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Liquidmetal - A Pink Sheet Riding On The Coat Tails Of Two Giant Consumer Companies

|Includes:Liquidmetal Technologies, Inc. (LQMT)

Foreword/Caveat: Note that I shy away from penny/pink sheet stocks 99% of the time, so this article is an exception for me. I advise all less experienced/novice investors to stop reading and do the same - stay away from buying OTCBB stocks unless you are an experienced trader. Update: Also take into account the number shares outstanding and shares approved of such companies.

That being said, here's the company in question: Liquidmetal.

Liquidmetal has been the subject of a good article (although too optimistic view in my opinion, especially concerning the timeframe to market...) on SA back in 2012.

I will quote from that article rather than rehash the facts:

Liquidmetal Technologies (OTCQB:LQMT) is a $46 million market cap materials company that has one of the most intriguing disruptive technology stories to come out in many years. It has been an extremely volatile stock lately, as the rumors of inclusion in the iPhone 5 come and go, and as always with an OTC penny stock, it requires a high level of risk tolerance. And therein lies a potentially enormous opportunity.

Liquidmetal was started as a Caltech research project in 1993 and eventually IPO'd on the Nasdaq in 2002 with a $1 billion market cap and $20+ share price. They eventually got delisted to the OTC after the 1-2 punch of poor management decisions and a product that was still in research mode, and therefore not yet ready for prime time production. However, in August 2010, Liquidmetal was able to replace its management with experienced talent and pay off all its outstanding debt, when Apple (NASDAQ:AAPL) paid roughly $20 million to license their technology to be used for personal electronics.

To learn why the world's premiere technology company would take interest in a nearly bankrupt company in the first place, it helps to take a step back in time to Chem 101. Liquidmetal's 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 extraordinary precise shapes similar to a plastic, while overcoming the crystalline weakness and necessary machining inherent in other metals.

(Source: seekingalpha.com/article/578641-the-liqu... )

Note again that this article was very positive on LQMT.OB. As we know in the meantime, the iPhone5 was announced later in 2012 without the LQMT.OB technology being used and the stock faded back to single digits - the recent 52 week low was 0.05 USD with a market cap below 20M USD.

So why discuss this company at all?

Yesterday, the company was back in the news with Apple being awarded a patent based on the LQMT.OB technology:

A new patent awarded to Apple could pave the way for a whole host of devices -- iPhones, iPads, iPods, iWatches -- made from the high-tech, super-touch amorphous metal alloy.

http://zd.net/1bKF1Hl

Hence the stock's 220%+ uptick spike yesterday on heavy volume (92M shares traded versus an average of under 2M shares !).

Liquidmetal also counts Swiss watch giant Swatch (Omega...) as its customer since March 2011:

Swatch Group signs Exclusive License Agreement with Liquidmetal Technologies

http://bit.ly/13zfzg9

Summary: Is this company a buy? Probably not for now, the stock price faded in the past - after huge spikes based on news linking the company to Apple and other large companies interested in the technology.

As with virtually all pink sheet stocks, many open questions remain on the financial side. The company (still) had no new revenue streams in 2011 and 2012 - revenue was below 1M USD in both years. You can compare it to a biotech with only limited upfront payments from licensing and achieved milestones from time to time (see 2008-2010 revenue).

The current contract with AAPL is a good example:

Unfortunately for the company and shareholders, the deal with Apple was for a one time license fee and grants Apple exclusive rights for the terms of the deal (originally February 2012, which was subsequently amended to extend through February 2014) to use in "consumer electronic products" (which is very broad-based).

(Source: www.streetinsider.com/Insiders+Blog/Liqu... )

I still haven't seen projections how much money LQMT.OB gets in case of future mass production beyond the publicly announced upfront payments. The contracts with Apple and Swatch appear to have only netted Liquidmetal one-time fees (to get a foot in the door?).

LQMT.OB was in a weak position when the contracts were signed with these two giant consumer companies and LQMT.OB probably was desperate to get prominent customers - to build up reputation and market acceptance for its technology.

The open high risk of (future) technology uptake in the mass market can also be compared to a young biotech company.

For now, I would just put LQMT.OB on your stock watchlist in case it can sign more customers - and/or in case Apple starts mass-producing iDevices of any kind using the technology in the next 2-3 years.

As we have seen on July 18, 2013 any mention of the technology can create huge spikes for short-term traders - and in contrast to many other (shady) penny stocks both the underlying technology and the prominent customer list is real - but so are the risks (share count, pilot projects' outcome, recurring revenue agreements in the future...)

20 years after the R&D project was started we may finally see the technology trickling into the market over the coming years - keep an eye on LQMT.OB.

Stocks: LQMT