Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
I am not a big fan of micro-cap penny stocks. But my attention was drawn to Liquidmetal Technologies (OTCPK:LQMT) after their recent announcement regarding the development of a new Beryllium free alloy LM 105. LM 105 is a Beryllium free alloy with all the characteristics of a liquid metal. So I started to dig around to see if there was any value in this micro-cap.
Liquidmetal Technologies came out of Caltec, with a $1 billion IPO in 2002 and a stock price of $15. After multiple missteps by management since their product was still in the research phase and therefore not yet ready for prime time production, the stock price tanked to under $1 and has remained there ever since. This may change in 2014.
Why Is Liquidmetal Special?
As per this Seeking Alpha article, "liquidmetal technologies patented amorphous materials are able to take the best qualities of both traditional metals and plastics." Due to its amorphous atomic structure, liquidmetal does not take on the crystalline shape of other metals, but rather arranges its atoms in completely random formations, like a liquid or plastic. This allows it to be injection-molded into extraordinarily precise shapes similar to a plastic, while overcoming the crystalline weakness and necessary machining inherent in the metals. Liquidmetal is lighter, stronger, scratch- and corrosion-resistant, more elastic, while using significantly less time, energy and natural resources to manufacture.
Apple Recognized Liquidmetal Technology to Be Promising
In 2010, Apple (NASDAQ:AAPL) entered into an agreement with Liquidmetal Technologies, and this is where things became exciting and, at the same time, fuzzy. So I spent some time reading the MTA between Apple and Liquidmetal Technologies. As most of you know, Apple is secretive about its future products, so it's no surprise we never hear about what is Apple doing with liquidmetal technology.
Since 2010, after signing the agreement, Apple has been developing liquidmetal technology and recently unveiled their Sapphire screen and related production capabilities. All recently published patents relating to Sapphire and liquidmetal suggest APPL is close to starting the production based on its flexible sapphire display with patented technology to fuse it seamlessly to the liquidmetal.
The "Gold" in the Apple Deal
Liquidmetal Technologies partnered with Apple, one of the greatest companies that can commercialize promising technologies, back in 2010. The deal with Apple was basically a mutually beneficial deal where Apple worked with the company to develop liquidmetal technologies to prepare for prime time. Based on available information about the new Apple devices, it looks as if the technology is ready for prime-time production.
Liquidmetal Technologies was paid a one time fee of $20 million for this agreement with Apple in the 2010 fiscal year. It appears on the surface that the company made a desperate decision to grant Apple perpetual rights to its intellectual property in the field of consumer electronics, until you read the paragraphs below from the Master Transaction Agreement:
Apple hereby grants to Company a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license under the Project Work Product and Project IP, with the right to grant sublicenses, to make, have made, copy, modify, make derivative works of, display, perform, publish, use, sell, offer for sale, import and otherwise exploit such inventions, works of authorship, developments, improvements, data, materials, and trade secrets in connection with the Project Work Product or Project IP, or any improvements, derivatives, or successors to them, solely for use outside of Apple's exclusive license field of Consumer Electronic Products.
This Agreement shall have a term of three (3) years from the Closing Date. This Agreement may be renewed, at Apple's sole option, for successive one-year terms. The 3 year term just means that both companies will work together for that period of time to develop the technologies.
To me, it means that whatever Liquidmetal Technologies and Apple have developed in the last three years will be shared by both companies. Apple will be able to "solely" exploit the technology in the field of consumer electronics and Liquidmetal Technologies has the right to commercialize all other applications of this work. If Apple wants to work with the company to further advance this technology, they would have to renew the agreement again and likely pay Liquidmetal Technologies another one time fee. This may occur if Apple decides to work with the new Beryllium free alloy.
What's the Big Deal About Creating a Seamless Fusion of Sapphire and Liquidmetal?
Right after diamonds, sapphires are known as the hardest and most scratch-resistant mineral on earth. Its remarkable hardness ranks nine out of 10 on the Mohs scale. Although Sapphire is transparent, it is actually not glassy (i.e., amorphous) but a perfect and pure crystal with very high optical transmission properties. Conversely to sapphire, liquidmetal is in fact a glass, though it is a metallic material. Liquidmetal, scientifically also called "amorphous metal" or "bulk metallic glass," is known for its superior yield strength, which is twice as strong as titanium and for its capability of being injection-moldable (like plastic) into any net-shape.
Regarding their properties, crystalline Sapphire and amorphous liquidmetal represent the ultimate in each of their own domain. For being transparent with very high optical transmission properties, sapphire is the ultimate strong, scratch- and impact-resistant material. And being an opaque metal, liquidmetal is the ultimate elastic and strength-to-weight material, which can be ultimately formed into any small three-dimensional form. Imagine gadgets crafted as one integral piece out of these both materials. It would be great to fuse and mechanically bond both materials together in order to create one seamless housing that is extremely wear- and impact-resistant, thin, light, strong, rigid, water-proof and shiny.
The Billion-Dollar Question: What Is the Technology Worth Outside of Consumer Electronics?
Since Liquidmetal Technologies gave away the rights to commercialize the technology in the field of consumer electronics, any value the company has is based on commercialization outside of the consumer electronics. I think it is worth lot more than $150 million, the current market cap of Liquidmetals. Some of them are sapphire jewelry, sports gadgets, automobile, aircraft, trains, construction, etc.
Liquidmetal Technologies has spent the last year partnering with manufacturers. This also suggests that the technology is ready for prime time. The company seems to be preparing for the launch of commercial production once Apple launches its new iDevices with liquidmetal and Sapphire technology. This may have been forced by Apple, so that Liquidmetal Technologies must wait until the technology is showcased in iDevices.
They partnered with privately-held Visser as their production partner. There were disagreements between the two companies and they are "in arbitration" with Visser. According to Liquidmetal, Visser has quoted non-competitive prices to manufacture products for customer orders won by the company. Resolution of the arbitration will also indicate we are closing in on the commercialization of this technology.
- Launch of iDevices will provide good publicity for Liquidmetal technology
- Resolution of arbitration will facilitate commercialization of liquidmetal-based technology
- If Apple decides to collaborate with the company again, that may provide a short-term cash infusion
There is no real revenue at this time. The company is running out of cash, and if they do not start to get some revenue, they will have to file for bankruptcy in the next two quarters. All the value ascribed to the company is based on intellectual property and speculation of its future use in various products. This is derived from the belief that Apple and Liquidmetal have created something significant in the past three years that can be commercialized.
Disclosure: I am long LQMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.