Upon Further InspecTech

To review, in 2001, REFR forecasted profitable quarters starting in 2002, and increasing profits through 2003 and beyond. All this based on a sales goal by a single licensee, InspecTech Aero Systems of Fort Lauderdale, FL, which was not only not met, nor remotely approached, but, based on results, seemingly not even attempted at all. So what went wrong?

The first problem was that InspecTech was very small. Extremely so. In fact, it had only two known employees at the time, and one of them, Alex Martinez, has subsequently left InspecTech to start his own SPD licensing company. Since Martinez's departure, InspecTech has become to all appearances a sole proprietorship, in the name of one James Lang. I'll have more on Mr. Lang in an upcoming segment.

Now how, you might well ask, was an outfit of two person supposed to install SPD on 5,000 windows in a single month? The simple answer to that is, they weren't. Instead, the idea was that all installations would be handled by one of "their completion centers". And by "their completion centers", they meant, an outside completion center whose phone number they had, and would accept custom installation orders. Indeed, in at least one documented case, the ordering party, Bell Textron Helicopters, were their own completion center. In other words, the customer had to install the stuff itself.

As a sidebar, yes, I did just state that Bell Textron had SPD windows put on at least one of their helicopters. The helicopter was subsequently shown off at several trade shows. It is not known if the helicopter was ever subsequently with the SPD installed, nor is it known if InspecTech charged for the installation. In any case, the display, like many others InspecTech has put on the past few years, utterly failed to spark the SPD mania that they always seem to expect.

So much for the installation side of the goal, what about sales? Well, once again, we go back to the basic problem that InspecTech is an extremely tiny company and unlikely to impress any customer who would be able to order the windows in any kind of quantity. The revelation of this didn't phase the promoters of the stock one bit, as they went on to assert than no less a company than Boeing Aviation was going to rely on InspecTech for the electronic shading system for their new 7E7 jet aircraft, and stuck with that assertion right up until the suppliers for the 7E7 were announced and, to the surprise of no one, InspecTech was not on the list.

Another thing might well have occurred to the reader by this point. REFR surely had to know that they were dealing with a tiny, two-person company when they gave InspecTech their license to sell SPD products. Why, then, did they not question InspecTech's wild sales projections? Why did they embrace them so readily, and even go on to make projections to their shareholders based on the dubious input of this tiny outfit?

Why, indeed. To this very day Joe Harary tap-dances around the questions of the preceding paragraph. The most coherent explanation given appears to be that Harary, being a natural optimist, simply wanted to believe the projections. Isn't that just special? Anyone who's followed the stock market for any amount of time knows how much analysts love companies that are too "optimistic" in their projections. And this was a case of overoptimism on the order of some of the worst of the dot-com companies, practically criminal for the CEO of a public company.

One would at least think that REFR would sever ties with the source of such an embarrassment, and yet, the last anyone has heard, the relationship between REFR and InspecTech was as strong as ever. REFR turned to InspecTech in early 2004 to supply film for an auto show when the original supplier was unable to. InspecTech remains on the REFR's list of licensees, although the only times companies ever seem to be removed from the list are when they explicitly cancel their license. General Electric, for example, took their license a decade ago and never did anything with it, yet they remain listed as one of REFR's stable of licensees.

As for InspecTech's part, while their status as a private company makes them immune to SEC oversight, a number of sources have, over the years, done their own legwork into the company. The miniscule size of the company is only one of the items uncovered. Stay tuned for more.