The Long Case For Liquidmetal Technologies

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As an investor and swing trader of microcap stocks, I have been able to recognize some resurging companies that were left for dead over the last two years. I bought Bank of America (BOA) at $5 and something after Warren Buffet's stamp of approval. As a Real Estate Broker in Texas I noticed that the demand to purchase houses began to surge and picked up Hovnanian Enterprises (NYSE:HOV) at just under $1.70 a share. When I bought Sprint (NYSE:S) for around $2.50 I spent time going around to Sprint stores throughout Dallas after they began selling the iPhone to see what the demand was like. Most recently I began buying Plug Power (NASDAQ:PLUG) after listening to the conference calls and doing some research at an average cost of $0.69 a share. PLUG, which was trading under $0.20 a share last year, just recently crossed $4. Shows what a little bit of success can do for a stock trading under $1.

Momentum is a very powerful thing when it comes to microcap stocks. I feel many overlook opportunity to make pretty substantial gains because they focus on past previous mistakes a company made and not the current steps a company is taking. I have also noticed that most traders of microcap stocks care mostly about the chart pattern and do little to no research on a company. Don't get me wrong, I've learned from the best and I look for potential swing trade setups in the chart patterns on a daily basis. I also spend some time researching the company to determine if my shorter term swing trade should actually become a longer term position. I listen to conference calls, read up about the company, management, future prospects, and try to tie all the pieces together.

It's my opinion that we are seeing a turnaround occurring with Liquidmetal Technologies (OTCQB:LQMT). I decided to write this article in response to all the people who are saying there is nothing but hype moving the stock. These same people probably have done little to no research about the company and the steps it has taken of the past couple of years.

Apple and Liquidmetal

Might as well talk about Liquidmetal's relationship and licensing deal with Apple computer first before we can discuss what I feel are the real reasons Liquidmetal's stock could go higher. If you're reading this I'm sure you are very aware of the licensing deal that Liquidmetal struck with Apple in 2010. You can view the master transaction agreement here. You're also aware of the flood of recent patents that have been filed for production and use of Liquidmetal in consumer electronics by Apple. I feel there is a lot of misinformation and too narrow of focus on what this agreement means to Liquidmetal and the company's future.

To begin, I'm not an attorney and would love anyone's input that can provide additional insight to the agreement with Apple. Here is what I understand the agreement between Liquidmetal and Apple states:

  • Liquidmetal entered into a license agreement with Apple on August 5, 2010 for a one-time fully paid fee of twenty million dollars which gives Apple an exclusive, perpetual license to commercialize Liquidmetal's intellectual property for consumer electronics.

So what does this mean? We know that Apple is the only one who can use Liquidmetal in consumer electronics and they will not have to pay Liquidmetal any additional money for these rights. This means that Samsung and any other competitors in consumer electronics will not be able to use Liquidmetal in their products. What I feel is not really clear is if Liquidmetal will be entitled to a royalty for production of any of their patented alloys from Apple if they begin to use Liquidmetal in their products. I have read in other posts about the agreement that it's limited in scope of granting them perpetual rights to using the material in consumer electronics, but is exclusive of rights to production. If this is the case, I believe royalties would then apply to any items produced by Apple using Liquidmetal's patented alloys. If this is true it could create a substantial revenue stream for Liquidmetal.

Another often misunderstood part of the agreement is the sharing of intellectual property between Apple and Liquidmetal:

  • A subsidiary called Crucible Intellectual Property was created that holds the intellectual property created by both companies. Both Apple and Liquidmetal have the right to all the patents. Apple in consumer electronics and Liquidmetal in all other industries. This agreement to contribute and share all patents and intellectual property between the two companies was amended to run though February 2014 and will expire shortly if it's not renewed or extended. From what I understand is that both companies will have the rights to the shared patents that were created during this agreement on an ongoing, perpetual basis.

Apple has basically agreed to provide Liquidmetal with years of expensive research and development free of charge. Liquidmetal has rights to all of these Apple patents coming to market for use in any category outside of consumer electronics on a perpetual basis. Basically, It seems to me that Apple has been footing the bill for some pretty amazing patents that Liquidmetal will have exclusive rights to use in every other industry outside of consumer electronics. In my opinion that's a very good thing.

Ferrari and the Apple Effect

According to the chairman of Ferrari North America red is no longer the most popular Ferrari color? It's now white. He told CNBC that it's due to the Apple effect. Let's say that Apple begins using Liquidmetal in its products including iPhones, iPads, Mac books, monitors, TV, and a watch; all of which this patent suggests. What happens to the brand awareness of Liquidmetal? We all know that Apple markets its products as the highest quality with excruciating attention to detail. They produce beautifully designed products that are worth the additional price. The enormous success Apple has had in the last 10 years has lead to other companies in other industries mimicking and comparing themselves to Apple. Apple is now a status symbol to a lot of people all across the world.

So if Apple puts Liquidmetal on the map with their products, do you think car manufacturers like Mercedes and BMW might be interested in building parts out of Liquidmetal or even include it in their interior trim? Would bike manufactures want to include it in their designs? Medical device manufacturers are already exploring it as a replacement to titanium. If Apple makes it famous the buzz alone would create a market for this new material in the lucrative medical device industry. There is also a lot of talk about how Liquidmetal can be used in conjunction with 3D printing. I myself can even imagine newly built luxury apartments touting the newest appliances made from Liquidmetal instead of stainless steel. It's all speculation, but I feel Apple is the one company that would have the ability to make Liquidmetal as popular for metal as it did for the color white.

Liquidmetal's Golf Company

You may have known that Liquidmetal had a failed attempt into the golf industry over a decade ago. What most people don't know is that they have partnered up with iGolf to produce and test a new driver which will be marketed to major golf brands.

  • iGolf Technologies will leverage its development group, PERFORMAX Golf & Composite and PADERSON Composite USA, to design driver and fairway metalwood club heads featuring a Liquidmetal alloy face. This group has designed and manufactured some of the industry's most innovative and superior performing products for many of the golf industry's most famous brands.
  • LTI will manufacture the Liquidmetal club face parts, while all other structures, including the global assembly operation, will be assembled at PERFORMAX's state-of-the-art manufacturing complex located in Qingyuan, China. The complex is the manufacturing center for many of the industry's biggest golf club brands. The development group will then offer their proven prototyped designs to golf club manufacturers seeking a competitive edge in the multi-billion dollar golf equipment market.

The referenced article goes on to say that iGolf plans to scientifically demonstrate the distance advantage of the Liquidmetal clubs through robotic testing and publish the results in a leading trade journal. After listening to the conference calls I believe that Liquidmetal is currently testing this prototype and news could be released soon. I feel that this time around Liquidmetal entering the golf market the correct way by licensing out their prototype and material to major brands instead of trying to create new brand of club like they did in the past. This means you may see a new Taylor Made, Calloway, Adams, and/or Nike driver made out of Liquidmetal. Apple's buzz could have the potential to make Liquidmetal the hottest next big thing in golf clubs. Golf is a billion dollar industry and players will shell out big money to have an advantage over their friends with a more forgiving driver that provides more distance. Just the perception of more distance and control is enough to make a new product in golf successful.

Insider Buying, New Financing, and Two New Manufacturer's Representatives

Last year insiders were acquiring shares from $0.08-$0.22 a share as shown below at Yahoo! Finance:

Insider Transactions Reported
Date Insider

Shares

Type

Transaction

Value*

Sep 12, 2013 SALAS RICARDO AOfficer

600,000

Direct

Disposition (Non Open Market) at $0 per share.

N/A

Sep 5, 2013 HANSEN MARK SDirector

25,000

Direct

Purchase at $0.18 per share.

4,500

Aug 27, 2013 SALAS RICARDO AOfficer

600,000

Direct

Option Exercise at $0.12 per share.

72,000

Aug 5, 2013 STEIPP THOMAS WOfficer

400,000

Direct

Automatic Sale at $0.19 per share.

76,000

Jun 13, 2013 CHUNG TONYOfficer

1,324,999

Direct

Purchase at $0.08 per share.

105,999

Feb 28, 2013 MAHAMEDI ABDIDirector

3,670,440

Direct

Acquisition (Non Open Market) at $0.10 - $0.22 per share.

N/A

Feb 27, 2013 CHITAYAT JACKBeneficial Owner (10% or more)

4,626,840

Indirect

Acquisition (Non Open Market) at $0.10 - $0.22 per share.

N/A

Feb 6, 2013 MAHAMEDI ABDIDirector

6,717,443

Indirect

Acquisition (Non Open Market) at $0.10 - $0.22 per share.  

In November Liquidmetal lined up a $20 million dollar equity line of credit. They are not obligated to use this line of capital, but can access the line if needed. When a penny stock is able to line up $20 million in credit from institutional investors I view this as a positive development even if there would be some stock dilution. It could point to something coming to market soon.

In November Liquidmetal signed a sales representation agreement with Charles J. Librizzi to market and represent their technology:

"With years of experience representing metal injection molding, precision machining and other types of manufacturers, Charles J. Librizzi Associates will enable our technology to be introduced to program managers, engineers and product designers at target customers," remarked Bruce Bromage, Executive Vice President of Business Development of LQMT.

They followed that up in December by signing Marketing Technologies to represent and market Liquidmetal:

Bruce Bromage, Executive Vice President of Business Development of LQMT, added, "Marketing Technologies has deep experience working with customers from prototype through production, and they know how to partner with their customers to develop creative solutions to their manufacturing challenges. We have already begun the process of generating sales opportunities together, exploiting the unique properties of Liquidmetal alloys. We are especially pleased to work with Keith Brown, Mark McIntyre and their team."

The "Apple Will Buy Liquidmetal" Rumor

Seems like anytime Apple is working in conjunction with a small company I always hear, "Why doesn't Apple just buy company X?" I guess anytime you have a company sitting on that much cash, especially in the same industry as Google who purchases a lot of up and coming small companies, it's easy to speculate that they might as well just purchase Liquidmetal. I don't see this occurring simply because the $20 million dollar agreement to exclusively license Liquidmetal is perpetual and would still remain in effect even if another company were to purchase Liquidmetal. I can see a couple of scenarios, purely speculative, that it may make since for Apple to buy Liquidmetal. The first, if Apple would have to pay a royalty to Liquidmetal for each finished product then it may simply be more cost effective to purchase the company. The second, by purchasing Liquidmetal they would generate another revenue stream from other industries who want to use Liquidmetal in their products after they make the metal popular. This could also provide Apple with another way to extend their brand by licensing out Apple's Liquidmetal technology.

I could see a company like Nike possibly be more interested in purchasing Liquidmetal if Apple makes the metal popular. Tiger Woods and Nike could introduce the next generation of Nike Liquidmetal divers. No other golf company would be able to have a Liquidmetal driver if Nike purchased them. Maybe a metal resource company or molding company would want to buy them? I keep hearing rumors about Hewlett Packard getting into the 3D printing business. Could they see a value of being the only 3D printing company who can license the use of Liquidmetal? Point being, if Apple puts Liquidmetal on the map they will become very attractive in many different ways.

Conclusion

I believe we are seeing a company taking the right steps toward profitability and expanding their brand and market. After listing to the last two conference calls it's my opinion that news about the golf club prototype tests with iGolf could be released soon. I also believe that successfully licensing their material to major golf brands would generate substantial income and turn LQMT into a solid investment. If Apple begins using Liquidmetal in their products soon, Liquidmetal would become a household name. Companies from all industries should be interested in incorporating Liquidmetal into their products. If Apple is required to pay Liquidmetal a royalty for production of finished products it would be a newly created revenue stream that could turn this stock around quickly. At this point it's all speculative; but when you look at the insider buying early last year, the agreement with iGolf to create and market a driver to major golf brands, the recent financing agreement, and the two new marketing companies; I feel that LQMT is not just running on pure Apple hype. The recent price action in the stock also makes me believe that there are others who agree with me.

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.