584 (the “August 2007 Subordinated Notes”).  The August 2007
Subordinated Notes are unsecured and became due August 2007, of which $3,575
were retired during 2007 and 2008.  During 2009, the Company retired
$750 of the August 2007 Subordinated Notes, and on August 5, 2010, the Company
retired the remaining $259 of the August 2007 Subordinated Notes.





Interest
expense for the August 2007 Subordinated Notes were $2 and $55 for the three and
nine months ended September 30, 2010, respectively.  Interest expense
for the August 2007 Subordinated notes were $5 and $41 for the three and nine
months ended September 30, 2009, respectively.  As of September 30,
2010 and December 31, 2009, the Company’s gross outstanding loan balance of the
August 2007 Subordinated Notes totaled $0 and $259, respectively, and was
included in current portion of long-term debt.





On May
28, 2010, the Company issued $2,000 of 13% Subordinated Promissory Note (“the
January 2011 Subordinated Note”) due on the earlier date of January 3, 2011 or
the date on which all outstanding amounts are due under the Company’s 8% January
2011 Notes.  On August 5, 2010, the Company repaid in full all
principal and accrued interest of $2,046 on the January 2011 Subordinated
Note.  In connection with the repayment, on August 10, 2010, the
Company entered into a Subscription Agreement pursuant to which the Company
issued 7,870,307 shares of the Company’s common stock for an aggregate price of
$2,046.




Secured Convertible
Subordinated Notes





During
2007, 2008, and 2009, the Company issued 8% Convertible Subordinated Notes due
January 2010 in the aggregate principal amount of $17, 300 (The “January 2010
Notes”) and an additional aggregate amount of $3,009 for accrued interest. On
May 1, 2009, the January 2010 Notes were retired as part of a financing
transaction (see “Senior Secured Convertible Notes” below).


12


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





The
Company’s gross outstanding loan balance of the January 2010 Notes totaled $0 as
of both September 30, 2010 and December 31, 2009.  As of both September 30,
2010 and December 31, 2009, un-amortized discounts for conversion feature,
warrants, and cash discount totaled $0, and other asset debt issuance costs
totaled $0.  Interest expense for the amortization of debt issuance cost
and discount on note was $0 for both the three and nine months ended September
30, 2010.  Interest expense for the amortization of debt issuance cost
and discount on note was $0 and $1,816 for the three and nine months ended
September 30, 2009, respectively.





Pursuant
to FASB ASC 815, Derivatives
and Hedging, the Company is required to report a value of the conversion
liability as a fair value and record the fluctuation to the fair value of the
conversion feature liability to current operations.  The change in the
fair value of the conversion feature liability resulted in gains of $0 for both
the three and nine months ended September 30, 2010, respectively.  The
change in the fair value of the conversion feature liability resulted in losses
of $0 and $1,137 for three and nine months ended September 30, 2009,
respectively.




Senior Secured Convertible
Notes




On May 1,
2009, the Company completed a financing transaction (the “Transaction”) whereby
aggregate cash of $2,500 and principal and accrued interest of $20,625 due under
the previously issued 8% Convertible Subordinated Notes due January 2010 (the
“January 2010 Notes”) were exchanged for 500,000 shares of convertible Series
A-1 Preferred Stock with an original issue price of $5.00 per share, 2,625,002
shares Series A-2 Preferred Stock with an original issue price of $5.00 per
share, and $7,500 of new 8% Senior Secured Convertible Notes due January 2011
(the “January 2011 Notes”).  The Transaction was consummated pursuant
to a Securities Purchase and Exchange Agreement, dated May 1, 2009 (the
“Securities Purchase Agreement”), among the exchanging note holders and
investors (collectively, the “Buyers”).





The
redemption of the previously issued January 2010 Notes was treated as an
extinguishment of debt in accordance with Emerging Issues Task Force No. 96-19,
“Debtors Accounting for a Modification or Exchange of Debt
Instruments.”  The Transaction resulted in a $2,029 loss from
extinguishment of debt, which consisted of write down of $503 other asset
deferred issue costs, $5,487 debt discount, $1,306 decrease in conversion
feature liability of the extinguished notes, $2,347 decrease in warrant
liability from the warrants redeemed from holders of the January 2011 Notes, and
$308 write off of accrued fees.





The
January 2011 Notes were due January 3, 2011 and bear annual interest rate of 8%
with interest payable in October and April in cash or, at the Company’s option,
in the form of additional notes (in which case the interest rate will be
10%).   In November 1, 2009 and May 1, 2010, the Company issued
$378 and $391, respectively, of additional January 2011 Notes for accrued
interest due under the notes in lieu of cash payments.  On August 5,
2010, the Company repaid in full all principal and interest on the January 2011
Notes in the amount of $8,242, and all security interest in the company assets
securing such obligations under the January 2011 Notes were released and
terminated.





The
Series A-1 Preferred Stock, Series A-2 Preferred Stock, and January 2011 Notes
are convertible into the Company’s common stock atconversion price of $0.10,
$0.22, and $0.60 per common share, respectively.  During the three and
nine months ended September 30, 2010 59,000 and 638,568 of the Company’s Series
A-2 Preferred Stocks, respectively, were converted into 333,333 and 14,512,909
of the Company’s common stocks, respectively.  The Company issued
warrants to purchase 3,125,007 shares and 42,329,407 shares of the Company’s
common stock at an exercise of $0.60 and $0.50 per share to the buyers of the
January 2011 Notes and preferred stocks, respectively.  During both
the three and nine months ended September 30, 2010, 4,849,775 of warrants were
exercised into the Company’s common stocks.  Unexercised warrants will
expire on January 3, 2012.  The conversion prices and the number of
common stock issuable under the preferred stocks, January 2011 Notes and
warrants are subject to adjustments for anti-dilution
purposes.   (See Note 14)





The
preferred stocks accrue cumulative dividends at an annual rate of 8%, which is
payable semi-annually. Beginning on the second anniversary of the initial
issuance, the dividend will increase to 10%.  In conjunction with the
Series A-1 Preferred Stock conversion during the three months ended September
30, 2010, the Company granted in-kind dividends to the preferred stocks holders,
which were simultaneously converted into 1,365,863 of common stocks. As of
September 30, 2010, the Company has accrued dividends of $1,063 included in
accounts payable and other accrued expenses.  The dividends are
payable in cash or in kind by the issuance of the Company of additional
preferred stock, only when and as declared by the Company’s Board of
Directors.


13


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





Pursuant
to Statement of Financial Accounting Standards No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” EITF 00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments,” and EITF 05-2 “The Meaning of ‘Conventional
Convertible Debt Instrument’ in EITF Issue No. 00-19,” the original fair value
of the embedded conversion feature of $3,367 have been recorded as conversion
feature liability as the debt is considered nonconventional convertible debt.
The original fair value was computed using the Black-Scholes model under the
following assumptions: (1) expected life of 1.68 years; (2) volatility of 176%;
(3) risk free interest of 0.92% and dividend rate of 0%. In addition, the
Company is required to report a value of the conversion liability as a fair
value and record the fluctuation to the fair value of the conversion feature
liability to current operations.




The
change in the fair value of the conversion feature liability resulted in gains
of $15 and $444 for the three and nine months ended September 30, 2010,
respectively.  The change in the fair value of the conversion feature
liability resulted in gains of $474 and $2,572 for the three and nine months
ended September 30, 2009, respectively.  The fair value of conversion
feature outstanding at September 30, 2010 and December 31, 2009 was $0 and $444,
respectively.  The fair value of conversion feature outstanding at
December 31, 2009 was computed using the Black-Scholes model under the following
assumptions: (1) expected life of 1.01 years; (2) volatility of 152%, (3) risk
free interest of 0.5% and dividend rate of 0%.




Pursuant
to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”, the original fair values of the
warrants of $14,773 have been recorded as warrant liability, which was computed
using the Black-Scholes pricing model under the following assumptions: (1)
expected life of 2.67 years; (2) volatility of 176%; (3) risk free interest of
1.39% and (4) dividend rate of 0%.




The
original fair value of the embedded conversion feature of $3,367 was recorded as
discounts on the convertible notes and the original fair value of the warrants
issued to buyers of the January 2011 Notes of $999 was recorded as discounts of
the convertible notes. The original fair value of warrants issued to buyers of
preferred stocks of $13,774 was recorded as reduction of additional paid-in
capital. In addition, the Company incurred $440 of direct costs relating to the
Transaction, of which $143 of was recorded as debt issuance cost in other assets
relating to issuance of the convertible notes and $297 was recorded as reduction
of additional paid-in capital relating to the issuance of the preferred
stocks.




The
Company’s gross outstanding loan balance of the January 2011 Notes totaled $0
and $7,878 as of September 30, 2010 and December 31, 2009,
respectively.  As of September 30, 2010 and December 31, 2009,
un-amortized discounts for conversion feature and warrants totaled $0 and
$3,227, respectively, and other asset debt issuance costs totaled $0 and $104,
respectively. Interest
expense for the amortization of debt issuance cost and discount on note was
$1,960 and $2,994 for the three and nine months ended September 30, 2010,
respectively.  Interest expense for the amortization of debt issuance cost
and discount on note was $441 and $696 for the three and nine months ended
September 30, 2009, respectively.





Factoring
Agreement





The
Company entered into a Factoring, Loan, and Security Agreement (the “Agreement”)
with a financing company on April 21, 2005.  All borrowings were
secured by outstanding receivables specifically assigned to the financing
company.  In June 2009, the Company received a formal notice of
default from the financing company for repayment of the outstanding loan. On
August 5, 2010, the Company terminated the Agreement and repaid in full all
principal and interest on the Agreement in the amount of $309.  All
security interest in Company assets securing such obligations under the
factoring loan were released and terminated.





For the
nine months ended September 30, 2010, the Company borrowed $3 and repaid $287
under the Agreement.  The total outstanding advance made under the
agreement is $0 and $284 as of September 30, 2010 and December 31, 2009,
respectively, which is presented as short-term debt.


14


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





Debt of Majority Owned
Subsidiary





On July
24, 2007, the Company completed an $11,500 financing transaction (the
“Transaction”) that provided funding to repay convertible notes previously
issued by the Company that were scheduled to become due in July and August
2007.  In the Transaction, the Company transferred substantially all of the
assets of the Company’s Liquidmetal Coatings division to a newly formed, newly
capitalized subsidiary named Liquidmetal Coatings, LLC, a Delaware limited
liability company (“LMC”), and LMC assumed substantially all of the liabilities
of the division.





LMC was
capitalized through a $6,500 subordinated debt and equity investment by C3
Capital Partners (“C3”) and a $5,000 senior credit facility with Bank Midwest,
N.A.  This debt and equity resulted in cash proceeds of $11,102 after
related debt issuance costs of $398, which proceeds LMC used to purchase all of
the assets and liabilities from the Company.  The Company incurred an
additional $459 in issuance costs directly related to the debt
issuance.  As a result, $857 was recorded as deferred debt issuance
costs to be amortized over the life of the debt.  Interest expense for
the amortization of debt issuance cost was $100 and $190 for the three and nine
months ended September 30, 2010, respectively.  Interest expense for
the amortization of debt issuance cost was $42 and $121 for the three and nine
months ended September 30, 2009, respectively.





The
Company retains a 66.56% ownership interest in LMC, C3 holds a 22.15% ownership
interest, Larry Buffington, the Company’s former President and CEO, (who also
serves as the President and CEO of LMC) holds a 9.61% ownership interest, and
CRESO Capital Partners (“CRESO”), the Company’s financial advisor in the
Transaction, holds a 1.68% ownership interest. The equity interests acquired by
C3 and issued to CRESO were not considered a discount to debt, as the
unconsolidated net assets of LMC were deemed to have an initial value of $0 upon
closing of the Transaction for financial accounting
purposes.  Further, LMC is fully responsible for the repayment of debt
obligations.





Midwest
Debt





In
connection with the Transaction, LMC entered into a Loan Agreement (the “Loan
Agreement”), dated July 24, 2007, with Bank Midwest, N.A. (“Midwest”). 
Following the Transaction, the Loan Agreement has been amended to renew and
modify certain terms. The Loan Agreement, as amended on October 6, 2009 (the
“Loan Amendment”), provided for total loan availability of $5,025, consisting of
a $4,000 term loan and a revolving loan of up to $1,025 based on a percentage of
LMC’s eligible receivable and inventory.  The Loan Amendment adjusted,
among other terms, the interest rate of all outstanding loans to a fixed rate of
9%, certain financial covenants under the Loan Agreement, maturity date of the
revolving loan through June 30, 2010 with monthly interest payments, and
required an immediate repayment of $325 of the term loan and $325 of the
revolving loan.  The members of the Liquidmetal Coatings, LLC (the
“Members”) were required to contribute $650 in equity to repay the amounts due
under the Loan Agreement (the “Capital Call”).  On October 6, 2009,
the Company paid $450 which represented its portion of the Capital Call and the
remaining Members paid $200.  As a result of the payment, the monthly
amortization payments due under the term loan were reduced to $47 and the
maturity date was extended to September 30, 2012.  In connection with
the Loan Amendment, the Company borrowed $450 from C3 Capital Partners (“C3”) to
contribute its share of the Capital Call pursuant to a bridge loan agreement
with C3 and subsequently paid down the bridge loan in November
2009.





Additionally,
LMC entered into Promissory Notes, dated August 29, 2007 and October 21, 2008
(the “Capital Loan”), with Midwest to provide for $45 and $105 to be used
towards the purchase of a company truck and HVOF spray equipment with annual
interest rates of 7.43% and 8.25%, respectively.  The Capital Loan had
maturity dates of September 1, 2012 and November 1, 2013.





On June
25, 2010 LMC entered into a Credit Agreement with Enterprise Bank & Trust
and retired all of its loan agreements with Midwest (see “Enterprise Debt”
below).


15


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





As of
September 30, 2010 and December 31, 2009, the gross outstanding loan balance
under the Midwest term loan totaled $0 and $1,430, respectively, and the gross
outstanding loan balance under the Midwest revolving loan totaled $0 and $307,
respectively. The loans are presented as long-term debt and short-term debt on
the Company’s consolidated balance sheet, respectively.  Interest
expense incurred under the term loan and revolving loan totaled $0 and $66 for
the three and nine months ended September 30, 2010,
respectively.   Interest expense incurred under the term loan and
revolving loan totaled $54 and $177 for the three and nine months ended
September 30, 2009, respectively.   As of September 30, 2010 and
December 31, 2009, the gross outstanding loan balance under the Capital Loan
totaled $0 and $102, respectively, which is presented as long-term debt on the
Company’s consolidated balance sheet.  Interest expense incurred under
the Capital Loan totaled $0 and $4 for the three and nine months ended September
30, 2010, respectively.  Interest expense incurred under the Capital
Loan totaled $2 and $7 for the three and nine months ended September 30, 2009,
respectively.




Enterprise
Debt




On June
25, 2010, LMC entered into a Credit Agreement (“Credit Agreement”) with
Enterprise Bank & Trust (“Enterprise”).  The Credit Agreement
provides for a total loan availability of $3,700, consisting of $1,500 term loan
(“Term Note”), a revolving loan of up to $2,000 (“Revolving Note”), and
equipment loans (“Equipment Note”) of up to $200.  The Term Note of
$1,500 has a maturity date of June 25, 2013 and bears an interest rate of 7% per
annum.  LMC is required to make monthly payments of principal and
interest under the Term Note, with monthly payments of (i) $50 during months 1
through 12, (ii) $42 during months 13 through 24 and (iii) $33 during months 25
through 36.  All remaining principal and interest shall be due and
payable upon the maturity date




Borrowing
availability under the Revolving Note is based on a percentage of LMC’s eligible
receivables and inventory and accrues interest at the rate of the greater of
libor plus 3.75% or 6%.  LMC will make monthly interest payments on
the Revolving Note until June 24, 2011, at which point all remaining principal
and interests are due.  LMC has the right to prepay the Term Note and
the Revolving Note and the Equipment Note, in whole or in part, at any time
without penalty or premium.




The
Credit Agreement is secured by a blanket security interest in all of the LMC’s
assets.  Pursuant to a subordination agreement between C3 Capital
Partners, L.P., C3 Capital Partners II, L.P. (collectively the “C3 Entities”)
and Enterprise, Enterprise’s security interest in the assets is senior to the C3
Entities’ security interest in the same assets.




As of
September 30, 2010 and December 31, 2009, the gross outstanding loan balance
under the Enterprise Term Note totaled $1,400 and $0, respectively, and the
gross outstanding loan balance under the Enterprise Revolving Note totaled $415
and $0, respectively. The Term Note and the Revolving Note are presented as
long-term debt and short-term debt on the Company’s consolidated balance sheet,
respectively.




C3
Debt




In the
Transaction, LMC also entered into a Securities Purchase Agreement, dated July
24, 2007 (the “Securities Purchase Agreement”), with C3 Capital Partners,
L.P. (“C3”), C3 Capital Partners II, L.P. (“C3 II”, and with C3, the
“C3 entities”), and Liquidmetal Coatings Solutions, LLC, a wholly owned
subsidiary of LMC that will operate the thermal spray coatings business
(“LMCS”).  Pursuant to the Securities Purchase Agreement, LMC issued to the
C3 entities subordinated promissory notes in the aggregate principal amount
of $6,500 (the “Subordinated Notes”). Under the Securities Purchase Agreement,
the C3 entities have the right, beginning on the July 24, 2012 (or, if earlier,
upon a default by LMC under the Subordinated Notes or Securities Purchase
Agreement) to require LMC to purchase the C3 entities’ membership interests in
LMC for a purchase price equal to their pro rata portion of the greater of (i)
the appraised fair market value of LMC or (ii) six times LMC’s trailing 12-month
earnings before interest, taxes, depreciation, and amortization, less funded
debt.





The
Subordinated Notes have a maturity date of July 20, 2012 with no required
principal payments before maturity other than upon specified triggering events,
such as a change in control of LMC.  Interest accrues at an annual rate of
14%, with 12% interest being payable monthly beginning September 2007 and the
remaining 2% interest being payable at maturity.  In connection with the
Securities Purchase Agreement and the Subordinated Notes, the Company and LMC
entered into pledge agreements with the C3 entities in which the Company
pledged its membership interest in LMC to secure the obligations under the notes
and LMC pledged its membership interests in LMCS to secure its obligations under
the notes.  LMC and LMCS also granted to C3 a blanket security
interest in all of their assets to secure their obligations under the
Subordinated Notes.


16


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)








8.  Stock Compensation
Plan





During
the nine months ended September 30, 2010, there were no options granted under
the Company’s 2002 Non-employee Director Stock Option Plan which provides for
the grant of stock options to non-employee directors.  Further, all
options granted under this plan had exercise prices that were equal to the fair
market value on the date of grant.





During
the nine months ended September 30, 2010, under the Company’s 2002 Equity
Incentive Plan which provides for the grant of stock options to officers,
employees, consultants and directors of the Company its subsidiaries, the
Company granted options to purchase 3,080,000 of the Company’s common stock for
an average price of $0.12.  Further, all options granted under this
plan had exercise prices that were equal to the fair market value on the date of
grant.





The
Company cancelled 81,130 options during the nine months ended September 30,
2010, for terminated employees and options expired.





On August
3, 2010 (the “Grant Date”), the Company granted 6,000,000 shares of restricted
Common Stock to Thomas Steipp, the Company’s President and Chief Executive
Officer in conjunction with his employment agreement.  The restricted
shares will vest ratably over a period of five years starting with the first
anniversary of the Grant Date, provided that Mr. Steipp is continuously employed
by the Company from the Grant Date through the applicable vesting
date.





9.  Preferred
Units of Subsidiary





On
February 22, 2008, LMC completed a transaction under which it issued and
sold $2,500 in preferred membership units to two minority members of LMC (the
“Preferred Units Transaction”).  Immediately following the sale of the
preferred membership units, the subscription proceeds (after a 1% transaction
fee) were distributed to LMC’s common unit members, and as a result of such
distribution, the Company received approximately $1,714 in the
distribution.  The preferred units issued by LMC have an accruing
priority return of 14% per year that are priority over any distribution made by
LMC and may be redeemed at any time within four years of issuance through cash
payment or distribution in excess of the 14% priority return.  LMC is
required to redeem the preferred units on or before the second anniversary of
the issue date and failure to redeem the preferred units at the specified time
will result in the preferred unit holders receiving an additional 2% of common
membership units (equal to 1,425 of the currently outstanding common units) per
quarter until the preferred units are redeemed in full.  As
of September 30, 2010, an additional 2,767 membership units have been issued to
the preferred unit holders.





As of
September 30, 2010, LMC has redeemed $236 of its preferred units and distributed
$294 in priority return to the preferred unit holders.  The total
preferred units outstanding are $2,264 as of September 30,
2010.





10.  Segment
Reportingand
Geographic Information





ASC
280,Segment Reporting,requires companies to provide certain information about their operating
segments.  In April 2002, the Company began classifying operations
into two reportable segments: Liquidmetal alloy industrial coatings and bulk
Liquidmetal alloys.  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.  Bulk Liquidmetal alloys include market
opportunities to manufacture and sell casing components for electronic devices,
medical devices, sporting goods, tooling, prototype sampling, defense
applications and metal processing equipment.  Primarily, the expenses
incurred by the bulk Liquidmetal alloy segment are research and development
costs and selling expenses associated with identifying and developing market
opportunities.  Bulk Liquidmetal alloys 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 and product licensing arrangements are
included in the bulk Liquidmetal alloy segment.  The accounting
policies of the reportable segments are the same as those described in Note 3 to
the consolidated financial statements included in the Company's Form 10-K filed
with the Securities and Exchange Commission on August 20, 2010.


17


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





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





Coatings
                
                
                Bulk Alloy
                
                
                Segment TotalsThree
      months ended September 30, 2010Revenue
      to external customers
                
                $
                1,839
                
                
                $
                15,470
                
                
                $
                17,309Gross
      profit
                
                
                671
                
                
                
                15,034
                
                
                
                15,705Total
      segment (loss) income
                
                
                (311
                )
                
                
                14,652
                
                
                
                14,341Total
      identifiable assets at end of period
                
                
                2,406
                
                
                
                6,718
                
                
                
                9,124Three
      months ended September 30, 2009Revenue
      to external customers
                
                $
                2,041
                
                
                $
                2,168
                
                
                $
                4,209Gross
      profit
                
                
                693
                
                
                
                607
                
                
                
                1,300Total
      segment (loss) income
                
                
                (124
                )
                
                
                156
                
                
                
                32Total
      identifiable assets at end of period
                
                
                2,534
                
                
                
                9,137
                
                
                
                11,671Nine
      months ended September 30, 2010Revenue
      to external customers
                
                $
                6,383
                
                
                $
                15,830
                
                
                $
                22,213Gross
      profit
                
                
                2,224
                
                
                
                14,613
                
                
                
                16,837Total
      segment (loss) income
                
                
                (754
                )
                
                
                13,881
                
                
                
                13,127Total
      identifiable assets at end of period
                
                
                2,406
                
                
                
                6,718
                
                
                
                9,124Nine
      months ended September 30, 2009Revenue
      to external customers
                
                $
                6,234
                
                
                $
                5,086
                
                
                $
                11,320Gross
      profit
                
                
                2,198
                
                
                
                2,177
                
                
                
                4,375Total
      segment (loss) income
                
                
                (271
                )
                
                
                1,013
                
                
                
                742Total
      identifiable assets at end of period
                
                
                2,534
                
                
                
                9,137
                
                
                
                11,671





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


18


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





For the Three Months
                
                
                For the Nine MonthsEnded September 30,
                
                
                Ended September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Total
      segment income
                
                $
                14,341
                
                
                $
                32
                
                
                $
                13,127
                
                
                $
                742General
      and administrative expenses, excluded
                
                
                (1,755
                )
                
                
                (738
                )
                
                
                (3,132
                )
                
                
                (2,503
                )Consolidated
      income (loss) before interest, income taxes, and noncontrolling
      interests
                
                $
                12,586
                
                
                $
                (706
                )
                
                $
                9,995
                
                
                $
                (1,761
                )Loss
      from extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,471
                )Change
      in value of warrants, (loss) gain
                
                
                (27,199
                )
                
                
                2,015
                
                
                
                (24,361
                )
                
                
                8,138Change
      in value of conversion feature, gain
                
                
                15
                
                
                
                474
                
                
                
                444
                
                
                
                1,434Interest
      expense
                
                
                (2,142
                )
                
                
                (739
                )
                
                
                (4,022
                )
                
                
                (3,807
                )Income
      taxes
                
                
                -
                
                
                
                (75
                )
                
                
                -
                
                
                
                (120
                )Income
      attributable to noncontrolling interest
                
                
                114
                
                
                
                39
                
                
                
                250
                
                
                
                59Consolidated
      net loss attributable to Liquidmetal Technologies, Inc.
                
                $
                (16,626
                )
                
                $
                1,008
                
                
                $
                (17,694
                )
                
                $
                2,472





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





Revenues
from sales to companies in the United States were $16,987 and $1,983 during the
three months ended September 30, 2010 and 2009, respectively.  The
revenue related to the United States of America was earned under defense-related
research and development contracts, sales of coatings products, sales of
Liquidmetal bulk alloy products and royalties.





During
the three months ended September 30, 2010, the Company had revenue from sales to
companies outside of the United States of $322.  The revenue related
to sales to companies outside of the United States was mostly from coating
materials.  During the three months ended September 30, 2009, the
Company had revenues from companies outside of the United States of $2,226 of
which $1,404 represented sales to companies located in South
Korea.  The revenue related to sales to companies outside of the
United States was mostly from bulk alloy products.





Long-lived
assets include net property, plant, and equipment, and net intangible assets.
The Company had long-lived assets of $1,892 and $1,968 located in the United
States at September 30, 2010 and December 31, 2009, respectively. The Company
had long-lived assets of $4,432 and $4,932 located in South Korea at September
30, 2010 and December 31, 2009, respectively.





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





September 30,2010Total
      segment assets
                    
                    $
                    9,124Cash
      and cash equivalents
                    
                    
                    3,028Prepaid
      expenses and other current assets
                    
                    
                    292Other
      property, plant and equipment
                    
                    
                    44Intangibles,
      net
                    
                    
                    -Other
      assets
                    
                    
                    204Total
      consolidated assets
                    
                    $
                    12,692




19


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)




Assets
excluded from segment assets include assets attributable to the Company’s
corporate headquarters.  The Company’s largest corporate assets
consist of intangible assets, which consist primarily of the Company’s patents
and trademarks.





11.  Income
(Loss) Per Common Share





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




Options
to purchase 8,134,126 shares of common stock at prices ranging from $0.09 to
$15.00 per share were outstanding at September 30, 2010, but were not included
in the computation of diluted EPS for the same period as the inclusion would
have been antidilutive.  Warrants to purchase 47,232,459 shares of
common stock with prices ranging from $0.48 to $1.75 per share outstanding at
September 30, 2010, were not included in the computation of diluted EPS for the
same period as the inclusion would have been antidilutive.  75,047,614
shares of common stock issuable upon conversion of the Company’s convertible
preferred stocks with conversion prices ranging from $0.10 and $0.22 per share
outstanding at September 30, 2010 were not included in the computation of
diluted EPS for the same period because the inclusion would have been
antidilutive.  Additionally, 12,905,318 shares of common stocks
issuable upon conversion of the Company’s convertible preferred stock dividends
with conversion prices ranging from $0.10 and $0.22 per share outstanding at
September 30, 2010 were not included in the computation of diluted EPS for the
same period because the inclusion would have been antidilutive.




Pursuant
to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock", the Company is required to
report a value of the warrant as a fair value and record the fluctuation to the
fair value of the warrant liability to current operations.  The change
in the fair value of the warrants resulted in losses of $27,199 and $24,361 for
the three and nine months ended September 30, 2010, respectively, and gains of
$2,015 and $8,138 for the three and nine months ended September 30, 2009,
respectively. The fair value of warrants outstanding at September 30, 2010 of
$26,786 was computed using the Black-Scholes model under the following
assumptions: (1) expected life of 0.63 to 4.08 years; (2) volatility of 149%,
(3) risk free interest of 0.27% to 1.27%, and dividend rate of
0%.  The fair value of warrants outstanding at December 31, 2009 of
$3,975 was computed using the Black-Scholes model under the following
assumptions: (1) expected life of 0.45 to 4.83 years; (2) volatility of 152%,
(3) risk free interest of 0.20% to 2.69%, and dividend rate of 0%.





12.  Commitments
and Contingencies





The
Company is from time to time a party to certain legal proceedings arising in the
ordinary course of business. Although outcomes cannot be predicted with
certainty, the Company does not believe that any legal proceeding to which it is
a party will have a material adverse effect on the Company’s financial position,
results of operations, and cash flows.




On June
26, 2006, the Company entered into a joint venture agreement with SAGA, SpA in
Padova, Italy, (“SAGA”) a specialist precision parts manufacturer.  The
joint venture is named Liquidmetal SAGA Italy, Srl (“LSI”).  The Company
also entered into an exclusive manufacturing license agreement for the eyewear
industry with LSI.  Under the joint venture agreement, the Company has the
option to buy ownership interest in LSI, initially, of 19.9% to up to 50%. 
In December 2006, the Company exercised the 19.9% interest in LSI and in January
2007 and June 2007, the Company contributed additional $217 and $86,
respectively, into LSI as additional investment.  The contribution did not
change the Company’s 19.9% interest in LSI.  Under the licensing
agreement, at any time following 18 months after the effective date of the
agreement, LSI may exercise its option to sell to the Company certain business
assets including manufacturing equipment acquired under the joint
venture.  During the fourth quarter of the year ended December 31,
2009, the Company wrote-off its investment of $306 in the joint venture due to
lower than anticipated growth in the eye wear industry.  On August 6,
2010, SAGA filed a complaint  against the Company claiming damages of
$3,200 for payment on an alleged loan and for alleged breach of contract in
connection with the formation of LSI.  The Company is in the process
of responding to the claim and working with SAGA to resolve the
matter.


20


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





The
Company has outstanding liens on assets by our South Korean subsidiary by
various creditors for past-due trade payables totaling $2,175, which are held by
creditors in South Korea, as of September 30, 2010.  The Company is
currently working to resolve the matter with each creditorby seeking a forbearance
or compromise.  If the Company cannot repay the amounts due or obtain
forbearance or compromise, the creditors may seek to foreclose on the Company’s
assets located in Korea.





13.  Related
Party Transactions





During
2009, John Kang, former Chairman of the Company, advanced the Company $250 to
fund working capital needs.  On August 5, 2010, the Company paid off
Mr. Kang $63 which represented the amount outstanding as well as 10% accrued
interest as of that date.





On August
1, 2010, the Company entered into an agreement with John Kang, former Chairman
of the Company, to provide consulting services to the Company through December
31, 2011 and on a month-to-month basis thereafter.  During both the
three and nine months ended September 30, 2010, the Company paid $42 for his
services.





As of
September 30, 2010 and December 31, 2009, Ricardo Salas, the Company’s Director
and Executive Vice President, held $0 and $259 of the unsecured subordinated
notes, respectively.  Mr. Salas advanced the Company $210 and $175
during 2010 and 2009, respectively, to fund the Company’s working capital
needs.  On August 5, 2010, the Company paid off Mr. Salas $408 which
represented the amount outstanding as well as 10% accrued interest as of that
date.





In
October 2009, Mr. Kang, Mr. Salas and Tony Chung, the Company’s Chief Financial
Officer, acquired 80,000 shares of the Company’s Series A-1 Preferred Stock and
2,000,000 warrants for an aggregate cash price of $400.  The Series
A-1 Preferred Stock are convertible into the Company’s common stock at a
conversion price of $0.10 per common share.  Further, the warrants are
issuable into the Company’s common stock at an exercise price of $0.50 per share
and expire on January 3, 2012.





In May
2009, the Company completed a transaction in which (i) the holders of
our 8% Convertible Subordinated Notes exchanged such notes for a combination of
new January 2011 Notes and shares of a new series of convertible preferred stock
designated “Series A-2 Preferred Stock”, together with warrants thereon,
and (ii) certain investors purchased, for an aggregate purchase price of
$2,500, shares of a new series of convertible preferred stock designated as
“Series A-1 Preferred Stock” (see Note 7).   The lead investors
in this transaction were Carlyle Liquid, LLC and Carlyle Liquid Holdings,
LLC (the "Carlyle Entities"), which are two investor entities organized by
Abdi Mahamedi and Jack Chitayat, former director of the Company.  Mr.
Mahamedi became a director and greater-than-5% beneficial owner of the
company by reason of the May 2009 transaction, and Mr. Chitayat also became
a greater-than-5% beneficial owner of our company by reason of the May 2009
transaction.  Mr. Mahamedi and Mr. Chitayat have shared voting and
investment control over the shares held by the Carlyle Entities due to the fact
that other entities owned by them are the managing members of these two
Carlyle entities.  Additionally, Mr. Iraj Azarm and Mr. Robert Biehl,
directors of the Company, are passive investors in the Carlyle
Entities.





During
the nine months ended September 30, 2010, Mr. Mahamedi and Carlyle Liquid
Holdings, LLC advanced the Company $30 and $75, respectively, to fund the
Company’s working capital needs.  On August 5, 2010, the Company paid
off $31 and $78 to Mr. Mahamedi and Carlyle Liquid Holdings, LLC, respectively,
representing the amounts outstanding and 10% accrued interest as of that
date.





The
Company has an exclusive license agreement with LLPG, Inc. (“LLPG”), a
corporation headed by Mr. Chitayat.  Under the terms of the agreement,
LLPG has the right to commercialize Liquidmetal alloys, particularly
precious-metal based compositions, in jewelry and high-end luxury product
markets.  The Company, in turn, will receive royalty payments over the life
of the contract on all Liquidmetal products produced and sold by
LLPG.  The Company recognized revenues from product sales and
licensing fees of $0 from LLPG during both the three and nine months ended
September 30, 2010.  The Company recognized revenues from product
sales and licensing fees of $0 and $203 from LLPG during the three and nine
months ended September 30, 2009, respectively.  There are no accounts
receivable from LLPG outstanding as of September 30, 2010 and December 31,
2009.  On August 6, 2010, the Company paid $360 to LLPG as a fee
related to a modification of its existing exclusive license agreement in
connection with the Apple licensing agreement.


21


LIQUIDMETAL
TECHNOLOGIES AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
the Nine Months Ended September 30, 2010 and 2009


(in
thousands, except share data)


(unaudited)





On June
1, 2007, the Company entered into a transaction with Grace Metal (currently
Liquidmetal Korea Co., Ltd. “LMK”), under which (i) LMK agreed to purchase
various equipments (including die casting machines and vacuum induction melters)
used in the Company’s bulk amorphous alloy business segment and (ii) the Company
granted LMK a 10-year exclusive license to manufacture products made from bulk
Liquidmetal alloys for customers whose principal headquarters or whose major
operations are located in South Korea.  LMK was formed by an investor
group that includes the former director and officer of the Company, James Kang,
who is also the brother of John Kang, former Chairman of the
company.





In
consideration of the license agreement with LMK, the Company was entitled to
royalty of 10% of LMK’s net sales of licensed products (unless LMK’s margin on
the products falls below specified levels, in which case a new royalty will be
negotiated in good faith).  Effective June 1, 2008, the royalty rate
was adjusted to 5%.  On June 15, 2010, the licensing agreement with
LMK was terminated.





The
Company purchased production supplies and outsourced production of certain bulk
alloy production with LMK. In June 2008, the Company began sharing the use of
its manufacturing facility and production equipment in Pyongtaek, South Korea,
with LMK as the Company began significant outsourcing of its bulk alloy parts
production. The Company incurred $0 in expenses for purchase of production
supplies and outsourcing fees during both the three and nine months ended
September 30, 2010.  The Company incurred expenses for purchase of
production supplies and outsourcing fees of $698 and $1,135 during both the
three and nine months ended September 30, 2009, respectively.  There
are $0 included in accounts payable and accrued expenses for both September 30,
2010 and December 31, 2009 for outstanding trade payables due to
LMK.  The Company recognized $0 revenue from sales of raw materials
and royalties during both the three and nine months ended September 30,
2010.  The Company recognized $1,652 and $3,775 revenue from sales of
raw materials and royalties during the three and nine months ended September 30,
2009, respectively.  There are $0 included in net accounts receivables
as of both September 30, 2010 and December 31, 2009, for outstanding trade
receivables due from LMK.





14.  Subsequent
Event





On
November 3, 2010, the Company filed an Amended and Restated
Certificate of Designations, Preferences, and Rights (the "Amended
Designation") for the Company's Series A Preferred Stock (the "Series
A Preferred Stock").  The Amended Designation was approved by the requisite
vote of the holders of the Company's Series A Preferred Stock and was
filed with the Delaware Secretary of State in accordance with a Consent
Agreement entered into between the Company and the holders of 2/3 of the
Series A Preferred Stock (the "Consent Agreement").  The Amended
Designation amends the terms of the Series A Preferred Stock by (i)
providing that dividends ceased accruing thereon as of June 1, 2010, (ii) the
liquidation preference and corresponding conversion value on the Series A
Preferred Stock was increased from 1.0 to 1.08 of the sum of the issue
price and accrued but unpaid dividends, (iii) the Series A Preferred Stock is
now mandatorily convertible at any time at the option of the
Company without condition, and (iv) the Series A Preferred Stock will
no longer have any price-based anti-dilution rights.  The Consent Agreement
provided that, in exchange for voting in favor of the Amended Designation, the
warrants held by the holders signing the Consent Agreement (to the extent such
warrants were issued in connection with the original issuance of
the Series A Preferred Stock) will be extended to an expiration date of
July 2015 and the price-based anti-dilution rights on such
warrants are removed.




22





Item
2 –  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





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





This management’s discussion and
analysis, as well as other sections of this report on Form 10-Q, may
contain “forward-looking statements” that involve risks and uncertainties,
including statements regarding our plans, future events, objectives,
expectations, forecasts, or assumptions. Any statement that is not a statement
of historical fact is a forward-looking statement, and in some cases, words such
as “believe,” “estimate,” “ project,” “expect,” “intend,” “may,” “anticipate,”
“plan,” “seek,” and similar expressions identify forward-looking statements.
These statements involve risks and uncertainties that could cause actual
outcomes and results to differ materially from the anticipated outcomes or
results, and undue reliance should not be placed on these statements. These
risks and uncertainties include, but are not limited to, the matters discussed
under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2009 and other risks and uncertainties
discussed in other filings made with the Securities and Exchange Commission
(including risks described in subsequent reports on Form 10-Q,
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 a
materials technology company that develops and commercializes products made from
amorphous alloys.  Our Liquidmetal® family of alloys consists of a
variety of coatings, powders, bulk alloys, and composites that utilize the
advantages offered by amorphous alloy technology.  We develop,
manufacture, and sell products and components from bulk amorphous alloys that
are incorporated into the finished goods of our customers, and we also market
and sell amorphous alloy industrial coatings.  We also partner with
third-party licensees and distributors to develop and commercialize Liquidmetal
alloy products.  We have the exclusive right to develop, manufacture,
and sell what we believe are the only commercially viable bulk amorphous
alloys.





Amorphous
alloys are unique materials that are distinguished by their ability to retain a
random atomic structure when they solidify, in contrast to the crystalline
atomic structure that forms in ordinary metals and alloys when they solidify.
Liquidmetal alloys possess a combination of performance, processing, and cost
advantages that we believe makes them preferable to other materials in a variety
of applications. The amorphous atomic structure of our alloys enables them to
overcome certain performance limitations caused by inherent weaknesses in
crystalline atomic structures, thus facilitating performance and processing
characteristics superior in many ways to those of their crystalline
counterparts. For example, our zirconium-titanium Liquidmetal alloys are
approximately 250% stronger than commonly used titanium alloys, such as
Ti-6Al-4V, but they have processing characteristics similar in many respects to
plastics. We believe these advantages could result in Liquidmetal alloys
supplanting other incumbent materials in a wide variety of applications.
Moreover, we believe these advantages will enable the introduction of entirely
new products and applications that are not possible or commercially viable with
other materials.





Our
revenues are derived from two principal operating segments: Liquidmetal alloy
industrial coatings and bulk Liquidmetal alloy products.  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 in coal-burning power plants. Bulk Liquidmetal
alloy segment revenue includes sales of parts or components of electronic
devices, medical products, and sports and leisure goods, tooling and prototype
parts (including demonstration parts and test samples) for customers with
products in development, product licensing and arrangements, and research and
development revenue relating primarily to defense and medical
applications.  We expect that these sources of revenue will continue
to significantly change the character of our revenue mix.





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





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




23


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





On July
24, 2007, we transferred substantially all of the assets of our Liquidmetal
alloy industrial coatings business to a newly formed, newly capitalized
subsidiary named Liquidmetal Coatings, LLC, a Delaware limited liability company
(“LMC”), and LMC assumed substantially all of the liabilities of the coatings
business.   The transfer included the thermal spray coatings
assets and liabilities acquired under a purchase agreement with Foster Wheeler
Energy Services in June 2007.  We initially held a 69.25% ownership
interest in LMC, however, during 2010, LMC failed to redeem its preferred units
by the specified time and was required to issue additional shares to its
noteholders.  As a result, our ownership interest in LMC decreased to
66.56%.  The results of operation of LMC are consolidated and comprise
our Liquidmetal alloy industrial coatings segment for financial reporting
purposes.





In May
2010, LMC entered into a joint venture agreement with IMCO Alloys Private
Limited (“IMCO”) to create a subsidiary named Liquidmetal Coatings Solutions
India Private Limited (“LMCSI”) and engage in application services of
Liquidmetal products as a protective coating.  Initially, under the
joint venture agreement, LMC held 80% and IMCO held 20% of the outstanding Class
A Shares of LMCSI.  LMC may, at its option, subscribe to Class B
Shares of LMCSI.  In September 2010, LMC provided to LMCSI
approximately $0.1 million in capital equipment and was issued 358,204 shares of
Class B Shares of LMCSI.  As of September 30, 2010, LMC holds an
88.60% ownership interest in LMCSI.





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





Critical
Accounting Policies and Estimates





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





We
believe that the following accounting policies are the most critical to our
condensed 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:





·
            Exchange
      rate fluctuations


·
            Warranty
      accrual


·
            Allowance
      for doubtful accounts


·
            Inventories
      at lower of cost or net realizable
value


·
            Deferred
      tax assets


·
            Valuation
      of derivatives of warrants and embedded conversion
  features





Our
Annual Report on Form 10-K for the year ended December 31, 2009, contains
further discussions on our critical accounting policies and
estimates.




24


Results
of Operations





Comparison of the three
months ended September 30, 2010 and 2009





Revenue. Revenue increased by
$13.1 million to $17.3 million for the three months ended September 30, 2010
from $4.2 million for the three months ended September 30, 2009.  The
increase consisted of a $13.3 million increase in revenue from the licensing and
manufacturing of bulk Liquidmetal alloys, which was offset by a decrease of $0.2
million from sales of our coating products.





Cost of Sales. Cost of sales
decreased to $1.6 million, or 9% of revenue, for the three months ended
September 30, 2010 from $2.9 million, or 69% of revenue, for the three
months ended September 30, 2009.  The decrease was a result of a continued
change in revenue mix, primarily from licensing revenue, during the three months
ended September 30, 2010. The cost to manufacture parts from our bulk
Liquidmetal alloys is variable and differs based on the unique design of each
product.  However, the cost of sales for the products sold by the coatings
business segment is generally consistent because the Liquidmetal coatings
products are produced by third parties and sold wholesale to various
industries.





Selling, General, and Administrative
Expenses. Selling, general, and administrative expenses increased to
$2.4 million, or 14% of revenue, for the three months ended September 30,
2010 from $1.3 million, or 32% of revenue, for the three months ended
September 30, 2009. The increase was primarily a result of increases in legal
and director fees of $0.7 million and an increase in other expense due to the
LLPG license agreement modification fee of $0.4 million.





Research and Development
Expenses. Research and development expenses were $0.3 million, or 2%
of revenue, for the three months ended September 30, 2010 and $0.3 million, or
8% of revenue, for the three months ended September 30, 2009.  We
continue to perform research and development of new Liquidmetal alloys and
related processing capabilities, develop new manufacturing techniques, and
contract with consultants to advance the development of Liquidmetal
alloys.





Change in Value of
Warrants.Change in value of warrants decreased to a loss of
$27.2 million, or 157% of revenue, for the three months ended September 30, 2010
from a gain of $2.1 million, or 48% of revenue, for the three months ended
September 30, 2009.  The change in value of warrants, consisting of
warrants issued from convertible and subordinated notes and convertible
preferred stock issued between 2004 and 2009, was a significant loss for the
three months ended September 30, 2010 primarily due to significant increases in
our stock price since June 30, 2010.





Change in Value of Conversion
Feature.Change in the value of conversion feature liability from our
convertible notes resulted in a gain of $15 thousand, or 0.09% of revenue,
during the three months ended September 30, 2010 from a gain of $0.5 million, or
11% of revenue, for the three months ended September 30, 2009, due to the
retirement of our convertible notes.





Other
Income.Other income was $18 thousand for the three months
ended September 30, 2010 which consisted of a write-off of accounts
payable.  There was no other income for the three months ended
September 30, 2009.





Interest Expense. Interest
expense was $2.5 million, or 14% of revenue, for the three months ended
September 30, 2010 and was $1.1 million, or 25% of revenue, for the three months
ended September 30, 2009. Interest expense consists primarily of debt discount
amortization and interest accrued on outstanding convertible and subordinated
notes, borrowings under a factoring, loan, and security agreement, a revolving
loan agreement, and the Kookmin loan.  The increase was primarily due
to increase in debt discount amortization expense in conjunction with the
retirement of our senior convertible notes.





Comparison of the nine
months ended September 30, 2010 and 2009





Revenue. Revenue increased by
$10.9 million to $22.2 million for the nine months ended September 30, 2010 from
$11.3 million for the nine months ended September 30, 2009.  The
increase was primarily due to an increase in revenue from the licensing and
manufacturing of bulk Liquidmetal alloys.





Cost of Sales. Cost of sales
decreased to $5.4 million, or 24% of revenue, for the nine months ended
September 30, 2010 from $6.9 million, or 61% of revenue, for the nine
months ended September 30, 2009.  The decrease was a result of a continued
change in revenue mix, primarily from licensing revenue, during the nine months
ended September 30, 2010. The cost to manufacture parts from our bulk
Liquidmetal alloys is variable and differs based on the unique design of each
product.  However, the cost of sales for the products sold by the coatings
business segment is generally consistent because the Liquidmetal coatings
products are produced by third parties and sold wholesale to various
industries.




25


Selling, General, and Administrative
Expenses. Selling, general, and administrative expenses increased to
$5.1 million, or 23% of revenue, for the nine months ended September 30,
2010 from $4.3 million, or 38% of revenue, for the nine months ended
September 30, 2009.  The increase was primarily a result of increases
in director’s fees of $0.4 million and increases in other expense due to the
LLPG license agreement modification fee of $0.4 million.





Research and Development
Expenses. Research and development expenses were $0.8 million, or 4%
of revenue, for the nine months ended September 30, 2010 and $0.9 million, or 8%
of revenue for the nine months ended September 30, 2009.  The decrease was
primarily a result of a decrease in patent and trademark expenses although we
continue to perform research and development of new Liquidmetal alloys and
related processing capabilities, develop new manufacturing techniques, and
contract with consultants to advance the development of Liquidmetal
alloys.





Loss from Extinguishment of
Debt.Loss from extinguishment of debt decreased to $0 for the nine
months ended September 30, 2010 from $1.5 million, or 13% of revenue, for the
nine months ended September 30, 2009.  The $1.5 million loss was recognized
from extinguishment of certain of our convertible and subordinated notes during
2009.





Change in Value of Warrants.Change in value of warrants decreased to a loss of $24.4 million, or 110%
of revenue, for the nine months ended September 30, 2010 from a gain of $8.1
million, or 72% of revenue, for the nine months ended September 30, 2009. 
The change in value of warrants, consisting of warrants issued from convertible
and subordinated notes and convertible preferred stock issued between 2004 and
2009, was a significant loss for the nine months ended September 30, 2010
primarily due to significant increases in our stock price since June 30,
2010.





Change in Value of Conversion
Feature.Change in the value of conversion feature liability from our
convertible notes resulted in a gain of $0.4 million, or 2% of revenue, during
the nine months ended September 30, 2010 from a gain of $1.4 million, or 12% of
revenue, for the nine months ended September 30, 2009, primarily as a result of
fluctuations in our stock price and the retirement of our convertible
notes.





Other
Income.Other income was $0.1 million, for the nine months
ended September 30, 2010, which consisted of a write-off of accounts
payable.  There was no other income for the nine months ended
September 30, 2009.





Interest Expense. Interest
expense was $5.1 million, or 23% of revenue, for the nine months ended September
30, 2010 and was $4.8 million, or 42% of revenue, for the nine months ended
September 30, 2009. Interest expense consists primarily of debt discount
amortization and interest accrued on outstanding convertible and subordinated
notes, borrowings under a factoring, loan, and security agreement, and a
revolving loan agreement.  The increase was primarily due to increase in
debt discount amortization expense in conjunction with the retirement of our
senior convertible notes.





Liquidity
and Capital Resources





Our cash
provided by operating activities was $8.7 million for the nine months ended
September 30, 2010.  Our working capital deficit increased from $13.1
million at December 31, 2009 to $27.8 million at September 30, 2010.  The
working capital deficit increase of $14.7 million was attributable to an
increase in warrant liabilities of $22.8 million offset by an increase in cash
and cash equivalents of $3.0 million, an increase of prepaid expenses and other
current assets of $0.1 million, a decrease in accounts payable and accrued
expenses of $2.7 million, a decrease in short-term debt of $0.5 million, a
decrease in long-term debt, current portion of $1.4 million and a decrease in
conversion feature liabilities of $0.4 million.





Our cash
used in investing activities was $0.2 million for the nine months ended
September 30, 2010 for the acquisition of property and equipment and investments
in patents and trademarks.




26


Our cash
used by financing activities was $4.6 million for the nine months ended
September 30, 2010.  We paid net $17.3 million in borrowings mainly
for our convertible subordinated notes, our subordinated promissory note, our
bridge note, a factoring, load and security agreement, and related party
advances, which were offset by $9.6 million in borrowings mainly from an
additional term loan as payment for monthly accrued interest due, short term
borrowings, and a promissory note, $2.0 million in subscriptions for our common
stock and $1.0 million of warrants exercised.





On May 1,
2009, we completed a financing transaction (the “Transaction”) whereby aggregate
cash of $2.5 million and principal and accrued interest of $20.6 million due
under the previously issued 8% Convertible Subordinated Notes due January 2010
(the “Prior Notes”) were exchanged for 500,000 shares of convertible Series A-1
Preferred Stock with an original issue price of $5.00 per share, 2,625,002
shares of Series A-2 Preferred Stock with an original issue price of $5.00 per
share, and $7.5 million of new 8% Senior Secured Convertible Subordinated Notes
due January 3, 2011 (the “January 2011 Notes”).  The Transaction was
consummated pursuant to a Securities Purchase and Exchange Agreement, dated
May 1, 2009 among the exchanging note holders and
investors.





Our
Series A-1 and Series A-2 Preferred Stock accrue cumulative dividends at an
annual rate of 8%, which is payable semi-annually. Beginning on the second
anniversary of the initial issuance of shares of our Series A-1 and Series A-2
Preferred Stock, the dividend will increase to 10%.  As of September
30, 2010, we have accrued dividends of $1.1 million included in accounts payable
and other accrued expenses.  The dividends are payable in cash or in
kind by the issuance by the company of additional preferred stock, only when and
as declared by our Board of Directors.  On August 5, 2010, we repaid
in full all principal and interest on the January 2011 Notes in the amount of
$8.2 million and all security interests on our assets securing such obligations
were released and terminated.





The
Series A-1 Preferred Stock, Series A-2 Preferred Stock, and January 2011 Notes
are convertible into the company’s common stock at conversion price of $0.10,
$0.22, and $0.60 per common share, respectively.  We issued warrants
to purchase 3,125,007 shares and 42,329,407 shares of our company’s common stock
at an exercise of $0.60 and $0.50 per share to the buyers of the January 2011
Notes and the buyers of shares of our Series A-1 and Series A-2 Preferred Stock,
respectively.  The warrants will expire in January
2012.  The conversion prices and the number of shares of common stock
issuable under the Series A-1 and Series A-2 Preferred Stock, the January 2011
Notes and the warrants are subject to adjustments for anti-dilution
purposes.





On
November 3, 2010, we filed an Amended and Restated Certificate of
Designations, Preferences, and Rights (the "Amended Designation") for
our Series A Preferred Stock (the "Series A Preferred Stock").  The
Amended Designation was approved by the requisite vote of the holders of our
Series A Preferred Stock and was filed with the Delaware Secretary of State
in accordance with a Consent Agreement entered into between us and the
holders of 2/3 of the Series A Preferred Stock (the "Consent
Agreement").  The Amended Designation amends the terms of the Series A
Preferred Stock by (i) providing that dividends ceased accruing thereon as
of June 1, 2010, (ii) the liquidation preference and corresponding conversion
value on the Series A Preferred Stock was increased from 1.0 to 1.08 of the
sum of the issue price and accrued but unpaid dividends, (iii) the Series A
Preferred Stock is now mandatorily convertible at any time at our option
without condition, and (iv) the Series A Preferred Stock will no longer
have any price-based anti-dilution rights.  The Consent Agreement provided
that, in exchange for voting in favor of the Amended Designation, the warrants
held by the holders signing the Consent Agreement (to the extent such warrants
were issued in connection with the original issuance of the Series A
Preferred Stock) will be extended to an expiration date of July 2015 and the
price-based anti-dilution rights on such
warrants are removed.





On May
28, 2010, we issued $2.0 million of 13% Subordinated Promissory Note (“the
January 2011 Subordinated Note”) due on the earlier date of January 3, 2011 or
the date on which all outstanding amounts are due under the Company’s 8% January
2011 Notes.  On August 5, 2010, we repaid in full all principal and
interest on the January 2011 Subordinated Notes in the amount of $2.0
million.  In connection with the repayment, on August 10, 2010, we
entered into a Subscription Agreement pursuant to which the Company issued
7,870,307 shares of the Company’s common stock to the noteholder for an
aggregate price of $2.0 million.





On August
5, 2010, we entered into a licensing agreement with Apple Inc. (“Apple”)
pursuant to which (i) we contributed substantially all of our intellectual
property assets to a newly organized special-purpose, wholly-owned subsidiary,
called Crucible Intellectual Property (“CIP”), (ii) CIP granted to Apple a
perpetual, worldwide, fully-paid, exclusive license to commercialize such
intellectual property in the field of consumer electronic products in exchange
for a license fee, and (iii) CIP granted back to us a perpetual, worldwide,
fully-paid, exclusive license to commercialize such intellectual property in all
other fields of use.  Upon closing of the foregoing transaction, we
were paid a portion of the license fee which was used to pay off noteholders and
fund operations.   90 days after the closing date and upon
completion of certain support milestones, we shall be paid the remaining portion
of the license fee.




27


As of
September 30, 2010, we have outstanding liens on assets of our South Korean
subsidiary by various creditors in South Korea for past-due trade payables
totaling $2.2 million.  We are currently working to resolve the matter
with each creditorby seeking a forbearance
or compromise.  If we cannot repay the amounts due or obtain a
forbearance or compromise, the creditors may seek to foreclose on our assets
located in Korea.





Off
Balance Sheet Arrangements





An
off-balance sheet arrangement is any transaction, agreement or other contractual
arrangement involving an unconsolidated entity under which a company has (1)
made guarantees, (2) retained a contingent interest in transferred assets, (3)
an obligation under derivative instruments classified as equity, or (4) any
obligation arising out of a material variable interest in an unconsolidated
entity that provides financing, liquidity, market risk or credit risk support to
the company, or that engages in leasing, hedging, or research and development
arrangements with the company.





On June
26, 2006, we entered into a joint venture agreement with SAGA, SpA in Padova,
Italy (“SAGA”) a specialist precision parts manufacturer.  The joint
venture is named Liquidmetal SAGA Italy, Srl (“LSI”).  We also entered into
an exclusive manufacturing license agreement for the eyewear industry with
LSI.  Under the joint venture agreement, we have the option to buy an
ownership interest in LSI, initially, of 19.9% to up to 50%.  In December
2006, we exercised our right to acquire a 19.9% ownership interest in LSI and in
January 2007 and June 2007 and contributed an additional $0.2 million and $0.1
million, respectively, into LSI as additional investment.  The contribution
did not change our 19.9% interest in LSI.  Under the licensing
agreement, at any time following 18 months after the effective date of the
agreement, LSI may exercise its option to sell to us certain business assets
including manufacturing equipment acquired under the joint
venture.  During the fourth quarter of the year ended December 31,
2009, we wrote-off its investment of $0.3 million in the joint venture due to
lower than anticipated growth in the eye wear industry.  On August 6,
2010, SAGA filed a complaint against us claiming damages of $3.2 million for
payment on an alleged loan and for alleged breach of contract in connection with
the formation of LSI.  We are in the process of responding to the
claim and working with SAGA to resolve the matter.





Item
3 – Quantitative and Qualitative Disclosures about Market Risk





Not
required.





Item
4 – Controls and Procedures





Evaluation of Disclosure
Controls and Procedures.   Based on an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) as of September 30, 2010, the end of
the period covered by this report, our Chief Executive Officer (principal
executive officer) and Chief Financial Officer (principal financial officer)
have concluded that our disclosure controls and procedures were
effective.





Changes in Internal
Control.  During the quarter ended September 30, 2010, there
was no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


28


PART
II


OTHER
INFORMATION


Item
1 – Legal Proceedings





On August
6, 2010, SAGA, SpA in Padova, Italy (“SAGA”) filed a complaint against us in the
County of Orange in California claiming damages of $3.2 million for payment on
an alleged loan and for alleged breach of contract in connection with the
formation of LSI, a joint venture between us and SAGA.  We are in the
process of responding to the claim and working with SAGA to resolve the
matter.





There are
no other material legal proceedings that are pending.





Item
1A – Risk Factors





None.





Item
2 – Unregistered Sales of Equity Securities and Use of Proceeds





None





Item
3 – Defaults Upon Senior Securities





None





Item
4 – Removed and Reserved




Item
5 – Other Information




None.





Item
6 – Exhibits





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





ExhibitNumber
              
              Description of Document3.1
              
              Amended
      and Restated Certificate of Designations, Preferences and Right, dated
      November 2, 2010, between Liquidmetal Technologies, Inc. and holders of
      the Series A-1 Preferred Stock and holders of the Series A-2 Preferred
      Stock.10.1
              
              Employment
      Agreement, dated August 3, 2010, between Thomas Steipp and Liquidmetal
      Technologies, Inc.10.2
              
              Restricted
      Stock Agreement, dated August 3, 2010, between Thomas Steipp and
      Liquidmetal Technologies, Inc.10.3*
              
              Master
      Transaction Agreement, dated August 5, 2010, between Apple Inc.,
      Liquidmetal Technologies, Inc., Liquidmetal Coatings, LLC and Crucible
      Intellectual Property, LLC.10.4
              
              Subscription
      Agreement, dated August 10, 210, between Liquidmetal Technologies, Inc.
      and Norden LLC.10.5
              
              Consent
      Agreement between Liquidmetal Technologies, Inc. and holders of the Series
      A-1 Preferred Stock and holders of the Series A-2 Preferred
      Stock.31.1
              
              Certification
      of Principal Executive Officer, Thomas Steipp, as required by Section 302
      of the Sarbanes-Oxley Act of
2002




29





31.2
              
              Certification
      of Principal Financial Officer, Tony Chung, as required by Section 302 of
      the Sarbanes-Oxley Act of 200232.1
              
              Certification
      of Principal Executive Officer, Thomas Steipp, pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 200232.2
              
              Certification
      of Principal Financial Officer, Tony Chung, pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*
              
              Portions
      of this exhibit have been omitted pursuant to a confidential treatment
      request.  Omitted information has been filed separately with the
      Securities and Exchange
Commission




30


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, INC.(Registrant)Date:
      November 4, 2010
              /s/ Thomas SteippThomas
      SteippPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:
      November 4, 2010
              /s/ Tony ChungTony
      ChungChief
      Financial Officer(Principal
      Financial and Accounting Officer)


31