Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss the second quarter 2021 results of operations and recent developments. During today's presentation, all parties will be in 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 call will be available starting later today in the investor section of the Research Frontiers website at www.smartclass.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 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 Frontier undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. 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 this call or will do so afterward 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.

Thanks, Paul, and good afternoon, everyone, and thanks for being with us today. We have a lot of developments to talk about today, and there'll be a lot of new information discussed today, and also I'll be reviewing some information that our longer-term investors may know, but which will be helpful to new investors who heard about this thing called the smart window industry, perhaps because of you or Crown becoming public companies recently. and want to know how research centers and SPD Smart Glass technology compares. Our financials are fully explained in our 10-Q filing and our press releases, so other than to note that we made significant further reductions in costs, let's dive straight into the new business developments for your company. This year, there have been major developments in each industry that uses SPD Smart Glass. We're going to focus on automotive, architectural, aircraft and trains, and other mass transit. I also want to help give everyone points of reference so that you can better put all of these developments into context. Let's start with automotives. Major trends include a very accelerated push towards electric vehicles. Today, the U.S. government announced their target of 50% of all vehicles sold in the U.S. being zero-emission vehicles by 2030. Since our last conference call, a number of additional automotive OEMs announced that they're going all electric. This is happening now almost weekly. Why is this important to research frontiers? Because our SPD smart glass can increase the driving range of electric vehicles by up to 5.5%. This is quite significant range extension that will come in addition to any advances that occur in battery technology. Companies are announcing carbon neutral targets. We reduce CO2 emissions by up to 4 grams per kilometer. So while the world converts from internal combustion engines to electric vehicles and other zero-emission vehicles, all vehicles can still benefit from using SPD smart glass. This not only gives car makers a longer-term environmental benefit, but in Europe it helps them avoid current regulatory penalties of 95 euros per gram per kilometer that their fleets don't meet the tightening emission standards. So with four grams per kilometer of CO2 savings, That's €380 per car, or about $450 per car in savings, folks. In a few weeks, the IAA Auto Show will be held in Munich. Many of us that have been in the auto industry for a while used to know the IAA as the Frankfurt Auto Show. It was the largest auto show in the world. This year, SPD Smart Glass is expected to be shown in multiple locations there. We'll be sharing whatever details we can about this with all of you as the Munich Auto Show gets closer. I think that by now everyone on this call knows that Cadillac launched their all-electric flagship, the Celestique, at CES this past January. The launch highlighted the four-segment SPD smart glass roof that gives occupants more control over the light entering the car. Use of SPD smart glass in sunroofs has been well proven in serial production. starting in 2011 with Mercedes and then McLaren. Mercedes' test data shows that the use of SB Smart Glass in just the sunroof can reduce cabin temperatures by 18 degrees. Instead of getting in a car and it being 90 degrees inside, it is 72 degrees without using the air conditioning. This allows car makers to reduce the size of the air conditioning compressors by up to 40%, reduce weight, and increase driving range and fuel economy. Bentley then took this idea even further and noted in their public presentations that use of SPD Smart Glass in a full panoramic stationary glass roof can reduce weight in the roof by 13 pounds and eliminate 54 components. It also adds inches of headroom and by reducing the weight in the roof, lowers the center of gravity of the car. So SPD Smart Glass not only saves energy, assembly complexity in time and weight, but it also improves the stability of the car. One of the things I like about our business is that we have about 250 patents on a basic material that has great functionality. Customers are constantly figuring out new ways to use that material to achieve their goals. I expect that at the Munich Auto Show, visitors to the booths of other car makers not yet mentioned today and other automotive suppliers will not only see the more traditional uses for SPD Smart Glass, but some uses never before shown in the industry. Another major trend besides electrification, energy efficiency, and light weighting is the movement towards enhancing the passenger experience. Comfort and safety were always important to car makers, but now as we move more towards self-driven vehicles, it becomes even more essential. And we're not just talking about autonomous cars, but also trains and aircraft, and not just traditional aircraft like the Airbus A220 that we're on, but also rotary aircraft like helicopters and some recently added projects for SPD in BTOL and even electric aircraft. Some of you might have noted an announcement last week by our licensee, Gauzy, about train glass delivered to their customer, Rehau, for the Deutsche Bahn Idea train. Rehau is a large supplier to the train and other industries with over 20,000 employees. I started talking to them in February 2019 about use of SPD in trains, and I'm really pleased to see this important development for the train industry. Trains use a lot of glass, and SPD Smart Glass has preserved use on such iconic luxury and sightseeing trains as the Shikishimi train in Japan and the Rocky Mountaineer trains in North America. The Deutsche Bahn train opens up SPD to a much larger new market, commuter and regional transport trains. I expect that more information about this chain and its use of SPD Smart Glass will be announced shortly. Our licensees go head-to-head with Vue and Sage in bidding on smart glass projects for the architectural industry. However, there are some noted performance differences between electrochromic technology, such as that offered by Vue and Sage, and our SPD Smart Glass technology. First, electrochromic technology in architectural-sized windows can take as much as 40 minutes or more to switch tint, depending on the size of the window. SPD Smart Glass takes two seconds to switch tint and can get much darker than electrochromics. The change in tint with SPD is perfectly uniform throughout the entire window, whereas electrochemical glass has an iris effect, where the window begins to change tint at the outer edges of the window and slowly works the tint change to the rest of the window. Architects are getting smarter and asking to see large samples of electrochemical glass so they can judge for themselves the speed and uniformity of tint. Nothing out there compares to SPD Smart Glass in terms of our speed, range of light transmission, and uniformity of change. And now that our licensee, Gauzy, has a coating facility in Germany dedicated to making SPD light control film that's 1.8 meters wide, we also do not have the same size limitations that electrochemical glass has in its manufacturing process. And because electrochemical glass needs to be sputter coated directly on glass, this not only creates size and handling issues and limitations, but also limits the shapes that the glass can be fabricated. Ascady Smart Glass has appeared in rectangular, square, circular, triangular, and even trapezoidal glass in architectural projects. Sage & View has turned down these types of projects because of the practical manufacturing limitations that exist with their technology and their manufacturing processes. And, of course, there are yield issues that have caused very large losses for them on projects. Last quarter, View lost over $50 million. I believe that they'll be reporting their second quarter results next week or the week after. It should be very interesting. With that said, let me now take some other questions that our shareholders have sent me. John Nelson had emailed me the question, any progress on your film producers bringing down the cost curves? Absolutely, John. The facility in Stuttgart, Germany that Gauzy has, can produce film at a fraction of the cost that the prior film production facility that Itachi Chemical had can do. And it's 11 years newer. And, in fact, this week new equipment was delivered to that facility to further increase the efficiency and the production capacity of that facility. So if you remember on prior conference calls, I discussed that. Galaxy expanded their emulsion production capacity in Israel, and now they've taken steps to increase the coating capacity of their facility in Shlikard. And, you know, for those that, you know, remember the inauguration press release about that factory, it can coat one million square meters of SPD film a year. Chuck Michaels had asked, please clarify where we are in terms of SPD film being used in future cars and when. Well, I mentioned that we're going to have a number of instances at the Munich Auto Show, and I think people should stand by and enjoy some of the announcements coming out of that. And previously we talked about Cadillac, and as many of you know also, Hyundai made a direct investment in our licensee, Gauzy, So while they haven't announced their timetable yet, I think people can draw the proper inferences from that investment that they made. Sam Pinta writes, there have been a lot of mention of PDLC lately in the automotive sector. I could see an advantage of having a combo product with SPD and PDLC combined. However, I cannot wrap my head around how a vehicle can have PDLC alone unless they have a roller shade. Should we expect a combo product with SPD popping up in the automotive sector? And what is your view on vehicles that might plan to have PDLC only? Is that possible without a roller shade? And a related question came from Jared Albert, who said, Am I correct in thinking that once an auto OEM has gone through the expense of putting PDLC into a sunroof, the only additional cost to switch the SPD is the difference in the cost of SPD versus the PDLC? Even the lamination with the need for hermetic seal is the same cost. And then before low E became a spandex coating on sunroof, there were articles criticizing the greenhouse effect in the 57 and 62 MiBox and the concept Cabora with LC roof systems. Aside from the light blocking versus scattering advantage that SPD offers over PDLC, is the greenhouse effect caused by visible light still a quantifiable advantage for SPD over PDLC? These questions are related because I don't believe, Sam, that there will be a combination product. If you think about a sunroof, the main use of PDLC is for privacy, and you really don't need privacy in a sunroof, especially when the existing 90-micron SPG film can block 99.5% of the light. The other, I think, question highlights the fact that when the auto industry has tried PDLC by itself, they run into the greenhouse effect where light will enter the vehicle and create heat and then get trapped inside the vehicle. So it has almost the opposite effect that you're trying to achieve, which is to keep out unwanted heat, light, and glare. But, you know, car companies sometimes will try things. Sometimes they have, you know, incomplete testing or engineering information, and sometimes... You know, the data just doesn't bear out in the real world. Our technology has been proven in serial production in cars since 2011, and Mercedes-Benz test shows that we can reduce the temperature inside the vehicle by 10 degrees here, 18 degrees Fahrenheit. So, you know, very significant reduction in heat inside the vehicle. Mr. Claire Houghton had said, my question for this meeting is, What is the cost differential, if any, between used technology and research centers, SPD? That's a great question. We have not seen unsubsidized pricing in the electrochromic industry. So whatever pricing is being quoted out there is highly subsidized. Now, we can infer from some of the data we see in the public filings from you, for example, that for every dollar of revenue, it's costing them $4. So, you know, there's at least a five-to-one subsidy going on there in terms of how much you're spending for a project versus their revenue. And, you know, unless that relationship changes, it means that they're going to lose a lot of money on every project. And our licensees are able to be cost competitive on the projects that we've been against view on. without having to incur those kind of subsidized expenses and things. And another question from Mr. Shah. What is the role of Gauzy in Research Frontiers? Do Research Frontiers shareholders have a chance to invest in Gauzy? Gauzy is licensed by us primarily to make SPD film, and they've built a state-of-the-art facility in Gauzy. Germany to do that, Mr. Shaw. And they're a licensee. We have a very strong working relationship with them. You know, we collaborate on projects like, for example, the Renow project and others. And that's become a very good working relationship together. As far as direct investments in Gauzy, I believe that most of their investors are, you know, large institutional investors. They're not a public company, so you can't just invest in them directly, you know, unless you're a fund or a money manager of some sort. But, you know, I know that there's been a lot of interest in direct investments in Gaussian. They're an excellent company that does great work. So we handled a number of the questions we got by email. I just want now to... Ask our operator, Paul, to open up the conference to any additional questions people participating today might have that we haven't covered, and then I'm going to make a few closing remarks that I think will be helpful to people.

If you would like to ask a question, please press star 1 on your telephone keypad now. You will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star 1 on your phone now. And we have a question from Jared Albert.