Tom Steipp - President & CEO Tony Chung - CFO

Scott Ambrose - Private Investor

Good afternoon and welcome to the Liquidmetal Technologies Second Quarter Fiscal 2015 Conference Call. My name is Kevin 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 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 and 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, 2014, as well as other public filings with the SEC since such date. I would also like to remind everyone that this call will be 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, Kevin. Welcome, everyone and thank you for joining us on today's call. I'll begin with the recap of the activities from our second quarter. Followed by a review of financial topics by Tony. Then I'll finish up with a summary comment and question. Our second quarter was one of continued significant progress, as we move toward commercial viability with this technology. Here are some of the highlights; we shipped first articles of a Custom Liquidmetal Hybrid Knife. We received orders for the first prototype, from a European customer. Participated in the Engel Symposium with over 3,000 attendees. Factory Acceptance Test was completed for our second Engel Injection Molding machine with delivery expected at the end of August. Received a significant influx in Requests For Quotation over 100. Took a major step forward in the process to attain our ISO 9001 Certification, which is still expected in fourth quarter of 2015. These most recent accomplishments, build upon the foundation for success that was launched back in 2010, with our strategy of focused partnerships. Under the license relationship with Apple. Our IP portfolio has grown from 53 patent applications to 126. And the arrangement to share IP have been extended three times, through February of 2016. Under the license relationship with Swatch, we've seen the introduction of multiple brands using Liquidmetal technology. Even a cursory search of the Swatch brands online will yield examples of some of the most advanced premium watches in the world, taken advantage of our extraordinary material properties. Materion and Engel exemplify the economic and technological benefits derive from having world class partners. The addition of strong sales and marketing expertise has yielded a renewed level of customer interest across the broad spectrum of industries. As evidenced by the unprecedented levels of recent RFQs. Finally, the consolidation of sales, marketing, engineering and manufacturing into one physical location is allowing us to develop promising opportunities, much more quickly and effectively. Just a word about our progress, since this consolidation. Not only is our process cycle accelerating, but some of our first manufacturing efforts are making a strong impression on customers. The Hybrid Knife is a case in point. Feedback from individuals and companies, who have purchased the Hybrid Knife has been universally positive. The project has progressed from what is effectively a first prototype, sold as a limited collector edition. Through development of new cosmetic finishing processes and finally to refines in the mold that fine tune the fit and feel of the final product. MSRs and prospective customer's familiar with advanced metal fabrication methods have been very surprised an intricate part, with such tight tolerances can be made without complex machining. The knives are valuable assets in our sales process, as they showcase our design and manufacturing capability. As a follow-up to this note, I should point out that this product did not go through our normal prototype process. Due in large part to our desire to hit the 2015 Annual Knife Show in Atlanta. Generally, we would have designed the knife produced in mold, gotten customer acceptance on a final product and rework the mold and then processes and order for final production parts. Given the lead times associated with show, we went straight to a production part. This decision was one of the major contributors to our negative gross margin for the quarter more on this later, in Tony's section. One of the more significant events of the quarter occurred at the Engel Symposium in Schwertberg Austria. This event occurs only once in three years and was attended by more than 3,000 participants from the world's most technologically advanced manufacturing companies. Liquidmetal Technologies garnered a great deal of attention and the show has provided a point of entry for our sales and marketing activities into Europe targeted for 2016. Now our CFO, Tony Chung will discuss financials for the quarter.

Thanks, Tom and good afternoon, everyone. Our financial results for the second quarter of 2015 continue to reflect our investments. In the infrastructure and resources required to support our sales and marketing efforts and a robust manufacturing and licensing business. In this context, let's turn to the financial results for the second quarter ended June 30, 2015. Revenue for the second quarter of 2015 was $39,000 compared with $153,000 during the second quarter of 2014. Our current quarter revenues included modest sales from our first commercial production part, a custom knife. The decrease from prior year is primarily due to a reduction in project funded R&D and other one-time revenues versus our current focus on building a routine manufactured parts business. Gross margin was negative $94,000 compared to $78,000 as product revenue in Q2, 2014. As we've disclosed in our MD&A section of our second quarter, 10-Q. the increase in our cost to sales and the result in negative margin are primarily attributable to higher cost associated with initial manufacturing activities for our first commercial production part. Given the onset of our manufacturing efforts, during the three months period ended June 30, 2015. Our cost of sales, as a percentage of products revenue is not necessarily representative of our future cost percentages and is expected to improve overtime with increases in volume and continued refinements to our internal processes. When 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, increase and be more predictable. Selling, marketing, general and administrative expense was $1.9 million in Q2, 2015 and $2 million Q2, 2014. The decrease from 2014 is primarily due to last year's legal expenses associated with Visser Precision Cast settlement. R&D expense increased to $455,000 from $392,000 in Q2, 2014. The increase is mainly due to increases in internal projects related to the development of customer solutions and related manufacturing processes. Now I would like to go over some of our significant non-cash and non-operational expenses during the second quarter of 2015. The change in the value of our warrants resulted in a non-cash gain of $349,000. As a result of continued changes in the valuation assumptions of our warrant liability such as fluctuations and volatility in our stock price. Amounts recorded in other non-operating expense accounts are minor in comparison to those during Q2, 2014 and in the overall context of our financial statements. For a more thorough discussions of these non-cash fluctuations. Please refer to management discussion in analysis section of our quarterly report. Turning our attention to the balance sheet. We ended the quarter with total cash of $7.3 million. Represented by $5.3 million of liquid cash and $2 million of short-term restricted cash. From the beginning of the second quarter through today. We have raised a little over $1 million through stock issuances under our equity line with Aspire Capital. In addition, we utilized $200,000 of our line of credit facility to fund capital expenditures. We believe that our current cash balance provides adequate liquidity and flexibility in continuing to execute our overall strategy through the middle of 2016. We are fortunate to have funding vehicles in place and we anticipate that we will continue to draw down on our equity line as necessary to maintain a reasonable cash balance to support our operations, beyond the middle of 2016. This completes my financial review, for more detailed and complete analysis of our results. Please refer to our June 30, 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 the conference call by saying, that I'm very encouraged by the progress that we've seen in the first and second quarter of 2015. I also noted that had received over 100 RFQs in the second quarter. It turns out that we received over 50 new RFQs just in July. It's important for us all to realize that we have a very energized MSR organization and significantly renewed interest in Liquidmetal technology within our target markets. remember that MSRs only get paid after, we ship and collect. Which is one of the reasons, that we view these RFQ metrics so positively? It tells us, that our sales force, which is very technical and experienced in selling new technology is dedicating significant amounts of their time and energy towards selling liquid metal along with other offerings. We have an exceptional team and a stable process in place. Our excellent marketing group in partnership with our established network of proven MSRs seem capable of generating a 100 plus quality selling opportunities as measured by RFQs every quarter. Some number of those customer leads will wind up on our qualified opportunities list and receive the full benefit of our exceptional engineering design and manufacturing talent. As qualified opportunities grow, we expect to see a flow of prototype and production parts, with increasing revenues at the end of 2015 and into 2016. In parallel, we are making efforts to accelerate our growth in 2016 and beyond. First, we will extend our sales processes and partnerships into Europe during the next six months to nine months. The Engel Symposium was an excellent launch point into that market. Engel is an established player in a number of our target industries. And has extraordinary credibility as a machine supplier. Secondly, we will develop a small number. A strategic certified Liquidmetal manufactures driven in large part by the preferences of our largest and most strategic customers. We are looking for CLMs that are interested in leveraging our engineering and manufacturing capabilities to jointly develop prototypes and possibly share production. Maximizing technology transfer and ensuring quality. Ideally, CLMs will complement our capabilities. Producing products that require specialized certification, high volumes and providing our customers with access to preferred suppliers. We look forward to giving you an update on how it goes during our next call. Finally, I also want to remind everyone that Tony and I will be presenting at the Rodman & Renshaw 17th Annual Global Investment Conference in New York City on September 9 and 10. We hope to see any of you who want to attend there. At this point, I'll turn the call back to Kevin for questions.

[Operator Instructions] we'll take our first question from Scott Ambrose. Your line is now open.

Hello, gentlemen and thank you for the updates.

Hi, Scott.

I've a question as it relates to the prototypes that you mentioned. There is about 150 I think between two numbers that you mentioned, that are pending. So curious, what is the status of any of the request for prototypes and has anything gone beyond the prototype stage. And secondarily, are there any prototypes or contracts that are contingent upon Liquidmetal ISO 9000 Certification and when will Liquidmetal be ISO 9000 Certified?

I'm not sure, I got the whole question. So let me give it a shot in reverse order. We have no business today, in the way to the two orders that we have in place, that are contingent upon ISO 9000 Certification. We have a number of discussions underway, where ISO 9000 Certification would be an issue. We expect based on the progress that we've made to be ISO 9001 certified in early fourth quarter, 2015. You had another question about prototypes that we have made to-date and I presume those, you're talking about the knives?

Just the, off 150 that you had referenced between the two dates. I think the first quarter number was over 100 and then, you mentioned another 50 in July. How many of those have gone beyond the request for a prototype, if any?

Yes, I understand. So just quick update, we've gone from processing roughly one a month, four request for quotations a year ago to 28 in fourth quarter and 36 in first quarter, 100 in second quarter and 50 in July. So to be honest with you, we have targets about how quickly, we turn those around. We're working as quickly as we can because out of that group of 150 plus, they fall into three categories. Either no bids, if they're not good parts. Budgetary estimates, which means. For a customer, it gives them an idea, what we think we could make that part for and then a formal quote, which can only be done really after a lot of engineering analysis and dialog with the customer. So turning them around quickly for us, is important. if it's a no quote, we want our sales reps to understand what is not good about that because they're very focused on getting things that they think will go into production and they don't want to waste their time and energy, same thing for our customers and also same thing would be, there formal quotations, we want to turn those around as quickly as possible because they're the ones that are most quickly going to turn into orders, either prototype or production order. So what I can tell you, is that the team here is the process is in place. We are working it through in an orderly fashion. We are a bit overwhelmed by the interest that we've seen on the part of customers and the ability of our MSRs to actually get those process into things for us. But we're being careful about adding capacity obviously because we want to watch cost. But we trying to thread that balance as carefully as we can.

Scott, just to clarify also. When you say, 150 prototypes we're Request For Quotes, RFQs and these RFQs have not gone through the prototype stage. It's essentially a budgeting process, whereby we would quote them same price based on certain parameters. But an actual prototype has not been done at that time.

Understood and I appreciate you clarifying that was one. And then, I think Tom [indiscernible] accordingly. Thank you, Tony.

[Operator Instructions] and we'll go next to Jay [indiscernible] your line is now open.

Hi, guys.

Hi, Jay.

Pretty exciting stuff being going on. I've been very impressed with kind of the way, the strategy is been evolving. But I think, things have been a little slower than I would have expected, I guess. But at this point, it looks like, there is an insane amount of interest in the product and in the capabilities. We're getting a ton of RFQs through the door, but it's hard for us as investors to understand, what these actually mean? In other words, I guess in Q4 you said, you have 28 RFQs, in Q1 you had 36. And then you told us that, those breakdown in the no bids, into estimates. And then into formal quotes as well. Is it possible for you to give us some kind of an idea. I guess, those the 28 and then the 36 and then in Q2, the 100. How those breakdown into those three categories.

We really don't go into that level of detail. We certainly give summary and give summaries of how we're going. But I think it's safe to say, Jay that if you look at. Just the back and forth communication between a customer talking to one of our MSRs. The MSR is talking to us. Us talking to our engineers, getting that information back through budgetary quote, more information and a formal quote. I think, there is two points that you made, that I want to emphasize. One is, we are seeing a dramatic increase in the understanding and interest of how Liquidmetal can be used to increase the value to our customer's productions. And that is reflected in the RFQs. The other thing, though that needs to be remembered and we certainly have tried to just remind people of this is, it is a consultative sell. This is a new technology, so there is multiple phases, you have to get the customer interested and then once the customer is interested. You have to educate them on, how it meets their particular needs and often times, they'll give us a part that needs to be redesign to fit a molding process and oppose to a machining process. So we are not at all discouraged by the timeframe that we are looking at from orders coming in, budgetary estimate turning into a formal quote and then, this formal quotes turning into actual orders and when those orders come in, we do let everybody know from a visibility standout. How those have progressed. Right now, we've had two come in. one for the knife and one from that European company that is exciting opportunity for us. And we'll give you updates next quarter in terms of how those were able to be processed and the progress on turning those into production orders or a prototype. Prototype or production.

Can I ask, can I have a follow-on on this?

Sure.

I mean, as we look at the financials of the company. It seems to me, we've got maybe nine months of cash on the books. And I know you guys have been working hard to kind of redesign and reformulate the company and its process and its products, in a rapid fashion. But as an investor, I look at this and I say, it looks like a 150 request for quotation that's been outstanding for at least a money maybe two months are greater. And how, what kind of expectation is realistic I guess in terms of, how many of those might actually turn in a production process or a production contract?

Yes, that is, that's a reasonable question. And I think, the way I would respond to that is. It was a year ago, that we were processing four quarter. Not a big enough to amplify. We're going to need to run this for another quarter or two, to get some sense. I mean, after we've had three or four quarters under our belt. We'll have a pretty good sense of what percentage of those that really, those that wind up on our opportunity list, are likely to windup as prototype and production part. So have some patience and be aware of the fact, that what we're trying to do is, share with people both process and the progress we're making on those. And the only piece we have visibility to right now is kind of front end of it. I would expect over the next couple of quarters. We'll have visibility further into it.

And Jay, just to clarify about our cash position. Our balance sheet as of June 30, we have around $7.3 million. We have the equity line in place. But with just our existing cash, we have disclosed that we would be able to support our operations through the middle of 2016. Now that doesn't include actions that we can take to curtail certain expenses, if we need to do that. As well as, the fact that we could draw down on the equity line. So it's a guidance, but we can certainly, we're anticipating and we're going to work towards making sure our cash balance is in a reasonable level. So that we could continue operations without interruption.

Okay, can we at least expect. Some I guess further clarity insights, in to this process or the funnel of enquiries in next quarters call.

Well, what I can commit to is, we'll give you as, the best visibility that we've got next quarter in terms of the progress of the business, which will include A, updates on new orders that we get or progress in terms of, our best measurement today is, RFQs coming in the front door. That may continue to be a relevant metric or there maybe something different. But we give you the best information, we can, Jay.

All, right. Well thank you, very much.

We'll take our next question from Tony Shingle [ph] your line is now open.

Good afternoon, guys. And thanks for the update.

Hi, Tony.

It does really seem that you guys have a fantastic product and with huge potential. However, if I look at the fact that, your company is been in existence since 1987 looking at level of revenue at this point as compared to the level of expenses. Obviously, the business is not sustainable based on the level of revenue compared to expense. What is the potential revenue size for your product?

I don't think there is a way on a conference call to give you a reasonable number there. I mean, I think each investor we certainly looked at the market for specialty parts and feel as though, it is, it's a large number. The work that's been done over the time from 1987 through today encompasses a couple of different strategies with the company, the one that we focused on here and I related in earlier part of the conference call, kind of stems from 2010. And we spent, 2010 to 2013 getting the technology squared away, getting partners in place and then getting the technology for sales and marketing processes also in place. So you know, I think where we sit given the interest from companies in medical, automotive, aerospace, as well as some specialty things like firearms and sporting goods. We feel as though, the opportunity to get well beyond breakeven for this company. You know it's very realistic and the progress and the metrics we're giving are the ones that we use to gage our progress on that.

There are no further questions at this time. I'd like to turn it back to our speakers for any additional or closing remarks.

Well, I just want to thank you all for joining us for the second quarter call. And if you're in New York, September 9 and 10 we would welcome the opportunity to see you there. Otherwise, we'll give you an update next quarter. Thank you.

This does conclude, today's teleconference. You may now disconnect. Thank you and have a great day.