...Or Did They?

This one leaves me a bit red in the face, as I normally would have done more thorough research on such a thing, or at least gotten around to it within a reasonable time frame thereafter. But instead, perhaps out more out of apathy than anything else, accepted the profit pronunciation for Q3 at face value and wrote it off as a one-time event.

But in fact that may have given REFR too much credit. Message board poster xavierducats uncovered this language in the 10-Q filing:

"The Company's fee income from licensing activities for the first nine months of 2008 was $1,476,131 as compared to $237,810 for the first nine months of 2007. This difference in fee income was primarily due to the receipt of a one-time payment from a former licensee in full settlement of past due minimum annual royalties for several years."

Xavier went on to hint at what I'll say explicitly -- there is a very real possibility that REFR's Q3 profit may be "restated" out of existence in the months to come.

Rather than being a termination fee, the roughly $1 million paid by NV Baekert was now apparently an accumulation of unpaid "minimum royalties" over time. Now, I am not a CPA, but it certainly seems to me that if REFR was truly owed these royalties they should have recognized them at the time they were earned, whether or not they were in fact paid or not. Thus, that $1 million should be spread across however many quarters Baekert was in arrears, thus flattening Q3's revenue spike and negating the standing of profitability.

We shall see what REFR's auditors have to say about that this winter.

As a parting aside, I'll echo the mirth at Joe Harary's latest effort to put a good face on REFR's sorry state, with his latest "Ask Joe" column pointing out the companies REFR has "outlasted" because of the recent carnage in the financial industry. Apparently being Wall Street's equivalent of a cockroach is the new standard of success in Woodbury.