** **

**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

### **FORM 10-Q/A**

### **AmendmentNo. 2**

### ** **

| **x**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                    |                                                                                                    |
| **For the  quarterly period ended March 31, 2005** |
|                                                    |
| **OR**                                                  |
|                                                    |                                                                                                    |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom                  to                 **

** **

**CommissionFile No. ****001-31332**

 

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**LIQUIDMETALTECHNOLOGIES, INC.**

**(**Exact name of Registrant as specified in itscharter**)**

 

| **Delaware**                     | ** ** | **33-0264467**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

**25800 Commercentre Drive, Suite 100**

**LakeForest, California 92630**

(address of principal executive office, zip code)

 

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

 

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

 

Yes x No o

 

Indicate by check markwhether the registrant is a large accelerated filer, or a non-accelerated filer.See definition of “accelerated filer and large accelerated filer” Rule 12b-2of the Exchange Act.

 

Large accelerated filer o                     Acceleratedfiler x                     Non-acceleratedfiler o

 

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

 

Yes o No x

 

#### **As of May 10, 2005, there were 41,609,652 sharesof the registrant’s common stock, $.001 par value, outstanding.**

 

 

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**LIQUIDMETAL TECHNOLOGIES, INC.AMENDMENT NO. 2 TO FORM 10-QFOR THE QUARTER ENDED MARCH 31, 2005**

 

**EXPLANATORY NOTE**

 

We arefiling this Amendment No. 2 to our Quarterly Report on Form 10-Q forthe quarter ended March 31, 2005, as filed with the U.S. Securities andExchange Commission (SEC) on May 16, 2005, and as amended on March 16, 2006, to restate our financial statements to properly account for theconversion feature of the senior convertible notes issued in March 2004 (see Note 6 tothe condensed consolidated financial statements). Additionally, reclassifications to our financialstatements have been made for consistent presentation of our warrantliabilities and change in value of warrant liabilities.

 

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

 

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**FORWARD-LOOKING INFORMATION**

 

Statements in this report concerning the futuresales, expenses, profitability, financial resources, product mix, marketdemand, product development and other statements in this report concerning thefuture results of operations, financial condition and business of LiquidmetalTechnologies, Inc. are “forward-looking” statements as defined in theSecurities Act of 1933 and Securities Exchange Act of 1934. Investors arecautioned that the Company’s actual results in the future may differmaterially from those projected in the forward-looking statements due to risksand uncertainties that exist in the Company’s operations and business environment,including competition, need for increased acceptance of products, ability tocontinue to develop and extend our brand identity, ability to anticipate andadapt to a competitive market, ability to effectively manage rapidly expandingoperations, amount and timing of operating costs and capital expendituresrelating to expansion of our business, operations and infrastructure, abilityto provide superior customer service, dependence upon key personnel and thelike. The Company’s most recent filings with the Securities and ExchangeCommission, including Form 10-K, contain additional information concerningmany of these risk factors, and copies of these filings are available from theCompany upon request and without charge.

 

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#### **TABLE OF CONTENTS**

#### ** **

| **PART I**                                                                                               |       |
|---------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                          |       |
| **Item 1 – Financial Statements**                                                                        | ** ** |
| Condensed Consolidated  Balance Sheets (unaudited)                                                            |       |
| Condensed  Consolidated Statements of Operations and Comprehensive Income (Loss)  (unaudited)                 |       |
| Condensed  Consolidated Statements of Shareholders’ Equity (unaudited)                                   |       |
| Condensed  Consolidated Statements of Cash Flows (unaudited)                                                  |       |
| Notes to  Condensed Consolidated Financial Statements (unaudited)                                             |       |
|                                                                                                          |       |
| **Item 2 – Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 3 –  Quantitative and Qualitative Disclosures about Market Risk**                                 | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 4 – Controls and  Procedures**                                                                    | ** ** |
| ** **                                                                                                    | ** ** |
| **PART II – Other Information**                                                                     | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 1 – Legal Proceedings**                                                                           | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 3 –  Defaults Upon Senior Securities**                                                            | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 6 –  Exhibits**                                                                                   | ** ** |
| ** **                                                                                                    | ** ** |
| **Signatures**                                                                                                | ** ** |
| ** **                                                                                                    | ** ** |
| **Certifications**                                                                                            | ** ** |

 

4

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### **PART I**

### **FINANCIALINFORMATION**

### ** **

**Item 1 –Financial Statements**

 

**LIQUIDMETALTECHNOLOGIES, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(inthousands, except share data)**

 
| ** **                                                                                                                                              | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                              | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                              | ** ** | **(Restated)**     | ** ** | **(Restated)**        | ** ** |
| **ASSETS**                                                                                                                                              | ** ** | ** **         | ** ** | ** **            | ** ** |
|                                                                                                                                                    |       |               |       |                  |       |
| Current Assets:                                                                                                                                         |       |               |       |                  |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Cash                                                                                                                                                    |       | $                  | 341        |                  | $          | 742 |   |
| Restricted  cash                                                                                                                                        |       | —             |       | 754                   |       |
| Trade  accounts receivables, net of allowance for doubtful accounts of $97 and $108                                                                     |       | 1,785              |       | 1,668                 |       |
| Inventories                                                                                                                                             |       | 2,273              |       | 2,353                 |       |
| Prepaid  expenses and other current assets                                                                                                              |       | 434                |       | 930                   |       |
| Total current assets                                                                                                                                    |       | 4,833              |       | 6,447                 |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Property, plant and  equipment, net                                                                                                                     |       | 15,941             |       | 16,434                |       |
| Idle equipment                                                                                                                                          |       | 1,948              |       | 1,906                 |       |
| Long term inventory                                                                                                                                     |       | 1,692              |       | 1,810                 |       |
| Other intangibles, net                                                                                                                                  |       | 1,161              |       | 1,143                 |       |
| Other assets                                                                                                                                            |       | 700                |       | 768                   |       |
| Total  assets                                                                                                                                           |       | $                  | 26,275     |                  | $          | 28,508 |   |
|                                                                                                                                                    |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
|                                                                                                                                                    |       |               |       |                  |       |
| Current Liabilities:                                                                                                                                    |       |               |       |                  |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Accounts  payable and accrued expenses                                                                                                                  |       | $                  | 6,557      |                  | $          | 4,969 |   |
| Settlement  payable                                                                                                                                     |       | 3,317              |       | 3,246                 |       |
| Deferred  revenue                                                                                                                                       |       | 880                |       | 900                   |       |
| Long-term  debt, current portion, net of debt discounts of $2,407 and $2,831                                                                            |       | 4,692              |       | 4,010                 |       |
| Warrant  liabilities                                                                                                                                    |       | 417                |       | 550                   |       |
| Conversion  feature liabilities                                                                                                                         |       | 5,535              |       | 6,650                 |       |
| Other  liabilities, current portion                                                                                                                     |       | 932                |       | 1,032                 |       |
| Total  current liabilities                                                                                                                              |       | 22,330             |       | 21,357                |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Long-term debt, net of  current portion                                                                                                                 |       | 2,367              |       | 2,618                 |       |
| Other long-term  liabilities, net of current portion                                                                                                    |       | 328                |       | 342                   |       |
| Total  liabilities                                                                                                                                      |       | 25,025             |       | 24,317                |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Shareholders’ Equity:                                                                                                                              |       |               |       |                  |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Common  stock, $0.001 par value; 100,000,000 shares authorized and 41,609,652 issued and  outstanding at March 31, 2005 and December 31, 2004 |       | 42                 |       | 42                    |       |
| Additional  paid-in capital                                                                                                                             |       | 129,650            |       | 129,650               |       |
| Accumulated  deficit                                                                                                                                    |       | (130,734           | )          | (127,472              | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 2,292              |       | 1,971                 |       |
| Total  shareholders’ equity                                                                                                                        |       | 1,250              |       | 4,191                 |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Total  liabilities and shareholders’ equity                                                                                                        |       | $                  | 26,275     |                  | $          | 28,508 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financialstatements.

 

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**LIQUIDMETALTECHNOLOGIES, INC. AND SUBSIDIARIES**

 

### **CONDENSEDCONSOLIDATED STATEMENTS OF OPE**RATIONS AND COMPREHENSIVE INCOME (LOSS)

**(inthousands, except per share data)**

**(unaudited)**

 
| ** **                                                                   | ** ** | **For the Three Months** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                   | ** ** | **Ended March 31,** | ** ** |
| ** **                                                                   | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                                                   | ** ** | **(Restated)**           | ** ** | **(Restated)** | ** ** |
| Revenue                                                                      |       | $                        | 2,843      |   | $ | 6,288 |   |
| Cost of sales                                                                |       | 2,835                    |       | 3,557 |   |
| Gross  profit                                                                |       | 8                        |       | 2,731 |   |
|                                                                         |       |                     |       |   |   |
| Operating expenses:                                                          |       |                     |       |   |   |
| Selling,  general, and administrative                                        |       | 2,590                    |       | 3,065 |   |
| Research  and development                                                    |       | 397                      |       | 341 |   |
| Total  operating expenses                                                    |       | 2,987                    |       | 3,406 |   |
| Loss from operations                                                         |       | (2,979                   | )          | (675 | ) |
|                                                                         |       |                     |       |   |   |
| Change in value of  warrants, gain                                           |       | 133                      |       | 586 |   |
| Change in value of  conversion feature, gain                                 |       | 1,115                    |       | 1,710 |   |
| Interest expense                                                             |       | (1,537                   | )          | (396 | ) |
| Interest income                                                              |       | 6                        |       | 12 |   |
|                                                                         |       |                     |       |   |   |
| (Loss) income from  continuing operations                                    |       | (3,262                   | )          | 1,237 |   |
|                                                                         |       |                     |       |   |   |
| Loss from discontinued  equipment manufacturing operations, net of tax of $0 |       | —                   |       | (393 | ) |
|                                                                         |       |                     |       |   |   |
| Net (Loss) income                                                            |       | (3,262                   | )          | 844 |   |
|                                                                         |       |                     |       |   |   |
| Other comprehensive  income (loss):                                          |       |                     |       |   |   |
| Foreign  exchange translation gain                                           |       | 321                      |       | 379 |   |
| Comprehensive  (loss) income                                                 |       | $                        | (2,941     | ) | $ | 1,223 |   |
|                                                                         |       |                     |       |   |   |
| Net income (loss) per  share basic and diluted:                              |       |                     |       |   |   |
| Income  (loss) per share – continuing operations                        |       | $                        | (0.08      | ) | $ | 0.03 |   |
| (Loss)  per share – discontinued operations                             |       | $                        | —     |   | $ | (0.01 | ) |
| (Loss)  income per share – basic and diluted                            |       | $                        | (0.08      | ) | $ | 0.02 |   |
|                                                                         |       |                     |       |   |   |
| Number of weighted  average shares – basic and diluted                  |       | 41,610                   |       | 41,610 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financialstatements.

 

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**LIQUIDMETALTECHNOLOGIES, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF SHA****REHOLDERS’ EQUITY**

###### **Forthe Three Months Ended March 31, 2005**

**(inthousands, except per share data)**

 
| ** **                                                  | ** ** | **Common  Shares** | ** ** | **Common  Stock** | ** ** | **Additional  Paid in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------------------|------------|------------|------------|
| ** **                                                  | ** ** | ** **         | ** ** | ** **        | ** ** | **(Restated)**                   | ** ** | **(Restated)**           | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **         | ** ** | ** **        | ** ** | ** **                       | ** ** | ** **               | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| **Balance, December 31, 2004 (As Restated)**           |       | 41,609,652         |       | $                 | 42         |                             | $          | 129,650                  |       | $                                             | (127,472   | )          | $          | 1,971 |   | $ | 4,191 |   |
| Foreign  exchange translation gain                          |       | —             |       | —            |       | —                           |       | —                   |       | 321                                           |       | 321        |       |
| Net  loss                                                   |       | —             |       | —            |       | —                           |       | (3,262                   | )          | —                                        |       | (3,262     | )          |
| **Balance, March 31, 2005 (Unaudited) (As  Restated)** |       | 41,609,652         |       | $                 | 42         |                             | $          | 129,650                  |       | $                                             | (130,734   | )          | $          | 2,292 |   | $ | 1,250 |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financialstatements.

 

7

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**LIQUIDMETALTECHNOLOGIES, INC. AND SUBSIDIARIES**

 

### **CONDENSEDCONSOLIDATED STATEMENTS OF CAS**H FLOWS

**(inthousands, except per share data)**

**(unaudited)**

 
| ** **                                                                                               | ** ** | **For the Three Months** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                               | ** ** | **Ended March 31,** | ** ** |
| ** **                                                                                               | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                                                                               | ** ** | **(Restated)**           | ** ** | **(Restated)** | ** ** |
| **Operating activities:**                                                                                |       |                     |       |   |   |
| Net  (loss) income                                                                                       |       | $                        | (3,262     | ) | $ | 844 |   |
|                                                                                                     |       |                     |       |   |   |
| Adjustments  to reconcile loss from operations to net cash provided by (used for)  operating activities: |       |                     |       |   |   |
| Gain  on disposal of asset                                                                               |       | (1                       | )          | — |   |
| Depreciation  and amortization                                                                           |       | 843                      |       | 894 |   |
| Amortization  of debt discount                                                                           |       | 477                      |       | 259 |   |
| Gain  from change in value of warrants                                                                   |       | (133                     | )          | (586 | ) |
| Gain  from change in value of conversion feature,                                                        |       | (1,115                   | )          | (1,710 | ) |
| Stock-based  compensation                                                                                |       | —                   |       | 269 |   |
| Bad  debt (recovery) expense                                                                             |       | (20                      | )          | 72 |   |
| Warranty  expense                                                                                        |       | 42                       |       | 57 |   |
|                                                                                                     |       |                     |       |   |   |
| Changes  in operating assets and liabilities:                                                            |       |                     |       |   |   |
| Accounts  receivable                                                                                     |       | (97                      | )          | 726 |   |
| Inventories                                                                                              |       | 198                      |       | (1,922 | ) |
| Prepaid  expenses and other current assets                                                               |       | 496                      |       | (59 | ) |
| Other  assets                                                                                            |       | 16                       |       | (579 | ) |
| Accounts  payable and accrued expenses                                                                   |       | 1,546                    |       | 623 |   |
| Deferred  revenue                                                                                        |       | (20                      | )          | (598 | ) |
| Other  liabilities                                                                                       |       | (81                      | )          | (578 | ) |
| Net  cash used for continuing operations                                                                 |       | (1,111                   | )          | (2,288 | ) |
|                                                                                                     |       |                     |       |   |   |
| Net  cash provided by discontinued operations                                                            |       | —                   |       | 266 |   |
| Net  cash used for operating activities                                                                  |       | (1,111                   | )          | (2,022 | ) |
|                                                                                                     |       |                     |       |   |   |
| **Investing Activities:**                                                                                |       |                     |       |   |   |
| Investment  in patents and trademarks                                                                    |       | (45                      | )          | (20 | ) |
| Net  cash used for investing activities                                                                  |       | (45                      | )          | (20 | ) |
|                                                                                                     |       |                     |       |   |   |
| **Financing Activities:**                                                                                |       |                     |       |   |   |
| Proceeds  from borrowings                                                                                |       | 158                      |       | 9,924 |   |
| Repayment  of borrowings                                                                                 |       | (341                     | )          | (369 | ) |
| Proceeds  from restricted cash                                                                           |       | 754                      |       | — |   |
| Net  cash provided by financing activities                                                               |       | 571                      |       | 9,555 |   |
|                                                                                                     |       |                     |       |   |   |
| Effect  of foreign exchange translation                                                                  |       | 184                      |       | 109 |   |
| Net  (decrease) increase in cash and cash equivalents                                                    |       | (401                     | )          | 7,622 |   |
|                                                                                                     |       |                     |       |   |   |
| Cash and cash  equivalents at beginning of period                                                        |       | 742                      |       | 3,127 |   |
| Cash and cash  equivalents at end of period                                                              |       | $                        | 341        |   | $ | 10,749 |   |
|                                                                                                     |       |                     |       |   |   |
| Supplemental cash flow  information:                                                                     |       |                     |       |   |   |
| Interest  paid                                                                                           |       | $                        | 88         |   | $ | 86 |   |
| Taxes  paid                                                                                              |       | $                        | —     |   | $ | — |   |

 

The accompanyingnotes are an integral part of the condensed consolidated financialstatements.

 

8

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During the three monthsended March 31, 2004, the Company sold it’s 51% ownership interest inDongyang to the 49% minority shareholder, which resulted in a loss of $46 fromdisposal of discontinued operations as of March 31, 2004.

 

The accompanyingnotes are an integral part of the condensed consolidated financialstatements

 

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**LIQUIDMETALTECHNOLOGIES AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIA****L STATEMENTS**

**For theThree Months Ended March 31, 2005 and 2004**

**(inthousands, except share data)**

**(unaudited)**

 

**1.****                                      Basisof Presentation / Description of Business**

 

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin 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 generallyaccepted accounting principles for complete financial statements. In theopinion of management, all adjustments (consisting only of normal recurringaccruals) considered necessary for a fair presentation have been included. Inaddition, certain reclassifications have been made for consistent presentation.Operating results for the three months ended March 31, 2005 are notnecessarily indicative of the results that may be expected for any futureperiods or the year ending December 31, 2005. The accompanying unauditedcondensed consolidated financial statements should be read in conjunction withthe Company’s Form 10-K filed with the Securities and Exchange Commissionon March 30, 2005.

 

LiquidmetalTechnologies, Inc. (“Liquidmetal Technologies”) and its subsidiaries(collectively “the Company”) are in the business of developing, manufacturing,and marketing products made from amorphous alloys. Liquidmetal Technologiesmarkets and sells Liquidmetal® alloy industrial coatings and also manufactures,markets and sells products and components from bulk Liquidmetal alloys that canbe incorporated into the finished goods of its customers across a variety ofindustries. The Company also partners with third-party licensees anddistributors to develop and commercialize Liquidmetal alloy products.

 

The Company classifies operations into two reportable segments:Liquidmetal alloy industrial coatings and bulk Liquidmetal alloys. Liquidmetalalloy industrial coatings are used primarily as a protective coating forindustrial machinery and equipment, such as drill pipe used by the oil drillingindustry and boiler tubes used by coal-burning power plants. Bulk Liquidmetalalloys include potential market opportunities to manufacture and sell productsand components for electronic devices, medical devices, defense applications,and sporting goods. In addition, the bulk Liquidmetal alloys segment includestooling and prototype sampling, and the manufacture and sale of die castingequipment (see Note 5). In addition, such alloys are used to generate researchand development services revenue for developing uses related primarily todefense and medical applications as well as potential license fees, royalties,and other compensation from strategic partnering transactions.

 

Stock-based compensation

 

TheCompany applies Accounting Principles Board (“APB”) Opinion No. 25 foroptions when the exercise price of options granted to employees is less thenthe fair value of the underlying stock on the date of grant. The Companyapplies Statement of Financial Accounting Standards (“SFAS”) No. 123 foroptions granted to non-employees who perform services for the Company.

 

Hadthe Company determined compensation cost based on the fair value at the grantdate for stock options consistent with the method of SFAS No. 123, theCompany’s loss from continuing operations and basic and dilutedloss per share from continuing operations would have been as follows:

 

10

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| ** **                                                | ** **                                                                                                                                | **For the Three Months** | ** ** |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|------------|
| ** **                                                | ** **                                                                                                                                | **Ended March 31,** | ** ** |
| ** **                                                | ** **                                                                                                                                | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                                | ** **                                                                                                                                | **(Restated)**           | ** ** | **(Restated)** | ** ** |
| Net income (loss) from  continuing operations as reported |                                                                                                                                      | $                        | (3,262     | ) | $ | 1,237 |   |
|                                                      |                                                                                                                                      |                     |       |   |   |   |   |
| *Add:*                                                    | stock-based employee  compensation expense included in reported net income, net of related tax  effects                                   |                     | —     |   | 270 |   |
|                                                      |                                                                                                                                      |                     |       |   |   |   |
| *Deduct:*                                                 | total stock-based  employee compensation expense determined under the fair value based method  for all awards, net of related tax effects |                     | (783       | ) | (1,709 | ) |
|                                                      |                                                                                                                                      |                     |       |   |   |   |
| Proforma  net loss                                        |                                                                                                                                      | $                        | (4,045     | ) | $ | (202 | ) |
|                                                      |                                                                                                                                      |                     |       |   |   |
| Basic and diluted loss  per share:                        |                                                                                                                                      |                     |       |   |   |
| As  reported                                              |                                                                                                                                      | $                        | (0.08      | ) | $ | (0.03 | ) |
| Pro  forma                                                |                                                                                                                                      | (0.10                    | )          | (0.00 | ) |

 

The fair value of each option grant is estimated onthe date of the grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions used for grants for the three monthsended March 31, 2005 and 2004, respectively: expected volatility of 100%for all periods; dividend yield of 0.0% for all periods; expected option lifeof approximately 5 years; and a risk-free interest rate ranging from 2.9%to 4.2%.

 

**2.****                                      Basisof Presentation and Recent Accounting Pronouncements**

 

Translation of ForeignCurrency

 

The Company applies **FASB No. 52,Foreign Currency Translation**, for translating foreigncurrency into US dollars in our consolidation of the financialstatements. Upon consolidation of the Company’s foreign subsidiaries into theCompany’s consolidated financial statements, any balances with the subsidiariesdenominated in the foreign currency are translated at the exchange rate atyear-end. The financial statements of Liquidmetal Korea have been translatedbased upon Korean Won as the functional currency. Liquidmetal Korea’s assetsand liabilities were translated using the exchange rate at period end andincome and expense items were translated at the average exchange rate for thereporting period. The resulting translation adjustment was included in othercomprehensive income (loss).

 

Restatements

 

*SFAS 133 – Accounting forDerivative Instruments and Hedging Activities*

 

As a part of theaccompanying consolidated financial and the notes thereto, the Company hasrestated certain previously issued financial statements due to an error relatedto the Company’s accounting for embedded convertible feature of seniorconvertible notes issued in March 2004 in accordance with Statement ofFinancial Accounting Standards No. 133, “Accounting for DerivativeInstruments and Hedging Activities”, (SFAS 133) (see Note 6).

 

RecentAccounting Pronouncements

 

In March 2004, theEITF reached a consensus on recognition and measurement guidance previouslydiscussed under EITF 03-01 The consensus clarifies the meaning ofother-than-temporary impairment and its application to investments classifiedas either available-for-sale or held-to-maturity under FASB Statement No. 115,“Accounting for Certain Investments in Debt and Equity Securities,” and otherinvestments accounted for under the cost method. The recognition andmeasurement guidance

 

11

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for which the consensuswas reached in March 2004 is to be applied to other-than-temporaryimpairment evaluations in reporting periods beginning after June 15, 2004.In September 2004, the FASB issued a final FASB Staff Position that delaysthe effective date for the measurement and recognition guidance for allinvestments within the scope of EITF Issue No. 03-01; however, thedisclosure requirements remain effective for annual periods ending after June 15,2004. The Company does not believe that the adoption of this statement willhave a material effect on the Company’s results of operation and financial position.

 

In December 2004,the FASB issued SFAS 123(R), “Share Based Payment,” which the Company willadopt in the third quarter of 2005. SFAS 123(R) will result in the recognitionof compensation expense relating to our employee stock option and employeestock purchase plans. Under the new rules, the Company is required to adopt afair-value-based method for measuring the compensation expense related toemployee stock awards. This may lead to substantial additionalcompensation expense. Stock-based Compensation under Note 1 included in theseCondensed Consolidated Financial Statements provides the pro forma net incomeand earnings per share as if the Company had used a fair-value-based methodsimilar to the methods required under SFAS 123(R) to measure the compensationexpense for employee stock awards during the three months ended March 31,2005 and 2004.

 

On March 29, 2005,the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding theStaff’s interpretation of SFAS 123(R). This interpretation expresses theviews of the staff regarding the interaction between SFAS 123(R) and certainSEC rules and regulations and provides the staff’s views regarding thevaluation of share-based payment arrangements for public companies. Inparticular, this SAB provides guidance related to share-based paymenttransactions with nonemployees, the transition from nonpublic to public entitystatus, valuation methods, the accounting for certain redeemable financialinstruments issued under share-based payment arrangements, the classificationof compensation expense, non-GAAP financial measures, first-time adoption ofSFAS 123(R) in an interim period, capitalization of compensation costrelated to share-based payment arrangements, the accounting for income taxeffects of share-based payment arrangements upon adoption of SFAS 123(R), themodification of employee share options prior to adoption of Statement 123(R)and disclosures in Management’s Discussion and Analysis subsequent to adoptionof SFAS 123(R). The Company will adopt SAB 107 in connection with its adoptionof SFAS 123(R), and does not believe the impact will be significant to theCompany’s overall results of operations or financial position.

 

Other recent accountingpronouncements issued by the FASB (including its Emerging Issues Task Force),the AICPA and the SEC did not or is not believed by management to have amaterial impact on the Company’s present or future consolidated financialstatements.

 

**3.****                                     ****Liquidity**

 

TheCompany has experienced losses from continuing operations during the last twofiscal years and has an accumulated deficit of $130,734 as of March 31,2005. Cash used for continuing operations for the quarter ended March 31,2005 was $1,111 and cash flow from continuing operations may be negativethroughout fiscal year 2005. As of March 31, 2005, the Company’s principalsource of liquidity is $341 of cash and trade accounts receivable of $1,785. Suchconditions raise substantial doubt that the Company will be able to continue asa going concern for a reasonable period of time. These operating resultsoccurred while the Company was developing and attempting to commercialize andmanufacture products from an entirely new and unique technology. This businessplan required significant spending related to start-up costs and capitalexpenditures. These factors have placed a significant strain on the financialresources of the Company. The ultimate success of the Company depends on itsability to continue reducing operating costs, generate higher revenue, andachieve positive cash flow from continuing operations and profitability. Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of the uncertainty.

 

Additionally, the Company is not in compliance with certain covenantrequirements of the senior convertible debt as of March 31, 2005. Althoughthere has been no formal notice of default received from the note holders, asthe note holders have the right to call for repayment of the outstandingbalance of the senior convertible debt, the total outstanding debt balance of$5,709 have been included as current liabilities as of March 31, 2005 (seeNote 6).

 

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Capital requirements during the next 12 months will depend onnumerous factors, including the success of existing products, the developmentof new applications for Liquidmetal alloys, and the resources devoted todevelop and support Liquidmetal alloy products. If the available funds and cashgenerated from operations are insufficient to satisfy liquidity requirements,the Company may need additional funds in the future to support workingcapital requirements and for other purposes, and may need to raiseadditional funds through public or private equity financing, bank debtfinancing, or from other sources. Adequate funds may not be available whenneeded or may not be available on favorable terms. However, the Companyanticipates capital expenditures in the next 12 months will be less than $0.5million. The Company expects to continue to devote limited capital to ourresearch and development activities, to further develop and strengthen ourmanufacturing capabilities, and for working capital and other general corporatepurposes.

 

Ourcash flow projections from operations and, consequently, future cash needs aresubject to uncertainty. If our available funds and cash generated fromoperations are insufficient to satisfy our liquidity requirements, we may needto raise additional capital to fund our operations and capital expenditurerequirements. We cannot be certain that additional capital, whether throughselling additional debt or equity securities or obtaining a line of credit orother loan, will be available to us or, if available, will be on termsacceptable to us. If we issue additional securities to raise funds, thesesecurities may have rights, preferences, or privileges senior to those ofthe rights of our common stock and our stockholders may experienceadditional dilution.

 

**4.****                                     ****Discontinued Operations**

 

*Dongyang*

 

On June 28, 2002, the Company acquired a 51%interest in Chusik Hoesa Dongyang Yudoro (“Dongyang”). In March 2004, the Company sold its51% investment in Dongyang to the 49% minority shareholder. The selling priceof the Company’s 51% interest in Dongyang was $80, which was equal to theCompany’s net carrying value for the 51% ownership held. Further, the Companyagreed to pay Dongyang $155 for the purchase of a receivable balance fromGrowell. The transaction resulted in net payable to Dongyang of $75 and a lossof $46 from transfer of the Company’s interest in Donyang to the minorityshareholder. The loss from operations for the three months ended March 31,2004 totaled $50 and is included in the loss from discontinued equipmentmanufacturing operations for the period. The net payable balance of $75 is tobe paid in quarterly installments throughout 2004, with $25 to be paidsubsequent to 2004. The outstanding amount payable to Dongyang is $11 and $25as of March 31, 2005 and December 31, 2004, respectively, and isincluded in accounts payable and accrued liabilities.

 

Summarizedoperating results of Dongyang’s discontinued operations are as follows.

 
| ** **                                                             | ** ** | **For the Three months** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                             | ** ** | **Ended March 31,** | ** ** |
| ** **                                                             | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Revenue                                                                |       | $                        | —     |   | $ | 22 |   |
| Loss from discontinued  equipment manufacturing operations, net of tax |       | —                   |       | (96 | ) |
|                                                                        |            |                          |            |  |  |  |  |

 

*Taesung*

 

On June 14, 2004, the Company entered into anAsset Purchase Agreement whereby all the assets and liabilities of its Taesungequipment manufacturing division in Korea were sold to a third party for $345which is payable by the third party in four equal installments with the lastinstallment being due on June 30, 2005. As of March 31, 2004,management determined that no impairment was anticipated on the divestiture ofits Taesung division. Ultimately, the sale resulted in a loss of approximately$184. The loss fromoperations for the three months ended March 31, 2004 totaled $297 and isincluded in the loss from discontinued equipment manufacturing operations forthe period.

 

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Summarizedoperating results of Taesung’s operations are as follows:

 
| ** **                                                             | ** ** | **For the Three months** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                             | ** ** | **Ended March 31,** | ** ** |
| ** **                                                             | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| ** **                                                             | ** ** | ** **               | ** ** | ** ** | ** ** |
| Revenue                                                                |       | $                        | —     |   | $ | 100 |   |
| Loss from discontinued  equipment manufacturing operations, net of tax |       | —                   |       | (297 | ) |
|                                                                        |            |                          |            |  |  |  |  |

 

**5.****                                     ****Product Warranty**

 

Due to the lack ofhistorical information for warranty expense related to bulk alloy products,management estimates product warranties as a percentage of bulk alloy productsales earned during the period. During the three months ended March 31,2005 and 2004, the Company recorded $42 and $57, respectively, of warrantyexpense. The product warranty accrual balance is included in accounts payableand accrued expenses.

 

**6.****                                     ****Notes Payable**

 

Senior ConvertibleNote

 

On March 3,2004, the Company issued $9.9 million of 6.0% senior convertible notes due 2007(the “March Notes”) to investor groups in a transaction led by MichiganVenture Capital Co., Ltd, a South Korea-based institutional investment firm,and IndiGo Ventures LLC, a New York-based investment firm (the “PlacementAgents”) that served as a financial advisor to the Company for the transaction.The notes were collateralized by the patents held by the Company and secondpriority mortgage interest in plant facilities and certain equipment in SouthKorea. The notes were convertible at any time into common stock at a price of$3.00 per share. Investors in the private placement and the Placement Agentsreceived warrants to purchase an aggregate amount of up to approximately 1.2million shares of common stock, exercisable at $3.00 per share for varyingperiods but no later than 100 days following the effectiveness of aregistration statement covering the resale of shares issuable upon exercise ofthe warrants. In addition, the investors had the right to call for repayment ofthe notes prior to maturity at any time after the second anniversary of the closingof the transaction.

 

Pursuantto Statement of Financial Accounting Standards No. 133, “Accounting forDerivative Instruments and Hedging Activities,” EITF 00-19, “Accounting forDerivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock,” EITF 00-27, “Application of Issue No. 98-5 toCertain Convertible Instruments,” and EITF 05-2 “The Meaning of ‘ConventionalConvertible Debt Instrument’ in EITF Issue No. 00-19,” the original fairvalue of the embedded conversion feature of $7,595 have been recorded asconversion feature liabilities as the debt is considered non-conventionalconvertible debt. The original fair value was computed using the Black-Scholesmodel under the following assumptions: (1) expected life of 3 years; (2) volatilityof 82%; (3) risk free interest of 2.15% and dividend rate of 0%. The fairvalue of the conversion feature on the date of issuance has been recorded asdebt discount to be amortized over the life the debt.

 

Pursuantto EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company’s Own Stock”, the original fair value of the1.2 million warrants of $1,302 has been recorded as warrant liabilities as theshares issuable under the warrants have not been registered. The original fairvalue was computed using the Black-Scholes pricing model under the followingassumptions: (1) expected life of 3 years; (2) volatility of 82%, (3) riskfree interest of 0.95% and dividend rate of 0%.

 

In March 2004,the original fair value of the embedded conversion feature of $7,595 and the originalfair value of the 0.6 million warrants issued to investors of $584, and theoriginal fair value of 0.6 million warrants issued to Placement Agents of $718were recorded as discounts of the convertible note. In addition, $581 directcosts incurred relating to issuance of the convertible note were recorded asdebt issuance cost as a contra liability account in other assets.

 

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From June throughAugust 2004, the Company redeemed $4,465 of the outstanding note balancein cash. The redemption resulted in a write down of debt issuance costs anddebt discount of $3,571 to interest expense and a reduction in conversionfeature liabilities of $914 from cancellation of the embedded conversionfeature of the redeemed notes to additional paid in capital during the yearended December 31, 2004. Further, 500,000 of warrants originally issued toa financial advisor for the transaction expired during June 2004 and163,748 of unexercised warrants originally issued to investors were cancelledas a result of the Company’s redemption of the note balances during the yearended December 31, 2004. The 663,748 total expired and canceled warrantsimmediately prior to the expiration and cancellation resulted in a reduction ofwarrant liability of $7 and $279 to additional paid in capital and change invalue of warrants, respectively, during the year ended December 31, 2004.

 

On August 19,2004, the Company completed a private exchange offer for its March Noteswith the remaining holders after the redemption. Under terms of the exchangeoffer, approximately $5.5 million in aggregate principal amount of the March Noteshave been exchanged for an aggregate of (i) $2.75 million of 6% SeniorSecured Notes Due 2007 (the “Long-Term Notes”) and (ii) $2.75 million of10% Senior Secured Notes Due 2005 (the “Short-Term Notes”), collectivelyreferred to as “Exchange Notes”. The Exchange Notes are collateralized by certainpatents owned by the Company and second priority mortgage interest in plantfacilities and certain equipment at our South Korea plant. The Short-Term Noteshave a maturity date of July 29, 2005, and a conversion price of $2.00 pershare (compared to a conversion price of $3.00 per share under the March Notes).The Long-Term Notes have a maturity date of July 29, 2007, and aconversion price of $1.00 per share. Further, the exchange notes areconvertible into Common Stock, at the option of the Company, if at any timeafter the issuance of the notes, the closing per share price of the CommonStock exceeds $4.00 (as adjusted for stock splits, reverse splits, stockdividends, and recapitalizations) for 30 consecutive trading days, and furtherprovided that there has been effective registration during such period. Holdersof the Long-Term Notes also have the right to call for repayment of theLong-Term Notes prior to maturity at any time after the second anniversary ofthe closing of the exchange offer.

 

Atotal of 563,151 warrants to purchase our common stock at an exercise price of$3.00 per share—all of which were previously issued in connection with thepurchase of the March Notes—have been amended to provide for an extendedexpiration date of March 1, 2006.

 

Theexchange offer was treated as an extinguishment of the March Notes inaccordance with Emerging Issues Task Force No. 96-19, “Debtors Accountingfor a Modification or Exchange of Debt Instruments.” The exchange resulted in a$2,941 loss from extinguishment of the March Notes, which consisted of writedown of $352 of deferred issue costs in other assets, $670 of debt discount,and an increase of $1,919 in conversion feature liability as a result of thechange in carrying value of exchanged notes.

 

Inconnection with the private exchange offer, the Company issued $250 of privateplacement notes to certain Placement Agents as issuance costs. Of the $250notes issued, $125 was paid in the form of long-term notes which is due in2007 with interest rate of 6% per annum (Long-Term Notes) and $125 was paid inthe form of short-term notes which is due in 2005 with interest rate of10% per annum (Short-Term Notes). The Short-Term and Long-Term Notes areconvertible into Common Stock at $2.00 and $1.00, respectively, and have thesame terms as the Exchange Notes issued to the investors. Further, $143 oforiginal fair value of the embedded conversion feature of $250 notes issued toPlacement Agents was recorded as conversion feature liabilities during August 2004.

 

As of March 31,2005 and December 31, 2004, our gross outstanding loan balance totaled $5,709, un-amortized discounts for conversionfeature and warrants totaled $2,407 and $2,831, and other asset debt issuance coststotaled $131 and $183, respectively. Interest expense for the amortization ofdebt issuance cost and discount on note was $477 and $258 for the quartersended March 31, 2005 and 2004, respectively. As of March 31, 2005,the effective interest rates for the Short-Term and the Long-Term Notes were 40%and 37%, respectively.

 

TheCompany was obligated, pursuant to a Registration Rights Agreement, as amendedby the Exchange Notes, between the Company, the Placement Agents and the noteholders to file a registration statement with the Securities and ExchangeCommission (“SEC”) to register the shares of Common Stock issuable uponconversion of the notes payable and the related warrants within 90 daysfollowing the effective closing date of the exchange notes (July 29,2004), and to use best efforts to cause such registration statement to becomeeffective within 60 days following the SEC’s first written comments on the

 

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registrationstatement. Further, if the Company is not in compliance with the registrationor listing requirements, the holders have rights to late registration paymentsequal to between 2 and 3 percent of the purchase price paid for the unconvertednotes for the first 30 business days of late registration, and 1 and 3 percentfor each 30 business days thereafter, but no more than 18 percent of thepurchase price of the unconverted note balance. Late registration fee of $856has been accrued as interest expense, and is included in accounts payable andaccrued liabilities as of March 31, 2005. The $5,709 balance of the noteand un-amortized discounts for beneficial conversion feature and warrants of $2,407is presented as current liability as of March 31, 2005 as the note holdershave the right to call for payment on demand as the registration statement hasnot been filed in accordance with the amended Registration Rights Agreement. Asof the filing of this report, the Company has not received any demands forpayment from the note holders.

 

Pursuantto EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company’s Own Stock”, the original relative fairvalues of the warrants of $1,302 have been recorded as other liability as theCompany has not yet filed the registration statement. In addition, the Companyis required to report a value of the warrant as a fair value and record thefluctuation to the fair value of the warrant liability to current operations. Thechange in the fair value of the warrants resulted in a gain of $133 and $586for the quarters ended March 31, 2005 and 2004, respectively. The fairvalue of warrants outstanding at March 31, 2005 of $417 was computed usingthe Black-Scholes model under the following assumptions: (1) expected lifeof 0.92 years; (2) volatility of 128%, (3) risk free interest of 3.35% anddividend rate of 0%.

 

Kookmin Note

 

On February 4, 2003,our Korean subsidiary received 6,500,000 in South Korean Won, or approximately$5,488, under a loan from Kookmin Bank of South Korea. The loan bears interestat an annual rate of 7.1%. In the event of delayed repayment, the interestincreases to a maximum of 21%, depending on the length of time the repayment isdelayed. This loan is collateralized by the plant facilities and certainequipment in South Korea. During the first eighteen months from the originationdate, interest was payable on a monthly basis. In October 2003, theCompany paid $873 of principal at the request of Kookmin Bank due to the saleof machines that had been part of the collateral on the loan. Subsequentto October 31, 2003, Kookmin Bank requested that the Company pay anadditional $866 of principal by February 2004 due to the Company’s currentcredit rating. The Company made two payments on the requested additional loanpay down in November and December 2003 of $320 and $205, respectively.The remaining payment of $341 was subsequently made in February 2004. Beginningin September 2004, the Company is required to make equal monthlyinstallments of principal and interest to repay the remaining balance of theloan over a 36-month period. For the quarter ended March 31, 2005,principal payments made to Kookmin Bank totaled $225, which includes $83 offoreign exchange translation loss. The outstanding loan balance totaled $3,600as of March 31, 2005.

 

**7.****                                      StockCompensation Plan**

 

During the quarter ended March 31,2005, under the Company’s 2002 Equity Incentive Plan which provides for thegrant of stock options to officers, employees, consultants and directors, theCompany granted options to purchase 883,665 common shares of the Company for anexercise price of $2.18 which equaled the fair market value on the date ofgrant

 

During the quarter ended March 31,2005, under the Company’s 2002 Non-employee Director Stock Option Plan whichprovides for the grant of stock options to non-employee directors, the Companygranted options to purchase 180,000 common shares of the Company for an averageexercise price of $2.33. All options granted under this plan had exerciseprices that were equal to the fair market value on the date of grant.

 

The Company canceled159,602 options during the quarter ended March 31, 2005 for terminatedemployees and directors.

 

**8.****                                      SegmentReporting and Geographic Information**

 

SFAS No. 131,*Disclosures aboutSegments of an Enterprise and Related Information,*requirescompanies 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. TheLiquidmetal alloy industrial coatings are used

 

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primarily as a protective coating for industrial machinery and equipment,such as drill pipe used by the oil drilling industry and boiler tubes used bycoal burning power plants. Bulk Liquidmetal alloys include market opportunitiesto manufacture and sell casing components for electronic devices, medicaldevices, sporting goods, tooling, prototype sampling, defense applications andmetal processing equipment. Primarily, the expenses incurred by the bulkLiquidmetal alloy segment are research and development costs and sellingexpenses associated with identifying and developing market opportunities. BulkLiquidmetal alloys products can be distinguished from Liquidmetal alloycoatings in that the bulk Liquidmetal alloy can have significant thickness, upto approximately one inch, which allows for their use in a wider variety ofapplications other than a thin protective coating applied to machinery andequipment. Revenue and expenses associated with research and developmentservices and product licensing arrangements are included in the bulkLiquidmetal alloy segment. The accounting policies of the reportable segmentsare the same as those described in Note 3 to the consolidated financialstatements included in the Company’s Form 10-K filed with the Securitiesand Exchange Commission on March 30, 2005.

 

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

 
| ** **                                                         | ** ** | ** **   | ** ** | ** **          | ** ** | **Segment** | ** ** |
|--------------------------------------------------------------------|------------|--------------|------------|---------------------|------------|-------------|------------|
| ** **                                                         | ** ** | **Coatings** | ** ** | **Bulk Alloy** | ** ** | **Totals**  | ** ** |
| ** **                                                         | ** ** | ** **   | ** ** | ** **          | ** ** | ** **  | ** ** |
| Three months ended March 31,  2005:                           |       |         |       |                |       |        |       |
| Revenue  to external customers                                     |       | $            | 1,049      |                | $          | 1,794       |       | $ | 2,843 |   |
| Gross  profit                                                      |       | 568          |       | (576                | )          | 8           |       |
| Income  (loss) before interest expense and discontinued operations |       | 327          |       | (1,149              | )          | (822        | )          |
| Total  identifiable assets at end of period                        |       | 701          |       | 22,054              |       | 22,755      |       |
|                                                               |       |         |       |                |       |        |       |
| Three months ended March 31,  2004:                           |       |         |       |                |       |        |       |
| Revenue  to external customers                                     |       | $            | 1,016      |                | $          | 5,272       |       | $ | 6,288 |   |
| Gross  profit                                                      |       | 467          |       | 2,264               |       | 2,731       |       |
| Income  before interest expense and discontinued operations        |       | 349          |       | 1,480               |       | 1,829       |       |
| Total  identifiable assets at end of period                        |       | 985          |       | 23,698              |       | 24,683      |       |

 

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

 
| ** **                                                                         | ** ** | **For the Three Months** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                         | ** ** | **Ended March 31,**           | ** ** |
| ** **                                                                         | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(Restated)**                          | ** ** | **(Restated)** | ** ** |
| ** **                                                                         | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Total  operating income (loss) before interest expense and discontinued operations |       | $                                       | (822       |  ) | $ | 1,829 |   |
| General  and administrative expenses                                               |       | (2,157                                  | )          | (2,504 | ) |
|                                                                               |       |                                    |       |   |   |
| Consolidated  loss before interest expense and discontinued operations             |       | (2,979                                  | )          | (675 | ) |
| Change  in value of warrant, gain                                                  |       | 133                                     |       | 586 |   |
| Change  in value of conversion feature, gain                                       |       | 1,115                                   |       | 1,710 |   |
| Interest  expense                                                                  |       | (1,537                                  | )          | (396 | ) |
| Interest  income                                                                   |       | 6                                       |       | 12 |   |
| Income  (loss) from discontinued operations, net                                   |       | —                                  |       | (347 | ) |
| Loss  from disposal of discontinued operations, net                                |       | —                                  |       | (46 | ) |
| Consolidated  net income (loss)                                                    |       | $                                       | (3,262     | ) | $ | 844 |   |

 

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

 

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Revenuesfrom sales to companies in the United States were $1,401 and $1,725 during thethree months ended March 31, 2005 and 2004, respectively. The revenuerelated to the United States of America was earned under three defense-relatedresearch and development contracts and sales of coatings products.

 

As of March 31,2005, two customers represented 36%, or $636, of the total outstanding tradeaccounts receivable. As of December 31, 2004, two customers represented30%, or $497, of the total outstanding trade accounts receivable. Threecustomers represent 80%, or $2,266, of total sales as of March 31, 2005. Threecustomers represented 84%, or $5,261, of total sales as of March 31, 2004.

 

Duringthe three months ended March 31, 2005, the Company had revenues fromcompanies outside of the United States of $1,442 of which $934 representedsales to companies located in South Korea. During the three months ended March 31,2004, the Company had revenue from sales to companies outside of the UnitedStates of $4,685 of which $4,158 represented sales to companies located inSouth Korea. Of the $4,158 sales in South Korea, $122 was from our discontinuedequipment manufacturing business. The revenue related to sales to companiesoutside of the United States was from bulk alloy products including equipmentsales.

 

Long-lived assets includenet property, plant, and equipment, and net intangible assets. The Company hadlong-lived assets of $2,006 and $1,594 located in the United States at March 31,2005 and December 31, 2004, respectively. The Company had long-livedassets of $15,050 and $15,422 located in South Korea at March 31, 2005 andDecember 31, 2004, respectively.

 

Reconciling informationbetween reportable segments and the Company’s consolidated totals is shown inthe following table:

 
| ** **                                 | ** ** | **March 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|
| ** **                                 | ** ** | **2005**           | ** ** |
| Total segment assets                       |       | $                  | 22,755     |   |
| Cash  and cash equivalents                 |       | 341                |       |
| Prepaid  expenses and other current assets |       | 434                |       |
| Other  property, plant and equipment       |       | 884                |       |
| Intangibles,  net                          |       | 1,161              |       |
| Other  assets                              |       | 700                |       |
| Total consolidated  assets                 |       | $                  | 26,275     |   |

 

Assets excluded from segment assets include assets attributable to theCompany’s corporate headquarters. The largest asset represents the Company’sintangible assets, consisting primarily of the Company’s patents andtrademarks.

 

**9.****                                      Income(Loss) Per Common Share**

 

Basic earnings per share(“EPS”) is computed by dividing earnings (loss) attributable to commonshareholders by the weighted average number of common shares outstanding forthe periods. Diluted EPS reflects the potential dilution of securities thatcould share in the earnings. Common stock equivalents consist of 9,011,540 and8,706,413 equity instruments and 4,281,751 and 3,308,001 senior equityconvertible debt instruments at March 31, 2005 and 2004, respectively, andhave not been included in the EPS calculation at March 31, 2005 and 2004as the amounts are anti-dilutive.

 

**10.****                               Commitmentsand Contingencies**

 

In September 2004, as part of a security agreement to finance acertain insurance policy, the Company used certificates of deposits withmaturities of less than one year as collateral. The $754 held in certificatesof deposits is presented as restricted cash at December 31, 2004. Duringthe quarter ended March 31, 2005, the certificate of deposits wasliquidated and the proceeds were used to paydown balance of the financing onthe insurance policy.

 

In August 2004, the Company entered into a consulting agreementwhereby the Company was to receive services from a third party to improve theCompany’s bulk alloy manufacturing process. The service is to be provided from August 2004through

 

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October 2005. The total amount of service fees is $172, of which $59was included in trade accounts payable as of March 31, 2005. As of December 31,2004, the total amount of outstanding balance included in trade accountspayable was $15.

 

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

 

Liquidmetal Technologies and certain of its present and former officersand directors were named as defendants in nine purported class actioncomplaints filed in the United States District Courts for the Middle Districtof Florida, Tampa Division, and the Central District of California, SouthernDivision, alleging violations of Sections 11 and 15 of the Securities Act of1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934and Rule 10b-5 promulgated thereunder. In August 2004, fourcomplaints were consolidated in the United States District Court for the MiddleDistrict of Florida under the caption *Primavera Investors v.Liquidmetal Technologies, Inc., et al.*, Case No. 8:04-CV-919-T-23EAJ.John Lee, Chris Cowley, Dwight Mamanteo, Scott Purcell and Mark Rabold, wereappointed co-lead plaintiffs (the “Lead Plaintiffs”). In September 2004,the other five complaints filed in the Central District of California weretransferred to the Middle District of Florida for consolidation with the *Primavera Investors* action. The Lead Plaintiffs served theirConsolidated Amended Class Action Complaint on January 12, 2005. TheAmended Complaint alleges that the Prospectus issued in connection with theCompany’s initial public offering in May 2002 contained materialmisrepresentations and omissions regarding the Company’s historical financialcondition and regarding a personal stock transaction by the Company’s chiefexecutive officer. The Lead Plaintiffs further generally allege that during theproposed Class Period of May 21, 2002, through May 13, 2004, thedefendants engaged in improper revenue recognition with respect to certain ofthe Company’s business transactions, failed to maintain adequate internalcontrols, and knowingly disclosed unrealistic but favorable information aboutmarket demand for and commercial viability of the Company’s products toartificially inflate the value of the Company’s stock. The Amended Complaintseeks unspecified compensatory damages and other relief. We filed a Motion toDismiss on March 28, 2005. Plaintiffs’ response to our Motion to Dismissis presently due on June 3, 2005. The Company intends to vigorously defendagainst the class action. The Company cannot currently predict the impactor resolution of this litigation or reasonably estimate a range of possibleloss, which could be material.

 

In addition to the above,certain present and former officers and directors of Liquidmetal Technologies,as well as Liquidmetal Technologies as a nominal defendant, have been named inthree shareholder derivative actions. Two shareholder derivative complaintswere filed in California state court styled Brian Clair, Derivatively on Behalfof Liquidmetal Technologies, Inc. v. John Kang, et al., Case No. 04CC00551,and Joseph Durgin, Derivatively on Behalf of Liquidmetal Technologies, Inc.v. John Kang, et al., Case No. 04CC00553, both commenced in the Superior Courtof Orange County, California. A third shareholder derivative complaint wasfiled in Florida federal court styled Robert Story v. John Kang, et al., Case No. 8:04-CV-1587-T23TBM,commenced in the Middle District of Florida, Tampa Division. These shareholderderivative lawsuits allege that the defendants breached various fiduciaryduties and otherwise violated state law based primarily upon the sameunderlying facts and circumstances as alleged in the federal shareholder class action.The plaintiffs seek unspecified compensatory damages, restitution anddisgorgement of profits, equitable and/or injunctive relief as permitted by lawand other relief. The two shareholder derivative complaints in California statecourt have been consolidated. Plaintiffs served a Consolidated ShareholderDerivative Complaint on October 12, 2004. The defendants served a Demurrerto the Consolidated Shareholder Derivative Complaint on November 22, 2004,seeking dismissal of that complaint. At a hearing on February 10, 2005,the court sustained the demurrer, dismissing the Consolidated ShareholderDerivative Complaint but giving the plaintiffs 45 days within which to amendthe complaint. Plaintiffs filed their Consolidated Amended ShareholderDerivative Complaint on March 28, 2005. The Company, along with otherdefendants, will file a Demurrer on May 16, 2005, again seeking dismissalof the amended complaint. In the Florida derivative action, the Plaintiff fileda First Amended Shareholder Derivative Complaint on November 22, 2004. TheCompany’s Motion to Dismiss, which was filed on December 20, 2004, isfully briefed. The Company cannot anticipate when the Court will rule onthe Motion to Dismiss. The Company intends to vigorously defend against thederivative actions. We cannot currently predict the impact or resolution ofthis litigation or reasonably estimate a range of possible loss, which could bematerial.

 

In March 1996,the Company entered into a distribution agreement whereby it granted to a thirdparty exclusive rights to market and sell golf products incorporatingLiquidmetal Technology to certain Japanese sporting equipment companies. The

 

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thirdparty paid the Company a $1.0 million distribution fee as part of thisagreement, of which a portion was refundable according to a formula based onthe gross profit earned by the third party. On March 28, 2003, thedistribution agreement was terminated and the Company entered into a newagreement to pay to the same third party a commission on the net sales price ofall Liquidmetal golf equipment that is shipped by the Company or its affiliatesto Japanese golf companies for sale into the Japanese end-market. Thiscommission will apply to golf equipment shipped by the Company or itsaffiliates during the period beginning on March 28, 2003 and ending on March 28,2006. If, by March 28, 2006, the Company has not paid $350 in commissionpayments, the balance between commission paid and $350 will be paid by April 30,2006, thereby guaranteeing the third party a $350 minimum payment during theterm of the agreement. The Company will recognize the unearned distribution feeof $830 as revenue proportionately with the payment of commissions under thenew agreement. As of March 31, 2005 and December 31, 2004, theunearned distribution fee remained unchanged at $830.

 

Under terms of the January 2004settlement of the dispute over certain sales transactions from 2003 and 2002between Liquidmetal Korea and Growell Metal Co., Ltd., a South Korean metalsprocessing company (“Growell”), Liquidmetal Korea agreed to pay Growell $4,895to purchase Growell’s investment in alloy inventories, proprietary alloyingequipment purchased from Liquidmetal Korea, and supporting equipment purchasedfrom other suppliers. Also as part of the settlement, Growell satisfied infull a balance of $2,058 owed to Liquidmetal Korea for the die casting machinesGrowell purchased from Liquidmetal Korea in the first quarter of 2003 as part ofa license agreement to manufacture Liquidmetal alloy parts for the South Koreanautomotive industry. The remaining settlement payable of $2,837 and tradeaccounts payable of $14 were to be paid to Growell (in cash or stock at theCompany’s discretion) by December 31, 2004. As of December 31, 2004,the settlement payable of $3,246, net of foreign exchange translation loss, wasnot paid to Growell due to Growell’s breach of warranty on equipmentrepurchased by Liquidmetal Korea. In January 2005, Growell was acquired bya third party. As of March 31, 2005, the outstanding settlement payable tothe third party of $3,317, net of foreign exchange translation loss, was notpaid, and the Company is currently in negotiations to settle this balance withthe third party.

 

**11.****                               RelatedParty Transactions**

 

In June 2003, theCompany entered into an exclusive, ten-year license agreement with LLPG, Inc.(“LLPG”), a corporation headed by a former director of the Company. Under theterms of the agreement, LLPG has the right to commercialize Liquidmetal alloys,particularly precious-metal based compositions, in jewelry and high-end luxuryproduct markets. The Company, in turn, will receive royalty payments over thelife of the contract on all Liquidmetal products produced and sold by LLPG. Inconjunction with its technology licensing contract, LLPG purchased twoproprietary Liquidmetal alloy melting machines and three proprietaryLiquidmetal alloy casting machines for a total purchase price of $2,000. At December 31,2003, the Company had a remaining receivable balance of $500 due from LLPG,which was subsequently paid in full in March, 2004.

 

We are a party to aconsulting agreement with Chitnis Consulting, Inc., which is owned 100% byShekhar Chitnis, a former director and executive officer of our company. Underthis agreement, we have engaged Chitnis Consulting to provide consultingservices on an as-needed basis through December 31, 2005. During eachquarter ended March 31, 2005 and 2004, we incurred $13 in consulting feesfrom Chitnis Consulting.

 

We are a party to aconsulting agreement with William Johnson, a board member. Under thisagreement, Mr. Johnson provides consulting services on an as-needed basisthrough 2004 as it relates to marketing and development Liquidmetal alloy. Duringeach quarter ended March 31, 2005 and 2004, we incurred $15 and $15 inconsulting fees from Mr. Johnson, respectively.

 

In November 2004, we entered into an agreement with John Kang, ourChairman, President, and Chief Executive Officer, in which Mr. Kang agreedthat certain stock transactions by him in 2002 involving our common stockshould have resulted in a liability under Section 16(b) of theSecurities Exchange Act of 1934, as amended (“Section 16(b)”). Thesetransactions include Mr. Kang’s private sale of 285,715 shares of hispersonal Liquidmetal Technologies common stock to Growell Metal Co., Ltd. in February 2002,prior to our initial public offering. They also include Mr. Kang’ssubsequent indirect purchase and disposition of Liquidmetal Technologies commonstock in order to satisfy a personal agreement Mr. Kang made to

 

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Growell Metal in February 2002 regarding the guaranteed minimum valueof the stock purchased by Growell Metal in February 2002 (the purchasesand dispositions incident to this agreement occurred in August and November 2002,respectively). Lastly, the transactions include open-market purchases of anaggregate of 89,300 shares of our common stock made by Mr. Kang in August 2002.

 

TheAudit Committee of our Board of Directors conducted an independent inquiry intothe above-described transactions with the aid of independent legal counsel and,as a result of such inquiry, the Audit Committee concluded that thetransactions should have resulted in a liability to the Company under Section 16(b) inthe amount of $302. Mr. Kang has acknowledged this liability, and in anagreement negotiated between Mr. Kang and the Audit Committee and approvedby the full Board, Mr. Kang will pay this liability through periodicinstallments in 2005 and 2006. As a result, the Company accrued for the $302receivable in other assets and other income as of December 31, 2004. Theabove-described transactions involving Growell Metal was reported ona new Form 4 filed by Mr. Kang on November 15, 2004, andthe open-market purchases were previously reported on a timely basis in August 2002.As of March 31, 2005, the outstanding amount of the receivable remainedunchanged at $302. Mr. Kang has paid approximately $50 in April 2005and will make monthly installments of approximately $12 to pay down theoutstanding balance.

 

In March 2005,the Company entered into a note agreement with CK Cho, a member of our Board ofDirectors, for $195 at an annual rate of interest of 6%. As of March 31,2005, the Company received $158, which is included in current portion of longterm notes. The remaining $37 was received in April 2005. The amountsborrowed under the note agreement are due June 25, 2005. Mr. Cho alsois a Chief Executive Officer of Winvest Venture PartnersInc., who holds $500 of Senior Convertible Notes as of March 31, 2005 (seeNote 6).

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

*Thismanagement’s discussion and analysis should be read in conjunction with thecondensed consolidated financial statements and notes included elsewhere inthis report on Form 10-Q.*

 

*Thismanagement’s discussion and analysis, as well as other sections of this reporton Form 10-Q, may contain “forward-looking statements” that involverisks and uncertainties, including statements regarding our plans, futureevents, objectives, expectations, forecasts, or assumptions. Any statement thatis not a statement of historical fact is a forward-looking statement, and insome cases, words such as “believe,” “estimate,” “ project,” “expect,” “intend,”“may,” “anticipate,” “plans,” “seeks,” and similar expressions identifyforward-looking statements. These statements involve risks and uncertaintiesthat could cause actual outcomes and results to differ materially from theanticipated outcomes or results, and undue reliance should not be placed onthese statements. These risks and uncertainties include, but are not limitedto, the matters discussed under the caption “Factors Affecting Future Results”in our Annual Report on Form 10-K for the fiscal year ended December 31,2004 and other risks and uncertainties discussed in filings made with theSecurities and Exchange Commission (including risks described in subsequentreports on Form 10-Q, Form 10-K, Form 8-K, and other filings).Liquidmetal Technologies disclaims any intention or obligation to update orrevise any forward-looking statements, whether as a result of new information,future events, or otherwise.*

 

**Overview**

 

Weare a materials technology company that develops and commercializes productsmade from amorphous alloys. Our Liquidmetal® family of alloys consists of avariety of coatings, powders, bulk alloys, and composites that utilize theadvantages offered by amorphous alloy technology. We develop, manufacture, andsell products and components from bulk amorphous alloys that are incorporatedinto the finished goods of our customers, and we also market and sell amorphousalloy industrial coatings. We also partner with third-party licensees anddistributors to develop and commercialize Liquidmetal alloy products. We havethe exclusive right to develop, manufacture, and sell what we believe are theonly commercially viable bulk amorphous alloys.

 

Amorphous alloys are unique materials that aredistinguished by their ability to retain a random atomic structure when theysolidify, in contrast to the crystalline atomic structure that forms inordinary metals and alloys when they solidify. Liquidmetal alloys possess acombination of performance, processing, and cost advantages that we believemakes them preferable to other materials in a variety of applications. Theamorphous atomic structure of our alloys enables them to overcome certainperformance limitations caused by inherent weaknesses in crystalline atomicstructures, thus facilitating performance and processing characteristicssuperior in many ways to those of their crystalline counterparts. For example,our zirconium-titanium Liquidmetal alloys are approximately 250% stronger thancommonly used titanium alloys, such as Ti-6Al-4V, but they have processingcharacteristics similar in many respects to plastics. We believe theseadvantages could result in Liquidmetal alloys supplanting other incumbentmaterials in a wide variety of applications. Moreover, we believe these advantageswill enable the introduction of entirely new products and applications that arenot possible or commercially viable with other materials.

 

Our revenues are derived from two principal operatingsegments: Liquidmetal alloy industrial coatings and bulk Liquidmetal alloyproducts. Liquidmetal alloy industrial coatings are used primarily as aprotective coating for industrial machinery and equipment, such as drill pipeused by the oil drilling industry and boiler tubes used in coal-burning powerplants. The historical operating information for fiscal year 2001 is basedsubstantially on sales of Liquidmetal alloy coatings. In the second half of2002, we began producing bulk Liquidmetal alloy components and products forincorporation into our customers’ finished goods. Bulk Liquidmetal alloysegment 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 indevelopment, product licensing and arrangements, and research and developmentrevenue relating primarily to defense and medical applications. We expect thatthese sources of revenue will continue to significantly change the character ofour revenue mix.

 

Thecost of sales for our Liquidmetal coatings segment consists primarily of thecosts of outsourcing our manufacturing to third parties. Consistent with ourexpectations, our cost of sales has been increasing over historical results aswe further build our bulk Liquidmetal alloy business. Although we plan tocontinue outsourcing the manufacturing of our coatings, we will internallymanufacture many products derived from our bulk Liquidmetal alloys.

 

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Selling,general, and administrative expenses currently consist primarily of salariesand related benefits, severance costs, travel, consulting and professionalfees, depreciation and amortization, insurance, office and administrativeexpenses, and other expenses related to our operations.

 

Researchand development expenses represent salaries, related benefits expense,stock-based compensation, depreciation of research equipment, consulting andcontract services, expenses incurred for the design and testing of newprocessing methods, expenses for the development of sample and prototypeproducts, and other expenses related to the research and development ofLiquidmetal alloys. Costs associated with research and development activitiesare expensed as incurred. We plan to enhance our competitive position byimproving our existing technologies and developing advances in amorphous alloytechnologies. We believe that our research and development efforts will focuson the discovery of new alloy compositions, the development of improvedprocessing technology, and the identification of new applications for ouralloys.

 

OnAugust 4, 2004, the Company established a plant in the city of Weihai inShandong province of China under Weihai Liquidmetal Company Limited, which is100 percent owned by Liquidmetal Korea, to facilitate our bulk alloymanufacturing business. Weihai Liquidmetal is consolidated into LiquidmetalTechnologies with all intercompany transactions eliminated.

 

Thefollowing discussion and analysis of our financial condition and results ofoperations focuses on the historical results of our continuing operations.

 

**Critical Accounting Policies and Estimates**

** **

Thepreparation of condensed consolidated financial statements in conformity withaccounting principles generally accepted in the United States requires us tomake estimates and assumptions that affect reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. These estimates and assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances. Actual results could differ materially fromthese estimates under different assumptions or conditions.

 

We believe that the following accounting policies arethe most critical to our condensed consolidated financial statements sincethese policies require significant judgment or involve complex estimates thatare important to the portrayal of our financial condition and operatingresults:

 

•                  Exchangerate fluctuations

•                  Warrantyaccrual

•                  Allowancefor doubtful accounts

•                  Inventoriesat lower of cost or net realizable value

•                  Deferredtax assets

•                  Valuationof derivatives of warrants and embedded conversion features

 

Our10-K Report as of December 31, 2004 contains further discussions on ourcritical accounting policies and estimates.

 

**Resultsof Operations**

 

Comparison of thethree months ended March 31, 2005 and 2004

 

*Revenue*.Revenue decreased $3.5 million to $2.8 million for the three months ended March 31,2005 from $6.3 million for the three months ended March 31, 2004. Thedecrease included a $2.6 million decrease from restatement of revenues from2003 to 2004 as a part of our 2003 financial statement restatement whichresulted in one-time recognition of revenues as of March 31, 2004, adecrease of $0.4 million from the sales and prototyping of parts manufacturedfrom bulk Liquidmetal alloys, and a decrease of $0.4 million from research anddevelopment services related primarily to defense applications.

 

*Cost ofSales*. Cost of sales decreased to $2.8 million, or 100%of revenue, for the three months ended March 31, 2005 from $3.6 million,or 57% of revenue, for the three months ended March 31, 2004. The decreasewas a result of the decrease in bulk Liquidmetal alloy business. Cost of salesas a percentage of revenue has increased as a lower business volumes generatedfrom our bulk Liquidmetal alloys. Significant portion of our manufacturingcosts continue to remain fixed. We believe that

 

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anticipated highermanufacturing volumes and an expected greater mix of higher-margin products inthe future will cause the gross profit to continue to improve over time. Thecost to manufacture parts from our bulk Liquidmetal alloys is variable anddiffers based on the unique design of each product. However, the cost of salesfor the products sold by the coatings business segment is generally consistentbecause the Liquidmetal coatings products are produced by third parties andsold wholesale to various industries.

 

*Selling,General, and Administrative Expenses*. Selling, general, andadministrative expenses decreased to $2.6 million, or 91% of revenue, forthe three months ended March 31, 2005 from $3.1 million, or 49% ofrevenue, for the three months ended March 31, 2004. This decrease wasprimarily a result of decrease in wages and related expense by $0.4 million,decrease in bad debt expenses by $0.1 million, decrease in advertising andpromotions expense by $0.2 million, offset by an increase in insurancecosts by $0.2 million. These and other decreases in selling, general andadministrative expenses represent the Company’s efforts to manage costs andfocus on our core business while continuing to build our corporateinfrastructure required to prepare for and support the anticipated growth ofour bulk Liquidmetal alloy business.

 

*Researchand Development Expenses*. Research and development expensesincreased to $0.4 million, or 14% of revenue, for the three months ended March 31,2005 from $0.3 million, or 5% of revenue, for the three months ended March 31,2004. The Company continues to perform research and development of newLiquidmetal alloys and related processing capabilities, develop newmanufacturing techniques, and contract with consultants to advance thedevelopment of Liquidmetal alloys. The increase was primarily due to increasesin salaries, wages and the related costs by $0.1 million.

 

*Change in Value of Warrants.*Changein value of warrants decreased to a gain of $0.1 million, or 5% of revenue, forthe three months ended March 31, 2005 from a gain of $0.6 million, or 9%of revenue, for the three months ended March 31, 2004. The change in valueof warrants consists of change in value of warrant liabilities from warrants issuedfrom the senior convertible debt funded in March 2004 and exchanged in August 2004primarily as a result of fluctuations in our stock price.

 

*Change in Value of ConversionFeature*. Change in value of conversion feature liability fromour senior convertible debt funded in March 2004 and exchanged in August 2004resulted in a change in value of conversion feature gain of $1.1 million, or39% of revenue, and a gain of $1.7 million, or 27% of revenue, during the threemonths ended March 31, 2005 and 2004, respectively, primarily due tofluctuations in our stock price.

 

*InterestExpense*. Interest expense was $1.5 million, or 54% of revenue,for the three months ended March 31, 2005 and was $0.4 million, or 6% ofrevenue, for the three months ended March 31, 2004. During the threemonths ended March 31, 2005, the interest expense was primarily due to theinterest accrued on the Kookmin Bank loan funded on February 4, 2003 andsenior convertible debt funded on March 3, 2004, as well as amortizationof debt issuance costs and discount on the senior convertible debt funded in March 2004and exchanged in August 2004. As of March 31, 2005, $0.9 million oflate registration penalty fee of our senior convertible debt was accrued asinterest expense (see Item 3 DefaultsUpon Senior Securities, Part II). During the three months ended March 31,2004, interest expense was primarily due to the interest accrued on the KookminBank loan.

 

*InterestIncome.*Interest income was $6 thousand for the three monthsended March 31, 2005, and $12 thousand for the three months ended March 31,2004 from interest earned on certificate of deposits. The decrease was primarilydue to decrease in deposits held.

 

**Liquidity and Capital Resources**

** **

Ourcash used in operating activities was $1.1 million for the three monthsended March 31, 2005 and $2.0 million, which includes cash used inour discontinued equipment manufacturing business of $0.3 million, for thethree months ended March 31, 2004. Our working deficit increased from $(14.9)million at December 31, 2004 to $(17.5) million at March 31, 2005. TheCompany’s working deficit increase of $2.6 million was primarily attributableto decrease in cash of $0.4 million, decrease in restricted cash of $0.8million, decrease of current inventories of $0.1 million, decrease of prepaidexpenses and other current assets of $0.5 million, increase in accounts payableand accrued liability of $1.6 million, an increase in current portion of longterm debt of $0.7 million, offset by increase in net accounts receivable of$0.1 million, decrease in warrant liabilities of $0.1 million, decrease inconversion feature liabilities of $1.1 million, and a decrease in other currentliabilities of $0.1 million .

 

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Ourcash used in investing activities was $45 thousand for the three months ended March 31,2005 for the acquisition of property and equipment.

 

Ourcash provided by financing activities was $0.6 million for the three monthsended March 31, 2005, which consists of $0.9 million in proceeds fromrestricted cash and proceeds from borrowings from our short term debt, offsetby $0.3 million on repayment of borrowings.

 

We anticipate that ourcapital expenditures will be approximately less than $0.5 million for the fullyear 2005 for the acquisition of furniture, fixtures, and other businessequipment. This amount is subject to change, however, depending upon the natureand the amount of the product orders that we actually receive from customers.

 

Our capital requirementsduring the next twelve months will depend on numerous factors, includingthe success of existing products either in manufacturing or development, thedevelopment of new applications for Liquidmetal alloys, the resources we devoteto develop and support our Liquidmetal alloy products, and the success ofpursuing strategic licensing and funded product development relationships withexternal partners. During the next twelve months, based on our currentbusiness plan, we expect to have sufficient resources to continue to devotelimited capital to our research and development activities, to further developand strengthen our manufacturing technology, and to provide for working capitaland other general corporate purposes. However, based on our historicaloperating results and the continued development of our manufacturingcapabilities and alloy compositions, there exists the possibility that theseresources will not be adequate to operate at the proposed business plan levels.These expenses and capital expenditures could consume a material amount of ourcash resources, but the amount of these requirements will depend on the natureand amount of orders we receive for the purchase of our bulk Liquidmetal alloyproducts.

 

Ourbusiness is based on commercializing an entirely new and unique technology, andour current business plan contains a variety of assumptions and expectationsthat are subject to uncertainty, including assumptions and expectations aboutorder flow, unit volumes, manufacturing efficiencies, product cost and pricing,continuing technology improvements, customer adoption practices, strategiclicensing relationships and other relevant matters. These assumptions take intoaccount recent significant cost reductions, as well as recent improvements toour manufacturing processes. We have experienced losses from continuingoperations during the last two fiscal years and have an accumulated deficit of$129.4 million as of March 31, 2005. At March 31, 2005, our principalsource of liquidity was $0.3 million of cash and cash equivalents and tradeaccounts receivables of $1.8 million. Such conditions raise substantial doubtthat our Company will be able to continue as a going concern for a reasonableperiod of time without receiving additional funding. These operating resultsoccurred while we were developing and attempting to commercialize andmanufacture products from an entirely new and unique technology. This businessplan required significant spending related to start-up costs and capitalexpenditures. These factors have placed a significant strain on our financialresources. The ultimate success of the Company depends on our ability tocontinue to reduce operating costs, generate higher revenue, achieve positivecash flow from continuing operations and achieve profitability.

 

Additionally,the Company is not in compliance with certain covenant requirements of oursenior convertible debt as of March 31, 2005. Although there has been noformal notice of default received from the note holders, as the note holdershave the right to call for repayment of the outstanding balance of the seniorconvertible debt, the total outstanding debt balance of $5,709 have beenincluded as current liabilities as of March 31, 2005 (see Item 3 Defaults Upon Senior Securities, Part II).

 

Ourfuture success depends on our ability to continue reducing operating costs andultimately to generate higher revenue and attain profitability. We cannot becertain that additional capital, whether through selling additional debt orequity securities or obtaining a line of credit or other loan, will beavailable to us or, if available, will be on terms acceptable to us. If weissue additional securities to raise funds, these securities may haverights, preferences, or privileges senior to those of our common stock, and ourcurrent stockholders may experience dilution.

 

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**Contractual Obligations**

 

The following table summarizes the Company’sobligations and commitments as of March 31, 2005:

 
| ** **                            | ** ** | **Payments Due by Period (in thousands)** | ** ** |
|---------------------------------------|------------|-------------------------------------------|------------|
| **Contractual  Cash Obligations (1)** | ** ** | **Total**                                 | ** ** | **Less Than 1  Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **After 5 Years** | ** ** |
|                                  |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term  debt (2)                   |       | $                                         | 9,309      |   | $ | 6,942 |   | $ | 2,367 |   | $ | — |   | $ | — |   |
| Capital  lease obligation (3)         |       | 175                                       |       | 100 |   | 75 |   | — |   | — |   |
| Operating  leases and rents           |       | 1,498                                     |       | 461 |   | 853 |   | 183 |   | 1 |   |
| Growell  settlement payable (4)       |       | 3,317                                     |       | 3,317 |   | — |   | — |   | — |   |
| Consulting  services payable          |       | 114                                       |       | 114 |   | — |   | — |   | — |   |
| Dongyang  payable                     |       | 11                                        |       | 11 |   | — |   | — |   | — |   |
|                                  |       | $                                         | 14,424     |   | $ | 10,945 |   | $ | 3,295 |   | $ | 183 |   | $ | 1 |   |

 

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(1)Contractualcash obligations include Long-Term Debt comprised of $5,709 of SeniorConvertible Notes and $3,600 of Kookmin Notes, and future minimum leasepayments under capital and operating leases, liabilities incurred fromsettlement with a former customer (Growell) and divesture of our equipmentmanufacturing business, and purchase commitments from a consultant.

(2)Doesnot include interest payments of $968, un-amortized discounts for conversionfeature and warrants of $2,407 of our Senior Convertible Notes, and short-termnote payable of $158.

(3)Includesimputed interest of $10.

(4)InJanuary 2005 Growell was acquired by a third party, and we****are currently innegotiations to settle this balance with the third party.****

 

#### **Off Balance Sheet Arrangements**

 

An off-balance sheet arrangement is any transaction,agreement or other contractual arrangement involving an unconsolidated entityunder which a company has (1) made guarantees, (2) a retained or acontingent interest in transferred assets, (3) an obligation underderivative instruments classified as equity, or (4) any obligation arisingout of a material variable interest in an unconsolidated entity that providesfinancing, liquidity, market risk or credit risk support to the company, orthat engages in leasing, hedging, or research and development arrangements withthe company.

 

We have made no arrangements of the types described in any of thecategories that may have a material current or future effect on ourfinancial condition, liquidity or results of operations.

 

 **Item 3 – Quantitative and Qualitative Di****sclosures about Market Risk**

 

We are exposed to various markets risks in conducting the business of theCompany, and we anticipate that this exposure will increase as a result of ourplanned growth. In an effort to mitigate losses associated with these risks, wemay at times enter into derivative financial instruments, although we havenot historically done so. These may take the form of forward salescontracts, option contracts, foreign currency exchange contracts, and interestrate swaps. We have not, and do not intend to, engage in the practice oftrading derivative securities for profit.

 

*InterestRates.*We are exposed to market risks relating to changes ininterest rates. Some of the proceeds of our initial public offering areinvested in short-term, interest-bearing, investment grade securities. Thevalue of these securities will be subject to interest rate risk and could fallin value if interest rates rise.

 

*CommodityPrices.*We are exposed to price risk related to anticipatedpurchases of certain commodities used as raw materials by our businesses, includingtitanium and zirconium. Although we do not currently enter into commodityfuture, forward, and option contracts to manage the fluctuations in prices ofanticipated purchases, we may enter into such contacts in the future asour business grows and as our purchases of these raw materials increase.

 

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*ForeignExchange Rates.*As a result of our operation of amanufacturing facility in South Korea, a substantial portion of our costs willbe denominated in the South Korean won. Consequently, fluctuations in theexchange rates of the South Korean won to the U.S. dollar will affect our costsof goods sold and operating margins and could result in exchange losses. Althoughwe do not currently enter into foreign exchange hedge transactions, we may doso in the future as our business grows.

 

**Item 4 – Controls andProcedures**

 

Evaluation of disclosurecontrols and procedures. During the course of the audit ofthe financial statements of Liquidmetal Technologies, Inc. (the “Company”)for the fiscal years ended December 31, 2001, 2002, and 2003, it wasdetermined that revenues from certain equipment sales made by the Companyto Growell Metal Co., Ltd. in the third and fourth quarters of 2002 and thefirst quarter of 2003 should not have been recognized in those periods. Itwas also determined that certain amounts relating to sales made to Samsungin December 2002, to JS Technologies in September 2002, and AMCorporation in December 2002 should not have been recognized. It also wasdetermined that compensation expense related to certain stock options grantedin 2001 and 2002 were not calculated in accordance with generally acceptedaccounting principles under APB Opinion No. 25, SFAS No. 123, andEITF 00-23.****These determinationsand the associated restatement of previously issued financial statements, asdescribed more fully elsewhere in the Form 10-K for the year ended December 31,2003, filed on November 10, 2004, suggest that, at the time of the subjecttransactions and the preparation of the Company’s financial statements for therelevant periods, the Company’s disclosure controls and procedures(as defined in Rule 13a-15 under the Securities Exchange Act of1934) were not effective as of the end of the period covered by such Form 10-K.

 

Liquidmetal Technologies, Inc.(the “Company”) carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s ChiefExecutive Officer and Vice President of Finance, of the effectiveness as of March 31,2005 of the design and operation of the Company’s disclosure controls andprocedures pursuant to Rule 13a-15 under the Securities Exchange Act of1934, as amended. Based on that evaluation, the Chief Executive Officer andVice President of Finance have concluded that these disclosure controls andprocedures, as of March 31, 2005, were not effective. This determinationwas based primarily on the material weaknesses in internal controls overfinancial reporting identified below.

 

Update on Management’sAssessment of Internal Control Over Financial Reporting. Thetime and resources committed to the restatement of prior periods’ financialstatements (as aforementioned) delayed the Company’s internal timetable withrespect to its documentation, assessment and evaluation of internal controlover financial reporting, which are required to be undertaken to comply with Section 404of the Sarbanes-Oxley Act of 2002 (“SOX 404”). Due in part to the issuesdescribed in the foregoing paragraph, management’s assessment of theeffectiveness of the Company’s internal control over financial reporting hasbeen substantially delayed and is not complete, which in turn has prevented theCompany’s independent registered public accounting firm, Stonefield Josephson, Inc.(“Stonefield”) from being able to satisfactorily complete an audit of theCompany’s internal control over financial reporting pursuant to SOX 404. Basedon the foregoing, Stonefield has disclaimed an opinion on the Company’sinternal control over financial reporting.

 

In attempting to completeits assessment of internal control over financial reporting, management usedthe criteria established in “Internal Control - Integrated Framework” issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). Althoughmanagement has not yet completed its review and assessment of all of theCompany’s internal controls over financial reporting, based on the review andassessment efforts that have actually been completed, management has identifiedseveral control deficiencies that existed during and as of the year ended December 31,2004, some of which have been determined to be material weaknesses in internalcontrol over financial reporting. As a result of the material weaknessesidentified below, management has concluded that it did not maintain effectiveinternal control over financial reporting as of December 31, 2004, basedon the criteria established in COSO.

 

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We have identified thefollowing material weaknesses in connection with our ongoing assessment ofinternal controls as follows:

 

**1.*****Lack of adequate segregation ofduties in accounts payable and accounts receivable involving cash receipts anddeposits, bank reconciliations, cash disbursements, purchasing, and accountsreceivable reconciliations:***

 

After the Companycompletely moved its accounting function from Tampa, Florida to Lake Forest,California in July 2004 and reduced the size of its accounting staff,duties such as booking of cash receipts, bank reconciliations and journalentries for corporate accounting were primarily being done by two accountants. Duringthe course of the Company’s audit for its 2004 fiscal year (which auditoccurred during the first three months of 2005) and in the course of theCompany’s efforts to complete the assessment required by SOX 404 at the sametime, it was determined that this lack of segregation could contribute topreventing detection of potential fraud or misstatements of financialinformation. Accordingly, beginning in the second quarter of 2005, the Companystarted taking steps to evaluate its overall accounting duties and segregatethese functions for better internal control structure. For example, the Companybegan segregating the cash receipts booking and bank reconciliation among thetwo accountants, as well as segregating invoice entry and check run function. Additionally,as discussed below, beginning in the second quarter of 2005, the Companyaugmented its supervisory review process to mitigate the potential for fraudand misstatements. The Company has not identified any adjustments as a resultof this lack of segregation of duties.

 

**2. *Lack ofadequate controls and monitoring of payroll processing, currently outsourced toa third party provider:***

 

This material weaknessexisted throughout 2004 as the Company utilized the services of a third partypayroll processor that was not certified under SAS 70 (Type II). During thecourse of the Company’s audit for its 2004 fiscal year, it was determined thatthe risk of using a third party payroll provider that is not SAS 70 certified may contributeto misstatements of payroll and related financial information. The Companyintends to remediate this weakness by retaining the services of ADP for payrollprocessing. ADP is certified under SAS 70 (Type II).

 

**3.*****Lack of documentation to evidencereviews of certain reconciliations***:

 

During the course of theCompany’s audit for the 2004 fiscal year, which audit occurred in January 2005,the Company discovered that certain reconciliations, including bank statementsand general ledger accounts, were not fully documented because the supervisorsperforming the review on such reconciliations occasionally omitted theirsignature evidencing their review. It was determined at the time that this lackof documentation may result in certain accounting documents not beingproperly reviewed or there being no evidence of review. Beginning in the secondquarter of 2005, the Company began taking steps to require that all reviews ofreconciliations by supervisors are evidenced by a supervisor signature and thatthat all accounting documents are subject to proper review. For example, theCompany started utilizing a “Prepared by, Reviewed by, Checked by” stamp and requiredall reconciliations to have evidence of the review prior to closing month end.

 

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

 

During the course of theCompany’s audit for the 2004 fiscal year, the Company discovered that, althoughaccounting transactions may have been authorized by the appropriatepersons, the authorizing person occasionally omitted his signature on therelevant documents or approval forms to evidence his authorization. This lackof documentation on invoices, purchase requisitions and expense reports may resultin certain transactions not being properly approved, so in the second quarterof 2005, the Company began implementing additional procedures for ensuring thatall accounting documents are subject to proper approval as well as indicationof the approval. For example, the Company began utilizing a “Prepared by,Reviewed by, Checked by” stamp and required that all documents have evidence ofthe approval prior to entry into the Company’s accounting system.

 

**5. *Manual performanceof numerous procedures that could be automated using current reporting systems***:

 

The Company uses the SAPsystem for financial reporting. During the course of the audit for the 2004fiscal year, it was determined that the Company was manually performingnumerous procedures that could be automated by using the current SAP system. Forexample, a sales order module in SAP could be utilized to automate the entireorder fulfillment process. While SAP contains many modules and features whichwould allow the Company to automate certain operational and accountingprocedures and thereby minimize the potential for human error, utilization ofsuch modules would require significant investment in upgrading and maintainingthe SAP system. Considering the Company’s current size and limited resources,management has determined that it is not prudent to make this investment at thecurrent time. Nevertheless, beginning in the second quarter of 2005 andcontinuing thereafter, the Company has been taking various steps to minimizethe potential for human error caused by manual procedures. For example, theCompany has established specific procedures for proper review and approval oftransactions as outlined in paragraphs 3 and 4 above and expanded utilizationof other software tools such as programmed spreadsheets.

 

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**6.*****Material adjustments to theaccounting records and financial statements as of and for the year ended December 31,2004 that were not initially identified by the Company’s internal control overfinancial reporting:***

 

During the course of theCompany’s SOX 404 assessment efforts during the first several months of 2005,the Company and its auditors identified a number of necessary materialadjustments to the Company’s accounting records for 2004. For example, certainadjustments were booked to properly value complex debt instruments associatedwith the refinancing of the Company’s debt. In addition, certain adjustmentswere booked to impair the Company’s assets which are based on Managementforecasts and overall assessment of the Company’s business. The Companybelieves that these adjustments were a result of the Company’s focus during2004 on completing the Company’s three-year re-audit of its 2001, 2002, and 2003fiscal years. As a result of the Company’s SOX 404 assessment efforts, theCompany has identified these adjustments and has implemented additionalcontrols to timely review and assess accounting issues and prevent the need forsuch adjustments. While there can be no assurance that adjustments to financialstatements will not occur in the future, with the completion of the three-yearre-audit, the Company believes that it will be able to devote its resources tocompleting its accounting assessments and entries timely and effectively.

 

**7.*****Management’s documentation of theevaluation of the significance of numerous control deficiencies and significantdeficiencies identified, which could rise to the level of a material weakness,has not been completed:***

 

The Company is continuingto diligently work to document and evaluate its internal controls under therequirements of SOX 404 during 2005.

 

**8.*****The company had inadequate controlsrelated to timely performance of its assessment of internal control overfinancial reporting:***

 

The Company is diligentlyworking to complete its assessment of its internal controls over financialreporting under the requirements of SOX 404 during 2005.

 

**9.*****Assurance Consulting 3, theindependent third party engaged to help document and assess the Company’sinternal controls, has identified numerous and significant deficiencies,including those identified above, which management has not completed evaluatingwhether they would rise to the level of a material weakness in accordance tothe PCAOB Audit Standard No. 2.***

 

The Company will reviewthese deficiencies during its assessment of internal controls under therequirements of SOX 404 during 2005.

 

Management believes that it has taken appropriatesteps to address these material deficiencies subsequent to March 31, 2005,including hiring an independent consulting firm (Assurance Consulting 3) toidentify and propose remedial actions to address and mitigate the deficiencies.

 

Changes in internalcontrols. There were no changes in the Company’s internalcontrols that occurred during the quarter ended March 31, 2005 (althoughvarious changes to internal controls occurring after March 31, 2005 aredescribed above). The Company is in the process of re-evaluating its internalcontrols pursuant to SOX 404, as indicated above.

 

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### **PART II**

**OTHERINFORMATION**

 

**Item 1 – Legal Proceedings**

 

There were no materialdevelopments in our legal proceedings during the current quarter.

 

**Item3 – Defaults Upon Senior Securities**

 

On March 3, 2004, wesold $9.9 million of 6.0% senior convertible notes due 2007 (the “March Notes”)to investor groups in a transaction led by Michigan Venture Capital Co., Ltd, aSouth Korea-based institutional investment firm, and IndiGo Ventures LLC, a NewYork-based investment firm that served as a financial advisor to the Companyfor the transaction. The notes were convertible at any time into our commonstock at a price of $3.00 per share. Investors in the private placementreceived warrants to purchase an aggregate amount of up to approximately 1.2million shares of common stock, exercisable at $3.00 per share for varyingperiods but no later than 100 days following the effectiveness of aregistration statement covering the resale of shares issuable upon exercise ofthe warrants. In addition, the investors had the right to call for repayment ofthe notes prior to maturity at any time after the second anniversary of theclosing of the transaction.

 

On August 19, 2004, theCompany completed a private exchange offer for its March Notes. Under terms ofthe exchange offer, approximately $5.5 million in aggregate principal amount ofthe March Notes have been exchanged for an aggregate of (i) $2.75 million of 6%Senior Secured Notes Due 2007 (the “Long-Term Notes”) and (ii) $2.75 million of10% Senior Secured Notes Due 2005 (the “Short-Term Notes”), collectivelyreferred to as “Exchange Notes”. In addition, the Company redeemedapproximately $4.5 million of the March Notes in cash. The Exchange Notes arecollateralized by certain patents owned by the Company and second prioritymortgage interest in plant facilities and certain equipment at our plant inSouth Korea.

 

In connection with theprivate exchange offer, the Company issued $250 thousand of private placementnotes to certain Placement Agents as issuance costs. Of the $250 thousand notesissued, $125 thousand was paid in the form of long-term notes which is duein 2007 with interest rate of 6% per annum (Long-Term Notes) and $125 thousandwas paid in the form of short-term notes which is due in 2005 withinterest rate of 10% per annum (Short-Term Notes).

 

The Short-Term Notes havea maturity date of July 29, 2005, and a conversion price of $2.00 pershare (compared to a conversion price of $3.00 per share under the March Notes).The Long-Term Notes have a maturity date of July 29, 2007, and aconversion price of $1.00 per share. Further, the exchange notes areconvertible into Common Stock, at the option of the Company, if at any timeafter the issuance of the notes, the closing per share price of the CommonStock exceeds $4.00 (as adjusted for stock splits, reverse splits, stockdividends, and recapitalizations) for 30 consecutive trading days, and furtherprovided that there has been effective registration during such period. Holdersof the Long-Term Notes also have the right to call for repayment of theLong-Term Notes prior to maturity at any time after the second anniversary ofthe completion of the exchange offer. A total of 563,151 warrants to purchaseour common stock at an exercise price of $3.00 per share—all of which werepreviously issued in connection with the purchase of the March Notes—havebeen amended to provide for an extended expiration date of March 1, 2006. Asof March 31, 2005, we were in breach of a covenant in the NoteExchange Agreement requiring us to become current in our SEC filings, as wellas file a registration statement with the SEC for the shares intowhich the notes are convertible, within 90 days of the issue date of the newnotes. Late registration fee of $0.9 million has been accrued as interestexpense, and is included in accounts payable and accrued liabilities as of March 31,2005. If written notice of default is delivered to us for breach of thiscovenant, then we will have a period of 30 days to cure the breach beforeit becomes an event of default under the notes, and if the breach is not curedduring such time period, the holders of the notes will becomeentitled to accelerate the remaining balance of their respective notesand declare them immediately due and payable. As of the date of the filing ofthis Form 10-Q, we have not received a notice for demandfor payment as a result of not meeting the registration and listingrequirements.

 

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**Item6 – Exhibits**

 

The following documentsare filed as an exhibit to this Report:

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                      |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  |       | **Description of Document**                                                                                                                                           |
|        |       |                                                                                                                                                                            |
| 31.1        |       | Certification of  the President and Chief Executive Officer, Ricardo A. Salas, as required by Section 3.02  of Sarbane-Oxley Act of 2002                                   |
|        |       |                                                                                                                                                                            |
| 31.2        |       | Certification of  Chief Financial Officer, Young Ham, as required by Section 3.02 of  Sarbane-Oxley Act of 2002                                                            |
|        |       |                                                                                                                                                                            |
| 32.1        |       | Certification of  Principal Executive Officer, Ricardo A. Salas, pursuant to 18 U.S.C Section 1350,  as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|        |       |                                                                                                                                                                            |
| 32.2        |       | Certification of  Chief Financial Officer, Young Ham, pursuant to 18 U.S.C Section 1350,  as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002            |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 
|                      | LIQUIDMETAL TECHNOLOGIES                      |
|---------------------------|-----------------------------------------------|
|                      | (Registrant)                                  |
|                      |                                          |
| Date:  July 20, 2006 | /s/ Ricardo A. Salas                          |   |
|                      | Ricardo A. Salas                              |
|                      | President and Chief  Executive Officer        |
|                      | (Principal Executive  Officer)                |
|                      |                                          |
|                      |                                          |
| Date:  July 20, 2006 | /s/ Young Ham                                 |   |
|                      | Young  Ham                                    |
|                      | Chief Financial Officer                       |
|                      | (Principal Financial  and Accounting Officer) |
|                           |                                               |  |  |

 

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