It's summertime and excuses are easy

Just in time to catch what is looking like a near-term bottom in the stock, REFR has come out with its summer newsletter.

The bulk of the "newsletter" is a detailed recounting, including full transcripts(!) of the annual shareholder meeting from two weeks ago. A first reading seems to back up early reports, so I won't go into too many details. I will note, that while they mention "representatives from Hitachi Chemical", they mentioned none of them by name. This kind of undercuts the insistence that he was at the meeting and is still fully in charge there, rather than retired as some reports have it. (You'd think this would be an easy point to settle!)

I would like to note the last paragraph of the newsletter. Ever vigilant for the latest up-to-date developments, REFR management decided to throw in a few "reassuring words" about the rather dramatic collapse of the stock over the past couple of weeks. This includes the popular chestnute, "the fundamentals have not changed," and that is certainly most true in REFR's case. One has to have fundamentals in the first place, for them to change.

Checking the scorecard

Okay, it's been over a month now, so let's check the REFR announcement scorecard and see how it's coming along.

Hmm. Um. Okay, I guess I'm going to have to come up with something else to write about today.

All right, how about this. In the past few minutes (as I am writing this), REFR traded down to $2.90 per share. This takes out the split-adjusted low price of 1992 ($2.933). To find a time when REFR traded lower than today, you have to go back to July 5, 1991, when REFR got down to $5 1/4, or, adjusted for splits, $2.80 per share.

For reference, here is a list of remaining "lows" that REFR has between it and its all-time low, a split-adjusted 80 cents per share:

            low price    split-adjusted (15/8 prior to 1994)
06/23/05    2.90         2.9
07/05/91    5 1/4        2.8
07/03/91    4 1/4        2.2667
07/02/91    3 3/4        2
06/27/91    3 5/8        1.9333
06/12/91    3 1/2        1.8667
06/03/91    3 1/4        1.7333
05/31/91    3            1.6
04/02/91    2            1.0667
02/22/91    1 7/8        1
12/07/90    1 3/4        0.9333
09/27/90    1 1/2        0.8  (all-time low)

Of course, having assembled this list, I have no doubt set in motion a wave of claims from the diehards that they in fact bought at the low prices above, but what can you do. Besides nod indulgently and chuckle to yourself, I suppose.

Throwing money away

Today I thought I'd just perform a little tallying of the kinds of losses insiders have suffered on their various purchases over the past couple of years.

I'll start with founder Bob Saxe, the least prolific of the buyers (which probably tells you something right there):

(Losses are based on a price of REFR of $3.00 per share, today's low as of noon Eastern.)

4/20/05: 500 shares REFR @ $5.15 : loss = $1,075
11/12/03: 200 @ $9.48 : loss = $1,296
11/11/03: 200 @ $9.31 : loss = $1,262
11/10/03: 200 @ $9.81 : loss = $1,362
Total loss for Bob Saxe = $4,995

Now President Joe Harary, who has also been absent from the buy side for a while:

6/3/04: 1,729 @ $8.1875 : loss = $8,969
Total loss for Joe Harary = $8,969

Vice President Michael LaPointe, also nearly a year removed from his last purchase:

6/28/04: 500 @ $7.09 : loss = $2,045
5/20/04: 500 @ $8.798 : loss = $2,899
4/19/04: 500 @ $10.44 : loss = $3,720
1/26/04 175 @ $12.05 : loss = $1,584
1/26/04: 250 @ $11.98 : loss = $2,245
Total loss for Michael LaPointe: $12,493

Now we get to the more prolific buyers. First up, director and former forum stock promoter Al Malvino, with a lesson on how not to dollar-cost average:

6/17/05: 1000 @ $3.62 : loss = $620
3/18/05: 1000 @ $5.86 : loss = $2,860
2/18/05: 500 @ $5.97 : loss = $1,485
1/19/05: 500 @ $5.98 : loss = $1,490
12/29/04: 400 @ $6.00 : loss = $1,200
12/2/04: 600 @ $6.11 : loss = $1,866
11/22/04: 300 @ $6.74 : loss = $1,122
7/27/04: 700 @ $6.70 : loss = $2,590
7/9/04: 300 @ $6.77 : loss = $1,131
6/16/04: 569 @ $7.85 : loss = $2,760
6/4/04: 731 @ $8.674 : loss = $4,147
5/24/04: 1000 @ $8.846: loss = $5,846
5/18/04: 600 @ $9.05: loss = $3,630
5/17/04: 600 @ $9.20: loss = $3,720
5/14/04: 700 @ $9.526: loss = $4,568
5/12/04: 700 @ $9.70: loss = $4,690
5/3/04: 400 @ $9.71: loss = $2,684
2/4/04: 3000 @ $12.125: loss = $27,375
2/3/04: 1000 @ $12.12: loss = $9,120
1/7/04: 1000 @ $8.91: loss = $5,910
12/30/03: 1000 @ $9.12 : loss = $6,120
12/5/03: 300 @ $9.10 : loss = $1,830
11/10/03: 300 @ $9.30 : loss = $1,890
10/21/03: 300 @ $11.65 : loss = $2,595
10/8/03: 305 @ $11.55 : loss= $2,608
9/26/03 300 @ $12.05 : loss = $2,715
9/3/03: 300 @ $12.00 : loss = $2,700
7/30/03: 200 @ $13.35 : loss = $2,070
7/15/03: 800 @ $14.56 : loss = $9,248
7/10/03: 200 @ $15.35 : loss = $2,470
Total loss for Dr. Al Malvino: $123,060

As bad as that is, it's still peanuts next to the prize patsy of the board of directors, Corporate Secretary Victor Keen. His buys may have been fewer in number, but he made them count. Against himself:

5/4/05: 10000 @ $3.84 : loss = $8,400
8/19/04: 16300 @ $5.88 : loss = $46,944
7/19/04: 5500 @ $6.75 : loss = $20,625
6/29/04: 10000 @ $7.21: loss = $42,100
6/14/04: 5000 @ $7.79 : loss = $23,950
11/11/03: 5000 @ $9.36: loss = $31,800
9/30/03: 5000 @ $11.51: loss = $42,550
7/15-16/03: 5000 @ $14.50 : loss = $57,500
7/3/03: 1300 @ $14.96 : loss = $15,548
7/3/03: 5000 @ $15.00 : loss = $60,000
6/25/03: 10000 @ $12.05 : loss = $90,500
Total loss for Victor Keen: $439,917

On aggregate, just from buys made in the last 24 months, insiders have lost a total of $589,434.

The purpose of this observation is not to gloat, mind you. I am quite certain that all of the above insiders, even Mr. Keen, can easily afford to lose everything they have invested in REFR stock.

Rather, I just want to observe that when you ask a shareholder why he continues to have faith in this company, one of the things inevitably highlighted is the company's stellar track record of insider buys versus sales. After all, the insider must know something good is in the offing, or they wouldn't buy, would they?

Well, the above illustrates just what that line of thinking got the average investor in REFR. A huge pile of losses with no apparent way out of them.

That is what comes from letting others do your thinking for you.

R. J. Falkner's sound and fury, signifying nothing

It is quite an amazing feat that Bob Saxe and company have managed to keep the cycle of recapitalization going for a full forty years without ever having produced anything of value to the marketplace. Certainly that is attributable in part to management's virtuoso playing of the stalling game, stretching things out as long as humanly possible and counting on faded memories and a constant influx of new players unfamiliar with their past to carry them on to the next stage. That they have managed to keep it up for this long without having diluted the stock beyond recognition is most remarkable indeed.

Still, it all would have been a lot harder if Saxe and company didn't have a willing accomplice or two willing to help them out. And one of their primary accomplices, particularly in recent years, has been the "research" firm of R. J. Falkner and Company.

Falkner is one of a thankfully dying breed of research firms who put out reports on companies that pay them to do so. Not surprisingly, the reports are uniformly and usually quite wildly bullish.

Falkner's report on REFR is no exception. Their latest summation, dated November of last year (when REFR's price was roughly $7.50, or more than twice today's levels), predicts "REFR?s long-term prospects for profitability and growth will be supported by accelerating growth in royalty income within the next 6-12 months."

For those uninitiated with how these forecasts work, this means that, a little over six months having passed since the report was issued, a new version, with a renewed 6-12 month time horizon, is almost certainly due out shortly.

Some, however, suspect that Falkner's assistance in the promotion of REFR goes beyond their silly "research reports". On its disclaimer page, where Falkner customarily admits how much they are paid by the company being "researched" ($3,500 a month in REFR's case, or more than 1% of the company's operating budget), they also add that they provide "investor relations services" to REFR.

Now, given that REFR already has a perfectly competent investor relations person on staff, the question asks, what kind of "investor relations" does Falkner do for REFR? A sampling of disclaimers for other companies' reports characterizes the compensation as being "for the periodic publication of research reports". So clearly Falkner is doing something else for REFR. What might that be?

One rather blunt theory is that Falkner is responsible for a great deal of the promotional activity on the message board forums. While it's a little hard to accept that REFR could get all that much "bang" for $42,000 a year, there is some evidence to support the suggestion. Much of Falkner's report gets requoted endlessly on the forums. Some have claimed this even happens before the fact, that issues raised on the forums subsequently find their way into Falkner reports, though this has not really been established. Another thread is the frequently raised notion of "paid bashers". While this is an extremely popular accusation on the forums of stock of all types, despite the fact that the practice has never been proven, what would be more natural than assuming the contra side is being paid for their postings, if you yourself are being paid for yours?

At any rate, that's probably far more than enough theorizing for a topic upon which little proof of anything exists. For a good chuckle, read the whole Falkner REFR report from beginning to end and see for yourself just how horribly wrong it has already proven. Tomorrow, I'll show you where you can read past reports from Falkner, to get a really good perspective on just how horribly wrong they have been.

Feeling flushed

The forums were abuzz all weekend as promoters tried to rationalize their way out of the seemingly straightforward conclusion from Dreamliner designed Klaus Brauer's comments that Boeing was importing the technology JAMCO puts in its airplane lavatory windows, for use in the main cabin windows.

The biggest objection appears to be that the JAMCO lavatory windows are strictly "on-off", not dimming. Of course, that is premised on the theory that the tech from the lavatory will be transplanted as-is with no refinement whatsoever, which seems a shaky contention at best. And really, the whole line of thinking that liquid crystal light shading is strictly binary is quite thoroughly exploded by the development of modern LCD computer monitors and LCD televisions.

Another is that there is no documentation of JAMCO products appearing in business jets, as mentioned in the Brauer comments. Apparently the expectation is that JAMCO, like REFR, would publicize every single sale they make.

One counter-theory that seems to have been definitively answered even to the promoters' reluctant satisfaction is that liquid crystal windows could only function in temperature-controlled interior environments, and that the windows must therefore be facing the cabin interior, not the outside. Unfortunately for this line of thinking, there are photos showing the window to be behind the toilet, which would place it on the exterior of the aircraft.

One can never really assume that this story is making it outside the somewhat insulated world of the message board forums, but it is notable that the stock is diving to fresh lows even as I write this. One thing seems certain: management is almost certainly glad to have gotten the annual meeting out of the way before this revelation broke.