##### 



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

For the quarterly period ended September 30, 2003

OR

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

For the transition period
from_____to_____

Commission File No. 000-31332



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LIQUIDMETAL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)


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

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

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



---

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

Yes x No o

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

Yes o No x

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

1



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TABLE OF CONTENTS

|                            |                                                                                                |                                                                                   
|--------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------
|PART I                     
|                            | Item 1  Financial Statements                                                                 
|                            |                                                                                                | Condensed Consolidated Balance Sheets (unaudited)                                 
|                            |                                                                                                | Condensed Consolidated Statements of Operations and Comprehensive 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 2  Changes in Securities and Use of Proceeds                                            
|                            | Item 6  Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                 
|CERTIFICATIONS             
|EXHIBIT INDEX              

2



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PART I
FINANCIAL INFORMATION

Item 1  Financial Statements and Independent Accountants Report

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

|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |              |        |        |        | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------------------- | ------------------------------------------ | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        | September 30, |        | December 31,
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        | 2003          |        | 2002        
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      | ASSETS                                     |        |               |        |              |        |        |        | 
|CURRENT ASSETS:                                     |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    | Cash and cash equivalents                                                                                                                                                                                                                                             |                            | $                    | 8,593                                      |        |               | $      | 26,003       |       
|                                                    | Marketable securities held-for-sale                                                                                                                                                                                                                                   |                            |                      |                                           |        |               |        | 3,068        |       
|                                                    | Trade receivables, net                                                                                                                                                                                                                                                |                            |                      | 7,100                                      |        |               |        | 6,404        |       
|                                                    | Inventories                                                                                                                                                                                                                                                           |                            |                      | 5,008                                      |        |               |        | 2,506        |       
|                                                    | Prepaid expenses and other current assets                                                                                                                                                                                                                             |                            |                      | 954                                        |        |               |        | 2,112        |       
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       |                            | Total current assets |                                            |        | 21,655        |        |              |        | 40,093 |       
|PROPERTY, PLANT AND EQUIPMENT, NET                  |                                                                                                                                                                                                                                                                       |                            | 22,547               |                                            |        |               | 23,505 |             
|GOODWILL                                            |                                                                                                                                                                                                                                                                       |                            | 184                  |                                            |        |               | 184    |             
|OTHER INTANGIBLE ASSETS, NET                        |                                                                                                                                                                                                                                                                       |                            | 972                  |                                            |        |               | 785    |             
|OTHER ASSETS                                        |                                                                                                                                                                                                                                                                       |                            | 340                  |                                            |        |               | 438    |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      | Total assets                               |        | $             | 45,698 |              |        | $      | 65,005 | 
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      | LIABILITIES AND SHAREHOLDERS EQUITY       |        |               |        |              |        |        |        | 
|CURRENT LIABILITIES:                                |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    | Accounts payable and accrued expenses                                                                                                                                                                                                                                 |                            | $                    | 5,978                                      |        |               | $      | 11,174       |       
|                                                    | Net liabilities of discontinued operations                                                                                                                                                                                                                            |                            |                      | 133                                        |        |               |        | 1,148        |       
|                                                    | Deferred revenue                                                                                                                                                                                                                                                      |                            |                      | 885                                        |        |               |        | 1,397        |       
|                                                    | Long-term debt, current portion                                                                                                                                                                                                                                       |                            |                      | 1,935                                      |        |               |        |             |       
|                                                    | Other liabilities, current portion                                                                                                                                                                                                                                    |                            |                      | 113                                        |        |               |        | 19           |       
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       | Total current liabilities  |                      |                                            | 9,044  |               |        |              | 13,738 |       
|LONG-TERM DEBT, NET OF CURRENT PORTION              |                                                                                                                                                                                                                                                                       |                            | 3,719                |                                            |        |               |       |             
|OTHER LONG-TERM LIABILITIES, NET OF CURRENT PORTION |                                                                                                                                                                                                                                                                       |                            | 228                  |                                            |        |               | 74     |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       | Total liabilities          |                      |                                            | 12,991 |               |        |              | 13,812 |       
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|COMMITMENTS AND CONTINGENCIES                       |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|MINORITY INTEREST                                   |                                                                                                                                                                                                                                                                       |                            | 1                    |                                            |        |               | 21     |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|SHAREHOLDERS EQUITY:                               |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    | Common stock, $0.001 par value per share, 100,000,000 shares authorized;
41,599,652 shares issued and outstanding at September 30, 2003;
and common stock, no par value, 200,000,000 shares authorized,
41,009,245 shares issued and outstanding at December 31, 2002 |                            |                      | 42                                         |        |               |        | 106,554      |       
|                                                    | Paid in capital                                                                                                                                                                                                                                                       |                            |                      | 127,136                                    |        |               |        | 20,326       |       
|                                                    | Unamortized stock-based compensation                                                                                                                                                                                                                                  |                            |                      | (187                                       | )      |               |        | (480         | )     
|                                                    | Accumulated deficit                                                                                                                                                                                                                                                   |                            |                      | (95,175                                    | )      |               |        | (76,940      | )     
|                                                    | Accumulated other comprehensive income                                                                                                                                                                                                                                |                            |                      | 890                                        |        |               |        | 1,712        |       
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       | Total shareholders equity |                      |                                            | 32,706 |               |        |              | 51,172 |       
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      | Total liabilities and shareholders equity |        | $             | 45,698 |              |        | $      | 65,005 | 
|                                                    |                                                                                                                                                                                                                                                                       |                            |                      |                                            |        |               |        |             

See notes to condensed consolidated financial statements.

3



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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |       |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------ | -------------------- | ----- | ------------------- | ------ | ----- | ----- | ---- | ------- | ------ | ------ | - | ------- | ----- | ------ | -
|                                                                                                |                                                                                                                                                                |                                                               |        | For the Three Months |       | For the Nine Months
|                                                                                                |                                                                                                                                                                |                                                               |        | Ended September 30,  |       | Ended September 30,
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                    
|                                                                                                |                                                                                                                                                                |                                                               |        | 2003                 |       | 2002                |        | 2003  |       | 2002
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |     
|REVENUE                                                                                         |                                                                                                                                                                | $                                                             | 3,524  |                      |       | $                   | 3,655  |       |       | $    | 16,492  |        |        | $ | 7,262   |      
|COST OF SALES                                                                                   |                                                                                                                                                                |                                                               | 4,882  |                      |       |                     | 2,524  |       |       |      | 15,154  |        |        |   | 4,393   |      
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|Gross profit (loss)                                                                             |                                                                                                                                                                |                                                               | (1,358 | )                    |       |                     | 1,131  |       |       |      | 1,338   |        |        |   | 2,869   |      
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|OPERATING EXPENSES:                                                                             |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|                                                                                                |                                                                                                                                                                | Selling, general, and administrative                          |        |                      | 3,732 |                     |        |       | 3,912 |      |         |        | 12,943 |   |         |       | 9,041  |  
|                                                                                                |                                                                                                                                                                | Research and development                                      |        |                      | 981   |                     |        |       | 2,652 |      |         |        | 7,828  |   |         |       | 7,008  |  
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|                                                                                                |                                                                                                                                                                | Total expenses                                                |        |                      | 4,713 |                     |        |       | 6,564 |      |         |        | 20,771 |   |         |       | 16,049 |  
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|LOSS BEFORE INTEREST, OTHER INCOME, INCOME TAXES,
MINORITY INTEREST AND DISCONTINUED
OPERATIONS |                                                                                                                                                                |                                                               | (6,071 | )                    |       |                     | (5,433 | )     |       |      | (19,433 | )      |        |   | (13,180 | )    
|                                                                                                |                                                                                                                                                                | Interest expense                                              |        |                      | (106  | )                   |        |       | (6    | )    |         |        | (284   | ) |         |       | (1,109 | )
|                                                                                                |                                                                                                                                                                | Interest income                                               |        |                      | 53    |                     |        |       | 297   |      |         |        | 286    |   |         |       | 393    |  
|                                                                                                |                                                                                                                                                                | Gain on sale of marketable securities held-for-sale           |        |                      |      |                     |        |       |      |      |         |        | 1,178  |   |         |       |       |  
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|LOSS BEFORE INCOME TAXES, MINORITY INTEREST
AND DISCONTINUED OPERATIONS                         |                                                                                                                                                                |                                                               | (6,124 | )                    |       |                     | (5,142 | )     |       |      | (18,253 | )      |        |   | (13,896 | )    
|                                                                                                |                                                                                                                                                                | Income taxes                                                  |        |                      |      |                     |        |       |      |      |         |        | (8     | ) |         |       |       |  
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|LOSS BEFORE MINORITY INTEREST AND
DISCONTINUED OPERATIONS                                       |                                                                                                                                                                |                                                               | (6,124 | )                    |       |                     | (5,142 | )     |       |      | (18,261 | )      |        |   | (13,896 | )    
|                                                                                                |                                                                                                                                                                | Minority interest in loss (income) of consolidated subsidiary |        |                      | 23    |                     |        |       | (76   | )    |         |        | 26     |   |         |       | (86    | )
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|LOSS FROM CONTINUING OPERATIONS                                                                 |                                                                                                                                                                |                                                               | (6,101 | )                    |       |                     | (5,218 | )     |       |      | (18,235 | )      |        |   | (13,982 | )    
|                                                                                                |                                                                                                                                                                | Gain from disposal of discontinued retail golf segment, net   |        |                      |      |                     |        |       | 1,466 |      |         |        |       |   |         |       | 1,974  |  
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|NET LOSS                                                                                        |                                                                                                                                                                |                                                               | (6,101 | )                    |       |                     | (3,752 | )     |       |      | (18,235 | )      |        |   | (12,008 | )    
|                                                                                                | Foreign exchange translation gain (loss)                                                                                                                       |                                                               |        | 687                  |       |                     |        | (371  | )     |      |         | 846    |        |   |         | (334  | )     
|                                                                                                | Net unrealized gain (loss) on marketable securities held-for-sale
(including transfer of realized gain of $1,178 for the nine
months ended September 30, 2003) |                                                               |        |                     |       |                     |        | 182   |       |      |         | (1,668 | )      |   |         | 182   |       
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|COMPREHENSIVE LOSS                                                                              |                                                                                                                                                                | $                                                             | (5,414 | )                    |       | $                   | (3,941 | )     |       | $    | (19,057 | )      |        | $ | (12,160 | )    
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|PER COMMON SHARE BASIC AND DILUTED:                                                             |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|                                                                                                | Loss from continuing operations                                                                                                                                |                                                               | $      | (0.15                | )     |                     | $      | (0.13 | )     |      | $       | (0.44  | )      |   | $       | (0.37 | )     
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|                                                                                                | Income from discontinued operations                                                                                                                            |                                                               | $      | 0.00                 |       |                     | $      | 0.04  |       |      | $       | 0.00   |        |   | $       | 0.05  |       
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      
|                                                                                                | Net loss                                                                                                                                                       |                                                               | $      | (0.15                | )     |                     | $      | (0.09 | )     |      | $       | (0.44  | )      |   | $       | (0.32 | )     
|                                                                                                |                                                                                                                                                                |                                                               |        |                      |       |                     |        |       |       |      |         |        |        |   |         |      

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Nine Months Ended September 30, 2003
(in thousands, except share data)
(unaudited)

|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |     |         |   |         |         |   |   |       |        |   |   |        |         |   |  |  |  | 
|--------------------------- | ------------------------------------------ |  | ---------- | ------- | ------ | - | ------- | -------- | ------- | - | ------- | ------- | ------------- | - | ----------- | --- | ------- | - | ------- | ------- | - | - | ----- | ------ | - | - | ------ | ------- | - |  |  |  | 
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Unamortized |     |         |   |         |         |   |   |       |        |   |   |        |         |   |  | 
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Stock-      |     |         |   |         |         |   |   |       |        |   |   |        |         |   |  | 
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   | Based       |     | Accumu- |   | Compre- |         |   |   |       |        |   |   |       
|                            |                                            |  | Common     |         | Common |   | Paid in |          | Compen- |   | lated   |         | hensive       |   |             |     |         |   |         |         |  
|                            |                                            |  | Shares     |         | Stock  |   | Capital |          | sation  |   | Deficit |         | Income (Loss) |   | Total       |     |         |   |        
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |     |         |   |        
|Balance, December 31, 2002  |                                            |  | 41,009,245 |         |        | $ | 106,554 |          |         | $ | 20,326  |         |               | $ | (480        | )   |         | $ | (76,940 | )       |   | $ | 1,712 |        |   | $ | 51,172 |        
|                            | Stock options exercised                    |  |            | 684,165 |        |   |         | 1,149    |         |   |         |        |               |   |             |    |         |   |         |        |   |   |       |       |   |   |        | 1,149   |  
|                            | Repurchase of shares                       |  |            | (93,758 | )      |   |         | (653     | )       |   |         |        |               |   |             |    |         |   |         |        |   |   |       |       |   |   |        | (653    | )
|                            | Change in par value due to
reincorporation |  |            |        |        |   |         | (107,008 | )       |   |         | 107,008 |               |   |             |    |         |   |         |        |   |   |       |       |   |   |        |        |  
|                            | Stock-based
compensation amortization      |  |            |        |        |   |         |         |         |   |         | (203    | )             |   |             | 293 |         |   |         |        |   |   |       |       |   |   |        | 90      |  
|                            | Exercise of warrants                       |  |            |        |        |   |         |         |         |   |         | 5       |               |   |             |    |         |   |         |        |   |   |       |       |   |   |        | 5       |  
|                            | Foreign exchange translation
gain          |  |            |        |        |   |         |         |         |   |         |        |               |   |             |    |         |   |         |        |   |   |       | 846    |   |   |        | 846     |  
|                            | Unrealized loss on marketable
securities   |  |            |        |        |   |         |         |         |   |         |        |               |   |             |    |         |   |         |        |   |   |       | (1,668 | ) |   |        | (1,668  | )
|                            | Net loss                                   |  |            |        |        |   |         |         |         |   |         |        |               |   |             |    |         |   |         | (18,235 | ) |   |       |       |   |   |        | (18,235 | )
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |     |         |   |         |         |   |   |       |        |   |   |        |        
|Balance, September 30, 2003 |                                            |  | 41,599,652 |         |        | $ | 42      |          |         | $ | 127,136 |         |               | $ | (187        | )   |         | $ | (95,175 | )       |   | $ | 890   |        |   | $ | 32,706 |        
|                            |                                            |  |            |         |        |   |         |          |         |   |         |         |               |   |             |     |         |   |         |         |   |   |       |        |   |   |        |        

See notes to condensed consolidated financial statements.

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LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |         |        |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------- | ------------------- | ------ | ---- | ------- | ------- | ------ | -
|                                                     |                                                                                                    |                                                               |         | For the Nine Months
|                                                     |                                                                                                    |                                                               |         | Ended September 30,
|                                                     |                                                                                                    |                                                               |         |                    
|                                                     |                                                                                                    |                                                               |         | 2003                |        | 2002
|                                                     |                                                                                                    |                                                               |         |                     |        |     
|OPERATING ACTIVITIES:                                |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Net loss                                                                                           |                                                               | $       | (18,235             | )      |      | $       | (12,008 | )     
|                                                     | Gain on disposition of discontinued operations                                                     |                                                               |         |                    |        |      |         | (1,974  | )     
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Loss from continuing operations                                                                    |                                                               |         | (18,235             | )      |      |         | (13,982 | )     
|                                                     | Adjustments to reconcile loss from continuing operations to net cash used
by operating activities: |                                                               |         |                     |        |      |         |         |       
|                                                     |                                                                                                    | Gain on sale of marketable securities held-for-sale           |         |                     | (1,178 | )    |         |         |       |  
|                                                     |                                                                                                    | Gain on sale of property and equipment                        |         |                     |       |      |         |         | (19    | )
|                                                     |                                                                                                    | Minority interest in (loss) income of consolidated subsidiary |         |                     | (26    | )    |         |         | 86     |  
|                                                     |                                                                                                    | Depreciation and amortization                                 |         |                     | 3,775  |      |         |         | 742    |  
|                                                     |                                                                                                    | Amortization of debt discount                                 |         |                     |       |      |         |         | 912    |  
|                                                     |                                                                                                    | Stock-based compensation                                      |         |                     | 90     |      |         |         | 1,629  |  
|                                                     |                                                                                                    | Bad debt expense                                              |         |                     | 193    |      |         |         | 102    |  
|                                                     |                                                                                                    | Warranty expense                                              |         |                     | 457    |      |         |         |       |  
|                                                     | Changes in operating assets and liabilities:                                                       |                                                               |         |                     |        |      |         |         |       
|                                                     |                                                                                                    | Accounts receivable                                           |         |                     | (889   | )    |         |         | (3,031 | )
|                                                     |                                                                                                    | Inventories                                                   |         |                     | (1,006 | )    |         |         | (1,628 | )
|                                                     |                                                                                                    | Prepaid expenses and other current assets                     |         |                     | 1,158  |      |         |         | (480   | )
|                                                     |                                                                                                    | Other assets                                                  |         |                     | 98     |      |         |         | (119   | )
|                                                     |                                                                                                    | Accounts payable and accrued expenses                         |         |                     | (6,056 | )    |         |         | 3,296  |  
|                                                     |                                                                                                    | Deferred revenue                                              |         |                     | (512   | )    |         |         | 123    |  
|                                                     |                                                                                                    | Other liabilities                                             |         |                     |       |      |         |         | (1     | )
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|Net cash used by continuing operations               |                                                                                                    |                                                               | (22,131 | )                   |        |      | (12,370 | )      
|Net cash used by discontinued operations             |                                                                                                    |                                                               | (1,015  | )                   |        |      | (2,256  | )      
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|Net cash used by operating activities                |                                                                                                    |                                                               | (23,146 | )                   |        |      | (14,626 | )      
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|INVESTING ACTIVITIES:                                |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Purchases of property and equipment                                                                |                                                               |         | (2,708              | )      |      |         | (12,602 | )     
|                                                     | Proceeds from sale of property and equipment                                                       |                                                               |         |                    |        |      |         | 129     |       
|                                                     | Purchases of marketable securities held-for-sale                                                   |                                                               |         |                    |        |      |         | (2,000  | )     
|                                                     | Proceeds from sale of marketable securities held-for-sale                                          |                                                               |         | 2,578               |        |      |         |        |       
|                                                     | Purchase price of 51% investment in subsidiary, net of cash received of $407                       |                                                               |         |                    |        |      |         | 74      |       
|                                                     | Investment in patents and trademarks                                                               |                                                               |         | (252                | )      |      |         | (93     | )     
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|Net cash used by investing activities                |                                                                                                    |                                                               | (382    | )                   |        |      | (14,492 | )      
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|FINANCING ACTIVITIES:                                |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Proceeds from borrowings                                                                           |                                                               |         | 5,488               |        |      |         | 3,500   |       
|                                                     | Repayment of borrowings                                                                            |                                                               |         |                    |        |      |         | (7,400  | )     
|                                                     | Repayment of other liabilities                                                                     |                                                               |         | (43                 | )      |      |         | (9      | )     
|                                                     | Proceeds from issuance of common stock (net of offering costs)                                     |                                                               |         |                    |        |      |         | 70,721  |       
|                                                     | Stock warrants exercised                                                                           |                                                               |         | 5                   |        |      |         |        |       
|                                                     | Stock options exercised                                                                            |                                                               |         | 899                 |        |      |         | 460     |       
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|Net cash provided by financing activities            |                                                                                                    |                                                               | 6,349   |                     |        |      | 67,272  |        
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|EFFECT OF FOREIGN EXCHANGE TRANSLATION               |                                                                                                    |                                                               | (231    | )                   |        |      | (236    | )      
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                                    |                                                               | (17,410 | )                   |        |      | 37,918  |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                                    |                                                               | 26,003  |                     |        |      | 2,230   |        
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD           |                                                                                                    | $                                                             | 8,593   |                     |        | $    | 40,148  |        
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION                   |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Interest paid                                                                                      |                                                               | $       | 108                 |        |      | $       | 439     |       
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        
|                                                     | Taxes paid                                                                                         |                                                               | $       | 126                 |        |      | $       |        |       
|                                                     |                                                                                                    |                                                               |         |                     |        |      |         |        

(continued)

6



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

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

During the nine months ended September 30, 2003, the change in the foreign
exchange rate between the U.S. Dollar and the South Korean Won resulted in a
$166 gain related to the note payable, a $1,249 gain related to property, plant
and equipment and a $6 loss related to minority interest in a consolidated
subsidiary.

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

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

During the nine months ended September 30, 2002, the Company recorded a
net addition to shareholders equity of $1,149 comprised of stock-based
compensation in the discontinued retail golf operations. Additionally, there
was a $98 foreign exchange loss effect in the discontinued retail golf
operations.

See notes to condensed consolidated financial statements.

7



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

1. Description of Business

Liquidmetal Technologies, Inc. and its subsidiaries (collectively, the
Company) are in the business of developing and commercializing products made
from amorphous alloys. Liquidmetal Technologies, Inc. markets and sells
Liquidmetal® alloy industrial coatings and also manufactures, markets and sells
products and components from bulk Liquidmetal alloys that can be incorporated
into the finished goods of its customers across a variety of industries. The
Company also partners with third-party licensees and distributors to develop
and commercialize Liquidmetal alloy products.

The Company classifies operations into two reportable segments:
Liquidmetal alloy industrial coatings and bulk Liquidmetal alloys. Liquidmetal
alloy industrial coatings are used primarily as a protective coating for
industrial machinery and equipment, such as drill pipe used by the oil drilling
industry and boiler tubes used by coal-burning power plants. The bulk
Liquidmetal alloy segment includes market opportunities to develop and sell
components for electronic devices, medical devices, sporting goods, tooling and
prototype sampling, and metal processing equipment. In addition, the bulk
Liquidmetal alloy segment includes revenue and expenses from research and
development services provided to both governmental entities and other
businesses, as well as potential license fees, royalties, and other
compensation from strategic partnering transactions.

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

2. Liquidity

The Company has experienced losses from continuing operations during the
last two fiscal years and the nine months ended September 30, 2003 and has an
accumulated deficit of $95,175 as of September 30, 2003. Cash used in
continuing operations for the nine months ended September 30, 2003 and the
fiscal year ended December 31, 2002 was $22,131 and $16,856, respectively, and
it is likely that cash flow from continuing operations will be negative
throughout the fourth quarter of 2003 and the year of 2004. At September 30,
2003, the Companys principal source of liquidity is $8,593 of cash and cash
equivalents. Such conditions raise substantial doubt that the Company will be able to
continue as a going concern for a reasonable period of time without receiving
additional funding. These operating results occurred while the Company was
developing and attempting to commercialize and manufacture products from an
entirely new and unique technology. This business plan required significant
spending related to start-up costs and capital expenditures. These factors have
placed a significant strain on the financial resources of the Company.
Management has sought to generate additional financial resources by reducing
operating costs and is seeking additional sources of financing, including debt
or equity funding. The ultimate success of the Company depends on its ability
to obtain additional financing, to continue reducing operating costs and,
ultimately, to generate higher revenue and attain profitability. The condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

3. Basis of Presentation and Recent Accounting Pronouncements

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America (generally accepted accounting principles)
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included. In
addition, certain reclassifications have been made for consistent presentation.

8



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

Operating results for the nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for any future
periods or the year ending
December 31, 2003. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Companys Annual Report on
Form 10-K for the year ended December 31, 2002 filed with the Securities and
Exchange Commission on March 31, 2003.

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

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

|                                                             |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |      |   |         |        |   |   |         |        |  
|------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | - | -------------------- | ---- | ------------------- | - | ------ | ---- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                             |                                          |                                                                                                                     |   | For the Three Months |      | For the Nine Months
|                                                             |                                          |                                                                                                                     |   | Ended September 30,  |      | Ended September 30,
|                                                             |                                          |                                                                                                                     |   |                      |      |                    
|                                                             |                                          |                                                                                                                     |   | 2003                 |      | 2002                |   | 2003   |      | 2002
|                                                             |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |     
|Loss from continuing operations:                             |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |      |   |         |        |   |   |        
|                                                             | As reported                              |                                                                                                                     | $ | (6,101               | )    |                     | $ | (5,218 | )    |      | $ | (18,235 | )      |   | $ | (13,982 | )     
|                                                             |                                          | Add: stock-based employee compensation expense (gain)
included in reported net loss, net of related tax effects     |   |                      | (10  | )                   |   |        | 31   |      |   |         | 44     |   |   |         | 200    |  
|                                                             |                                          | Deduct: total stock-based employee compensation expense
determined under the fair value based method for all
awards |   |                      | (232 | )                   |   |        | (246 | )    |   |         | (5,427 | ) |   |         | (5,064 | )
|                                                             |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |      |   |         |        |   |   |        
|                                                             | Proforma loss from continuing operations |                                                                                                                     | $ | (6,343               | )    |                     | $ | (5,433 | )    |      | $ | (23,618 | )      |   | $ | (18,846 | )     
|                                                             |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |      |   |         |        |   |   |        
|Basic and diluted loss per share from continuing operations: |                                          |                                                                                                                     |   |                      |      |                     |   |        |      |      |   |         |        |   |   |        
|                                                             | As reported                              |                                                                                                                     | $ | (0.15                | )    |                     | $ | (0.13  | )    |      | $ | (0.44   | )      |   | $ | (0.37   | )     
|                                                             | Proforma                                 |                                                                                                                     |   | (0.15                | )    |                     |   | (0.13  | )    |      |   | (0.57   | )      |   |   | (0.50   | )     

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

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

9



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation
-Transition and Disclosure(SFAS No. 148) was issued by the FASB. This
standard amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this standard amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for financial statements for fiscal years ending
after December 15, 2002. The Company implemented SFAS No. 148 effective
January 1, 2003 regarding disclosure requirements for condensed financial
statements for interim periods. The Company has not yet determined whether it
will voluntarily change to the fair value based method of accounting for
stock-based employee compensation.

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

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS No. 149), Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. SFAS No. 149 is intended to result in more consistent
reporting of contracts as either freestanding derivative instruments subject to
Statement 133 in its entirely, or as hybrid instruments with debt host
contracts and embedded derivative features. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 did not have a material effect on the Companys results of operations,
liquidity, or financial condition.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. SFAS No. 150 requires certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity to be classified as liabilities.
Many of these instruments previously were classified as equity or temporary
equity and as such, SFAS No. 150 represents a significant change in practice in
the accounting for a number of mandatorily redeemable equity instruments and
certain equity derivatives that frequently are used in connection with share
repurchase programs. SFAS No. 150 is effective for all financial instruments
created or modified after May 31, 2003, and to other instruments at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material effect on the Companys
results of operations, liquidity, or financial condition.

In January 2003, the FASB issued FASB Interpretation No. 46 Consolidation
of Variable Interest Entities, an interpretation of Accounting Research
Bulletin (ARB) No. 51, Consolidated Financial Statements(FIN 46). FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The adoption of FIN 46, as it relates to variable interest entities
created after January 31, 2003, did not impact the Companys condensed
consolidated financial statements. Additional provisions of FIN 46, which
will become effective for the Company beginning on January 1,
2004, have not had, and
are not anticipated by management to have a, material effect on the Companys
consolidated financial statements.

10



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

4. Trade Receivables

Trade receivables from continuing operations were comprised of the
following:

|                                      |                         |   |               |       |              |   |       |       | 
|------------------------------------- | ----------------------- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                                      |                         |   | September 30, |       | December 31,
|                                      |                         |   | 2003          |       | 2002        
|                                      |                         |   |               |       |             
|Accounts receivable                   |                         | $ | 7,382         |       |              | $ | 6,681 |      
|Less: Allowance for doubtful accounts |                         |   | (282          | )     |              |   | (277  | )    
|                                      |                         |   |               |       |              |   |       |      
|                                      | Account receivable, net |   | $             | 7,100 |              |   | $     | 6,404 | 
|                                      |                         |   |               |       |              |   |       |      

5. Inventories

Inventories from continuing operations were comprised of the following:

|                |                   |   |               |       |              |   |       |       | 
|--------------- | ----------------- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                |                   |   | September 30, |       | December 31,
|                |                   |   | 2003          |       | 2002        
|                |                   |   |               |       |             
|Raw materials   |                   | $ | 3,237         |       |              | $ | 1,585 |      
|Work in process |                   |   | 1,232         |       |              |   | 592   |      
|Finished goods  |                   |   | 539           |       |              |   | 329   |      
|                |                   |   |               |       |              |   |       |      
|                | Total inventories |   | $             | 5,008 |              |   | $     | 2,506 | 
|                |                   |   |               |       |              |   |       |      

6. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

|                                                                       |                                          |   |               |        |              |   |        |        | 
|---------------------------------------------------------------------- | ---------------------------------------- | - | ------------- | ------ | ------------ | - | ------ | ------ | 
|                                                                       |                                          |   | September 30, |        | December 31,
|                                                                       |                                          |   | 2003          |        | 2002        
|                                                                       |                                          |   |               |        |             
|Machinery and equipment                                                |                                          | $ | 12,381        |        |              | $ | 11,002 |       
|Office and computer equipment, software, furnishings, and improvements |                                          |   | 2,970         |        |              |   | 2,465  |       
|Buildings                                                              |                                          |   | 11,631        |        |              |   | 11,084 |       
|Construction in process of machinery and equipment and plant           |                                          |   |              |        |              |   | 403    |       
|                                                                       |                                          |   |               |        |              |   |        |       
|                                                                       | Total                                    |   |               | 26,982 |              |   |        | 24,954 | 
|Accumulated depreciation                                               |                                          |   | (4,435        | )      |              |   | (1,449 | )     
|                                                                       |                                          |   |               |        |              |   |        |       
|                                                                       | Total property, plant and equipment, net |   | $             | 22,547 |              |   | $      | 23,505 | 
|                                                                       |                                          |   |               |        |              |   |        |       

Depreciation expense was approximately $1,165 and $226 for the three
months ended September 30, 2003 and 2002, respectively; and $3,397 and $676 for
the nine months ended September 30, 2003 and 2002, respectively. During the
three and nine months ended September 30, 2003, $258 and $571 of the
depreciation expense was a result of accelerated depreciation expense due to a
change in the estimated useful life of certain property, plant and equipment.

11



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

7. Other Intangible Assets

Other intangible assets consisted of the following:

|                                     |                              |   |               |       |              |   |      |       | 
|------------------------------------ | ---------------------------- | - | ------------- | ----- | ------------ | - | ---- | ----- | 
|                                     |                              |   | September 30, |       | December 31,
|                                     |                              |   | 2003          |       | 2002        
|                                     |                              |   |               |       |             
|Purchased and licensed patent rights |                              | $ | 458           |       |              | $ | 458  |      
|Internally developed patents         |                              |   | 840           |       |              |   | 622  |      
|Trademarks                           |                              |   | 83            |       |              |   | 56   |      
|                                     |                              |   |               |       |              |   |      |      
|                                     | Total                        |   |               | 1,381 |              |   |      | 1,136 | 
|Accumulated amortization             |                              |   | (409          | )     |              |   | (351 | )    
|                                     |                              |   |               |       |              |   |      |      
|                                     | Total intangible assets, net |   | $             | 972   |              |   | $    | 785   | 
|                                     |                              |   |               |       |              |   |      |      

Amortization expense was approximately $24 and $18 for the three months
ended September 30, 2003 and 2002, respectively; and $65 and $66 for the nine
months ended September 30, 2003 and 2002, respectively. The estimated
aggregate amortization expense for each of the five succeeding years is as
follows:

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

8. Product Warranty

Due to the lack of historical information for warranty expense related to
bulk alloy products, management estimates product warranties as a percentage of
bulk alloy product sales earned during the period. During the three and nine
months ended September 30, 2003, the Company recorded $95 and $457 of warranty
expense, respectively. The product warranty accrual balance is included in
accounts payable and accrued expenses, and the warranty expense is included in
selling, general, and administrative expenses. As of November 14,
2003, there have been no warranty claims paid.

9. Debt

On February 4, 2003, our Korean subsidiary received 6,500,000 in South
Korean Won, or approximately $5,488, under a loan from Kookmin Bank of South
Korea. The loan bears interest at an annual rate of 7.1%. In the event of
delayed repayment, the interest increases to a maximum of 21%, depending on the
length of time the repayment is delayed. This loan is collateralized by the plant
facilities and certain equipment in South Korea. During the first eighteen
months from the origination date, interest was payable on a monthly basis. In
October 2003, the Company paid $900 of principal at the request of Kookmin due
to the sale of machines that had been part of the collateral on the
loan. Subsequent to October 31, 2003, Kookmin Bank requested that the
Company pay an additional $900 of principal by January 2004 due to
the Companys current credit rating. Beginning in September 2004, the Company will be required
to make equal monthly
installments of principal and interest to repay the remaining balance
of the loan.

12



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

Since this note is denominated in South Korea Won, the balance and payment
amounts fluctuate with the exchange rate between the U.S. Dollar and the South
Korean Won, resulting in the recognition of foreign exchange gains or losses
that are included in other comprehensive income (loss). At September 30, 2003,
the balance of the note was $5,654, resulting in the recognition of a cumulative
foreign exchange gain of $166, which is included in the net foreign exchange
gain included in other comprehensive income (loss) for the nine months ended
September 30, 2003.

On
August 23, 2003, the Company entered into a short-term agreement
with Shinhan Bank of South Korea in the amount of $ 1,000 which expires on May
30, 2004. The credit agreement is solely for the issuance of a letter
of credit to vendors when our Korean subsidiary imports raw materials
or other goods into South Korea. The facility is secured by any raw material or goods financed through the
credit facility. As of November 14, 2003 , there were no borrowings
outstanding under this agreement.

10. Discontinued Operations

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

During the three and nine months ended September 30, 2003, there was no
change in the estimate of expenses associated with the disposal of the
discontinued retail golf operations. During the nine months ended September
30, 2002, the Company recorded a net gain change in estimate of $1,974 on the
disposal of the discontinued retail golf segment that was primarily due to a
change in the estimated value of stock-based compensation. The change in
estimated value of the stock-based compensation was a result of the cumulative
decrease of $3,010 in the fair market value of the common shares underlying the
options granted to Paul Azinger. Additionally, there was a $98 gain due to the
reversal of the accumulated foreign exchange gains after the liquidation of
Liquidmetal Golf Europe Inc. These gains were partially offset by other
changes in the estimated loss on disposal that included $572 of additional
operating expenses, $57 increase in the allowance for doubtful accounts and
$505 primarily for the reduction of the estimated disposal value of
work-in-process inventory and equipment.

At September 30, 2003, the net liabilities of the discontinued operations
consisted entirely of current liabilities which are mostly attributed
to warranty accruals. There were no assets associated
with discontinued retail golf operations at September 30, 2003.

11. Stock Compensation Plan

On April 4, 2002, the Companys shareholders and Board of Directors
adopted the 2002 Equity Incentive Plan (2002 Equity Plan). The 2002 Equity
Plan authorizes the grant of stock options to officers, employees, consultants
and directors of the Company and its subsidiaries. In addition, the plan
permits the granting of stock appreciation rights, with, or independently of,
options, as well as stock bonuses and rights to purchase restricted stock. A
total of 10,000,000 shares of common stock may be granted under the 2002 Equity
Plan. As of September 30, 2003, there are 313,315 options outstanding under the
2002 Equity Plan. The stock options are exercisable over a period determined
by the Board of Directors or the Compensation Committee, but no longer than 10
years.

13



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

Prior to the approval of the 2002 Equity Plan, options were primarily
granted under the Companys 1996 Stock Option Plan (1996 Company Plan). On
April 4, 2002, the Companys Board of Directors terminated the 1996 Company
Plan. The termination will not affect any outstanding options under the 1996
Company Plan and all such options will continue to remain
outstanding and be governed by the plan. No additional options may be granted
under the 1996 Company Plan. As of September 30, 2003, there were 3,764,632
options outstanding under the 1996 Company Plan.

On April 4, 2002, the Companys shareholders and Board of Directors
adopted the 2002 Non-employee Director Stock Option Plan (2002 Director
Plan). Only non-employee directors are eligible for grants under the 2002
Director Plan. A total of 1,000,000 shares of the Companys common stock may be
granted under the 2002 Director Plan. There are 190,000 options outstanding
under the 2002 Director Plan as of September 30, 2003.

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

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants for the nine months ended
September 30, 2003 and 2002, respectively: expected volatility of 100% for all
periods; dividend yield of 0.0% for all periods; expected option life of
approximately 5 years; and a risk-free interest rate ranging from 2.6% to 3.8%.

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

|                                          |           |  |           |            |         |   |          |       |  
|----------------------------------------- | --------- |  | --------- | ---------- | ------- | - | -------- | ----- | -
|                                          |           |  |           |            |         |   | Weighted
|                                          |           |  | Number of |            | Average
|                                          |           |  | Shares    |            | Price  
|                                          |           |  |           |            |        
|Options outstanding at December 31, 2002  |           |  | 8,182,348 |            |         | $ | 5.37     |      
|                                          | Granted   |  |           | 160,920    |         |   |          | 9.12  |  
|                                          | Exercised |  |           | (684,165   | )       |   |          | (1.68 | )
|                                          | Forfeited |  |           | (1,128,406 | )       |   |          | (3.70 | )
|                                          |           |  |           |            |         |   |          |      
|Options outstanding at September 30, 2003 |           |  | 6,530,697 |            |         |   | 6.14     |      
|                                          |           |  |           |            |         |   |          |      

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

|                                          |           |  |           |          |         |   |          |       |  
|----------------------------------------- | --------- |  | --------- | -------- | ------- | - | -------- | ----- | -
|                                          |           |  |           |          |         |   | Weighted
|                                          |           |  | Number of |          | Average
|                                          |           |  | Shares    |          | Price  
|                                          |           |  |           |          |        
|Options outstanding at December 31, 2001  |           |  | 8,166,703 |          |         | $ | 4.53     |      
|                                          | Granted   |  |           | 482,298  |         |   |          | 14.79 |  
|                                          | Exercised |  |           | (283,873 | )       |   |          | (1.62 | )
|                                          | Forfeited |  |           | (324,199 | )       |   |          | (4.02 | )
|                                          |           |  |           |          |         |   |          |      
|Options outstanding at September 30, 2002 |           |  | 8,040,929 |          |         |   | 5.26     |      
|                                          |           |  |           |          |         |   |          |      

The weighted average fair value of options granted during the nine months
ended September 30, 2003 and 2002, was $6.90 and $11.20, respectively. There
were 4,663,580 options with a weighted average exercise price of $5.25
exercisable at September 30, 2003 and 4,283,553 options with a weighted average
exercise price of $4.32 exercisable at September 30, 2002.

Included in the above tables are certain options granted where their
exercise prices were below the fair market value of the common stock at the
measurement date (in-the-money). In-the-money options of 541,636 with a
weighted average

14



---



##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

fair value of $4.39 were outstanding at September 30, 2003 and
1,246,927 options with a weighted average fair value of $4.53 were outstanding
at September 30, 2002.

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

|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ------------------ |  | ---------------- | --- | ----------- |  | ------------ | ----- | -------- |  |  | --------- |  |  | - | ----- | 
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  |                     |           |                    |  | Weighted Average |     | Weighted    |  | Number of    |       | Weighted
|Range of            |  | Number of options   |           | Remaining Contract |  | Average          |     | Options     |  | Average     
|Option Price        |  | Outstanding         |           | Life (Years)       |  | Option Price     |     | Exercisable |  | Option Price
|                    |  |                     |           |                    |  |                  |     |             |  |             
|$0.00 - $1.55       |  |                     | 376,345   |                    |  |                  | 7.3 |             |  | $            | 1.16  |          |  |  | 376,345   |  |  | $ | 1.16  | 
|$1.56 - $3.10       |  |                     | 300,774   |                    |  |                  | 4.5 |             |  |              | 2.33  |          |  |  | 300,774   |  |  |   | 2.33  | 
|$3.11 - $4.65       |  |                     | 2,240,943 |                    |  |                  | 7.2 |             |  |              | 4.65  |          |  |  | 1,977,389 |  |  |   | 4.65  | 
|$4.66 - $6.20       |  |                     | 2,695,471 |                    |  |                  | 7.6 |             |  |              | 6.20  |          |  |  | 1,766,883 |  |  |   | 6.20  | 
|$6.21 - $7.75       |  |                     | 7,540     |                    |  |                  | 9.2 |             |  |              | 7.25  |          |  |  | 707       |  |  |   | 7.17  | 
|$7.76 - $9.30       |  |                     | 11,507    |                    |  |                  | 9.2 |             |  |              | 8.80  |          |  |  | 301       |  |  |   | 7.83  | 
|$9.31 - $10.85      |  |                     | 203,065   |                    |  |                  | 9.2 |             |  |              | 10.41 |          |  |  |          |  |  |   |      | 
|$10.86 - $12.40     |  |                     | 339,040   |                    |  |                  | 7.9 |             |  |              | 12.40 |          |  |  | 164,571   |  |  |   | 12.40 | 
|$12.41-$15.50       |  |                     | 356,012   |                    |  |                  | 8.5 |             |  |              | 15.04 |          |  |  | 76,610    |  |  |   | 15.04 | 
|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 
|Total Options       |  |                     | 6,530,697 |                    |  |                  | 7.4 |             |  |              | 6.14  |          |  |  | 4,663,580 |  |  |   | 5.25  | 
|                    |  |                     |           |                    |  |                  |     |             |  |              |       |          |  |  |           |  |  |   |       | 

12. Segment Reporting

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

15



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

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

|                                       |                                            |  |          |       |          |  |            |         |         |  |   |         |  
|-------------------------------------- | ------------------------------------------ |  | -------- | ----- | -------- |  | ---------- | ------- | ------- |  | - | ------- | -
|                                       |                                            |  |          |       |          |  | Bulk Alloy |         | Segment
|                                       |                                            |  | Coatings |       | Products |  | Totals    
|                                       |                                            |  |          |       |          |  |           
|Three months ended September 30, 2003: |                                            |  |          |       |          |  |            |         |         |  |   |        
|                                       | Revenue from external customers            |  | $        | 894   |          |  | $          | 2,630   |         |  | $ | 3,524   |  
|                                       | Gross profit (loss)                        |  |          | 435   |          |  |            | (1,793  | )       |  |   | (1,358  | )
|                                       | Total segment income (loss)                |  |          | 275   |          |  |            | (3,713  | )       |  |   | (3,438  | )
|                                       | Total identifiable assets at end of period |  |          | 1,055 |          |  |            | 33,005  |         |  |   | 34,060  |  
|Three months ended September 30, 2002: |                                            |  |          |       |          |  |            |         |         |  |   |        
|                                       | Revenue from external customers            |  | $        | 1,234 |          |  | $          | 2,421   |         |  | $ | 3,655   |  
|                                       | Gross profit                               |  |          | 569   |          |  |            | 562     |         |  |   | 1,131   |  
|                                       | Total segment income (loss)                |  |          | 358   |          |  |            | (3,024  | )       |  |   | (2,666  | )
|Nine months ended September 30, 2003:  |                                            |  |          |       |          |  |            |         |         |  |   |        
|                                       | Revenue from external customers            |  | $        | 2,374 |          |  | $          | 14,118  |         |  | $ | 16,492  |  
|                                       | Gross profit                               |  |          | 1,151 |          |  |            | 187     |         |  |   | 1,338   |  
|                                       | Total segment income (loss)                |  |          | 293   |          |  |            | (10,672 | )       |  |   | (10,379 | )
|Nine months ended September 30, 2002:  |                                            |  |          |       |          |  |            |         |         |  |   |        
|                                       | Revenue from external customers            |  | $        | 3,862 |          |  | $          | 3,400   |         |  | $ | 7,262   |  
|                                       | Gross profit                               |  |          | 1,824 |          |  |            | 1,045   |         |  |   | 2,869   |  
|                                       | Total segment income (loss)                |  |          | 1,284 |          |  |            | (8,059  | )       |  |   | (6,775  | )

Reconciling information between total segment income (loss) and the
Companys net loss is shown in the following table:

|                                                                                                |                                                               |   |                      |        |                     |   |        |        |      |   |         |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | - | -------------------- | ------ | ------------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                |                                                               |   | For the Three Months |        | For the Nine Months
|                                                                                                |                                                               |   | Ended September 30,  |        | Ended September 30,
|                                                                                                |                                                               |   |                      |        |                    
|                                                                                                |                                                               |   | 2003                 |        | 2002                |   | 2003   |        | 2002
|                                                                                                |                                                               |   |                      |        |                     |   |        |        |     
|Total segment loss                                                                              |                                                               | $ | (3,438               | )      |                     | $ | (2,666 | )      |      | $ | (10,379 | )      |   | $ | (6,775  | )     
|                                                                                                | General and administrative expenses not allocated to segments |   |                      | (2,633 | )                   |   |        | (2,767 | )    |   |         | (9,054 | ) |   |         | (6,405 | )
|                                                                                                |                                                               |   |                      |        |                     |   |        |        |      |   |         |        |   |   |         |       
|Loss before interest, other income, income taxes,
minority interest and discontinued operations |                                                               |   | (6,071               | )      |                     |   | (5,433 | )      |      |   | (19,433 | )      |   |   | (13,180 | )     
|                                                                                                | Interest expense                                              |   |                      | (106   | )                   |   |        | (6     | )    |   |         | (284   | ) |   |         | (1,109 | )
|                                                                                                | Interest income                                               |   |                      | 53     |                     |   |        | 297    |      |   |         | 286    |   |   |         | 393    |  
|                                                                                                | Gain on sale of marketable securities held-for-sale           |   |                      |       |                     |   |        |       |      |   |         | 1,178  |   |   |         |       |  
|                                                                                                | Income taxes                                                  |   |                      |       |                     |   |        |       |      |   |         | (8     | ) |   |         |       |  
|                                                                                                | Minority interest in loss (income) of consolidated subsidiary |   |                      | 23     |                     |   |        | (76    | )    |   |         | 26     |   |   |         | (86    | )
|                                                                                                | Gain from disposal of discontinued retail golf segment, net   |   |                      |       |                     |   |        | 1,466  |      |   |         |       |   |   |         | 1,974  |  
|                                                                                                |                                                               |   |                      |        |                     |   |        |        |      |   |         |        |   |   |         |       
|NET LOSS                                                                                        |                                                               | $ | (6,101               | )      |                     | $ | (3,752 | )      |      | $ | (18,235 | )      |   | $ | (12,008 | )     
|                                                                                                |                                                               |   |                      |        |                     |   |        |        |      |   |         |        |   |   |         |       

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

16



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

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

|                          |                                           |   |               |       | 
|------------------------- | ----------------------------------------- | - | ------------- | ----- | 
|                          |                                           |   | September 30,
|                          |                                           |   | 2003         
|                          |                                           |   |              
|Total segment assets      |                                           | $ | 34,060        |      
|                          | Cash and cash equivalents                 |   |               | 8,380 | 
|                          | Prepaid expenses and other current assets |   |               | 391   | 
|                          | Other property, plant and equipment       |   |               | 1,807 | 
|                          | Other intangible assets, net              |   |               | 972   | 
|                          | Other assets                              |   |               | 88    | 
|                          |                                           |   |               |      
|Total consolidated assets |                                           | $ | 45,698        |      
|                          |                                           |   |               |      

Assets excluded from segment assets include assets attributable to the
Companys corporate headquarters. The largest asset represents the Companys
cash balances, primarily proceeds from the sale of marketable securities and
proceeds from the Kookmin loan (See note 9).

13. Income Taxes

The provision for income tax benefit (expense) for the nine months ended
September 30, 2003 and 2002, respectively, is calculated, when applicable,
through the use of an estimated annual income tax rate based on projected
annualized income (loss). The Company estimated that the effective tax rate
for the nine months ended September 30, 2003 is insignificant. The Company
estimated an effective tax rate of 0% for the nine months ended September 30,
2002 based on the Companys reported losses.

14. Income (Loss) Per Common Share

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

|                               |               |  |                     |   |                     |  |            |   |      |  |            |   |  |  |            |   | 
|------------------------------ | ------------- |  | ------------------- | - | ------------------- |  | ---------- | - | ---- |  | ---------- | - |  |  | ---------- | - | 
|                               |               |  | Three Months        |   | Nine months        
|                               |               |  | Ended September 30, |   | Ended September 30,
|                               |               |  |                     |   |                    
|                               |               |  | 2003                |   | 2002                |  | 2003       |   | 2002
|                               |               |  |                     |   |                     |  |            |   |     
|Weighted average basic shares  |               |  | 41,599,652          |   |                     |  | 40,993,245 |   |      |  | 41,473,394 |   |  |  | 37,945,021 |  
|Effect of dilutive securities: |               |  |                     |   |                     |  |            |   |      |  |            |   |  |  |            |  
|                               | Stock options |  |                     |  |                     |  |            |  |      |  |            |  |  |  |            |  | 
|                               | Warrants      |  |                     |  |                     |  |            |  |      |  |            |  |  |  |            |  | 
|                               |               |  |                     |   |                     |  |            |   |      |  |            |   |  |  |            |  
|Diluted shares                 |               |  | 41,599,652          |   |                     |  | 40,993,245 |   |      |  | 41,473,394 |   |  |  | 37,945,021 |  
|                               |               |  |                     |   |                     |  |            |   |      |  |            |   |  |  |            |  

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

15. Commitments and Contingencies

In March 1996, the Company entered into a distribution agreement whereby
it granted to a third party exclusive

17



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

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

On December 20, 2002, the Company entered into an agreement with a
third-party supplier to purchase raw materials during 2003 for a total of
$3,488, of which the Company has purchased $845 as of July 30, 2003. On July
30, the Company and the third-party agreed to cancel this purchase agreement.
On July 22, 2003, the Company entered into another agreement with a separate
third party supplier to purchase a different type of raw materials for a total
of $2,500 within twelve months from the date of this agreement. As of
November 14, 2003, no purchases have been made under this agreement.

During the second quarter of 2003, the Company sold notes receivable with
recourse. The Company has contingent obligations of $171 for note receivables
sold with recourse prior to September 30, 2003 that are outstanding as of
November 14, 2003.

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

16. Related Party Transactions

In June 2003, the Company entered into an exclusive, ten-year license
agreement with LLPG, Inc. (LLPG), a corporation headed by a former director
of the Company. Under the terms of the agreement, LLPG has the right to
commercialize Liquidmetal alloys, particularly precious-metal based
compositions, in jewelry and high-end luxury product markets. The Company, in
turn, will receive royalty payments over the life of the contract on all
Liquidmetal products produced and sold by LLPG. In conjunction with its
technology licensing contract, LLPG purchased two proprietary Liquidmetal alloy
melting machines and three proprietary Liquidmetal alloy casting machines for a
total purchase price of $2,000. At September 30, 2003, the Company had a
remaining receivable balance of $1,575 due from LLPG. Subsequent to September
30, 2003, the Company received additional payments totaling $575.

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

18



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##### 



LIQUIDMETAL TECHNOLOGIES, INC. AND SUBSIDIARIES

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

consolidated statement
of operations. Currently, Growell Metal holds 92,167 shares (or approximately
0.2%) of the Companys outstanding common stock.

Under the terms of a supply agreement, the Company has engaged Growell
Metal to produce Liquidmetal alloy ingots (ingots) for the Company to
purchase and use as a raw material in the manufacture of products and
components made of Liquidmetal alloys. The agreement is for a five-year period
beginning in June 2002. Under the terms of this cost-plus arrangement, Growell
Metal is paid a processing fee plus the cost of the raw materials used to
produce the ingots. During the nine months ended September 30, 2003, Growell
Metal purchased $3,126 of raw materials from the Companys own raw material
stock to use in the production of the ingots. The Company purchased $3,980 of
ingots from Growell Metal during the nine months ended September 30, 2002. The
net profit on the sale of the raw materials sold to Growell Metal is netted
against the cost of the ingots purchased from Growell Metal. At September 30,
2003, the Company had a net payable of $176 to Growell Metal related to these
transactions.

During the first quarter of 2003, the Company sold $2,544 of casting
equipment to Growell Metal for use in the processing of bulk Liquidmetal alloy
products. As part of a five-year strategic agreement finalized in March 2003,
Growell Metal has the exclusive right to manufacture and market automotive
parts made from Liquidmetal alloys for customers in South Korea. The Company
will receive royalty payments from the sale of Liquidmetal alloy parts produced
and sold by Growell Metal. At September 30, 2003, the Company had a receivable of
$2,134 from Growell Metal related to the sale of this equipment.

During the year ended December 31, 2002, the Company sold $1,569 of
furnace equipment to Growell Metal to produce ingots for the Company. The
accumulated profit on these sales, $80, was deferred and will be amortized
against cost of sales over the remaining term of the technology transfer
agreement between Growell Metal and the Company. The agreement is for a
two-year period beginning in February 2002. At September 30, 2003, the
remaining deferred profit was $21. During the nine months ended September 30,
2003, the Company sold $7 of products and services to Growell Metal related to
the maintenance of this furnace equipment. At September 30, 2003, the Company
had a receivable of $161 from Growell Metal related to the sale of this
equipment to Growell Metal.

Subsequent
to October 31, 2003, the Company received from Growell Metal
some updated information regarding the status of Growell Metals
ingot supply operations, and such information suggests that, due to
financial challenges associated with the operations, Growell Metal
may desire to modify its relationship with the Company. The Company
and Growell Metal are currently discussing these issues. As of
November 14, 2003, management believes it is too early to
determine the outcome of these matters.

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

17. Cost Reduction Measures

During the second quarter of 2003, the Company initiated activities to
reduce the number of employees and consolidate manufacturing and administrative
facilities to improve operational effectiveness and efficiency and reduce
expenses. The total amount of the charges related to these actions was
incurred during the second and third quarters of
2003 and included $288 for accelerated depreciation associated with a change
in the estimated useful life of certain property and equipment, $72 for
relocation of property and equipment, and $548 for voluntary termination
benefits paid to 165 employees that accepted a voluntary termination package
prior to September 30, 2003. All of these costs relate to the operations of
the bulk alloy segment and were recorded as selling, general and administrative
expenses.

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

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

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

This managements discussion and analysis, as well as other sections of
this report on Form 10-Q, may contain forward-looking statements that involve
risks and uncertainties, including statements regarding our plans, future
events, objectives, expectations, forecasts, or assumptions. Any statement that
is not a statement of historical fact is a forward-looking statement, and in
some cases, words such as believe, estimate,  project, expect,
intend, may, anticipate, plans, seeks, and similar expressions
identify forward-looking statements. These statements involve risks and
uncertainties that could cause actual outcomes and results to differ materially
from the anticipated outcomes or results, and undue reliance should not be
placed on these statements. These risks and uncertainties include, but are not
limited to, the matters discussed under the caption Factors Affecting Future
Results in our Annual Report on Form 10-K for the fiscal year ended December
31, 2002 and other risks and uncertainties discussed in filings made with the
Securities and Exchange Commission (including risks described in subsequent
reports on Form 10-Q, Form 10-K, Form 8-K, and other filings). Liquidmetal
Technologies, Inc. disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events, or otherwise.

OVERVIEW

We are a materials technology company that develops and commercializes
products made from amorphous alloys. Our Liquidmetal® family of alloys consists
of a variety of coatings, powders, bulk alloys, and composites that utilize the
advantages offered by amorphous alloy technology. We develop, manufacture, and
sell products and components from bulk amorphous alloys that are incorporated
into the finished goods of our customers, and we also market and sell amorphous
alloy industrial coatings. We also partner with third-party licensees and
distributors to develop and commercialize Liquidmetal alloy products. We have
the exclusive right to develop, manufacture, and sell what we believe are the
only commercially viable bulk amorphous alloys.

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

Our revenues are derived from two principal operating segments:
Liquidmetal alloy industrial coatings and bulk Liquidmetal alloy products.
Liquidmetal alloy industrial coatings are used primarily as a protective
coating for industrial machinery and equipment, such as drill pipe used by the
oil drilling industry and boiler tubes used in coal-burning power plants. The
historical operating information for the three and nine months ended September
30, 2002 contained in this section is based substantially on sales of
Liquidmetal alloy coatings. In the second half of 2002, we began producing bulk
Liquidmetal alloy components and products for incorporation into our customers
finished goods. Bulk Liquidmetal alloy segment revenue includes sales of parts
or components of electronic devices, medical products, and sports and leisure

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goods; tooling and prototype parts
(including demonstration parts and test
samples) for customers with products in development; metal processing
equipment; and research and development revenue relating primarily to defense
and medical applications. We expect that these new sources of revenue will
continue to significantly change the size and character of our revenue mix.

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

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

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

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

On May 21, 2003, we completed a reincorporation by transitioning from a
California corporation to a Delaware corporation. The reincorporation was
effected through the merger of the former California entity into a newly
created wholly owned Delaware subsidiary. The reincorporation changed the
legal domicile of our company but did not result in any change to our business,
management, employees, fiscal year, assets or liabilities, or location of
facilities. As part of the reincorporation, each share of the California
corporation was automatically converted into one share of the Delaware
corporation.

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

Results of Operations

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

Revenue. Revenue decreased $0.2 million to $3.5 million in the three
months ended September 30, 2003 from $3.7 million in the three months ended
September 30, 2002. The revenue decrease was primarily due to a decrease of
$0.3 million in the revenue generated by our coatings business as compared to
the three months ended September 30, 2002. The revenue decrease was partially
offset by an increase of $0.2 million in revenue generated by our bulk
Liquidmetal alloys

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segment in the three months ended September 30, 2003. This
increase in our bulk Liquidmetal alloy segment consisted of an increase of $0.8
million from research and development services related primarily to defense and
medical applications and $0.1 million from the sale and prototyping of parts
manufactured from bulk Liquidmetal alloys, offset by a $0.7 million decrease
from the sale of metal processing equipment used primarily in the process of
bulk Liquidmetal alloy products.

Cost of Sales. Cost of sales increased to $4.9 million, or 138.5% of
revenue, during the three months ended September 30, 2003 from $2.5 million, or
69.1% of revenue, in the three months ended September 30, 2002. The cost of
sales as a percentage of revenue increased due to two primary factors: first, a
higher percentage of plant operating costs allocated to manufacturing in the
current period, as opposed to the same three month period in 2002 when our
manufacturing facility was in the final stages of construction and significant
in-plant spending was directed to research and development to support the
ramp-up of manufacturing operations; and second, the impact of unprofitable
electronic casing components and prototypes moving through our manufacturing
mix.

Although the cost to manufacture parts from our bulk Liquidmetal alloys is
variable and differs based on the unique design of each product, we expect
gross margin to improve in the upcoming quarters based on our decisions to
limit production and prototyping to select products that require the
high-performance qualities of Liquidmetal alloys and can be priced accordingly.
Furthermore, we believe that our plan to secure
strategic licensing and other relationships to advance the development of our
technology and processes could also contribute to improved gross margins.
The cost of sales for the products sold by the coatings business is expected to
remain generally consistent because Liquidmetal coatings products are produced
by third parties and sold wholesale to various industries.

Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased to $3.7 million, or 106% of revenue, in the
three months ended September 30, 2003 from $3.9 million, or 107% of revenue, in
the three months ended September 30, 2002. This decrease was primarily a result
of cost reduction activities from the prior quarter, which accounted for a
decrease in salaries and wages of $0.3 million; decreased professional fees,
consultant fees, and contract services of $0.2 million; and decreased travel
expenses of $0.1 million. These cost savings were partially offset by
increased insurance expense of $0.1 million; increased bad debt reserves of
$0.1 million; increased product warranty expense of $0.1 million; and increased
depreciation expense of $0.1 in the three months ended September 30, 2003.

Research and Development Expenses. Research and development expenses
decreased to $1.0 million, or 28% of revenue, in the three months ended
September 30, 2003 from $2.7 million, or 73% of revenue, in the three months
ended September 30, 2002. This decrease was partially the result of an
intensive cost reduction program which began during the second quarter of 2003.
Additionally, our manufacturing operations were brought on line during the
third quarter of 2002, which accounted for a higher-than-normal research and
development cost as the company worked to bring manufacturing equipment and
processes on line. As a result, salaries and wages decreased by $0.7 million;
travel decreased by $0.1 million, and professional fees, consultant fees, and
contract services decreased by $0.9 million.

Interest Expense. Interest expense was $0.1 million, or 3% of revenue, in
the three months ended September 30, 2003 and was $6,000, or 0.2% of revenue,
in the three months ended September 30, 2002. During the three months ended
September 30, 2003, the interest expense was primarily due to interest accrued
on the Kookmin Bank loan to our South Korean subsidiary that was made on
February 4, 2003.

Interest Income.Interest income was $0.1 million, or 2% of revenue, in
the three months ended September 30, 2003 due to interest earned on short-term,
investment grade, interest-bearing securities. During the three months ended
September 30, 2002, interest income was $0.3 million, or 8% of revenue, which
was interest earned from the proceeds of our May 22, 2002 initial public
offering.

Comparison of the nine months ended September 30, 2003 and 2002

Revenue. Revenue increased $9.2 million to $16.5 million in the nine
months ended September 30, 2003 from $7.3 million in the nine months ended
September 30, 2002. The increase was due to the $10.7 million increase in
revenue earned by our bulk Liquidmetal alloy segment in the nine months ended
September 30, 2003. This increase in our bulk Liquidmetal alloy segment
revenue consisted of a revenue increase of $5.6 million from the sale of metal
processing equipment primarily for use in the processing of bulk Liquidmetal
alloy products, an increase of $2.3 million from the sale

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and prototyping of
parts manufactured from bulk Liquidmetal alloys, and an increase of $2.8
million from research and development services related primarily to defense and
medical applications. The increase in revenue earned by our bulk Liquidmetal
alloy segment was offset by a decrease of $1.5 million in the revenue earned by
our coatings business as compared to the nine months ended September 30, 2002.

Cost of Sales. Cost of sales
increased to $15.2 million, or 92% of
revenue, during the nine months ended September 30,2003 from $4.4 million, or
61% of revenue, in the nine months ended September 30, 2002. The cost of sales
as a percentage of revenue increased due to two primary factors: first, a
higher percentage of plant operating costs allocated to manufacturing in the
current period, as opposed to the same nine month period in 2002 when our
manufacturing facility was in the final stages of construction and significant
in-plant spending was directed to research and development to support the
ramp-up of manufacturing operations; and second, the impact of unprofitable
electronic casing components and prototypes moving through our manufacturing
mix.

Although the cost to manufacture parts from our bulk Liquidmetal alloys is
variable and differs based on the unique design of each product, we expect
gross margin to improve in the upcoming quarters based on our decisions to
limit production and prototyping to select products that require the
high-performance qualities of Liquidmetal alloys and can be priced accordingly.
Furthermore, we believe that our plan to secure
strategic licensing and other relationships to advance the development of our
technology and processes could also contribute to improved gross margins.
The cost of sales for the products sold by the coatings business is expected
to remain generally consistent because Liquidmetal coatings products are
produced by third parties and sold wholesale to various industries.

Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased to $12.9 million, or 78% of revenue, in the
nine months ended September 30, 2003 from $9.0 million, or 124% of revenue, in
the nine months ended September 30, 2002. This increase was primarily a result
of increased wages of $0.7 million; increased professional fees, consultant
fees, and contract services of $0.5 million; increased insurance expense of
$0.5 million; increased travel expenses of $0.1 million; increased property
rent of $0.3 million; increased data communications expense of $0.2 million;
increased product warranty expense of $0.5 million; increased depreciation
expense of $0.3 million; and $0.3 million in expenses associated with the
disposition of certain assets in the nine months ended September 30, 2003.
These and other increases in selling, general and administrative expenses are
associated with the development of our bulk Liquidmetal alloy business.

Research and Development Expenses. Research and development expenses
increased to $7.8 million, or 47% of revenue, in the nine months ended
September 30, 2003 from $7.0 million, or 96% of revenue, in the nine months
ended September 30, 2002. This increase was partially a result of expenses
related to the continued research and development of new Liquidmetal alloys and
related processing capabilities, developing new manufacturing techniques, and
providing research grants to various institutions to advance the development of
Liquidmetal alloys. In the category of research and development expenses,
salaries and wages decreased by $0.5 million; travel decreased by $0.1 million;
professional fees, consultant fees, and contract services decreased by $0.6
million; laboratory and prototyping expenses increased by $1.4 million;
depreciation of research equipment increased by $0.3 million; and research
grants to educational institutions increased by $0.2 million.

Interest Expense. Interest expense was $0.3 million, or 2% of revenue, in
the nine months ended September 30, 2003 and was $1.1 million, or 15% of
revenue, in the nine months ended September 30, 2002. During the nine months
ended September 30, 2003, the interest expense was primarily due to interest
accrued on the Kookmin Bank loan to our South Korean subsidiary made on February
4, 2003. During the nine months ended September 30, 2002, the interest expense
was primarily due to the amortization of the fair value of warrants granted in
connection with subordinated promissory notes we issued in February 2001.

Interest Income.Interest income was $0.3 million, or 2% of revenue, in
the nine months ended September 30, 2003 due to interest earned on short-term,
investment grade, interest-bearing securities. During the nine months ended
September 30, 2002, interest income was $0.4 million, or 5% of revenue, which
was interest earned from the proceeds of our May 22, 2002 initial public
offering.

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LIQUIDITY AND CAPITAL RESOURCES

Our operating activities, including our discontinued retail golf
operations, used cash of $23.1 million for the nine months ended September 30,
2003 and $14.6 million for the nine months ended September 30, 2002. Cash used
in operating activities for the nine months ended September 30, 2003 resulted
from net cash used by discontinued operations of $1.0 million and net cash used
by continuing operations of $22.1 million. Cash used in operating activities
for the nine months ended September 30, 2002 resulted from net cash used by
discontinued operations of $2.3 million and net cash used by continuing
operations of $12.4 million. Our working capital was $12.6 million as of
September 30, 2003. Cash used by continuing operations in the nine months ended
September 30, 2003 resulted primarily from operating losses from continuing
operations of $18.2 million and a decrease in accounts payable and accrued
liabilities of $6.1 million.

Our investing activities used cash of $0.4 million for the nine months
ended September 30, 2003 for the acquisition of property and equipment of $2.7
million and investment in patents and trademarks of $0.3 million. These
expenditures were partially offset by the net proceeds from the sale of
marketable securities of $2.6 million.

Our financing activities provided $6.3 million in cash for the nine months
ended September 30, 2003, which consists of $5.5 million in proceeds from
borrowings from Kookmin Bank and $0.9 million in proceeds from exercised stock
options.

We currently anticipate substantially lower capital expenditures for at
least the next 12 months, given the completion of construction and purchase of
manufacturing equipment for our plant in Pyongtaek, South Korea. We anticipate
that our capital expenditures will be approximately $3.0 to $4.0 million for
the full year 2003 for the acquisition of furniture, fixtures, and other
business equipment. This amount is subject to change, however, depending upon
the nature and the amount of the orders that we actually receive from
customers.

Our capital requirements during the next 12 months will depend on numerous
factors, including the success of our existing products, the development of new
applications for Liquidmetal alloys, the resources we devote to develop and
support our Liquidmetal alloy products, and the success of pursuing strategic
licensing and funded product development relationships with external partners.
During the next 12 months, we expect to continue to devote additional capital
to our research and development activities, to further develop and strengthen
our manufacturing technology, and to provide for working capital and other general
corporate purposes. These expenses and capital expenditures could consume a
material amount of our cash resources, however, the amount of these
requirements will depend on the nature and amount of orders we receive for the
purchase of our bulk Liquidmetal alloy products.

Our business is based on commercializing an entirely new and unique
technology, and our current business plan contains a variety of assumptions and
expectations that are subject to uncertainty, including assumptions and
expectations about order flow, unit volumes, manufacturing efficiencies,
product cost and pricing, continuing technology improvements, customer adoption
practices, strategic licensing relationships and other relevant matters.
These assumptions take into account recent significant cost reductions, as well
as recent improvements to our manufacturing processes. We have experienced
losses from continuing operations during the last two fiscal years and the nine
months ended September 30, 2003 and have an accumulated deficit of $95.2
million as of September 30, 2003. Cash used in continuing operations for the
nine months ended September 30, 2003 and the fiscal year ended December 31,
2002 was $22.1 million and $16.9 million, respectively, and it is likely that
cash flow from continuing operations will be negative throughout the fourth
quarter of 2003 and 2004. At September 30, 2003, our principal source of
liquidity is $8.6 million of cash and cash equivalents. Such conditions raise
substantial doubt that we will be able to continue as a going concern for a
reasonable period of time without receiving additional funding. These operating
results occurred while we were developing and attempting to commercialize and
manufacture products from an entirely new and unique technology. This business
plan required significant spending related to start-up costs and capital
expenditures. These factors have placed a significant strain on our financial
resources. We have sought to generate additional financial resources by
reducing operating costs and are seeking additional sources of
financing, including debt or equity funding. Our
ultimate success depends on our ability to obtain additional financing, to
continue reducing operating costs and, ultimately to generate higher revenue
and attain profitability. We cannot be certain that additional capital,
whether through selling additional debt or equity securities or obtaining a
line of credit or other loan, will be available to us or, if available, will be
on terms acceptable to us. If we issue additional securities to raise funds,
these securities may have rights, preferences, or privileges senior to those of
our common stock, and our current stockholders may experience dilution.

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In March 1996, we entered into a distribution agreement whereby we granted
to a third party exclusive rights to market
and sell golf products incorporating Liquidmetal technology to certain Japanese
sporting equipment companies. The third party paid us a $1.0 million
distribution fee as part of this agreement, of which a portion was refundable
according to a formula based on the gross profit earned by the third party.
The remaining unearned distribution fee of $0.8 million has not been refunded
as of March 31, 2003, and we do not believe the third party is entitled to a
refund. On March 28, 2003, the distribution agreement was terminated and we
entered into a new agreement to pay to the same third party a commission on the
net sales price of all Liquidmetal golf equipment that is shipped by our
company or its affiliates to Japanese golf companies for sale into the Japanese
end-market. This commission will apply to golf equipment shipped by our
company or its affiliates during the period beginning on March 28, 2003 and
ending on March 28,2006. If, by March 28, 2006, we have not paid $0.4 million
in commission payments, the balance between commissions paid and $0.4 million
will be paid by April 30, 2006, thereby guaranteeing the third party a $0.4
million minimum payment during the term of the agreement. We will recognize
the unearned distribution fee of $0.8 million as revenue proportionately with
the payment of commissions under the letter agreement.

USE OF PROCEEDS

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

As of September 30, 2003, we have used the $70.7 million of net proceeds
from the Offering. We used approximately $7.8 million of the net proceeds from
the Offering to repay all outstanding promissory notes and accrued interest,
$11.1 million to fund the construction of our manufacturing facility in South
Korea, $14.3 million to purchase equipment used to manufacture Liquidmetal
parts, $0.4 million to purchase assets related to production and sale of
equipment used in the production process of Liquidmetal alloy products, and
$0.3 million to purchase the 51% interest in our majority owned Dongyang
subsidiary. During the third quarter of 2002, we used $2.0 million to invest in
the common stock of Growell Metal, which supplies a portion of the Liquidmetal
alloy ingots used in our manufacturing operations in Korea. We have since sold
such stock. We used the remaining proceeds of $32.7 million for working
capital, excluding $2.1 million paid to Paul Azinger for amounts due under the
terms of his terminated endorsement agreement with our discontinued retail golf
operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

We believe that the following accounting policies are the most critical to
our consolidated financial statements since these policies require significant
judgment or involve complex estimates that are important to the portrayal of
our financial condition and operating results:



| |  |  | Our earnings and cash flows are subject to fluctuations due to changes
in non-U.S. currency exchange rates. We are exposed to non-U.S.
exchange rate fluctuations as the financial results of non-U.S.
subsidiaries are translated into U.S. dollars. As exchange rates vary,
those results, when translated, may vary from expectations and
adversely impact overall expected profitability. The cumulative
translation effects for subsidiaries using
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure,was issued by the FASB. This standard
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the
fair value method of accounting for stock-based employee compensation. In
addition, this standard amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is effective for
financial statements for fiscal years ending after December 15, 2002. We
implemented SFAS No. 148 effective January 1, 2003 regarding disclosure
requirements for condensed financial statements for interim periods. We have
not yet determined whether we will voluntarily change to the fair value based
method of accounting for stock-based employee compensation.

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

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS No. 149), Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. SFAS No. 149 is intended to result in more consistent
reporting of contracts as either freestanding derivative instruments subject to
Statement 133 in its entirely, or as hybrid instruments with debt host
contracts and embedded derivative features. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 did not have a material effect on the Companys results of operations,
liquidity, or financial condition.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. SFAS No. 150 requires certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity to be classified as liabilities.
Many of these instruments previously were classified as equity or temporary
equity and as such, SFAS No. 150 represents a significant change in practice in
the accounting for a number of mandatorily redeemable equity instruments and
certain equity derivatives that frequently are used in connection with share
repurchase programs. SFAS 150 is effective for all financial instruments
created or modified after May 31, 2003, and to other instruments at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a material effect on the Companys results of
operations, liquidity, or financial condition.

In January 2003, the FASB issued FASB Interpretation No. 46 Consolidation
of Variable Interest Entities, an interpretation of Accounting Research
Bulletin (ARB) No. 51, Consolidated Financial Statements(FIN 46). FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The adoption of FIN 46, as it relates to variable interest entities
created after January 31, 2003, did not impact the Companys condensed
consolidated financial statements. Additional provisions of FIN 46, which
will become effective for the Company beginning on January 1, 2004, have not had, and
are not anticipated by management to have a, material effect on the Companys
consolidated financial statements.

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Item 3  Quantitative and Qualitative Disclosures about Market Risk

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

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

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

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

Item 4  Controls and Procedures

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

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PART II
OTHER INFORMATION

Item 1  Legal Proceedings.

We may be involved in various legal proceedings in the normal course of
business. As of the date of this report on Form 10-Q, we are not a party to
any proceedings that involve amounts that would have a material effect on our
financial position or results of operations if such proceedings were resolved
unfavorably.

Item 2  Change in Securities and Use of Proceeds.

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

As of September 30, 2003, we have used the $70.7 million of net proceeds
from the Offering. We used approximately $7.8 million of the net proceeds from
the Offering to repay all of our outstanding promissory notes and accrued
interest, $11.1 million to fund the construction of our manufacturing
facilities in South Korea, $14.3 million to purchase equipment used to
manufacture Liquidmetal parts, $0.4 million to purchase assets related to the
production and sale of equipment used in the production process of Liquidmetal
alloy products, and $0.3 million to purchase the 51% interest in our majority
owned Dongyang subsidiary. During the third quarter of 2002, we used $2.0
million to invest in the common stock of Growell Metal, which supplies a
portion of the Liquidmetal alloy ingots used in our manufacturing process in
Korea.We have since sold such stock. We used approximately $32.7 million of
the net proceeds for working capital, excluding $2.1 million paid to Paul
Azinger for amounts due under the terms of his endorsement agreement.

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

(a) Exhibits

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

|        |  |                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                          
|Number  |  | Description of Document                                                                                                                  
|        |  |                                                                                                                                          
|10.1    |  | Second Amendment of Lease, dated October 3, 2003, between Liquidmetal
Technologies, Inc. and Plaza Associates IV, Ltd.                   
|        |  |                                                                                                                                          
|10.2    |  | Amendment No. 2 to Employment Agreement, dated September 1, 2003, between
Liquidmetal Technologies, Inc. and James Kang.                 
|        |  |                                                                                                                                          
|31.1    |  | Certification of Principal Executive Officer pursuant to Rule 13a-15 (e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                          
|31.2    |  | Certification of Principal Financial Officer pursuant to Rule 13a-15 (e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended.
|        |  |                                                                                                                                          
|32.1    |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350                                                                      
|        |  |                                                                                                                                          
|32.2    |  | Certification of Chief Operating and Financial Officer pursuant to 18
U.S.C. 1350                                                        

(b) Reports on Form 8-K

1.     A Report on Form 8-K was filed on July 31, 2003 (Items 7 and 12.). The
report contained information regarding Liquidmetal Technologies, Inc.s
earnings release issued on July 31, 2003.

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SIGNATURES

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

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

31