BRG, the loose-lipped licensee

Today's licensee spotlight is BRG Group, a licensee that, unlike Vision-Environmental and Leminur, at least lays claim to a website, if little else.

The quoted location for the company, within the light industrial buffer zone between the city of Detroit and the suburban residential areas, actually belongs to Reid Glass, a glass and mirror vendor. While there would seem to be some kind of natural synergy present, the actual relationship between Reid Glass and BRG is somewhat murky. BRG may be made up of current/former Reid Glass employees, or there may be some other kind of relationship entirely.

Never an outfit to avoid milking something for more than it is worth, REFR went on to make something out of BRG's proximity to Detroit, suggesting in its press release announcing the new licensee, that it would be in a great position to interface with the automakers. The fact that BRG and Reid were not at all in that line of business was apparently not important.

All of that would make BRG kind of a "ho-hum" licensee, and certainly not one of the first ones I would profile. But then...

In November 2003, Forbes magazine published an article discussing REFR's recent history. It was not a particularly complimentary article (as if any self-respecting journalist could look themselves in the mirror after writing a puff piece on these jokers), but one quote in particular stood out:

Not everyone is impressed with SmartGlass. "I don't think the quality's good enough for me to be able to sell it," says Joel Cothery, president of Reid Glass, a Southfield, Mich. glass fabricator and installer.

In a word, ouch. Burned, in effect, by one of its own licensees. Until that time promoters would make hay about how nobody involved with SPD had anything critical to say about it in public, but no more.

Amazingly, the BRG website is still up, though one of the primary contacts has subsequently moved to Las Vegas. Needless to say, the bloom was off the rose with respect to this particular business relationship.

That Forbes article, by the way, is a great source of info on the real story at REFR, and well worth reading all the way through. I will most likely reference it again at some future date.

Provided, of course, that REFR's stock price tailspin doesn't become terminal too quickly. Going down?

The disadvantages of isolation

Just six days after I wrote about how REFR sometimes benefitted from its relative isolation from the markets, we're treated to a stark example of the flip side of that argument. Today, the market is rallying broadly (though momentum is fading as I'm writing this), while REFR has dropped to a new 52 week low, at least temporarily taking out the vital $5.00 price level that is the difference between its hedge fund investors being able to sell at a profit and having to sell at a loss.

If this doesn't turn around pretty soon (say by the close tomorrow), this could get really ugly.

Buying for show

Today, REFR chairman Robert Saxe stepped up and purchased shares of stock as a show of confidence in his company's prospects.

The fact that he purchased all of 500 shares, at a net price of $2,575, gives one a pretty good idea of the amount of confidence he actually has.

It's curious that Saxe managed to pay $5.15 per share on a day where the trading high was $5.11, but be that as it may, the question bears asking, what is the point of making such a tiny purchase of stock?

The answer is found in the promotional rhetoric derived from said purchases. By making relatively large numbers of tiny purchases, insiders, and in particular, board member Dr. Al Malvino, paint a picture of steady insider accumulation, with which they hope to attract institutional interest.

Put another way, it's the one promotable aspect of the company they can control, having outsourced every possible operational aspect to various licensees. So they make certain to keep it as unblemished as possible.

The sad part of it is, that all of these purchases are fully funded by purchases of other sharedholders, so while the insiders take on the appearance of putting their own money up, they really aren't.

After all, they weren't exactly in line to take in any of that million share offering back in February, now were they?

When is a buyback not a buyback?

If you review REFR's archive of press releases, and go back to 20oo and earlier, you'll find a couple of releases announcing that REFR was buying back shares of its common stock. Besides those explicit releases, other reminders of the ongoing buyback were put out from time to time.

Now, a stock buyback is something a company normally does when it has large amounts of idle cash and wishes to use it to the benefit of its shareholders by permitting those who wish to sell to do so all in one shot, thus absorbing some of the supply of stock and allowing whatever demand there is to subsequently drive the stock price higher.

This is all well and good for large corporations with billions of dollars. But what is one to make of it when REFR, a company with just a handful of millions to its name and no net income, announces they are doing it?

The obvious question is, where is REFR getting the money to do such a buyback? Many shareholders jumped to the conclusion that REFR must suddenly be awash in cash as a result of some kind of as-yet unannounced deal.

The truth, however, was quite insidious, and only available to those who scanned REFR's SEC filings. REFR's stock buybacks were being funded... by sales of stock! Yes, REFR was buying back and "retiring" stock and making a big deal out of it, but at the exact same time issuing new shares of stock and not highlighting that fact at all. Worse yet, the total share count not only increased, but REFR was at the same time losing money with its share transactions. It was lose-lose for everyone involved and the only reason nobody cared was because the market was in a rampant bull phase and the share price was soaring regardless of anything else.

The fact that such obvious fraud was never met with so much as a public reprimand from the SEC, just goes to show how low REFR is in the food chain of targets regulators are going after. Mind you, it's not necessarily the case that the powers that be don't care. REFR did, after all, cease the buyback nonsense in 2001. But whether that was because of market conditions, or because someone from on high has them in their crosshairs, is something we don't know at present.

Regardless, whether anyone is watching or not, the fleecing of naive investors continues.

A great call

Bill Wexler is back, citing a great short call made on the message boards on July 1, 2001:

"My advice to YOU is to quickly sell/cover on all OTHER stock, take out a maximal mortgage on your house (if applicable) cash in all life insurance policies and so on. Get as many credit cards as you can and take out advances against them all and then short every share of REFR you can leverage."

REFR had closed that weekend at $27 a share, and three weeks later would peak at $29 before going into a tailspin from which it has never truly recovered.

Oh, I should add that the call was not made by Bill, but by someone posting as "B_IN_K" (a reference to a character from Piers Anthony's Xanth novels).

And I should also add that Bink's call was made entirely out of sarcasm, as he is, in fact, one of the loudest proponents of REFR on the message boards. He continued in that very posting: "Then, if I am right, please tell us each time you get margin calls or your car is reposessed."

It's really the sweetest kind of irony when someone who sets out to deliberately give the worst possible advice ends up making a home run call. You'd think the experience might be a bit humbling to Bink, but on that score you'd be wrong. Bink is back on the boards and posting like there's no tomorrow. Which makes one wonder if, for REFR, there is.

Vision-Ease: the one that got away

Time to tell another tale of a brief flirtation with legitimacy for REFR.

For this we go back to August 1997, when REFR caught a big fish on their licensee hook in the form of Orcolite, a division of Monsanto which was sold about seven months later to Vision-Ease, Inc.

The terms of said agreement would be enough to make any current REFR shareholder's eyes pop. In exchange for an exclusivity clause to the making of SPD eyewear, Orcolite agreed to pay minimum royalties which were scheduled to total $2,000,000 a year by 2004. To put that into perspective, REFR actual revenues over the entire period from 1997-2004 was about $1.45 million.

One might well wonder just who thought the whole idea of SPD eyewear was such a great idea. To remain in its clear state, SPD requires a small but steady source of electricity. That requires installing some kind of power source -- in the best possible case, a AAA battery -- inside the eyewear. That alone figures to make them kind of heavy. Then there's the issue of where the eyewear would be used. One popularly discussed application was ski goggles. The question of the interaction between melted snow and the electrical components of the SPD shading never really seemed to spark debate among shareholders.

Whatever may have occurred behind the scenes, REFR got a nice revenue boost in 2000, quite possibly largely coming from Vision-Ease, then a sharp decline in 2001. Then, on New Years' Eve 2001, REFR quietly filed an 8-K form with the SEC, announcing that the licensing agreement with Vision-Ease was terminated "for non-payment of royalties". Even then they wanted to phrase it in a way that made it sound like it was Vision-Ease screwing up. Regardless, REFR promised to look into finding a new patsy, er, licensee for their SPD eyewear application.

Frankly, though, I just can't see it.