Tom Steipp - President and Chief Executive Officer Tony Chung - Chief Financial Officer

Al Velasco - Private Investor Eric Mow - Private Investor Scott Ambrose - Private Investor Jonathan Tanaka - Wells Fargo Advisors Glen Trent - Private Investor Charlie Schar - Private Investor

Good afternoon and welcome to the Liquidmetal Technologies’ Fourth Quarter Fiscal 2014 Conference Call. My name is Joshua and I will be your conference operator this afternoon. Joining us on today’s call are Liquidmetal’s President and CEO, Tom Steipp and CFO, Tony Chung. Following their remarks, we will open up the call for your questions. Before we proceed, I would like to provide the company’s Safe Harbor statement with important questions regarding forward-looking statements made during this call as follows. All statements made by management during this call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, those made by Mr. Steipp and Mr. Chung regarding the company’s cash, revenue outlook and technology development. While management has based any forward-looking statements made during the call on its current expectations, the information on such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties and other factors, many of which are outside the company’s control that could cause actual results to materially differ from such statements. Such risks, uncertainties and other factors include, but are not necessarily limited to, those set forth under Risk Factors in the company’s Annual Report on Form 10-K for the year ended December 31, 2014. Accordingly, you should not place any reliance on forward-looking statements as a prediction of actual results. The company disclaims any intention and undertakes no obligation to update or revise any forward-looking statements. You are also urged to carefully review and consider the various disclosures in the company’s Annual Report on Form 10-K for the year ended December 31, 2013, as well as other public filings with the SEC since such date. I would also like to remind everyone that this call is available for replay starting later this evening via a link available in the Investor Relations section of the company’s website at www.liquidmetal.com. Now, I would like to turn the call over to the company’s President and CEO, Mr. Tom Steipp.

Thank you, Joshua. Well, welcome everyone and thank you for joining us on today’s call. The fourth quarter of fiscal 2014 wrapped up what was undoubtedly the most significant year during my tenure here at the company. I will begin with a recap of the activities from fourth quarter and the fiscal year, followed by a review of financial topics by Tony, and then I will finish up with a summary comment. During fourth quarter, we recorded revenue of $193,000, we booked our first production order with Miltner Adams in December. During the fiscal year, we accomplished some of the following high points. We completed the formal certification process for our core set of partners, Materion for alloy, Engel for Liquidmetal injection molding machines, and for molds, Mold Craft and Matrix. We hired an experienced worldwide VP of Sales and Support, Paul Hauck, who has 30 years of experience in the metal injection molding industry. We settled the contract dispute with our exclusive contract manufacturing partner, which allowed us to consolidate sales, engineering, and manufacturing in one logical entity and one physical location in a settlement that we believe was clearly in the best interest of our shareholders. We opened and showcased the Manufacturing Center of Excellence here at our headquarters in October. We assembled a network of world-class North American manufacturing sales representatives. The majority of them were trained here in our manufacturing facility in October. We have worked with our MSRs to define target accounts and applications that would benefit from the unique material properties of Liquidmetal. As of December 2014, we had 10 new patents issued bringing our total U.S. patents granted to 70 with an additional 56 pending for a grand total of 126 patents granted and patents pending. In August, we put in place a $30 million equity line of credit to fund our ongoing operations to ultimately get to profitability. And finally, we accepted our first production order from Miltner Adams for custom-designed knife to be put into production here in our facility. A more recent news, we have begun our certification process for ISO 9001, which we believe will conclude our certification during the final quarter of 2015. And we have put in place our first-ever line of credit with City National Bank for future purchases of Engel and other machines to build out our Manufacturing Center of Excellence. With respect to strategic sales coverage, we opened up North America in 2014. We expect to add Europe to our global coverage in 2015. With respect to our strategic markets, we have focused our existing manufacturer sales reps on aerospace, defense, automotive, and medical industries. Based on our analysis and meeting with customers, during the last six months, we believe that these markets hold attractive opportunities for our technology with large programs that can be run for multiple years. However, sales cycles here tend to be relatively lengthy. So, with one eye on these strategic markets, we are also interested in generating near-term revenue from tactical accounts in specialty markets, where decision cycles are often shorter and much less complicated. Our first success here was with Miltner Adams. Richard Miltner is a world-renowned designer of specialty knifes, and we are pleased to be partnering with him on this project. Here are a couple of the capabilities of Liquidmetal that were attractive to Richard and his team. One, the original design required eight separate parts. The Liquidmetal design has only three parts. No other process that we are aware of can produce a product of this complexity with fewer parts eliminating the need for costly machining, fastening and welding. The surface finish, right out of the mold, is superior to anything else available at a similar price point. And third, the hardness and durability of the material provides for a super sharp blade that will hold its edge for a longer period of time than similar designs with other comparable production costs. We are expecting to see production units available by midyear. Here is a word about our business model. Our primary objective is to make parts. This assures that the skills and the technological improvements that come from working directly with customers will be captured for the long-term success of the company. When volumes from existing customers exceed our manufacturing capabilities here and/or our appetite for capital expenditures, we intend to have certified Liquidmetal manufacturing partners who can fill that gap for us. Finally, as we get experience with high volume applications and customers who already worked with world-class contract manufacturers, we expect to offer licenses to both customers and certified Liquidmetal contract manufacturers who will make parts for which we will receive royalties. Finally, I would like to say a word about our breakeven level of revenue. We do not expect to reach breakeven on a non-GAAP or pro forma basis in 2015. However, based on an analysis of parts that we have evaluated and are under consideration, we anticipate that revenue levels of $12 million to $15 million, which are achievable within the envelope of our current facility and workforce, would support a spending level of approximately $8 million. Obviously, these estimates are based on our current experience and assumptions, which may change over time. Now, I would like to turn the call over to Tony to take us through the financial details for the quarter.

Thanks, Tom and good afternoon everyone. Our financial results for the fourth quarter and fiscal 2014 reflect our continued investments in the infrastructure required to support our robust parts and licensing business in addition to the continued advancement of our technology and production processes. In this context, let’s turn to the financial results for the fourth quarter and fiscal year ended December 31, 2014. For the fourth quarter, we generated $193,000 of revenue compared to $298,000 of revenue in 2013. For fiscal 2014, revenue was $603,000 versus $1 million for 2013. The period-over-period decreases are attributable to a shift from a concentration of shared research and development projects with licensees towards prototyping and onsite manufacturing efforts. Our gross margin for the fourth quarter was $11,000 compared to $113,000 in 2013. For fiscal 2014, our gross margin decreased to $120,000 from $252,000 for 2013. Much of our current product mix consists of prototype parts and other revenue which have higher internal variable cost percentages relative to revenue, then would otherwise be incurred in environments of full scale manufacturing inclusive of contract manufacturers. As such, our gross margin percentages may fluctuate based on volume and quoted production prices per unit and may not be representative of our future business. As we continue our revenues with shipments of product level parts, we expect our gross margins to stabilize and become more predictable. Selling, marketing, general and administrative expense for the fourth quarter of 2014 totaled $1.7 million versus $1.4 million in 2013. Selling, marketing, general and administrative expenses for our fiscal 2014 totaled $7.5 million versus $5.2 million in 2013. The increase was primarily due to legal expenses incurred during the arbitration proceedings with Visser and increased headcount for our sales and business development efforts as we continue to aggressively expand our sales and marketing presence within our current account base. R&D expense for the fourth quarter of 2014 was $372,000 compared to $141,000 in 2013. R&D expense for fiscal 2014 was $1.6 million compared to $1.2 million in 2013. The increase from the prior year was mainly due to additional headcount during 2014 to support the build-out of our Manufacturing Center of Excellence and for the further development of our technology. Now, I would like to go over some of our significant non-cash non-operational expenses during the fourth quarter of 2014. The change in the value of our warrants resulted in a non-cash gain of $3 million as a result of continued changes in the valuation assumptions of the warrant liability inclusive of the underlying declines in our stock price during the fourth quarter of 2014. For a more thorough discussion of these non-cash fluctuations, please refer to the Management Discussion and Analysis section of our 2014 [ph] Form 10-K. Turning to our balance sheet, we ended 2014 with $10 million of cash and equivalents. We anticipate that our current capital resources when considering expected losses from operations will be sufficient to fund our operations through the middle of 2016. Such factors may require that we utilize our existing $30 million equity line of credit to meet future capital requirements. Lastly, I am happy to announce that we recently setup a bank line of credit with City National Bank. The initial amount of the line is up to $2 million of capital and other expenditures. This is an important milestone for the company, because it represents our first transaction involving a revolving debt facility to fund our expansion into manufacturing. We hope to develop such relationships with other lending institutions to have confidence in our business model, so that we can utilize that instrument as well as equity markets to fund our growth. I’d like to now turn the call back over to Tom.

Thanks, Tony. Well, as you can clearly see, fiscal 2014 was a pivotal year in our evolution. We believe that our competitive position with an unparalleled IP portfolio, world-class engineering, and an exceptional experienced sales and marketing team led by Paul Hauck is foundational. Beyond that, we see the flexibility of our manufacturing second sources and licensing models as an additional competitive advantage in working with a broad spectrum of best-in-class companies who want to take advantage of our advanced engineering, design and production prototyping, while preserving the option to produce high volumes in their own facilities or with existing suppliers. Clearly, our number one focus in the coming quarters is making Miltner Adams successful. We believe that bringing a state-of-the-art knife design to market will yield benefits on multiple fronts. Beyond that, we will continue to build the funnel of new business opportunities splitting our efforts between strategic markets and near-term tactical projects. Finally, I would like to just make a comment that we will be participating at the Global Engel Machine Symposium in Austria on June 16 and 17, which will significantly enhance our exposure to customers in Europe. That coupled with the selection of key European manufacturing sales representatives will further solidify our expansion into that part of the world in 2015. That brings to a close. Operator, we can now take questions.

Thank you so much, sir. [Operator Instructions] And we will take our first question from Al Velasco, Private Investor.

Hey, Tom. How are you today?

Hi, Al. Doing well.

So I have a quick question. I understand that the Apple Master Transaction Agreement between Liquidmetal and Apple is for consumer electronics. In the event that Apple decides to use Liquidmetal in an automobile, would Liquidmetal be receiving any future revenue due to the fact that automobiles are not consumer electronics?

That’s not something we have looked at closely. The agreements are what they are. Definition of consumer electronics requires the device to acquire, store, or transmit digital data. So, there is way too many unknowns in that for me to comment. And certainly, I never comment about what Apple may or may not be doing in the future. So, I really can’t address that much beyond that, Al.

Okay. Thank you, Tom.

And our next question comes from Clint Matthews with VOLA [ph] Investments.

Hi, guys. How are you doing?

Hi, Clint.

I had a quick question, you guys were awarded an SBIR to the data on it here, but you are awarded an SBIR for extruding sheets Liquidmetal on both production. I was just wondering if you guys had any update on how that was going on?

Yes. We successfully completed that SBIR, it was to make thin sheets of Liquidmetal, which could then be compressed with carbon fiber to make shields for meteorites in space. We did that in conjunction with local university and NAS, I think it was JPL, but we successfully completed that. We have thrown our hat in the ring for an extension, but at this point in time not sure where that will go, but we were…

You [indiscernible].

Yes. We have submitted an application for the follow-on. We feel as though the production of sheets is not something we are interested in doing right now, but longer term maybe something that would be more commercially viable and for that reason we are interested in pursuing it.

Okay, thank you.

[Operator Instructions] We will take our next question form Eric Mow, Private Investor.

Mr. Steipp, hi.

Hi.

How many mold machines will you have in your facility after you install your latest purchase?

So to be clear, we have one injection molding machine installed today, that’s the initial one that went into our Manufacturing Center of Excellence. We have a second one on order, which will be delivered midyear. And I made some comments about the fact that we could probably get somewhere in the neighborhood of $12 million to $15 million worth of revenue out of this facility that would be on a total of three machines based on our current estimates.

How many more machines can your floor space in your new facility accommodate?

In the existing facility, we can easily accommodate three machines, potentially four, but at this point, we are at one.

What is the cost of One Engel, latest version of Engel machine?

Those run depending on – they are running on the configuration we will run anywhere from $350,000 to $450,000.

And will you receive any future revenues from Engel and Materion regarding their sales like a commission or something?

We don’t really release any other details on those kinds of things, but in general what I would say is they are selling into the open market. We obviously do have relationships with them as a certified supplier. So, I am not going to say that we will never collect anything in terms of the relationships we have with them, but in general, they are selling on their own.

To this date, you are just receiving a licensing fee from now and then annual?

Yes. We do have, again I am not going to be specific on the details, but we do have relationships whereby where we have invested that we get some return for that in a modest way.

Thank you, Mr. Steipp.

Okay.

[Operator Instructions] And our next question comes from Scott Ambrose, Private Investor.

Hello, everyone. I think a couple of questions. I missed the first few minutes of the call today and I don’t know if anything was mentioned about the status of prior projects or potential projects like the canards of the thins [ph] and potential medical devices that Tom had referenced in the prior conference call as the potential first source of income. And that was one of a few prototypes I believe it was four prototypes that were referenced that were out there that had possible legs for future production through Liquidmetal. So, I would like to know what the status is if you can provide an update on any of those as well as an additional question related to the Engel event in June that you referenced and whether or not samples will be given out during that time as the process will show actual parts being created and whether or not those will showcase the complexity of the process and what that would result in as a final product with the sample of Liquidmetal as opposed to something more simple like a paperweight? Thank you.

Sure. Let me answer it, Scott, if you will permit me in reverse order. The Engel show June 16 and 17 will have a fully operational Liquidmetal injection molding machine with a complex part being produced. It’s actually a part that’s got two moving pieces attached together and those will be available for people to both see the production capability and on a limited basis to take sample parts with them. We believe that it’s important for people to be able to see our patented production process installed, implemented and working well in other locations and certainly Europe is an area that holds significant opportunity we believe on over the long-term. Relative to the projects, the samples that we made, the prototypes we have made before, we made 20 plus prototypes, I think over the course of last couple of calls, they have said about four of those still had legs where they would be done somewhere between ourselves and our contract manufacturing partner. Keep in mind that those prototypes were all done at our contract manufacturing facility that we didn’t have any visibility to how they were produced, the mold designs those kinds of things. So, we are still in the process of sorting through those, which would require either some kind of collaborative relationship with our contract manufacturing partner or some subsequent design. So, while I certainly hold out – hope for those, I think the ones that have come through our process where we were involved from the sale through the design and the prototyping here we believe number one we will move more quickly and we have more confidence in. And the first one of those as I said was Miltner Adams obviously our goal is to get those into the production facility and will let people know about that as quickly as we can.

Thank you. And our next question comes from Jonathan Tanaka with Wells Fargo Advisors.

Hi. I was wondering when your first Engel machine will be running at capacity and what is the expected mix between prototype and production runs?

I am not quite sure when it will be running at capacity. Couple of things to think about, Jonathan, one is we will likely run two shifts. Number one, we will have two machines, because to be in a manufacturing facility, you need some level of redundancy. Before we would go to a third machine, we would likely go to a second shift. So, I don’t know exactly when that would be. Obviously, we would like to get it to happen as quickly as possible.

Do you expect to be running mostly prototype products or some mix?

I am sorry. Yes, I would expect the machines – the machines are set up to be able to run a mix of prototypes and production parts. It’s a simple matter. It takes about half an hour to change the mold from on the machine though we can easily shift between various production parts or between prototype and production parts. And the good news is let me just finish up is that the production capacity we have is really an extension of the engineering and technology team that we had here. So, our transition from doing R&D and prototypes to production is pretty seamless.

Would you consider your LM105 alloy to be stainless steel and are you currently working on other alloys emphasizing different metals?

We would not consider LM105 to be stainless steel. The major differentiation between LM105 and what the company used historically is that the earlier alloys called Vitreloy or LM1 or LM1b, all contained beryllium. Beryllium in the context of what we are doing and in the parts we are making is really not a problem although some industries and some customers like to see parts that don’t contain beryllium. LM105 does not contain any beryllium whatsoever. So, we are constantly – we have an active research project looking at mostly combinations of alloys or extensions of alloy capabilities. There has been a lot of research done. The one thing I would point out is that our focus is to have one very consistent alloy that does meet some multitude of needs. By doing that, it makes our sales process easier. It makes our characterization of the material much less expensive and easier for customers to understand and it also allows us to make sure that the interface – the interaction between the alloy and the machine is consistent and works well and it’s also a mechanism for reducing the cost as we get it produced at Materion. If we ask them to produce two or three different alloys, it generally results in a more expensive cost for the individual pieces than if we did the same volume just in one alloy.

Thank you. And our next question comes from [indiscernible].

Hi, gents. I have a few questions.

Hi.

Can we have some numbers – yes, so can we have some numbers around in our Adams contract please. I mean, could we have the size of the order maybe the cost of manufacturing the order, estimated revenues around what that one specific contract will actually generate?

We really don’t release that. The expectations of volumes and how it’s going to be priced and sold are really the purview of Miltner Adams as a corporation. They have certainly shared those with us and we felt as though that the opportunity was significant enough for us to work with them on developing, designing and producing the part, but we don’t – we won’t be releasing the numbers on that.

Thank you. And our next question comes from Glen Trent, Private Investor.

Yes. You mentioned the Engel machines are sold on the open market, how may of the Liquidmetal machines has Engel sold?

We don’t release their production numbers. It’s a limited number at this point in time. Keep in mind, they are sold on the open market, but the only people who can purchase them are licensees. So, at this point in time as I say it’s been a relatively small number, but as we move into the certification of some certified Liquidmetal contract manufacturers that number will go up.

Is that number greater than 2?

Yes.

Thank you.

But that’s what you are getting out of me at this point in time.

I appreciate it.

Okay.

And our next question comes from Charlie Schar, Private Investor.

Hi, Charlie.

Tom and Tony, hi.

How are you doing?

Yes, a couple of things please. Can you hear me?

Yes, clear. Yes.

Yes. On the Q2 revenue contracts, you mentioned the shorter term items can you provide any guidance for the remainder of ‘15 in terms of what might come around?

In terms of financial projections, no, we are not doing that at this point in time.

Okay.

Clearly, our emphasis is on the strategic projects automotive, aerospace and medical, because that’s where the big dollars are, but at the same time it’s unlikely I would say that we will get any production in those areas in 2015 although we will certainly be trying to get prototypes from them in 2015. And that’s why we are trying to get some of these smaller projects that have shorter decision criteria associated with them through the process.

Yes. Maybe a follow-up on that on the Miltner deal from start to finish, how long did it sort of take sort of get it going, see the deal, create the molds that type of thing?

The whole project probably lasted a year from the time they contacted us. But keep in mind that during that time period, we initially started with a contract manufacturing partner that we then were in arbitration with. So, I think if you just take a look at kind of how it wrapped up, it wrapped up subsequent to our settling that arbitration, which was during the third and fourth quarter of last year, Charlie.

Yes. What I am trying to ask is if another client comes through, what would you think is the normal sort of lead time to go from design to production?

So, to go from design all the way through production would be design and then a prototype mold and then probably a redesign and then a production mold. The only pieces of that that have much certainty associated with them are the amount of time it takes to do a prototype and a production mold. Those are about 12 weeks or 1 quarter. So, you can kind of put that together and say it takes somewhere in the neighborhood of 9 months to 12 months best case for us to get things through the process.

Okay, good. Thanks. And Tony, you mentioned enough cash through mid 2016, is that based on $10 million or some other amount?

It’s based on what we have existing. And we just filed our 10-K and you should see that we have $10 million in the bank as I have stated earlier as of 12/31/2014.

Thank you so much. [Operator Instructions] And there is no further time for question-and-answer session. At this time, I would like to turn the conference back over to Mr. Steipp for any closing remarks.

Thanks, Joshua. Well, I just want to thank everyone for joining us for the fourth quarter and fiscal 2014 wrap up. We look forward to giving everyone an update next quarter.

And this will conclude today’s conference. We thank you for your participation.