Research Frontiers Incorporated

Welcome to Research Frontier's investor conference call to discuss the first quarter 2021 results of operations and recent developments. During today's presentation, all parties will be in a listen-only mode, and following the presentation, the conference will be open for questions by pressing star 1. This conference is being recorded today. A replay of this conference will be available starting later today in the Investors section of Research Frontier's website at www.smartglass.com and will be available for replay for the next 90 days. Please note that some of the comments made today may contain forward-looking information, the words expect, anticipate, plan, forecasts and similar expressions are intended to identify forward-looking statements. Statements that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions that are part of the Securities Litigation Reform Act of 1995. These statements reflect the company's current beliefs and a number of important factors could cause actual results for the future periods to differ materially from those expressed. Significant factors that could cause results to differ from those anticipated are described in our filings with the SEC. Research Frontiers undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainty. The company will be answering many of the questions that were emailed to it prior to this conference call, either in their presentation or as part of the Q&A session at the end. In some cases, the company has responded directly to email questions prior to the call or will do so afterwards in order to answer more questions of general interest to shareholders on this call. If you find that your question has been substantially answered as a courtesy, And to allow time for other shareholders to ask their questions, please remove yourself from the queue by pressing star 2. Also, we ask that you keep your question brief in the interest of time. I would now like to turn the conference over to Joe Harari, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Paul, and good afternoon, everyone, and thanks for being here. It was the first quarter of last year that the COVID-19 pandemic shut down the world economy. Now we are coming out of those shutdowns, but key industries, such as the automotive industry, are still plagued with other supply chain disruptions. As outlined in prior conference calls, our revenues in automotive were affected by two factors. One, the industry-wide production halt due to COVID-19, which also affected our revenues in the aircraft market. and two, the end of the nine years that we were on the magic side control smart glass roof option on certain models of cars within Daimler. Revenues from the display and consumer electronics market were up quarter over quarter, and our royalty income from the architectural market was stable compared to the same quarter last year. We expect architectural revenues to grow based on recent activity on new projects in this area. and for activity in the automotive and aircraft markets to also rebound and grow due to new projects using our technology in these areas, as well as the restarting of the world economy. Major disruptions outside of the pandemic, such as the computer chip shortage that has caused many factories to slow down production considerably or even shut down, has not had a direct effect on research frontiers other than a small reduction in the number of McLaren models coming off the production line with our technology. For the most part, these supply chain disruptions in the automotive industry occurred after the end of the current Mercedes model that offered our technology as part of the Magic SkyControl Sunroof option at Daimler, and prior to the introduction of new models coming out by Mercedes and other car manufacturers using our SPD smart glass technology. So we are largely unaffected by these current chip shortages in the automotive industry. In the meantime, neither we nor our hardworking licensees have slowed down a bit. Several of our licensees have also recently made major investments since the beginning of this year to increase production capacity of SPD emulsion, film, and end products for all industries. So everyone is preparing for success. In March and April, and even already in May, new projects for SPD smart glass have sprung up in various places around the world. If these projects used the amount of glass currently specified for smart glass, the surface areas for just the architectural projects alone could exceed the usage of Mercedes and McLaren in their peak years. Part of this increased level of activity is attributable to the world-wicking backup. Part is attributable to cost reductions in our technology, making our smart glass more affordable to a wider group of projects. and part can be attributed to the high level of activities not only by our licensees, but also by our competitors, which have stimulated interest and activity. One of our active competitors in the architectural space is you. I will spend some time discussing them today because we received a number of questions since our last conference call from existing and even new investors in research centers asking how we compare to them. and since that last call, they went public through a despacking process. VUE is scheduled to release their first quarter financial results about six days after ours, and I, for one, look forward to studying these numbers. Here's what I've found so far since VUE started publishing their financial results for the first time. I think that you'll find it enlightening and put our own results of operations in quite a favorable context and give you a better insight into one of the industries that we're both in. Vue lost $441.5 million in 2018. They lost $290 million in 2019 on revenues of $24.3 million, and they lost $257 million in 2020 on revenues of $32.3 million. Their 2020 loss was higher than the upper end of the range that I had predicted, on our last conference call in early March. To put this in context, VIEW's net loss was over 100 times larger than research frontiers, and they're projected to lose at least another $250 million this year and next year. One number that I focus on is VIEW's own reported data regarding their cost of revenue. This is their cost to generate each dollar of sales revenue even before R&D and selling general and administrative expenses are tacked on. I found this number interesting because these reported costs for each dollar of revenue in the fourth quarter of 2019 was $3.70. Their reported costs for each dollar of revenue increased to $3.81 for all of 2020 and went up even higher to an estimated $4.03 in the fourth quarter of 2020. So I was scratching my head because the reported cost per dollar of revenue is going up and not down as one would expect in a normal business operation with economies of scale kicking in. Unless they had either, one, production problems, or two, the cost of their raw materials went up substantially, or three, they were heavily subsidizing each project and charging customers less than one quarter of what it cost them to make and deliver their glass. Perhaps it's a combination of these factors, and we should get more insight on Wednesday when they release their numbers. So in the fourth quarter, in order for VUE to generate $7.7 million in revenue, that revenue had a direct cost to VUE of $31.3 million, and their total loss for the fourth quarter to generate that $7.7 million in revenue was $55.3 million. That's roughly half the money that we have spent since inception. All in for the year, each dollar of revenue in 2020 cost View $8.36, making their loss on each dollar of revenue in 2020 over seven times the amount of their revenue. Now in comparison, let's talk about our financial results. Our loss this quarter was once again one hundredth of View's most recently reported quarterly loss, Our losses quarter was $557,000, or 11% lower than the first quarter of 2020. And this lower losses quarter is coming off of the lowest loss that research funders had in over 26 years. So there has been a constant move towards achieving break-even, positive cash flow, and profitability. I have emphasized on our past conference calls together that it is important for us to make sure that we're operating as efficiently as possible to make being cash flow positive easier to attain. And our expenses have continuously come down. 2020 was the sixth consecutive year that expenses were lower than the year before at your company. In 2020, expenses decreased by over $1.3 million, and this trend continued in 2021. Our expenses this quarter are also down 23% from the same quarter last year. And because of our continuous reduction in our burn rate, which is now down to $400,000 to $450,000 per quarter, we actually have an estimated 32 months of cash available to fund our operations. So our existing capital should take us into late 2023 before we would need to have more capital. And we may never need to raise additional capital because, as you will hear today, we expect many reasons for revenue increases this year and next year. Over the past year, there were some very major positive developments. Our SPD Smart film licensee, Gauzy, announced last April a Series C investment from Hyundai Motor Company and Avery Dennison. Since then, things have been moving even more quickly than originally expected within Hyundai. As noted on our past conference calls, in automotive, we make cars more energy efficient, reduce CO2 emissions by 4 grams per kilometer, and increase the driving range of electric vehicles by up to 5.5%. We also make people more comfortable and safer and protect the interiors of cars. And as Bentley has noted in their public presentations about the future of sunroofs within Bentley, there is a greater need for smart glass roofs because of the movement towards fixed, non-movable panoramic roofs in cars. Bentley noted that SPD smart glass can reduce weight in the roof by up to 13 pounds and eliminates the need for 54 components. This reduces costs and further increases driving range and reliability while contributing to the stability of the car on the road. The first quarter of 2021 brought us a major new announcement in automotive. Cadillac announced in January that their new ultra-luxury all-electric tractor vehicle, the Celestique, will be coming out and offering an SPD smart glass roof It gives passengers the ability to control the amount of light coming into four segments of the large panoramic roof on the Celestique. They launched this flagship Celestique at CES, and we were pleased to see that almost the entire video about this magnificent vehicle featured our SPD's glass roof, and subsequent articles have focused on our roofs as well. GM's all-electric strategy makes this development even more important to us. and I expect that there will be other car models within GM that use our technology, using the Celestique program as a platform for development on many other cars within GM. And as was the case with Hyundai, the press has been speculating that this Celestique will also come out sooner than originally expected. Because of this newsworthy event, since then Research Centers has been interviewed by major automotive publications, such as Automotive News, Autoline, and Worth Automotive. These major automotive publications featured us in the benefits that we bring to cars, especially electric vehicles. Also, I just learned that we're appearing in Chapter 15 of the book Jetliner Sabins, which is the Bible on commercial aircraft interiors. These major publications featured us in the benefits that we bring to these vehicles, and they Certainly it helps us carry the message about all the benefits of SPD's smart glass broadly to key decision makers in the automotive industry and the aircraft industry. And the media is helping us bring this message out just when all the major car companies in the world are going all electric. We're also moving into many new areas. One important new area that we moved into is the higher volume segment of the automotive market. With the lowering of the cost of our technology, new markets in automotive, such as the high-volume mid-level market, are now working with us. And, of course, the new fast-growing market for electric vehicles around the world, especially as pretty much every major automaker continues to announce their plans to become all-electric. And also new aircraft, such as the Airbus A220 VIP jet. Airbus has already announced orders for 15 of these transportation category-sized jets And each of these A220 aircrafts will have SPD electronically dimmable windows covering 50 structural windows. In addition to the Airbus A220, there are a number of other new aircraft models that have not yet been announced by our licensees in the aircraft industry. These licensees are Vision Systems and Spectac and E-Cuclema. Some of these are really cool, by the way. I've seen some amazing designs that really need smart glass. Other new areas are more yachts, consumer electronics, and architectural applications. And as I've mentioned in the past, the architectural market uses twice as much of the world's glass as the automotive market. Smart homes and buildings are potentially our largest market, as evidenced by the high valuations that some of our competitors are aspiring for just on this market alone. And as many of you know from prior conference calls, with the opening of Gauzy's stick art factory in the fourth quarter of 2019 and its current ability to make SPD film 1.8 meters wide, this allowed us for the first time to practically address the large potential architectural market. That market has become very active and in connection with competitive bidding on some large architectural projects for SPD, we learned that we actually have gone from having a size disadvantage, referring to the limitation on the Hitachi film where they were only coating one meter wide, to now having a size advantage over electrochromics since they can do similar rifts to the Gauzy film, 1.8 meters, but have limitations on the height of the window. And, of course, the bigger an electrochromic window gets overall, the slower it gets, with tin-switching taking tens of minutes with electrochromics compared to two seconds or less with SPD, regardless of the size of our windows. I'm also pleased to announce to you today that even in the eight short weeks since our last conference call, Gauzy has made further improvements in the efficiency of their emulsion line in Israel and their foam coating line in Germany, and even has made large investments to expand further their production capacity. Some of our other licensees on the end product side have also made production and capacity enhancing investments. Now let me take some other questions that our shareholders have sent me. We received by email before this call questions from investors, and we're going to address many of them today.

And here are some of the additional questions that were emailed to us. Okay.