The biggest shafting yet?

It looks like I may have spoken too soon about us being in a dead spot, as the proxy for the 2008 annual meeting was filed with the SEC today, and boy does it contain a doozy.

It turns out REFR runs its stock options plans on a 10-year cycle, and the last one began in 1998 and thus expired as of the end of 2007. (I'm sure the nearly year-long run in the stock, throughout most of 2007, was just a coincidence.)

The new plan for 2008, as detailed in the proxy, contains quite a few new and innovative features. (If only they put this kind of effort into developing their technology!) In addition to the traditional stock options, there's something called "Stock Appreciation Rights", which bypasses the need to exercise options and sell shares on the market (with all the messy SEC paperwork that goes with that), and just hands out cash and/or stock based on the current share price instead. Then, there's a new class of restricted stock, which the board can (theoretically) control the disposal of, although that has a long history of being abused at other companies.

In other news, a shareholder has taken the initiative to propose that the company be more open in detailing licensee activity. This makes enough sense that it will almost certainly be flatly rejected, or fulfilled in a useless way (see, for example, the plea for hiring of new, younger directors last year, and what investors ultimately got).

Also of note, company founder Robert Saxe is up for re-election to the board, along with fellow septuagenarian Robert Budin. Needlessly to say, they will almost certainly be voted right back in with little or no discussion, but one can dream...

Finally, back on the topic of the stock option, or rather, "Equity Incentive Plan", possibly the biggest insult of all comes in the introduction to the plan:

"The Board of Directors believes that the 2008 Plan is essential to the Company's continued success."

Words, for once, fail me.

ForecloSPD

Yet another dead spot in the storyline here, so let's take time-out for an amusing if somewhat sad story of SPD on the message boards.

In the never-ending process of combing for any speck of publicity for SPD anywhere on the Internet, one poster found an SPD window in the sales description of a house for sale (see the listings in the middle of the page) for over a million dollars in Los Gatos, CA, near the edge of Silicon Valley.

Jubilation turned to consternation and embarrassment, however, as other posters dug into the story and discovered that the house, like so many others in California, was both well behind on property taxes (which had ballooned around about 2005) and in default on its mortgage to a tune of just under $600,000.

Now, while the mortgage default doesn't reflect on REFR as such, it makes it unlikely in the extreme that the SPD window would be some brand-new addition to the house. Who spends thousand on "home improvement" for a home they're losing?

Besides that, REFR claims in its SEC filings to this day that there has never been a successful SPD product, so the question arises: where exactly did the window come from, then?

There's one mystery we may never solve.

How dogged can you get?

This blog has seen a lot of displays of groundless optimism for REFR's version of SPD over the years, but this one may be one for the record books.

As detailed previously, REFR was beaten out (assuming they were ever truly in the race) for the task of placing a variable tint on the windows of the Boeing 787. Despite the seemingly comprehensive statement from all parties concerned, REFR longs desperately held out hope (for more than two years!) that something would somehow go terribly wrong with Gentex and PPG's
implementation and that this would open the door for REFR and (presumably) Inspectech Aero to slap their stuff on the 787.

But as the rollout date for the 787 approaches (despite delays) and even that vague hope fades, the eyes of ever-hopeful REFR shareholders turn to Boeing's rival in the commercial airliner business, Airbus. Specifically, they have set their hopes on SPD finding its way into the next major Airbus offering, the A350 XWB.

But there's just a small problem there, in the form of an article on AIN Online last January, reading:

A350XWB Will Offer Electrochromic Cabin Windows

By Kirby J. Harrison

January 1, 2008
Cabin interior and electronics

Buyers of an executive version of the new Airbus A350XWB will have the option of selecting the electrochromic (or “smart windows”) technology from PPG. The windows, developed by Gentex of Zeeland, Mich., contain an organic di-electric gel.

When a very low electrical current is introduced, the gel will darken, rendering the window opaque. When no electrical current is present, the window allows the passage of approximately 60 percent of outside light.

Airbus claims the windows on the A350XWB will be larger than those of any other bizliner.

Now, granted, an isolated, unsourced article is rather far from definitive, and furthermore only covers a specific sub-model of the airliner, but you might think that this might temper the enthusiasm of REFR's shareholders somewhat. That is, of course, assuming you knew nothing about REFR's shareholders.

The counter-spin on this article was prompt. One post, for example, read into the article that the Gentex windows were strictly going to be an aftermarket option, while REFR's product would be more prominently marketed.

That was by way of build-up to the recent Hamburg Air Expo, where shareholders convinced themselves that Airbus would announce that SPD was their window-dimming technology of choice for the A350. But it turned out -- get ready for a shock -- that didn't happen.

So, the spin this morning is that Airbus for reasons known only to themselves, was staying mum about their relationship with REFR (and forcing REFR to do likewise) and that there was nothing for it but to keep waiting.

At this point I should note that the A350 is scheduled for its maiden flight sometime in 2012. That's quite a wait indeed, for shareholders in a company with only enough cash on hand to make it through 2009. Guess they better start saving up now to absorb the next stock offering!

One for the books

It was a wild ride for REFR stock in 2007, but in the end, the only thing that had an impact on the income statement was the technology sharing agreement with Hitachi, which looks to have provided roughly half the company's revenue for the entire year (although, as is their wont, the company made no effort to actually break that down in their 10-K filing last night).

The revenue number was just a hair over $400,000, which, in headier times, might be hyped loudly as the 150% increase over last year that it technically is. But that is rather heavily overshadowed by the steeply greater net loss of over $7.5 million, largely due to a huge upswing in stock option issuances during the stocks run in the teens last year.

Other than that, there's nothing much in the report other than a parsing and counter-parsing of the various ways in which the state of licensee activity is portrayed: what they say, what they don't say, what they say they can't say, etc.

Based on the stock's reaction today, I'm kind of doubting 2008 will be anywhere near as fun for the shareholders as 2007 was.

Licensed to tout

I wasn't even going to bother with this item, but I'm kind of bored and the stock market in general isn't much fun to follow, so I thought I'd mention one item that arose from the text of GKN's license agreement, as related on the message boards:

In addition, LICENSEE shall promptly develop and maintain a web site relating to its business which prominently features LICENSOR's SPD technology and LICENSEE's relationship to LICENSOR, and shall participate at all major industry trade shows and conferences and engage in other marketing and promotional activities reasonably necessary to promote LICENSOR's SPD technology and LICENSEE's business relating thereto.

Now, this was framed in a context of "why would they agree to do this if they didn't really believe in SPD", but an equally valid take could be, the licensees are only carrying water for REFR because they're contractually obligated to do so.

Something to keep in mind, anyway, when you're wondering why, say, Thermoview would keep AlterLite featured on its front page years after its introduction when it was painfully obvious they weren't selling any of it, to say nothing of after the company itself filed for bankruptcy.

Chain, chain, chain of foolishness

Almost lost in the non-hubbub over the licensing of GKN yesterday was a glimmer of a notion as to why GKN may have gotten into the licensee club at this time. (Yes, I know, Joe specifically said that GKN approached REFR, but that could mean a lot of things, or nothing at all.)

GKN is, and has been a long-time supplier of glass for passenger windows for Boeing aircraft. This is apparently no different for the 787. But wait, you say, weren't Gentex and PPG supposed to supply the windows? Is there a problem? Have those two quietly gotten the boot as a supplier with GKN, backed by their license of SPD, now replacing them?

That's chain the logic intended to be induced, I think, and such was expressed on the message boards yesterday. But, as just about everyone else on the board simultaneously pointed out... there's just one little problem. GKN's license specifically says -- and, to REFR's credit, the press release does mention this -- they're licensed only to put SPD in armored glass. And I can say without fear of contradiction that the passenger windows on the 787? Not going to be armored glass.

The highly likely truth of the matter is that GKN is and always was supplying the glass for the Boeing 787 windows, but rather than supply it directly to Boeing, they are this time shipping it to Gentex and/or PPG for the application of their electrochromatics. That's simple, straightforward, and therefore certain to be rejected in favor of something far more complex that somehow puts REFR in the driver's seat, by those determined to push that agenda. But that's their problem.

The only question remaining, could it be just a coincidence that REFR would choose to license a company working on a project of which their own technology was recently falsely hyped as being a part? Almost certainly not 100% so, but it's not a lock that this was intended entirely as a subtle ploy. It's at least plausible that they wanted to get SPD somewhere vaguely in the neighborhood of the 787 supply chain, "just in case" the whole Gentex/PPG project blows up, even though there's no evidence of that actually happening.

Bottom line, there now seems to be less here than even I had thought.

GKN

REFR announced the signing of a new licensee last night, GKN Aerospace of Garden Grove, CA. GKN is licensed to sell "armored" SPD glass in various vehicle markets.

No doubt this is about to give the stock another juicing just as last week's effort was in full retreat and on the verge of unraveling entirely. Whether GKN will have any more success in marketing SPD than any other licensee remains highly debatable, of course, but, with the at least theoretical markets GKN may market SPD towards, at least REFR now has something to keep its highly excitable shareholder base enthralled through the annual report and shareholder's meeting.

And so the cycle begins anew.

Update: It looks like the traders in this stock are determined to make a liar out of me, as it didn't take more than a few minutes for the initial enthusiasm to dry up and revert to the recent pattern of downtrending most of the day. Of course, there's the equally patterned final hour surge to come, so shareholder's hopes that they will be able to say something came of this news aren't dead yet. Still, it's a bit telling that even Briefing.com meets with considerable skepticism when it declares REFR "In Play".

Got a match?

REFR st0ck was up 17% today. In news which may or may not be connected, licensee SPD Control Systems announced that it had received a "matching funds contract" from the New York State Energy Research and Development Authority.

I say "may or may not" because this news has thus far received no publicity outside of the Yahoo! message boards. Additionally, it's a little hard to see just how this directly benefits REFR, since whatever money is collected should supposedly be going to SCSC, not REFR.

The spin seems to be that this contract represents some kind of endorsement by the State of New York of SPD as the Energy-Saving Technology of the Future™, but, given that that the projects SCSC is working on don't actually themselves incorporate SPD, nor are they even necessarily dependent upon SPD, that seems more than a little bit of a stretch.

So basically today's action seems to have as its motivation "It Is News And Therefore We Must Buy". We'll see how far that gets today's buyers.

Did I Limbaugh a long?

Arch-conservative talk show host Rush Limbaugh often brags about how he can ruin a journalist's reputation simply by praising and/or agreeing with him. Of course Limbaugh, like him or not, is a highly visible media figure, so it was much to my surprise that my humble and, let's face it, obscure blog may have had much the same effect on a REFR shareholder and message board poster.

In my last post, I reposted uncritically a list of demands from a certain message board poster who, while a loyal shareholder, is rapidly running out of patience with this company's management. This morning, I learned indirectly that a certain blog, whose sole purpose seems to be to "shadow" this blog with rebuttals, has directed some very scathing words at that shareholder.

I fear I may have damaged this shareholder's reputation among his peers, and as such hereby give my deepest apologies to him. I'm even considering striking my last post solely because of the extent to which it may have hurt him. It was never my intent to damage innocent parties with my words, and I would like to make amends for that if possible.

Some simple proposals

A shareholder posting under the alias "threespeech" posted a series of requests of REFR management to help shore up its flagging credibility. This blog wholeheartedly endorses the notion that implementing any one of these suggestions would provide a major reputation boost, and as such hereby repeats the requests unedited:

Someone in this company needs to take charge and here is how:

1) That person needs to call an open uncensored conference call to stand up and face all challenges. To address the issues that are presented on the table. And that conference should not end until all questions are answered. I want someone to look me in the eyes and tell me the truth.
2) I want someone that instead of letting the production licensees dictate what they are going to do, stand up and challenge those licensees to achieve what they set out to do, to inspire those people to produce a new technology that may not only improve the energy problem in some small way but also inspire the people that are depending on them, the shareholders.
3) I want someone that will say, "yeah, we screwed up and this is how we are going to fix it." What I don't want, sorry to all the lawyers out there, is someone that is trying to figure out a way around discussing the problem by blaming someone or something else. Hell, if we all took responsibility for our actions not many lawyers would be needed.
4) This person will also need to take five volunteers, I don't care if four of them are shorts as long as I get to go, and tour Hitachi, DIC and Isoclima's production facilities, as well as AGP's, Laminated Technologies and Craftsman's facilities. Asking a lot here? Damn right, this company has a lot of proving to do themselves for all the delays and miscalculations over the years.
5) And finally for now, from all the production and installation talk filtering out from RFI, public reports of revenues from royalties, not the artificial license fees.

A promotion of another sort

REFR began 2008 with the dramatic announcement that Steven M. Slovak, previously Director of Film Development, was now Vice President - Technology. Given that there was no such position previously, and that it wasn't stated whether anyone else was replacing him in his former position, it's a little less than clear what, if anything, this actually means. But, since it was apparently worth a press release and a 8-K filing, one has to presume it means something. We'll be sure keep tabs on this vital development as events warrant.

Out with (some of) the old

As a literally last-minute release for the year 2007, REFR announced the retirement of board member Dr. Al Malvino. Malvino, ironically, despite being 76 according to the release, actually had been REFR's most recent addition to the board until their additions earlier this month. He had also been a heavy advocate of the stock on the message boards up until 2000.

It is of note that Malvino's personal website, which one contained considerable information on SPD technology, has had all those references removal, replacing them with electrical engineering material of the type he used in the various textbooks he wrote over the course of his career.

Malvino did cite health concerns as at least part of his reason for retirement, and although he issued a statement expressing enthusiasm about the company, one is still left to wonder about the fact that, for all the effort he placed into very careful and extensive research into the company, as document on the message boards, none of it actually bore revenue-producing fruit during his tenure there.

With two additions to the board that would seem to imply one more retirement may be in the offing, but apparently that person is not quite ready to take the gold watch just yet. Stay tuned.

The oldest new licensee

REFR stock got another (very) short-lived bounce off a press release this morning, announcing AGC Flat Glass Europe as the newest name among licensees of its SPD technology. Even better, the headline claims a license was "sold", implying that money changed actually changed hands from AGC/FGE to REFR (though just how much is, as ever, "undisclosed").

Of course, as usual, there's a couple of devils in the details. For one thing, AGC Flat Glass Europe is simply the renaming of Glaverbel SA, which originally took a license in 1992, sold REFR what is now a substantial portion of REFR's patent inventory in 1999, and was bought by AGC in 2002. In other words, it's only a slight variation of the British Isles license shuffle of earlier this year.

But hey, anything for news, right?

Or perhaps I should have said relatively new

I've had it pointed out to me that the new directors are not exactly spring chickens, Richard Hermon-Taylor being 67 and Philip Guthrie 63 (give or take a year for each). Not exactly what one would think of as satisfying the request for board members "significantly below 70 years of age" from that shareholder proxy, although it does knock down that median age a little bit anyway. Still, it kind of blunts the notion that these guys are coming in to shake things up a whole lot.

New blood at last

REFR announced the addition of two new board members last night: M. Philip Guthrie, former CFO at Southwest Airlines and Braniff, and Richard Hermon-Taylor, long-time director at Harley Davidson.

The good news is that, at least ostensibly, these new additions are probably not part of Bob Saxe's immediate circle of friends, and therefore may bring a badly-needed measure of independence to the board. The only obvious downside is, it probably won't be enough: friends of Bob and Joe will still hold control, even if a couple of them (possibly including Bob Saxe himself) retire, an event to which I believe this move is a prelude.

For once, it's a move that I don't immediately see a cynical motivation behind, but rather a response to legitimate shareholder unrest as evidenced by the proxy proposal earlier this year.

Of course, it's not an immediate cure for anything but it will be interesting to watch how our new arrivals react to what they find when they assume their duties in earnest.

Kit to be tied?

An interesting post on Yahoo! today from an alias that had been silent for several months, under the subject header 'Name That Con, Artist':

Catagory: RFI Licensees of the 21st Century

Clue: Letter;

Dear xxxxxxxx,

Please review and sign the Sales Representative Agreement. Keep a copy for yourself and mail back the orginal with your US $995.00 territory fee to us at:

xxxxxxxx xxxxx xxxx
xxxxx xxxx xxxxx
xxxxxx
xxxxxxxxx xx xxxxx

As soon as I get your letter, I will immediately send your Product Demonstration Kit (PDK/Demo window), Salesman's Notebook, and a few business cards to get you started. We will have 500 business cards printed and sent to you within a few weeks. We expect to do a product launch on November, 14th. We will have our web site completed with sourcing information and pricing at that time.

Best regards,

xxxxxx
xxxxxx xxxxx

Two things are obvious: first, if anything happened on November 14th with respect to SPD, we certainly haven't heard about it, and second, the writer, a longtime booster of REFR and SPD, sounds just a wee bit angry. Whoever this is probably wishes they'd listened to what this blog had to say about those PDK's.

Between this and the continued weakness in the share price, now into its sixth straight week, solidarity in a group for whom solidarity is its primary strength, seems to be fracturing a bit. No doubt, if this person continues in this vein the stalwarts will quickly encourage him or her to go away and simmer in silence, so I don't expect this to set off any wide-scale dissent, but once again, these little outbursts are still of interest. One never knows how many others feel the same way.

Update: In a followup, the poster in question indicated that he or she never signed the agreement (and presumably, never forked over the $995). This person also made reference to an "extensive file" that the above letter is a part of. This may not be the last we hear of this after all...

The debate in capsule form

One of the more amazing aspects of the argument over REFR is the degree to which facts can be agreed upon, yet completely opposite conclusions drawn. For example:

Generally agreed-upon premise: "The success of SPD technology is entirely in the hands of REFR's licensees."
Bulls' conclusion: "It's in the hands of big companies, big enough to have the power to make it succeed."
Bears' conclusion: "It's in the hands of big companies, too big to care whether it succeeds."

Happy Thanksgiving, America!

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.