- There are similarities between Liquidmetal Technologies and Plug Power.
- Insider buying and the 20 million dollar credit line.
- Breaking down the Apple Master Transaction Agreement and potential future revenue from Apple.
- Catalysts: Lockheed Martin, iGolf, and the medical device industry.
- Will Apple buy Liquidmetal Technologies?
I wrote my first article for Seeking Alpha, The Long Case for Liquidmetal Technologies, back on January 24th to lay out my case for why I believe Liquidmetal Technologies, a company that has been left for dead, is in the middle of a turnaround and is on its way to profitability. My first article was published as a Pro Seeking Alpha article and is now archived for members who subscribe to Seeking Alpha's Pro services. I was surprised by how many people read my article. Even more important than the article was the incredible feedback it received and contributions to the thread by others in the Seeking Alpha community. Since my article was published there have been some new developments so I feel it's a good time to write a follow up article about the company, clues developing around Apple and its relationship with the company, as well as upcoming catalysts that can provide some momentum to the stock.
For those of you who did not read my first article, I'll give you a brief description of my background and previous investments. I'm a real estate broker in Texas who owns a company in the apartment industry as well as a swing trader and investor in small and microcap stocks trading under $10. Some of my recent investments and trades over the past two years include buying (BOA) in the $5 range, Hovnanian Enterprises (NYSE:HOV) at just under $1.70 a share, Sprint (NYSE:S) for around $2.50, Plug Power (NASDAQ:PLUG)at $.69, I recently acquired a position in Castle Brands (NYSEMKT:ROX) at $.85 a couple of weeks ago, and I just added to my position in Liquidmetal (OTCPK:LQMT) at .245. My strategy begins by taking a position in a stock that is in an uptrend after the stock has fallen dramatically due to mismanagement. These stocks have lost the majority of their value and have been basically left for dead. I begin by taking a swing position in which I intend to hold for days to weeks based on a bullish development in the chart pattern and momentum I see building in the stock. After taking my initial position I will do research on the company. If feel that a company has made fundamental positive changes, has an upcoming catalyst, or a new development is causing the entire sector to move up; I will hold the stock as a longer term position and not just a swing trade.
The Power of Momentum
Active traders already know the power of momentum. I find it amazing how the perception of a stock can change dramatically overnight. A once hated dog like Plug Power can become a darling in a couple of days. I want to discuss Plug Power because I feel that Plug and Liquidmetal Technologies have several similarities. I began acquiring a position in Plug Power last fall when it was trading well under one dollar. October 8th CEO Andy Marsh provided an update on their business prospects moving forward. On the call he stated that the company was in a significant transition from an early stage commercial company to one on the verge of success. They were projecting to be breakeven 2nd or 3rd quarter of 2014 and upcoming contracts from current customers were expected shortly. The only thing holding the customers testing their fuel cell technology back from expanding their fleet of forklifts was a timing issue. After he began speaking the stock started to plunge. I believe the selloff was mainly in part because he did not have a contract to announce at that time. Very few people wanted to own Plug Power when it was trading well under $1. The reason I was invested heavily in the company at these levels was as an investor I looked for clues the company was broadcasting at the time. What you need to understand as an investor in turnaround companies is that until the contracts are signed they are not going to be announced.
The momentum was negative and against the stock at the time, and it did not take much for it to selloff quickly at times. When the stock dropped in November I added to my position around $.50 even though I was down about $8,000 at the time. I was confident in adding to my position because I could see the clues surrounding the company and the story. In December the company announced that contracts would be coming by the end of the quarter and the stock was off to the races. This week Plug hit a high of $11.72 before selling off. Plug closed at $7.53 yesterday at the time of this article. After experiencing the selloff on October 8th I took my profits after I doubled my initial investment. Plug has taught me a valuable lesson on how powerful momentum can be when it turns positive for a stock with disruptive technology making a turnaround.
Plug Power and Liquidmetal have a lot of similarities:
- Plug went public in 1999 and Liquidmetal went public in 2002. Both companies have disruptive technology which was years from being ready to deploy on a mass scale when they went public. Both companies lost almost all their value about 3 years from their public offering and were left for dead by most investors.
- Both companies have large Fortune 500 companies testing and very interested in using their technology.
- Both companies CEO's indicated recently that they are very excited that they now have a "turnkey solution" for implementing their product for the 1st time. Both CEO stated they are moving away from the research and development phase and the company is now working to commercialize the product on a large scale.
Steve Jobs saw this potential in Liquidmetal back in 2010 and Apple invested heavily in the R&D necessary to make mass production of Liquidmetal's alloy's a reality for their products. Not only that but they infused the company with a 20 million cash injection to keep it afloat. If you look back at Liquidmetal's stock chart in August of 2010 when the Apple agreement was announced you can see the power of news and momentum. Why I believe the opportunity is even more exciting and real is the clues that are developing around the company. Liquidmetal is now able to deploy their technology on a mass scale in a turnkey fashion for any company interested in using their technology. The company has ramped up its sales force. It has strategic partnerships with Engle and Materion Brush to implement the technology quickly. One can only speculate how the stock might move as contracts are announced and revenue streams are realized for Liquidmetal Technologies.
Insider Buying and the 20 Million Dollar Equity Line of Credit
Liquidmetal is now a debt free company. It was also able to secure a 20 million equity line of credit last November. This line of credit can be used as needed, but the company is not obligated to use it. During the first quarter of 2014 the company raised 3 million dollars using the line of credit. This equity funding provides Liquidmetal with long-term viability as they commercialize their technology over the coming years.
It's very important when evaluating a microcap stock trading well under $1 to evaluate the viability of the company you're investing in. It's a very positive clue when a company with no substantial revenue stream at the time is able to line up 20 million dollars in credit from institutional investors even if there will be some dilution along the way.
Another good sign, or clue, is insider buying. Insiders generally only buy their company stock and exercise their options to purchase stock if they feel that it's undervalued and will move up in the future. Last year insiders were acquiring shares from $0.08-$0.22 a share as shown below at Yahoo! Finance:
According to Yahoo!, CEO Thomas Steipp owns 7,210,893 shares, Officer Ricardo Salas owns 5,097,611 shares, Officer Tony Chung owns 1,890,343 shares, and Director Abdi Mahamedi owns 21,265,741 shares. If insiders are buying up to $.22 and the stock is currently trading at $.24 that's a good sign.
The Master Transaction Agreement between Apple and Liquidmetal
In 2010 Apple computer paid Liquidmetal Technologies 20 million dollars for the rights to Liquidmetal in the consumer electronics category. The master transaction agreement between the two companies can be broken down into two parts. The perpetual license granted to Apple in the category of consumer electronics and the research and development agreement between both companies which expired last month.
I'm not an attorney; I have a degree in Finance. I have reviewed the agreement as well as many interpretations by others while researching the company. 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 Computer an exclusive, perpetual license to commercialize Liquidmetal's technology in the category of consumer electronics.
This means that Apple paid for the right to have the exclusive use of Liquidmetal in the consumer electronics category. They will not have to pay Liquidmetal any additional royalties for this right going forward. Essentially it protects Apple from having to worry about their competitors using Liquidmetal's patented alloys in their products. The license is perpetual which means that the license is ongoing and does not expire. The part of the MTA that expired on February 6th 2014 only pertains to the two companies sharing intellectual property, not the exclusive use of Liquidmetal in consumer electronics.
The MTA also grants Apple the right to license Liquidmetal to other companies within the consumer electronics category. Liquidmetal retains the rights to their technology to all other categories outside of the consumer electronics category. If you read carefully, you will also notice that Liquidmetal does in fact still have the ability to license their technology in the field of consumer electronics with Apples permission as shown in the MTA here:
"From time to time, LMT or LMC may request that Apple grant express written permission to develop, design, manufacture, sell, offer for sale or otherwise distribute or provide any accessory for a Consumer Electronic Product or materials, components, manufacturing services or technology for use or integration therewith. Such requests shall be submitted in writing to Apple's Senior Director of Legal Affairs for Hardware Products, and shall specify in reasonable detail the contemplated activity for which Apple's consent is being sought. Apple shall respond within a reasonable period of time, and Apple shall consider each such request in good faith taking into account both the business opportunity to LMT or LMC, as well as any actual or potential impact to Apple's current or future business opportunities."
The second part of the master transaction agreement between the two companies is an agreement to work together to develop and share intellectual property over a period of time:
- A subsidiary called Crucible Intellectual Property was created which holds the intellectual property developed by both companies. Both Apple and Liquidmetal have the right to all patents and intellectual property developed over the course of the agreement. Apple can use this IP only in consumer electronics category and Liquidmetal in all other categories. This agreement to contribute and share all patents and intellectual property between the two companies was amended and extended to run though February 6th 2014 back in 2012. Both companies will have the rights to the intellectual property and all of the recent patents that have been filed on a perpetual basis as well with no end date. This means that both companies have equal rights to the intellectual property that was developed by both companies during the term of this agreement. Intellectual property developed after the agreement expired will not be shared between the two companies.
So what does this mean? Basically, Apple has footed the bill and provided Liquidmetal with years of expensive research and development to commercialize their technology at no expense to Liquidmetal. Thanks to Apple, Liquidmetal now has the ability to mass produce Liquidmetal alloys and can now work on sales and revenue streams for the company. The agreement not being renewed, as well as the flood of patents filed last year, only confirms what CEO Thomas Steipp is telling us. This company is no longer in the R&D stage. Now both Liquidmetal is in the process of commercializing the technology and I believe that Apple going to use it in production for their upcoming products. I feel it's very easy to see that commercialization of this technology is under way and revenue streams will be developed shortly.
Liquidmetal-Materion Brush, Liquidmetal 105 LM105, and Apple
I don't feel it was a coincidence that about a week after the completion of the research and development efforts between Liquidmetal and Apple, Liquidmetal announced they are making a new beryllium-free alloy readily available through its Certified Partner Materion Brush. Why is this significant? Beryllium is a group 1 carcinogenic material, and although CEO Thomas Steipp said on the last conference call that the amount of Beryllium in the finished Liquidmetal material does not make it an extraordinarily hazardous substance; it does require special handling in the production of Liquidmetal when it's in powder form. So Beryllium is potentially hazardous to those involved in the manufacturing process of Liquidmetal if the proper precautions are not taken. After reading this article it leads me to conclude that it's Apple computer who will be using this Beryllium-free alloy in their upcoming products. Here are some of the excerpts that lead me to this conclusion:
"Apple's labor practices are under attack by two activist groups who contend the company makes its iPhones with a hazardous mix of chemicals that threaten the health of factory workers assembling the devices in China."
"'Apple touts itself as a socially responsible leader in the tech industry, but to really be a leader, Apple must put a stop to worker poisoning and ensure sick workers are receiving treatment,' said Elizabeth O'Connell, Green America's campaign director. Coming up with a safer manufacturing recipe for the iPhone would cost less than $1 per device, O'Connell estimated. That's a pittance for a company that earned $37 billion during its last fiscal year."
"Apple CEO Tim Cook, though, has steadfastly maintained that the company's high standards have led to better treatment of the factory workers and reduced suppliers' reliance on dangerous substances."
The timing of the announcement just a week after both companies wrapped up their R&D agreement is another signal that Beryllium-free Liquidmetal is going to be used in upcoming Apple devices. If you have not read Jason Bond's Seeking Alpha article about LM105 and the potential he sees in the alloy because of potential litigation, I suggest you do.
Why I believe that Liquidmetal will benefit financially from the production of Apple devices
The license that was granted to Apple in the MTA is a non-royalty bearing license for the exclusive use of Liquidmetal alloys in consumer electronics category. So can Liquidmetal earn revenue from the manufacturing of Apple products? I believe they can and will earn revenue from Apple.
To begin, does Apple have the right to manufacture their products on their own without Liquidmetal Technologies being involved? Looking at the agreement I believe that Apple does have this right, but I believe that from the very beginning of this partnership between the two companies that Apple has every intention of involving Liquidmetal and Liquidmetal's manufacturing partners in the production of Liquidmetal parts for Apple. If I'm correct, this will provide Liquidmetal Technologies an ongoing revenue stream from the production of Liquidmetal parts for Apple devices.
Apple does not make its own products. Apple partners up with other companies like Foxconn to manufacture their products for them. Everyone is aware of how secretive Apple is with its vendors and supply chain so that it can keep new products coming to market under wraps until they are prepared to unveil them to the public at a grandiose Apple event. If you believe that Apple will allow Liquidmetal to speak publicly about an arrangement they have together about a new product you're sadly mistaken. Every quarterly call CEO Tom Sheipp is asked questions about Apple agreement with Liquidmetal and any upcoming agreements or revenue that could be generated from Apple. Tom will comment about the MTA signed in 2010, but does not discuss any future arrangements with Apple.
When asked about their relationship with Apple on the 3rd quarter call last November, "I would say our relationship with Apple is excellent. We have consistent views on the opportunity and congruence on the goals that we're trying to solve."
When asked about the MTA he will answer those questions because the MTA was made available to the public in an SEC filing. Here are a couple from the last call.
Q: "I understand that. Apple, I read an article and whether it's all true or I don't know that the first agreement was a three-year agreement, which I think was 2010, which were expired in 2013 with 1-year extensions, is that correct?"
A: "No, that's not correct. We signed the agreement in August of 2010. There was a capture period tail that was 18 months, that was extended in June I think of 2012 retroactively for two years. So it goes - again, it was retroactive at the time and it covered the period from February 2012 to February 2014."
He just confirmed what we already knew. The R&D agreement between the two companies was concluded in February this year.
Another Question about the MTA:
Q: "And going forward, are there - is it a perpetual license forever or is it just more years?"
A: "To be clear, the license we file, all of that information is available online, but the license we granted Apple at the time was for consumer electronics. It was a perpetual non-royalty bearing license."
Confirming what we already know. The license was granted for exclusive rights in consumer electronics does not expire. It's a non-royalty bearing license and Apple is not required to pay future royalties to Liquidmetal for the exclusive right Liquidmetal's technology in the consumer electronics category.
There was one question asked during the conference call on March 5th regarding Apple that may have provided us with a clue regarding upcoming agreements with Apple to manufacture Liquidmetal parts for their devices:
Q: "Yes. Can you tell me do you receive any revenue from the sale of product from Engel or Materion, including possibly to Apple should they be interested in purchasing equipment or material through your partners?"
A: "We really haven't disclosed the content of the agreements we have on those. And at this point in time, since we haven't had any of those sales what I would say is we are trying to keep all options open, but we certainly have not received any revenue from either of those at this point in time, Chris."
It's my understanding that Liquidmetal would not be required to disclose to the public such an agreement with Apple to manufacture components with Liquidmetal's certified partners until the company was actually earning revenue. It's my belief that Apple ensure that such an agreement would not be leaked prior to their product announcement.
Here are how the clues are coming together for me:
- There have been a flood of patents filed last year pertaining to the mass production of Apple devices using Liquidmetal alloys for a phone, tablet computer, laptop computer, TV, and wristwatch.
- Apple and Liquidmetal wrapped up their R&D agreement in February. This leads me to believe that they have moved on to the production phase now.
- About a week after the R&D agreement concluded Liquidmetal announced that Materion Brush is their Certified Partner and will make LM105, a Beryllium free Liquidmetal, readily available. Apple is under pressure from watchdog groups about the toxic chemicals being used in the production of their products, and Apple CEO Tim Cook has publicly stated that Apple is working to reduce its supplier's reliance on dangerous substances.
- When asked if Liquidmetal Technologies has received any revenue from the sale of materials to Apple, Liquidmetal CEO Tom Steipp would not comment and said they have not disclosed the content of the agreements they have with both Materion Brush and Engle. One could speculate that an arrangement to manufacture Liquidmetal parts for Apple could be the sole reason for not disclosing the contents of these two agreements.
Another clue exists that I believe could also point to such an arrangement with Apple. This would be the current arbitration case between Visser Precision Cast and Liquidmetal. In 2012 Liquidmetal entered into an agreement with Visser Precision Cast to be their exclusive manufacturer of products manufactured using the Company's technology. I find it interesting that this agreement was made about the same time that Apple extended their R&D agreement with Liquidmetal. This leads me to believe that Apple may have been directly involved with Liquidmetal when they chose Visser Precision Cast to be the exclusive manufacturer of their technology. Here the complaints that Liquidmetal had which ultimately lead both companies into Arbitration.
"In the 16 months since the June 2012 Agreements were signed, the Company has not realized the benefits that it expected from the collaboration with VPC. In the Company's view, VPC has been difficult to work with, has quoted non-competitive prices to manufacture products for customer orders won by the Company, has often delayed delivery schedules for quoted products and has generally been unwilling to work collaboratively with the Company to provide customers with a seamless process for specifying, ordering and delivering products made using the Company's technology. The Company believes that VPC has breached various obligations under the June 2012 Agreements, and indeed induced the Company to enter into the June 2012 Agreements under false representations regarding VPC's manufacturing capabilities."
Orders won by company? Except for prototypes, no orders have been announced by the company. Does this point to a large contract existing, possibly Apple, or another contract that has not been announced to the public because of the arbitration case? Has Liquidmetal already moved on and struck a deal with Materion Brush to manufacture components for Apple using LM105?
The timeline of events is interesting:
- Apple and Liquidmetal extend R&D agreement in 2012 which lead to patents filed for mass production techniques of Apple products using Liquidmetal.
- The SEC filing by Liquidmetal states "contracts won by the Company". If the contract is with Apple, Lockheed Martin or another company this could be a huge development for Liquidmetal. News could also be announced as soon as the arbitration case with VPC is resolved.
- In November of last year the disagreement with VPC and a 20 million dollar equity line of credit was announced the same month. How was the company able to raise this funding? Could it point to a large manufacturing agreement the company won, and Visser is unable to fulfill the order because of the size and scope of the agreement?
Liquidmetal will not let the public know about any agreement with Apple until Apple announces their new upcoming product or allows it. We have to look at the clues and making an investment decision of this type. I would not be shocked if we find out that Liquidmetal, Materion Brush, and Apple have such an arrangement in place. If such an arrangement does exist, I do not believe we will know anything about it until Apple announces their new product that incorporates Liquidmetal technology.
If you have not already read this blog by Philip Guehlke, it's a must read:
- Apple will use Liquidmetal for manifold reasons
- Sapphire & Liquidmetal: The Ultimate Mechanical Couple
- Smart Metal: Next Level of Tactile Interaction
- Apple speeds up Liquidmetal Innovation
- 3D Glassy Apple
- A Clockwork Amorphous
Lockheed Martin and the EAPS Missile Program
The United States Army is currently funding an Extended Area Protection and Survivability program or EAPS which is a miniature hit-to-kill interceptor that is essentially a miniaturized version of the Israeli Iron Dome missile defense system. More soldiers are killed on the battlefield by mortars than by any other weapon of war, and the EAPS should help protect them. The EAPS system uses MHTK interceptors which are very small, highly agile rockets which are designed to defeat incoming mortar, rocket, and artillery fire out to ranges of 2-2.5 miles. When a ground based radar system detects an incoming mortar round or rocket, the incoming threat is illuminated by a high frequency radar while one or more MHTK interceptors are launched at a trajectory from which the interceptor can detect the reflected illumination and target the threat.
In October of last year it was announced that Liquidmetal is supplying the missile's canard fins on the MHTK interceptor missiles. Missiles maneuvering at high speeds targeting an object require that control surfaces are built to meet extremely close geometric tolerances. Even the slightest deviations from design specifications can add turbulence and affects the speed and trajectory of the missile. Lockheed Martin's goal is to be able to produce the interceptors at an average unit production cost of $16,000 per missile which makes it much more affordable than other current systems such as the counter-rocket Centurion gun these missiles would replace.
"Developing an affordable hit-to-kill weapon to intercept rockets, mortar bombs and missiles, Lockheed Martin was searching for ways to reduce each missile's cost by implementing advanced manufacturing technology. Working in collaboration with Liquidmetal, the team came up with a solution tailored for the EAPS, producing the missile's canard fins using Liquidmetal's unique metal injection molding (MIM) technique. According to Liquidmetal, such missile control surfaces can be manufactured at a third of the cost of CNC manufacturing, and at volume prices comparable to those of conventional metal injection molding, a method unsuitable for this application."
Here is what Liquidmetal's CEO said about what a contract with Lockheed Martin would mean for Liquidmetal:
"if we get to the point where that EAPS missile system is a funded government program. Those tend to be very long running programs and generally tend to be very profitable. So I would say the longer duration programs most likely will come out of aerospace defense."
The next test flight scheduled for sometime this year. From what I have read Lockheed Martin is on its way to achieving the manufacturing cost goal for the EAPS program. If and when the government funds this program it should be a very big win for both Lockheed Martin and Liquidmetal. One could only conclude that if each missile costs somewhere close to $16,000 a piece, a contract with Lockheed Martin for this program would provide Liquidmetal with a substantial revenue stream. I view an agreement with Lockheed Martin similar to Plug Power's agreement with Wal-Mart.
Liquidmetal's Golf Division
You may have known that Liquidmetal had a failed attempt to enter the golf industry when it first went public over a decade ago. What a lot of people don't know is that they have partnered up with iGolf to test and produce 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. Liquidmetal is currently testing different prototypes. This second attempt to enter the golf market is the correct way to go about it. By licensing out their prototypes and materials to major brands instead of trying to create their own brand, Liquidmetal should be successful the second time around. This means you may see a new Taylor Made, Calloway, Adams, and/or Nike driver made out of Liquidmetal soon.
I myself am a golfer. I started at the age of 5 and played competitively into high school. In the summer I would ride my bike to the country club and spend all day playing and practicing with my friends. When I was in high school I worked in the pro shop at a driving range. My favorite part of the job was selling golf clubs and explaining the differences between them. When new clubs arrived at the pro shop I would take home the sales material to study and would test the demo clubs. At that point in my life I was determined to work for a golf manufacturer as a sales rep after college. I was in college when the Liquidmetal drivers were released and had stopped playing golf at the time because I simply could not afford to play, so I have not tested the previous version of Liquidmetal clubs. I intend to purchase a driver if and when they are produced by a major golf brand.
I decided against adding Liquidmetal's bouncing ball demo when I was writing this article. I chose not to include it because when you hit a golf ball you only strike the ball one time so it seemed more of a gimmick showing how long it will bounce after you drop it in comparison to other metals when it comes to golf. There is also something called the COR value, or coefficient of restitution, a metal has that will also determine the distance a ball will travel. Not only that, but the degree that a ball spins after impact is a larger factor in determining how far, and even more important, how straight a golf ball will travel.
Coefficient of restitution is a measurement of the energy loss or retention when two objects collide. It's a measurement of 0.0-1.0, 1.0 being complete energy transfer. A COR value of 1.0 is impossible between a golf club and ball because they are made of different materials and have different masses. Liquidmetal's COR is close to 0.99, titanium is about 0.7, and steel is about 0.6. If a ball was hit with a swing speed of 100 mph, the difference between a head with a COR of .82 and .83 would be 4.2 yards of distance.
In 1998 the PGA was concerned that increased performance was a threat to the integrity of the game and capped COR value at .83. This limit was attributed in large part to be the downfall of those 1st generation Liquidmetal clubs because they did not conform after the 1998 ruling. Liquidmetal was not alone when this ruling came out and it affected several other major golf brands clubs at the time. Major manufacturers like Calloway's ERC II that did not pass this new COR value regulation. Those same manufacturers were probably relieved as they were aware of the threat that Liquidmetal poised to them since Liquidmetals COR value was much higher than their titanium and steel drivers and would drive the ball further. The new Liquidmetal prototypes being developed and tested use a 3rd generation of Liquidmetal alloy which has never been used before in a golf club. This is from the iGolf announcement that is linked in my article above:
"The new iGolf designs will benefit from a third-generation Liquidmetal alloy and manufacturing processes introduced by LTI earlier this year. These advancements offer maximum performance without sacrificing durability or strength, and thereby promising the game's best driver and woods.
"Experts agree that the superior hardness and elasticity of our Liquidmetal amorphous alloy makes it the ideal material for golf clubs," said Tom Steipp, Liquidmetal Technologies' president and CEO. "Given the positive reports from PGA golfers of our previous generation of Liquidmetal clubs, combined with Jason's extraordinary talent for innovative design using our third generation of Liquidmetal alloy, we're confident golfers using our new Liquidmetal clubs will experience a tremendous boost to their game."
To support the anecdotal reports, iGolf plans to scientifically demonstrate the distance advantage of the Liquidmetal clubs through robotic testing and publish the results in a leading trade journal."
Even more important than COR value in determining how far and straight a ball will fly is the spin on the ball after it is struck. It's the company's contention that Liquidmetal's properties will create a larger "sweet spot" which means that golf balls not hit perfectly, as most are not, will produce less spin on the ball on impact and the ball will fly further and straighter than clubs using other metals. So yes, if a titanium club and a Liquidmetal club have the same COR value and are hit perfectly they should go the same distance. The key is that most shots are not hit perfectly.
When a golf ball is struck every millimeter off-center results in a loss of 0.5% of distance. If a golf ball is hit one centimeter away from the sweet spot you will lose 12.5 yards on a 250 yard drive. The fact is that occasional golfers, everyday golfers and even the best pros cannot, and do not, hit the ball perfectly every time. Thus reducing the spin on the ball when it is mis-hit is of greater importance when producing a driver that hits the ball longer and straighter. This is why you have seen the club head size of drivers increase dramatically over the years.
I would also like to add that before acquiring my current long position in the company I spoke to some pros at the Edwin Watts golf stores in Dallas to ask if they remembered the old Liquidmetal clubs and what their thoughts were about the clubs. The answer I received was that the woods sold very well and were popular sellers when they were around. Most of them were not aware of why the clubs were no longer being sold. Also, I would encourage people to read the 20 reviews at golfreview.com on the previous generation of Liquidmetal golf clubs. You will see that they had very positive reviews overall.
Liquidmetal failed at entering the golf market the first time around because they tried to penetrate a multi-billion dollar industry full of very established brands, instead of licensing out their technology to those brands. They could not penetrate the market, provided shoddy customer service, and had little industry experience to draw upon. Liquidmetal is headed by a different group of individuals now. They are entering the golf industry the correct way by licensing out their technology to major brands this time around. I would encourage anyone reading this article to read this study of Callaway's successful introduction of their titanium Great Big Bertha driver and Liquidmetal's failure in launching what most feel was a superior club.
Liquidmetal's New Sales Force
So I'm ready to put the last piece of the puzzle together for my long case for the company and why I believe they are on the verge of a turnaround to profitability. Then we'll look at upcoming catalysts this year that could have the potential to increase the stock price.
The recent additions to Liquidmetal's sales force indicate this company is ready to deploy and commercialize their technology now. 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."
On March 3rd Liquidmetal hired Paul Hauck as their new Vice President of Worldwide Sales
"With 25 years of experience both managing and leveraging Manufacturers Representative Sales Agency Relationships, Paul Hauck has vast sales experience in a range of multinational companies in the automotive and medical device markets, where he has been successful in executing business development strategies and subsequent business.
With a highly successful track record of creating and implementing tactics to identify and develop new business, Paul Hauck is an ideal candidate with a track record of consistently fostering profitable new business in the Metal Injection Molding arena, commented Tom Steipp, Liquidmetal Technologies President and CEO.
A 2013 recipient of the industry peer selected Distinguished Service to Powder Metallurgy Award, and a three term President of the International Metal Injection Molding Association, Paul Hauck comes to Liquidmetal Technologies from Kinetics Climax, Inc. a Freeport McMoRan Copper & Gold company, where he recently served as Director of Engineering, Marketing and Sales."
You don't spend that much on your sales force and attract a top talent in their industry like Paul Hauck if you're not ready. One more clue that lead me to my current position in Liquidmetal Technologies.
Upcoming Catalysts for Liquidmetal
- Apple CEO Tim Cook has stated several times that a new product category will be announced in 2014 and many speculate that it will be a wristwatch or Television. Most speculate that a new product category announcement would come in the 2nd half of the year. A lot of people feel that if Apple is going to announce a new product category in September they will announce the next generation iPhone in May or July this year. I would expect the hype alone of such an announcement would start to move Liquidmetal's stock up as soon as news breaks of such an event.
- As stated above it looks like Liquidmetal has won an order to manufacture components for a company already. We could get an announcement as soon as the arbitration agreement with Visser Precision is resolved.
- 18 prototypes were shipped for testing last year to companies in the automotive industry (rumors are one of them is Tesla), medical device industry, defense industry, and golf industry. When CEO Tom Sheipp was asked in the call earlier this month which industry he saw a contract announcement coming from first, he answered the medical device industry. I do believe we will see contracts announced this year.
- Liquidmetal is currently testing golf prototypes and could publish the results in a leading trade journal. There is no date specified so this could occur at anytime.
- Lockheed Martin's missile test is scheduled for sometime this year. A successful test launch with the canard fins manufactured by Liquidmetal on the MHTK interceptor missiles would create a lot of hype and anticipation of a lucrative government contract.
Would Apple purchase Liquidmetal Technologies?
I want to thank everyone for all the great contributions to the thread on my previous article that was archived for Pro subscribers. One of the contributions was from Anax who pointed out that as part of the extension by Apple in 2012 to the master transaction agreement they included a right of refusal for 18 months after the end of the agreement. The agreement ended on February 6th 2014. I found this very interesting in that Apple would be able to purchase Liquidmetal if another company (Lockheed Martin, Materion Brush?) came knocking during the course of those months. Maybe it's Apple's plan to purchase Liquidmetal after all.
Apple recently bought out AuthenTec for their finger print reading technology after they had a development contract in place with the company. Apple does like complete control of all aspects of production and their products. During Apple's annual meeting this year CEO Tim Cook stated that Apple has purchased 23 companies in the last 16 months.
One more interesting item that came up was the 8K that Liquidmetal filed on September 17th. It was a change of control agreement for the executives of the company that was put in place in case off another company purchasing the company. The Change of Control Agreement provides that if the executive officer's employment with the Company is terminated without cause during the one-year period after a change of control of the Company, the terminated officer will a receive lump sum severance compensation in an amount equal to twelve months of his then-current base salary.
One could only speculate that Liquidmetal might become Apple's next purchase after the arbitration hearing with Visser Precision Cast is concluded.
When I'm evaluating entering a position on a microcap stock I look at my downside risk. The 1st thing I look at is does the company have the funds to operate while I have my money invested in the company. Liquidmetal is debt free and has the necessary financial instruments in place to commercialize their technology. The stock chart is extremely bullish. I feel there are a lot of upcoming catalysts that will continue the stock's bullish trajectory over the course of the year and even longer depending on how things unfold. I took my initial position in the company because of the bullish chart development and the Apple patent news. After researching the company I have added to my position several times, most recently at .245 this week. Micro-cap stocks are risky and I would advise anyone considering a position in the stock to consult their financial professional.
Disclosure: I am long LQMT, ROX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article covers an OTC stock trading at less than $1 per share. Please be aware of the risks associated with these stocks.
Editor's Note: This article covers a stock trading at less than $1 per share and/or has less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Editor's Note: This article covers one or more stocks 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.