Tom Steipp - President and CEO Tony Chung - CFO Paul Hauck - Vice President World Wide Sales and Support

Good afternoon, and welcome to the Liquidmetal Technologies’ Third Quarter of Fiscal 2015 Conference Call. My name is Keith 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; and Paul Hauck, Vice President of Sales and Marketing. 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 Mr. Hauck 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 the 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. It is now my please to turn the program over to Liquidmetal’s President and CEO, Mr. Tom Steipp. Please go ahead, sir.

Thank you, Keith. Welcome everyone and thank you for joining us on today's call. I'll begin with a recap of the activities from our third quarter followed by a more in-depth look at our sales and marketing successes from Paul and a review of financial topics by Tony. Then I'll finish up with a summary comment and question. Our third quarter was clearly the strongest since we've opened the manufacturing center of excellence and reset our business model in October of last year. Here are the highlights. Strong performance by sales and marketing with the record number of RFQs, four new orders for prototype parts and emerging partnership with CoNextions Medical and finally, successful completion of our ISO 9000 process. First let me talk about the success of our sales and marketing team and the work of our partner MSRs. Third quarter represents the fifth straight quarter with significant sequential increases in the number of RFQs received. In the third quarter of FY15 we again received over 100 RFQs and again achieved an all-time high. Just as significant about 25% of these RFQs came from Europe. RFQs are the lifeblood of our future and this significant quarter-over-quarter increase along with their ever-improving quality gives us substantial reason for optimism as we look towards 2016. We made significant investments in our sales and marketing infrastructure over the past year. In Q3, these investments continued to pay dividends as we received four new orders for parts to be produced at our manufacturing center of excellence. This is an exciting milestone for the team. While the receipt of orders and subsequent production of prototype parts by itself is not a guarantee of production shipments in 2016, I can say that without prototype parts, we would not likely see production shipments next year. We're very encouraged by this. I want to explain to everyone in addition that there are startup costs associated with the production of early parts that do impact gross margins. Each new part is really a learning experience for our operations team. At this point, most of our molds have some rework between the initial design and final acceptance, although we would expect this to improve dramatically as our experience continues to grow, improving future margins. As an example, we've learned a great deal about production techniques from our work on knives. Our initial design went through several revisions resulting in higher quality knife produced at lower cost. Expected update on this project later this month. Moving on to our relationship with CoNextions, while NDA constraints generally require our prototype press releases to be pretty generic, our current list of qualified opportunities contain the names of many industry leaders in target industries such as medical. We're finding high value applications by having our engineers partner with customer engineering teams to design unique parts to take full advantage of Liquidmetal properties. This is exactly what is happening with CoNextions, a medical technology company dedicated to achieving safer, stronger and more durable tendon repairs marked by faster rehabilitation, fewer complications and lower long-term cost than traditional suture-based repairs. They are literally changing the way surgeons think about performing hand surgeries and we are a critical element in their innovative solution. For these types of unique parts, it does take time to design them, to build models, to produce parts, integrate the final solution and get through FDA and other acceptance testing, but completing all of that in 2016 is not an unrealistic goal. Startups like CoNextions make decisions quickly, that makes it an ideal partner for us. Finally, in October, we completed our audit and the ISO 9001 certification process. We expect to have formal review of our application and issuance of a certification in Q4. If you were all familiar with ISO, you know that this is a very significant accomplishment for our organization. We are extremely proud that we completed this process so quickly. Our ISO 9001 certification puts us in an excellent position to bridge that gap between early prototypes and high volume dual source to outsourced production. Our largest customers expect us to be directly involved in the design of prototype parts, but they don’t always expect us to be 100% building those subsequent parts. Several projects in our opportunities list are large and may require a second source in the form of a certified Liquidmetal manufacturer. This certification gives us some latitude in timing that transition. But as I mentioned in the beginning of the call, this quarter's success was enabled by ongoing sales and marketing investments and I think it is important for you to hear firsthand detailed information from Paul. Our revenue growth in 2016 and beyond will come from the leads and RFQs generated by this sales and marketing team. So with that, I’ll turn it over to Paul.

Thanks, Tom, and good afternoon everyone. During the past 18 months, we’ve worked hard to assemble an internal and external team of sales and marketing professionals. We have leveraged our especially talented engineering organization to help the company to find a clear set of process capabilities, including the development of a design guide that is truly representative of best-in-class in any metals manufacturing technology category. We’ve also given serious thought to our business processes and have asked our manufacturers’ sales representatives or MSRs for their inputs on our business strategies and go-to-market tactics. The results have been an overwhelmingly positive response in market interest, customer inquiries and initial resulting orders. Our challenges for generating short-term revenues and balancing efforts on long-term significant growth are quite different. The quickest path to short-term revenue is through the conversion of current production parts from their existing manufacturing processes to the Liquidmetal process. This is not easy to accomplish as there are generally type design restrictions due to the multitude of other components and the customers' final product that can be impacted by making changes to a single component. This limits the design options necessary to be successful and dramatically restricts the number of opportunities we're able to successfully convert to our process technology. When we are able to provide a truly consultative sale and leverage our technical talent and new product designs, we're able to maximize the benefits of our technology through parts that are designed for the process from the ground up. Applications that fall into this category will be the principal drivers of our long-term growth. Educating customers in getting them to be thinking about Liquidmetal during the design stage of new product takes significant time and effort. The sales cycle for parts in this category can take from 12 to 24 months. The good news is that we are progressing with several customers. Parts that are designed for technology will naturally create a competitive barrier as competing technologies will struggle with some - with the same challenge as we do when we're trying to convert parts from one manufacturing process to another. And the customer will be benefiting from the best possible economics and performance of our materials thus making it difficult for competing technology to displace us. As a result, we are very focused on applications designed for our technology. The total team at Liquidmetal is now processing more than 100 RFQs per quarter and more than 200 general technology inquiries. Each and every one of them is important to us and we spent a great deal of time giving careful attention to their responses we provide. This involves a number of individual inputs and takes great energy to orchestrate. Even when an RFQ is not applicable for our process, we view the inquiry as a means of educating our customers on the technology, so they can begin to better sell select parts for the process. We're being selective and pursuing applications where we believe we will have the greatest degree of success. Additionally, we are focusing on joint development opportunities with key large players in the primary markets of interest to us. This takes a great deal of time and effort to yield attractive applications. However, these relationships will be key to substantial long-term growth for Liquidmetal, and I feel the progress we're making is exceptional. I think, it would be helpful to look at the typical process of evaluating a strong candidate application or RFQ for a business. I'd like to share the process and the level of attention that's required to provide our customers with an intelligent response. This should yield the reasonable idea of the level of activity around customer attention provided by the Liquidmetal team when multiplied by more than 100 RFQs quarterly. When one of our MSRs gets to the point of generating an RFQ with the customer, it is quickly screened to determine its applicability to our technology. If there appears to be a good fit, it goes on to engineering where it is carefully reviewed for dimensional tolerance requirements, overall part geometry and performance expectations. Most often, we generate tooling and part cost estimates referred to as budgetary estimates to communicate to the customer our expectations of overall production costs to see if we are in the ballpark of their targeted requirements. When we have a favorable response, we follow up with the detailed formal quotation. In most instances; this involves interaction with the customer on design details of the part including all aspects of fit, form and function. We often hold more than one design review meeting with the customer to communicate our process technology requirements and identify design expectations that fit our process and their final product assembly needs. These design reviews take place via the internet and in person. Once the design review is completed, a thorough assessment is conducted of each manufacturing process step required to produce the part. In addition, a quality plan is outlined, mold design parameters established, fluid flow analysis for the mold design and molding process is conducted and overall tooling cost determined. [indiscernible] after the molding process is not a trivial topic and much attention is given to identifying the most cost effective approach. When we have completed our process assessment and a detailed most analysis, we generate a formal quotation. Whenever possible, our MSRs personally deliver our quotation to the customer, this gives us the advantage of observing the customer’s reaction and better understanding our business position on the opportunity. As we have continue to expand our network of MSRs, they have delivered impressive marketplace results. The increasing number and quality of RFQs is a clear reflection of their significant contribution to educating customers on the design principals and material property benefits that come from our technology. With 86 customer visits for the quarter, their individual commitment in business investment into our success is clear. They represent the face of Liquidmetal in the field and are doing a great job building lasting customer relationships. Just last week we hosted a Lunch - N - Learn with 75 engineers at one of the world’s largest companies in the medical arena, this was a result of our MSRs hard work to engage customer interest. I’m proud to be associated with each and every one of them. Well, that’s the front end of the business; we are busy on the manufacturing side of the business too. Our environment has moved from one of principally R&D activities to parts manufacturing on a regular daily basis. In addition to selling current customer orders, our team has spent a great deal of time implementing critical business processes and working on our ISO 9001 2008 Certification. The recent successful results of our ISO Certification audit clearly demonstrate the effectiveness of our efforts. We are also advancing our process know-how, in particular, we have begun to master essential complementary technologies such as CNC machining, water-jet cutting and various finishing operations. We are learning to post process our materials in ways never done by Liquidmetal in the past. This will be an important addition to our base injection molding process technology by being able to offer services to our customers not previously possible. There is a lot on the line for each of us at Liquidmetal and its very evident here on a daily basis. The high level of commitment to success is evident every day. We want this business to be a huge success and are working diligently to make that happen. I hope that this gives you a sense of skill and commitment that this team brings to each and every customer. We are working hard to make the best possible outcomes happen. Now I’d like to turn the call over to Tony.

Thanks Paul, and good afternoon everyone. Revenue for the third quarter for 2015 showed a decrease to $42,000 from $97,000 during the third quarter of 2014. Gross margin was a negative $118,000 compared to $12,000 in Q3 of 2014. The Company has begun its manufacturing operations earlier this year and it’s focused on getting into a routine of shipping commercial parts on a daily basis. As alluded to earlier, our sales team is developing a healthy funnel of opportunity and we believe that as we improve our manufacturing process and implement cost saving efficiencies to become a full-fledged manufacturer, we will achieve positive gross margins in 2016. Selling, marketing, general and administrative expense was flat from last year at $1.8 million. R&D expense decreased to $491,000 from $498,000 in Q3 of 2014. For more thorough discussion of these and other financial information, you can refer to the management discussion and analysis section of our quarterly report, which we filed earlier today. Turning our attention to the balance sheet, we ended the quarter with approximately $6.4 million of total cash, which includes $2 million of short-term restricted cash. During the quarter, we raised $880,000 through stock issuances under our equity line with Aspire Capital and drew down $500,000 from our line of credit facility to fund capital expenditures. This completes my financial summary. For a more detailed and complete analysis of our results, please refer to our September 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 hope you can see from the results of our third quarter just how much progress we've made in the last 12 months since opening our Manufacturing Center of Excellence. The sales and marketing infrastructure that Paul has put in place including an exceptional network of MSRs has begun to yield excellent results. The number of RFQs processed has increased every quarter for the last five starting at four per quarter and increasing to over 100 per quarter. We received one new prototype order in the first nine months after the opening of the Manufacturing Center of Excellence. We received four orders for a three separate new parts just in Q3. We have an emerging partnership with CoNextions Medical, which is an exceptional innovative start-up that’s changing the way that surgeons think about repairing tendons. And last but not least, we’ve completed all the requirements for our ISO 9001 Certification and expect the issuance of a formal certificate in Q4. In summary, we see these milestones in 2015 being a solid foundation for production revenue beginning and increasing throughout 2016. We look forward to giving you an update on how it goes during our next call. As I turn this call back to Keith, I want to remind everyone that Tony, Paul and I will be presenting at the LD Micro Investment Conference in LA on December 2, and we hope to see anyone there who would be able to join us. Keith?

[Operator Instructions] And we can take our first question from [indiscernible]. Please go ahead. Your line is open.

Hey, good afternoon. I appreciate you taking my call this morning. Or good afternoon rather. My question is with regards to contract manufacturers and volume production parts, and if you could give us kind of more of an update on how that process is going and if any particular companies you guys have been working with that you can mention?

Well, I would say the progress has been very positive. We are talking to a fairly broad range of contract manufacturers and going through the process of certifying them, both as a function of the relationship with our customers, geographic coverage or industries or specific parts. One of the things that I will repeat that we have learned is that the most interest from relative to contract manufacturers come from our largest customers and those customers have been very direct in terms of wanting to work with us on the prototype parts and that when those prototype parts are completed and been through their acceptance that they will identify the contract manufacturers that they want to work with. So we are working in parallel, both with the customers and the CMs to make sure that as we get into 2016, they are both ready at roughly the same time.

Okay. Thank you very much. I appreciate it.

[Operator Instructions] We’ll go next to Bill Moore. Please go ahead. Your line is open.

Hi. Thanks for taking my question. I have a clarification and also a numbers question. The numbers question is of the RFQs and MSRs over the last year, can you tell us how much revenue has been derived from that and what your minimum expectation is for 2016 from those sources?

Bill, this is Tom. So all the revenue that we get from the work that Paul has explained to which is basically prototype parts and molds gets reported. So everything that you’ve seen comes to our income statement. In terms of the forecast for 2016, we've not been specific on that. I think we’re getting to the point where we've got a better feel for it and in the coming quarters, we’ll try to put some quantification to that, but at this point in time, what we’re able to quantify most effectively the number of visits that we’ve had, the number of RFQs that have come in and the number of parts that have actually been placed and as I said, Q3 was significant, because it took us roughly nine months, three quarters in which to get the first prototype part in. We received orders for three this quarter. We actually received orders for four. One of them was an initial prototype. The second one, the subsequent one within the quarter was for a follow-on early production quantities. So we view that as very significant, but I would also say that we have confidentiality agreements in place that really restrict us from saying some of the things we would like to.

Thank you. Just a clarification, I didn't quite understand the date the ISO approval is going to - is expected?

Yes. It will be sometime in Q4. We actually did - we had two audits that occurred prior to the final acceptance audit and the process is that the auditor gives us the results back, which they have done. She, in this case, prepares a report that goes to a certifying agency if they accept her report, which we believe they will, the certificate would be issued sometime likely before the end of December.

Thank you very much and good luck.

Thank you. But that, by the way, was a whole lot of work.

[Operator Instructions] And it appears we have no further questions at this time. I will return the program to you Mr. Steipp for any closing remarks. : :

Thank you, Keith. Thank you everyone for joining us on the third quarter call. Again, if you are on the West Coast and can join us at the LD Micro, we’d be more than happy to set up a specific meeting with you and we will give you an update at the end of Q4. Thank you.

And this does conclude today’s program. Thanks for your participation. You may now disconnect. Have a great day.