Tom Steipp - President & CEO Tony Chung - CFO Paul Hauck - VP Sales & Marketing

Scott Ambrose - Private Investor Jay Fisher - Financial Logic George Leopard - LEP Enterprises

Good afternoon and welcome to the Liquidmetal Technologies First Quarter Fiscal 2015 Conference Call. My name is Blake and I will be your conference operator this afternoon. Joining us on today's call are Liquidmetal's President and CEO, Tom Steipp; CFO, Tony Chung; and VP of Sales and Marketing, Paul Hauck. 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 the 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 in 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, Mr. Chung and 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 which 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, 2013. 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, 2014, 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. Please go ahead, sir.

Thank you, Blake. Welcome everyone, thank you for joining us on today's call. I'll begin with a recap of the activities from our first quarter, followed by an update of our sales and marketing activities from Paul Hauck, and a review of financial topics from Tony. Then I'll finish up with summary comment and questions. First quarter was one of significant progress as we moved towards commercial viability with this exciting technology. As you will recall in the third quarter of last year, we reached the necessary agreements to consolidate sales, marketing, engineering and manufacturing within a single location. In fourth quarter, we opened our manufacturing center of excellence and were for the first time able to show perspective customers, real parts being produced here in Rancho Santa Margarita. At that point, our fully integrated sales efforts began to take off. That initial launch gathered momentum in the first quarter of 2015 with a record number of customer visits, and customer submitted RFQs. In fact, we had more customer visits in the first quarter than we had in the entire year of 2014. That in conjunction with our other marketing and sales events yielded three times as many RFQs in one quarter than we had cumulatively in the first three quarters of last year. Beyond this new momentum on the sales and marketing fronts, we continued our internal maturation of the manufacturing process with continued work on ISO 9001 where we now expect to have formal certification in the fourth quarter of this year. We also completed the mold design for our first production part, the Miltner Adams' knives which we expect to begin yielding parts in mid-year. Yes, this is a very significant progress, and yes, it has been a long time in coming but is important to remember the critical importance as a foundation that we put in place over the last several years. Based on our earlier experience with the technology, we made a decision to shift from dye casting to injection molding in 2009 which turned out to be a dramatic but necessary shift resulting in lower cost machines with more repeatable manufacturing parameters available from a world-class supplier. Just to recap, in 2010 through 2012, we - those were the foundation years of filling out our new engineering team and getting our nascent injection molding architecture to a state of commercial viability. 2013 was primarily about getting the new technology established with outside partners like Materion and Engel. 2014 was focused on getting our structure and business model right, turning the stage for a new sales and marketing launch towards scalable production in 2015 and beyond. Prior to getting all these foundational pieces in place, our sales effort have not been nearly as focused or as effective as we are beginning to see now. For the first time under Paul's skilled leadership, we have a solid trained MSR organization in place, along with an exceptional team of engineering and manufacturing talent to support his real time sales activities. That is the complete package that we've needed and which is beginning to produce the exceptional progress that we can report for last quarter. Obviously our ultimate goal is to share profitable production parts from a manufacturing center of excellence, to license significant customers for their own production, and to outsource large volumes to certified Liquidmetal partners. That will take some time, until then I wish I could take group of investors to actually see the response this technology gets in the market. Obviously I can't do that, but the next best thing is probably to have Paul give you a first-hand account of what we've been doing, and how these results lay the foundation for even more progress and shipment in the coming quarters.

Thanks Tom, I'm especially excited to talk to each of you today following an excellent first quarter of activity. The sales and marketing team including our MSRs is making significant progress. My compliments to the team for the high level of commitment each of them has made to the success of our business. Particularly, noteworthy is the significant investment of time and resources made by our MSRs in support of our mission to grow a business and develop an industry. The Liquidmetal team has successfully implemented a series of internal processes and procedures that succingly manage ever element of our go-to-market strategy. Here are some of the results; the team processed 36 discrete customer requests for quotation, visited more than 50 customers and built comprehensive annual sales planning with each of the MSR agencies. We developed more than 100 videos addressing frequently asked questions and should ask questions which will be in out during the next three quarters. We registered Liquidmetal to exhibit at five specific trade conferences and exhibitions; we developed three market case studies and substantially increased our internet presence and traffic to our website. We also completed the development of a new website which is now live. I'm thrilled with the progress we are making and I'm proud to be associated with our team. We frequently get asked a few recurring questions that I think are timely to revisit on the heels of a great first quarter. We are often asked two overlapping questions; why is this technology taking so long to commercial? And if the technology is so revolutionary and cost effective, why are we having such a hard time selling it? Well, solving fundamental technological problems with the predecessor technology used by Liquidmetal was very problematic. It has only been during the last two years that robust machines technology has been finalized based on the latest generation of angle injection molding machines. The technology is opening doors with both customers and candidates certified Liquidmetal manufacturers. Combined with our new internal and external sales and marketing team, and the implementation of critical internal business processes, we are effectively getting the word out that we have a solid commercial solution for volume parts production. Secondly, it's important to recognize that we are not selling a commodity product such as general purpose fastening hardware that company's use every day. In those situations, generating orders could be expected to be done quickly if one was offering a price competitive alternative to other suppliers. In contrast, Liquidmetal is offering a new manufacturing solution for custom parts production that is unfamiliar to its customers and therefore not presently leveraged during their product design faces. To add to our challenge, customers across most markets today are very risk adversely considering the adoption of new technologies. As a result, our initial customer priority is educating them on the capabilities or technology and then how to apply it. Then we need to work with them to identify good candidate applications. When these applications are identified, our challenge is to convince the customer to take the risk of specifying a new technology. We are now having these various conversations with a large number of customers. The good news for Liquidmetal is that we're building strong customer interest. They are attracted to our technology single step process and the broad range of very impressive material properties. One of our strongest sales tools is our recently established in-house manufacturing capabilities, this has been a critical addition for us, now we have control over manufacturing to ensure successful program outcomes, it can give customers an opportunity to see the technology first hand which lends a necessary level of credibility. Another frequently asked question is are there prototypes in the pipeline? Yes, there are prototypes in the pipeline. Unfortunately we find it challenging to get customer approval to disclose details publicly. Every customer relationship we have is protected by a non-disclosure agreement. We understand the value of being able to disclose such information then we'll continue to work with our customers towards gaining approvals for project disclosures as we move forward. By [ph] the subject to prototypes it's worth mentioning that prototype programs offer the lowest risk approach to validating the technology, both in terms of cost and time. Not all prototype efforts are successful for a variety of reasons. We are provider of custom parts developed by our customers for their end products. They work in competitive market spaces, there are circumstances where not all new programs get funding, and other cases where the perceived benefits of those products ultimately do not offer a strong enough competitive advantage and the programs get cancelled as a result. These conditions make us somewhat reluctant to talk about numbers of programs. While we prefer to be transparent about our efforts, there is definitely a variety of factors that influence program outcomes, and it's not possible to accurately predict the results of all program phases and final outcomes. We would much rather report successful programs when we gain customer approval to disclose the information. Another common question, why have no CLMs or certified Liquidmetal manufacturers come onboard? Our strategy has evolved; customers with an interest in the technology want direct access to Liquidmetal and may prefer to have their first parts produce directly by Liquidmetal. In some cases, they have indicated explicitly that they do not want to be obligated to by parts through a CLM. In other cases, they have specific suppliers that they prefer to work with. We are moving at a much more careful and deliberate pace. Now we do not view CLM development as a critical next step in our evolution but rather has a strategic effort to develop strong collaborative partnerships with companies that are viewed as a desirable by our customers. Our customers have been both vocal, our customers have been both vocal and invaluable in offering guidance with respect to the identification of strong candidate CLM companies. We are also giving the question why are you not ordering more machines? We plan to add capacity just ahead of demand but not too far ahead, we have an additional machine on order which is scheduled for delivery this summer, and we'll continue to add capacity as necessary to support our growing customer demand. At this point we have orders for 2015 and we have the gun production at our manufacturing center of excellence in California. So I hope I've given each of you some additional insight of value, I look forward to our continuing progress. Now our CFO, Tony Chung, will discuss financials for the quarter.

Thanks, Paul and good afternoon everyone. Our financial results for the first quarter of 2015 reflect our continued investments in the infrastructure and resources required including the sales and marketing efforts led by Paul to support a robust manufacturing and licensing business. In this context, let's turn to the financial results for the first quarter ended March 31, 2015. Revenue for the first quarter of 2015 showed a decrease to $26,000 from $160,000 during the first quarter of 2014. Gross margin was $7,000 or 30% of product revenue compared to $20,000 or 13% of product revenue in Q1 2014. As we've consistently disclosed in our MD&A section of our 10-Qs, much of our current product mix consists of prototype parts and other revenue which have variable cost percentages relative to revenue, and related gross margin percentages may not be representative of our future business. When and if we begin increasing our revenues with shipments of routine commercial parts from either our manufacturing center or certified contract manufacturers, we expect our gross margin percentages to stabilize and be more predictable. Selling, marketing, general and administrative expense was $1.9 million in both Q1 2015 and Q1 2014. R&D expense increased to $482,000 from $334,000 in Q1 2014. The increase was mainly due to increases in internal projects related to the continued development of our technology and related production processes. Now, I would like to go over some of our significant non-cash and non-operational expenses during the first quarter of 2015. The change in the value of our warrants resulted in a non-cash loss of $161,000 as a result of continued changes in the valuation assumptions of the warrant liability, inclusive of the underlying increases in our stock price during Q1 2015. Other amounts recorded in other non-operating expense accounts are minor in comparison to those during Q1 2014, and in the overall context of our financial statements. For a more thorough discussion of these non-cash fluctuations, please refer to the management discussion and analysis section of our quarterly report. Turning our attention to the balance sheet, we ended the quarter with approximately $8.2 million of available liquidity, of which $2 million is included as short term restricted cash. During the first quarter of 2015, we entered into a $2 million line of credit facility which will be used to support general operations and capital expenditures in the near term. We believe that this facility in addition to our ability to utilize the 2014 purchase agreement for additional general funding up to $30 million when considered with cash on-hand of the balance sheet date provide adequate liquidity and flexibility in continuing to execute our overall strategy through the middle of 2016. Our long term success will continue to be a contingent upon our ability to raise additional capital and/or generate significant revenues to support our operations beyond the middle of 2016. This complete by financial summary, for a more detailed and complete analysis of our results please refer to our March 31, 2015 Form 10-Q which we filed earlier today. I'd like to now turn the call back over to Tom.

Thanks, Tony. Well, I began this conference call by saying that I'm very encouraged by the progress that we saw in the first quarter of 2015. That optimism is not built on blind hope, but rather on the foundation of an extraordinary engineering and design team that has worked relentlessly to bring Liquidmetal Technology to commercial viability. It is built on the strength of our world-class partners for alloy, injection molding machines, and mold production. Is built on the strength that we're merging end to end solution structure and business model that tightly links sales, marketing, engineering and manufacturing with a set of customers who are discovering ways to do things that they were never able to do in the past but now they can. With Paul having been on the road for the last 8 weeks, my goal this afternoon was to give those of you who are in our investor base, a fully transparent first-hand view into his world and our future. My optimism which has been growing over the course of last couple of quarters took another step forward with a significant advances realized by our sales and marketing team during the past quarter. While our sales cycles are still long, as is the case with any new technology, what we've seen objectively the past couple of quarters is very encouraging. 50 customer visits, more than we had all last year; the 36 RFQs, more than we received in the first three times - the amount we received in the first three quarters of last year; and parenthetically we received 25 RFQs in just the first month of Q2 alone. More importantly, the quality of the RFQs that we received continues to improve as we and our MSRs get a better understanding of what Liquidmetal applications provide the most value to our customers. These and other components of our overall business measurement process are incredibly encouraging to me, to Paul, and to the rest of our internal and extended teams. Finally, as you may have seen in the news, Engel is having a major customer symposium in mid-June at their manufacturing facility in Schafberg, Austria. Paul and I will be attending this major event which is expected to draw over 3,000 customers. We look forward to giving you an update on how it goes during our next call. At this point in time I'd like to turn the call back to Blake for Q&A.

Thank you, sir. [Operator Instructions] And we will take our first question from Scott Ambrose.

Hello, gentlemen.

Hi, Scott.

Thank you very much for the additional information as it related to the sales activities and we'll look forward to what - going to be doing in the next two weeks as well. Two part questions; first, I know - I think I read that Charms Spyder Contract is expiring sometime later this year, perhaps in August. And I'm curious what's been done regarding the transition plan for your successor Tom, and whether that's an individual - will be internal or external from a candidate standpoint? And then if you can speak to that at all. And the second part is, with the news about American Airlines CEO recently changing his compensation plan to a non-salary all stock based plan, I'm curious if any consideration has been given to that type of plan at work to executives and sales staff at Liquidmetal which would be mutually beneficial obviously as the company succeeds for both executives and shareholders. And again, thank you all for your time.

Sure, I just have couple of comments. One is, my employment contract is not expiring per say and I don't have any plans on going anywhere; we certainly are always in the prospect of trying to build a team so that succession is a viable capability. With respect to compensation, one of the comments I'd like to make is, that we have a very independent set of directors on our compensation committee. They utilize external consultants to gauge the appropriate level for both stock base and bonus; we review that in depth, at least once a year and generally have conversations about it in the meantime. So the company is looking to provide that balance between being able to attract and retain quality of people we need to move forward, as well as keep the amount of cash that goes out of the door and the amount of dilution in the form of equity within reasonable balance and they will continue to have that discussion on a regular routine basis, and we'll report obviously what they do as well.

Great, thank you.

And we'll go next to Jay Fisher at Financial Logic.

Good afternoon, gentlemen. Tom, you had mentioned…

Hi, Jay.

Hi, how are you? You had mentioned that there were 36 RFQs in the first quarter and the for the second quarter I didn't catch, so if you could - the first month of the second quarter, I would appreciate you repeating that. And then if you could give us some insight into market segments for the RFQs, which types of industries?

Sure, I don't have a breakout of the industries for all 36 but to put this in perspective, we received a request for quotations, four in the first quarter of last year, four in second quarter of last year, four in the third quarter of last year, 36 in the first quarter of this year. They were spread most significantly between medical, I'd say the bulk of them were by far for medical, some automotive, and then beyond that there was a scattering of more - what I would term tactical opportunities as we've indicated in the past calls, Paul's guys are focused on three long term market segments; aerospace, automotive and medical. And those take multiple years to develop and recognizing that and the fact that we need to get shipments out the door this year and next year tactical opportunities, things like the knife order from Miltner Adams, sporting goods and fire arms probably round out the bulk of other ones that we've looked at. And to put that in perspective, we've got 25 RFQs in April, so you can see first quarter, second quarter, third quarter - first quarter this year and just the first month in the second quarter, we are very encouraged by both, the number of customer visits that have taken place and just to remind everybody, these are for the most part by Paul and/or MSRs who are paying their own way, see the opportunity and are paying their own expenses until such point in time they get orders and restart shipments because we don't pay them until that happen. So I would say compared to where we were a year ago, we have a much better understanding of the integrated process, and as a result our optimism and that shared by our MSRs is far higher.

Thank you.

And we'll go next to George Leopard at LEP Enterprises.

Hi George.

I'm sorry, and we'll go next to Reed Russell at iTrigger Pictures [ph].

Hi, I was curious about the misinterpret [ph] that were made for lucky Martin, and is there any news on the testing of that?

That program continues, our communication with them continues but I just reflect back to the - I think it was the second comment that I made with Jay, aerospace orders in particular are long gestation kinds of opportunities. So we have number of RFQs that have come in from probably three year so of the top aerospace companies, we are working on those, we expect those to be longer term returns than what we would expect from somebody about like the nice supplier, fire arms or sporting goods. Those are truly long term projects Reed.

Okay, thank you.

And it hasn't gotten any better with the state of federal spending these days.

And we'll go next to Fred Baker [ph].

Hello, my question was about the miso Cañar [ph] which has been anticipated. Thank you.

Okay.

[Operator Instructions] We'll go next to George Leopard at LEP Enterprises.

Can you hear me guys?

This time we can hear your George, go ahead.

Sorry about that, I don't know what happened there but thank you so much for this call, I really appreciate it. Some of the answers were answered with the RFQs. Question on - what the new plant being built, if an order came in prior to that, say a big order, and electronics order, back then were you able to produce a large order or now which is new plant, is it something the you can now do and move forward with a large order, pay for electronics or someone that would come forward with electronics?

Yes, I would say we feel as though the facility here would hold at least three machines which would be a relatively large order by any stretch of the imagination, and we will have our second machine delivered within the next quarter, so that will give us two machines onsite. So as Paul indicated during one of the comments that he made, our intention is to get enough machines in place to handle all the orders, but obviously you don't want to order them too far in advance.

Okay, I appreciate it.

And I would say that the conversations we have on a very regular basis here at Span, the spectrum from customers who want us to make parts, customers who are interested in getting their own license and contract manufacturers who we might utilize in conjunction with those customers. But I just want to reinforce the comments that Paul made which is that - by the ones we're driving those discussions, they want to work - as to define the viability of the technology and then they will give us some advice whether they want to take a license themselves or turn it over to a CLM. And our intent is to have discussions with those that we've got a handful of folks that we can partner with.

So, thank you for that clarification.

And we'll take our final question from Brian [ph].

Thanks for taking my question. What is the minimum product ground you would do for a new customer in piece count?

In piece count probably the minimum amount we would do for a new customer is somewhere in the neighborhood of 10 to 100, but that's really not what we're looking at, the real answer to that question Brian is, what's an economic value and you have to consider the cost of the molds, and our cost of the molds vary pretty dramatically depending on the amount of complexity. But generally speaking what I will say is, we start off doing prototypes, those are low volumes, they tend to be in the order of hundreds of pieces, and we try to really work with those customers that we've got to allow those proposals for those parts to be cost effective, the idea being that when you get into production, we're generally looking for larger volumes. And it's hard to put the piece price on it but we're generally looking for something that will yield a $100,000 to $200,000 worth of revenue for us a year, kind of a ballpark minimum although I wouldn't say that.

Okay, thank you. That was financial and this was probably more pretend, what's the cumulative deficit right now for the liquidity company [ph]?

Well, our cumulative deficit is - and you can look at balance sheet and the 10-Q that we filed, that's $213 million, but - and that goes back to our inception.

Alright, thank you.

Okay, if that's it, I just want to thank everyone for participating on the first quarter call. And as I indicated, Paul and I will be over at the Engel symposium and look forward to giving you all an update when we get back. Thank you.

Thank you, gentlemen, that does conclude today's conference. We thank you for your participation.