Into the abyss

I don't normally comment on stock price movements without any sort of news trigger, but today's drop, especially in the context of the tumble this stock has taken since the Tokyo auto show, is just breathtaking. It's not an effect you normally see outside the world of unlisted penny stocks whose issuers are flooding the market with shares. Which might be partially the case: REFR did indeed issue quite a large number of options based on the expense they represented, but somehow I think even that is not enough to explain the implosion we're witnessing.

Even some the biggest bulls on the message boards were invoking $6.00 as an average-down point, a level that would have seemed laughable just last week.

In a way, there's a kind of symmetry to this whole mess: up big on non-news, down big on no news.

In other news: Gene Marcial, call your office!

An early morning quarterly

The third quarter 10-Q came out very early this morning, bolstering the notion raised by some cynics that the failure of the company to file on the accelerated schedule deadline of Friday, might have been the result of an administrative snafu. (Monday, the SEC was closed for Veteran's Day, so this morning was the first opportunity to file after the 5:30pm Eastern deadline last Friday.)

The points that stand out from an initial reading:

• Revenues were up, pretty much as expected, almost entirely as a result of the Hitachi "guaranteed access" deal. There had been a few questions as to whether the payments were truly guaranteed, but they seem to be at least being recorded on schedule. Although, given the rather similar bulge in receivables, it appears Hitachi had not, as of September, actually gotten around to cutting REFR a check as yet.
• Losses for the quarter, however, were way up, mostly due to the company seemingly giving out stock options like candy to its employees. No less than $1.78 million worth of options expenses were recorded under operating and R&D expenses in the quarter, actually dwarfing all other expenses under those categories. One might well ask if a factor in the sharp decline of the past few weeks wasn't the result of employees cashing out some of these options!
• On the licensee front, we learned that AGP has renegotiated some terms of its license. The only change spelled out in the filing was that REFR's royalty cut tripled from 5% to 15%. Why AGP would agree to such an arrangement, which would only hamper its competitiveness if there is to be a marketplace for SPD products, is something of a mystery. One gets the feeling the answer lies in the "other things" the filing did not specify.
• Finally, were there product sales? This blogger has read through the filing twice and didn't find any definitive language one way or the other on the subject.

In summary, while not 100% business as usual this past quarter, the bottom line is that REFR remains nowhere near a profit. Better luck next quarter!

Update: A poster on Yahoo! came up with a theory on AGP that rings so true I'm surprised I didn't think of it. It makes perfect sense that each end-product licensee would be able to "buy" a lower royalty rate by agreeing to a minimum royalty payment. So, the increase in the rate strongly suggests that AGP is greatly lowering, or very likely, eliminating, its "minimum". Draw your own conclusions about AGP's confidence in the market for SPD products from that.

Has the cap come off?

In the early part of this decade, when REFR roared as high as $40 a share and hung around in the $15-$30 zone for quite a long time before the end of the SPD Inc. era flushed the stock, a rather hefty amount of focus was placed on the size of the short interest. Even though the total shares outstanding were well over 10 million even in 2000, the short interest seemed to hit a hard cap right around 2 million shares. A lot of comments about how "the shorts were out of ammo" could be read, and predictions of a massive short squeeze were made almost daily.

Actually, in that last bit, little has changed since that time, but one relatively new development is that short interest has broken through the barrier that had been just over 2 million shares, and has reached 2.5 million and is still climbing.

So how is that happening? Well, for lack of a better theory, the diagnosis of "what's changed" points a finger at the listing of options on REFR a few months back. The basic idea seems to be that, by purchasing put options, you buy the right to sell REFR at a given price and time, and this right seems to circumvent the borrowing restrictions that kick in whenever the availability of shares to short runs low. Thus, short interest is allowed to increase more freely, with brokers now having to extract borrows after the fact rather than preventing the trades up front.

Now, for all I know that could be all hooey, but it's really the only working theory either side of the debate seems to have come up with. All we know for sure is that the short interest is reaching records highs, and in the meantime the stock, ever since the Hino show announcement, has been in free fall, and those two items are probably not 100% coincidence.

In other news, REFR, which for the past few years has been filing quarterly reports 40 days after the end, did not do so this quarter. This might be because the status of accelerated filer no longer applies to it for whatever reason. Assuming that is so, the filing will most likely come on Wednesday instead. Because goodness knows, REFR is such a complex organization that those extra five days are vital to putting out a proper report on the company's finances.

Marketing worldwide, but not to you

You might think that with the amount of self-marketing REFR does, that they would one day they or one of their licensees would come out with a release that didn't contain a clear howler in it somewhere.

Today, with the release by licensee American Glass Products, is not that day.

To be sure, it starts out promisingly enough, talking about the launching of a new product line, complete with a global marketing campaign. It certainly sounds like REFR has finally gotten a licensee to step up and take the lead in presenting SPD to the world.

But then you get into the details. The campaign kickoff, which one might expect to be a big, splashy affair to really get things going... is in fact a trade show. Yes, another one.

But all right, you might say, a campaign has to start somewhere. At least they're getting out there in front of the public and... oh, wait:

The SEMA Show is for automotive industry professionals and is not open to the public.

So once again we have an example of SPD "marketing" seemingly designed to be as obscure as possible to the general consumer, while showing up prominently on the radar of what seems to be their true customer base, that of the speculative investor.

Welcome asensio.com readers

This blog is honored to have been mentioned in an asensio.com release on REFR today. As the author of this blog I have attempted to provide as much insight into this, well, unique company, and am proud to see my efforts recognized.

The entry referenced in the release regarding the Setra demonstration may be found here. But I encourage you to browse this site at your leisure for all kinds of little nuggets on Woodbury's longest-running profitless public company.

Is SPD a "concept" technology?

Is REFR getting typecast?

Between the Jeep Rescue, the Juno, let's throw in the Kabura even though it was never established as SPD, and now the Hino S'elega Premium, SPD is establishing a considerable track record as a demonstration technology. But, with its subsequent failures to cross the gap into the real market, one has to wonder if it can ever do so.

Certainly, anyone considering SPD technology and researching it would have to be well aware of both SPD's proliferate demonstrations and dearth of market applications. Just as certainly, they could not be blamed for thinking to themselves, "SPD gets evaluated a lot, but never makes it into the market. Does that mean people are finding something wrong with it?"

That actually might partially explain the almost immediate reversal of the news that SPD is in yet another concept vehicle. Is there not a growing risk that prospective customers going to start thinking that maybe demonstrations and concepts are all SPD is actually good for?

Maybe SPD has reached that point and maybe it hasn't. But that's a concept Joe Harary and company really ought to consider carefully, before hauling SPD off to the next trade show demonstration.

Bus-ness as usual

Relentless rumormongering that REFR and SPD were going to make a big splash at the Tokyo Motor Show this month proved accurate... sort of.

According to a REFR press release, SPD glass was a feature in one of four concept vehicles unveiled by Hino Motors, a subsidiary of Toyota.

For Hino's part, their announcement of the display does eventually get around to mentioning glass with variable transparency, though for some reason it is referred to as "photochromatic", which SPD definitely is not.

Perhaps something was lost in translation, but what is most emphatically not lost, is the uncanny resemblance to the Setra rollout of four years ago, with the primary difference being that the Hino bus is a clearly labeled a concept vehicle, while Setra's bus supposedly had a small production run. (Although if so, REFR is still waiting for its royalty check from that.)

The market in REFR being what it is, of course, the stock instantly soared more than 10% to multi-year highs on the release. But a funny thing happened on the way to the $20 level that seemed inevitable early on this morning. Very quickly, the sell-the-news reaction kicked in. Rather startlingly, the stock gave back the whole rise inside of two hours, and actually finished in the red for the day. Maybe the investors with longer memories recalled that right after the Setra announcement, REFR stock hit a peak that it would go on to crash 75% from, and not recover for years.

One thing seems certain, the actual event paled in comparison to the months of endless message board hype that preceded it.

The newest licensee

Apparently Joe Harary's two-day swing through Texas had a purpose after all. What appeared to be a complete non-event (and was reported as such by attendees from the message boards) had a bit of a sting in the tail in the form of a new licensee in the Houston area, Craftsman Fabricated Glass.

A quick browse of the company site shows that Craftsman isn't so hot in terms of web presence. Their website, dated with a 2005 copyright, still has many "under construction" page stubs. This of course does not automatically mean they're not competent at their core business, but it definitely suggests they're not exactly a big time player, more like on the order of a Custom Glass, only in a larger local market.

Of course, the market, as is its wont these days, has just gone nuts on the news, running back up near the highs after a fairly steep pullback over the prior few days.

What must surely frustrate the shorts in this stock is how the stock just gaily runs up to the moon with no apparent expectations of the company actually producing any kind of revenues, much less profits. BUT... there may be a end to this tunnel vision in sight. At the Dallas luncheon Wednesday, Harary is reported to have announced a "small amount" of royalty income for the third quarter of this year, a "large amount" for the fourth quarter, and big-time growth through next year. So it's basically on the fourth-quarter report in February or early March to show something, or REFR will have finally, officially disappointed.

The blog plans to be here to see it happen. How about you?

Asensio back on the scene

Manuel Asensio, high-profile critic of REFR in years past, came back to the topic after a year's silence, with a release slamming Gene Marical's hype-ridden article from last summer. Asensio makes up for the relative tardiness of his response with some interesting information about the relationship between Marcial and REFR, specifically the fact that Marcial wrote about REFR back in 1995, then hyping licenses Japan Steel Works and Sanyo, and forecasting a buyout by General Electric.

Marcial and his employer Business Week are the focus of the release, but the article is still a good read for anyone looking for insight into stock promotion in the press.

The great debut... again

Never let it be said that Research Frontiers is not a green-conscious company.

In addition to the number of ways in which they attempt to cast their technology as environmentally friendly (as well as nanotechnological, security-enhancing, or whatever the hot trend of the day is), they walk the walk as well, being very heavy into recycling. So much so that it even extends to their licensees' press releases.

Today Isoclima announced they were taking SPD on the trade show circuit. Now, my question to you is, does this sound familiar at all?

It should.

To Isoclima's credit, the new PR doesn't entirely come off as a copy-and-paste of the one from two years ago, even though there are some aspects of it that are very similar: they specify the size of the sample being toured (larger than the one two years ago), and mentioned their future plans for film width (surprisingly, smaller than two years ago). In other news, they seem to have settled on a spelling for their brand name: the no-H version.

One sidelight of interest is the insight into the process this PR provides. Dainippon, though licensed to sell film and emulsion, is only sending Isoclima the raw production chemicals, an activity that doesn't even make use of their license. One might well gather from this that Dainippon is not as committed to the SPD infrastructure as some licensees.

But of course none of this matters a whit as REFR soars to new multi-year highs on this recycled news. That's life in the world of stock promotion for you.

The Beechcraft boondoggle

REFR's stock has made a full recovery from the faceplant of a few weeks back, spurred on at least in part by its appearance on the Nasdaq SHO list, which, in some circles is apparently used as a speculative list of potential short squeeze targets. So we wish the would-be squeezers rotsa ruck with that endeavor.

But in the meantime, on the home front, an interesting new development is coming to light with regard to the after-market SPD shades from Hawker-Beechcraft (then Raytheon Aircraft) whose announcement spurred the stock into the tizzy it has remained in to this day.

It started fairly innocuously with a post by "rikes_of_hell" claiming to have contacted Beechcraft and found that the shades were unavailable. Now, normally this would devolve into a "he said, he said" that proves nothing either way, but a funny thing happened on the way to the denial. Posted "spd_where_you_look", (obviously) a big REFR bull, actually confirmed the shades' unavailability, by way of making the excuse that film was being diverted to other, more important (yet somehow entirely invisible) projects, and that film for the shades would come available sometime this month.

Now, if the diversion excuse rings familiar, it should -- it was used to excuse REFR/Inspectech's failure to win the Boeing 787 business, even though, as we now know, there was no film production at all, much less massive amounts being diverted to projects more important than the 787(!!)

Still, it's a rather amusing state of affairs on a lot of levels. The entire current run in REFR's stock was kicked off by the Raytheon/Beechcraft announcement last February, and was the target of article after article highlighting how this was REFR's big breakthrough into the market. And now we learn that the shades were not, in fact available and have yet to be?

Fortunately for shareholders, with the latest run propelling the stock back near its highs, there's no need to apply for a refund when you can still cash out almost certainly with a healthy profit. Or... you can hold out for the Next Big Thing, a rumor of an announcement at next month's Tokyo Motor Show, which may, or, given even the most recent track record of this company, may very well not happen.

It's your call, shareholders!

Options revisited

I'm sure almost nobody among the few people reading this blog is really into the minutiae of options. I personally find the topic a combination of boring and mystifying, and I consider myself more into things involving numbers than most people. Still, with the alternatives being lapsing back into radio silence or dissecting the message board's collective inability to parse the latest short interest figures properly, there really are no attractive options (pardon the expression) here.

But I do have to say that I find it a little odd that, even though the stock is trading around $11 at the moment, thus making the nearest strike price $10, there is zero activity on current options at the $10 strike, with $12.50 being the "mainstream" price instead.

Now, I'm sure there's a hundred different ways to spin this phenomenon, many of them directly contradictory, so I'm far from suggesting my personal take is the "correct" one. But it seems to me that the stands being taken are kind of a reflection of the contrast in styles of the opposing sides of this stock. The bears are content to sit back and exert whatever influence they have from a distance, accepting that any further decline in this stock is likely to be gradual (the events of the week before last notwithstanding), and that little is to be gained from placing a bet that can be lost by running out the clock.

The bulls, in contrast, are going all out, betting strictly out of the money and willing to lose their bets if the stock doesn't rebound and soon.

And yet, basically, the stock itself meanders.

I think that might say a thing or two about the direction of the path of least resistance right now.

Gagging on something

You don't need me to tell you the stock market's been shaky the past few weeks to say the least. But today REFR got hit particularly hard today, down as much as 22%, and did not entirely rebound with the market, finishing down 13.6%.

Stranger still, the usual message board catcalls that this is all pressure from shortsellers, while not entirely absent, was considerably muted. In its place was this oblique complaint from one poster:

"HAVE YOU SEEN THE CRAP THAT SPD'S COMPETITORS ARE TRYING TO SELL ??? HAVE YOU EVER SEEN A CAR WITH PUKEY WHITE WINDOWS? THEY ARE CALLED GAG MOBILES SINCE YOU WANT TO PUKE WHEN YOU SEE ONE. DON'T WORRY THEY WILL NEVER SELL IN A MILLION YEARS."

No one else on the boards is admitting to having much of an idea what this was about, and this blog has so far struck out as well. But if it's some kind of competition for SPD, that may have even gained traction with an auto maker, that certainly spells trouble for REFR, and might help explain the heightened panic today.

Anyone out there have any idea what these "gag mobiles" are actually called? Support your local blog and give me a heads up!

The latest 10-ZZZZ filing

Or at least that's the form the SEC should require REFR to use, as yet another quarter of complete uneventfulness is officially put on the books, hype regarding production at Hitachi notwithstanding. Income was actually slightly down from the second quarter of last year, although operating expenses were also lower, resulting in a loss of only about $735,000, REFR's narrowest quarterly loss since 2000.

Of course, before any shareholder preens over this success, it bears pointing out that REFR's net margin for the quarter remains at -1285%. Coincidentally, REFR's price/sales ratio is in the same ballpark on the positive side, most recently pegged at 1298.

None of these results come as a surprise to shareholders, at least as far as they will admit, as the "production delays" at Hitachi, which were of course all their fault and furthermore in no way reflect adversely on demand for the film, nosiree, apparently made the realizing of revenues in the mere five months since film production was announced, a virtual impossibility.

It will be interesting to see what the rationalization will be for similar failures in the third quarter. Will the royalty lag time be stretched out to eight months? Will the "technology subscription" payments from Hitachi be used to mask the lack of revenue from product sales?

Will someone, anyone, step forward and offer an SPD-based product for sale to the general market?

I wouldn't bet on it.

Now if you'll excuse me I think I'll go back to bed.

Options update: 11 more lots of calls opened today. 10 March 17.50 calls at the ask (money in the bank to be sure -- but for whom?), and a single December 15 call at the bid. So apparently at least one REFR shareholder is sophisticated enough to be familiar with the concept of writing covered calls.

Weighing the options, finding them lacking

The Chicago Board Options Exchange, which has been phasing options contracts on all manner of listed symbols that previously did not trade options, has added options on REFR starting today.

What seemed at first blush to be an intriguing twist in the trading strategies surrounding this tightly-controlled stock, however, has, at least in the early going, proven to be a complete bust. The spread between bid and ask on all contracts, excepting those with zero bids, is at least 75 cents, and volume is a flat zero across the board.

There had been hopes on both the bullish and bearish side that the listing of options might add some much needed liquidity to this stock, but clearly the verdict today is, not so much.

Until Yahoo! add options for REFR to its quote pages (shouldn't be more than a couple of days, based on other recent CBOE option listings), you can check activity on the CBOE site here. For now, at least, there's very little to see. We'll be checking back later to see if a day of greater stock activity has any residual effect in the option exchange.

Update: The first trade in REFR options came just over two hours into the first trading day, a trade (presumably a purchase) of two August 15 calls at 65 cents each. As options represent 100-share blocks, that's a $130 trade. The following two hours have been silent on the options front, presumably to recover from that blistering flurry of activity.

The media blitz continues

Any doubts that REFR is in a deliberate attempt to get noticed and get noticed quickly have now fallen by the wayside with yet another puff-piece article about them, this time by Emily Pickrell in New York Newsday.

This particular article is really quite amazing, as it seems almost carefully written to include as much stock-promotional hoohah as could be fit into the column space.

"It's a thrill," said Saxe. "If you spend 40 years of your life building something and it does not work out, people will say you're a stubborn fool...."

Aw, poor guy. If this doesn't work out, all he'll be left with is a long career during which he made anything up to nearly a half-million dollars a year in just salary alone, and that doesn't even include profits from options.

"SPD glass is the holy grail of glass that architects have been clamoring for for years," said [Steve Abadi].

I guess it does have one thing in common with the legendary vessel, in that few ever even get to look upon it.

Abadi goes on to claim SPD as a "green" technology, whatever they or anyone else means by that anymore, and then, hilariously, the article plugs the Popular Science award from 2002, without mentioning how all that applied to the old, failed, SPD Inc. version of the technology.

At this point, the article moves on into it's "cautionary" section, making a threadbare attempt to not look like the puff piece it is. REFR, per the article, has "annual operating expenses of approximately $3 million", and "operating losses of roughly $4 million per year." That's a heck of a good trick, managing to lose more money on operations than you spend on operations. Summing up: "lack of sales until recently means the company is still waiting to see a profit." Wow, there's some brilliant analysis.

But enough of that, back to the laughable stock promotion cliches! "If SPD glass is were used for even 1 percent of world glass sales..." It's at this point that I suspect Ms. Pickrell must be a highly inexperienced reporter to have not heard that old saw, a suspicion that seems to be the case. Given that my heart goes out to her, being used in such a way so early in her career.

Moving on, the Beechcraft arrangement is of course plugged, minus the fact that Raytheon is no longer associated with that company.

Ms. Pickrell does note that the message board chatter on REFR is "mixed at best", but the only specific criticism she cites is delays in getting product to market, not the myriad misrepresentations the company has made over the years.

Possibly saddest of all is a shareholder she managed to find, who is quoted as saying, "I wish I had more money to buy more stock."

Cashing in again

Once again REFR CEO Joe Harary has collected another sweet paycheck over and above the rather substantial salary he collects for running this nearly operations-free company. This time the score was over $350,000, and could have been more had he not generously gifted 7,000 shares, about another $100,000 worth, to an undisclosed party.

The timing of this option exercise and sale, literally days after a mention in Gene Marical's Inside Wall Street column bounced the stock as much as 15% on the day of its online release, naturally raises a couple of eyebrows, even as the general population on the message boards seems congratulatory if anything. Of more interest is the fact that the AP even found the sale worthy of mention. For a company that has made a living flying under the radar this may prove to be some unwelcome attention, particularly if the current prices fail to hold at some point in the near future.

The Marcial Plan

A lot of focus has been placed on the nature of the column penned by Gene Marcial, such as this week's entry featuring REFR. Now, normally, such analysis smacks of attacking the messenger and doesn't have much of a place in serious discussion, but in Marcial's case the consensus is so clear and uniform it's worth nothing.

Marcial's column, by reputation, is the modern form of the old "tip sheet". It basically gives a "quick hit" on a stock, either as a growth story or an acquisition target. Frequently, the stock, like REFR, has already made a big run, but the suggestion is inevitably made that "it's not too late to get in". And, almost without exception, the featured stock makes a big run on Friday, the day after the article comes out. Again, REFR follows the model to a tee.

Subsequently, the performance of the stock is, sadly but not surprisingly, not so hot. To be sure, Marcial does pick the occasional true winner (blind squirrels and all that), but on the whole, one day after a Marcial column has the reputation of being one of the worst times to buy a given stock.

So far, as I said, REFR is acting little different, running up big on the Marcial article and then subsequently going nowhere. We'll of course be watching to see how things unfold.

I've had it suggested to me that Bob Saxe arranged for last week's article, but the fact that Marcial managed to find a portfolio manager willing to sound enthusiastic about REFR suggests to me that the article is at least partially not his doing. Others have suggested that this might be a cynical ploy on Robin Manners West's part to get out of an ill-thought-out position in one piece. That would be rather blatantly unethical if true, to the point where the SEC might even notice, so I tend to doubt it, but it should be noted that other fund managers have done exactly that in the past, so the possibility can't be completely discounted.

Comment lines are now open!

What with REFR now breaking into the "big time", at least for the moment, I figure it's about time to let the world have its say. Try to keep the comments thoughtful; I don't need this turning into a clone of the Yahoo! board where the standard response to everything is to claim to know everything but say nothing.

Apart from that, have at me!

Getting down to Business Week

Just as the momentum behind REFR's precipitous rise was flagging, out comes a very timely article in Business Week by Gene Marcial in his "Inside Wall Street" segment. The article appears to be essentially the result of an interview with Robin Manners West, portfolio manager of the New Mexico State Investment Council, and a frequent subject of his column.

Marcial's article cites nothing that has not already been noted in this blog, which already drove the stock from $5 to $15, yet forecasts a $35 price target and profitability by the January 2009 on expectations that licensees Air Products and DuPont will "sign up", whatever that means. The best that this blogger can guess is that West expects to fund itself solely from licensing out subscriptions to its technology. The cited 18-month time frame is also an interesting one, in that it is one favored by long-time REFR promoter R. J. Falkner.

The article does admit that there remains no analyst following for REFR, although it does list Fidelity among "early" investors, even though their position does not as yet appear on the Nasdaq website.

Looks like it game on, as far as the war over the stock goes. As for the company itself, that remains to be seen.