Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss the third 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 call 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, plans, 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 Frontiers 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 afterwards in order to answer more questions of general interest to the 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 questions 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 hello everyone and welcome to our third quarter 2021 investor conference call. This year we showed our lowest loss in 26 years and I'm sure it did not escape notice that in today's 10-Q filings and related specialies we were able to use a word that neither we nor any other smart window shading company was ever able to use before. We had earned a profit in the third quarter. As I have said in the past, however, because of the nature of our business, revenues can be choppy depending on the timing of projects, vehicle production volumes, square footage of glass being used in projects, and other factors. We and the other companies in our industry are purely hunting elephants. Sometimes we land an elephant or two in a quarter, and sometimes we take down a whole... These animal lovers like myself out there, but I thought that the metaphor was instructive. This quarter we had three major new events. Two involved loyalties due in the automotive and auto markets from licensees past activities. The third was a government contract in the area of specialty automotive. More information about these developments are in our 10 keys, but I can't say more, especially when you deal with certain areas of our government. Besides landing some big elephants, we had success over the years hunting herds. Examples of this are having our technology go into serial production with McClaren. We kicked off this year in January with a new customer. Cadillac announced at the prestigious Consumer Electronics Show, or CES, that they were introducing the new all-electric luxury flagship, the Celestique, with an all-SPD smart glass four-quadrant roof. More importantly, the prestigious publication GM Authority, with over 3 million readers, highlighted the range-extending benefits of SPD Smart Glass in this and other electric vehicles with a highly coveted 5.5% increase in driving range. They also noted the significance of the 4 grams per kilometer reduction in fuel emissions when SPD Smart Glass is used in internal combustion engine vehicles. But these are not the only benefits. 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-fixed, non-movable panoramic roofs in cars. Bentley noted that SPD smart glass can also reduce the weight of the roof at 13 pounds and eliminate the need for 54 components. This reduces costs and further increases driving range and reliability while contributing to stability of the car on the road. These benefits in the automotive industry were also discussed in many other prestigious automotive publications, such as Automotive News, Autoline, the Detroit Free Press, Wars Automotive News, and others. More recently, we appeared on the Automotive News Daily News program, First Shift, and also on the widely followed Daily Drive podcast. I invite you to check some of these articles and videos out on our website and our social media platforms. And with our strategic benefits in the areas of electric vehicle range extension and reducing CO2 emissions in ICE vehicles, I expect automotive attention and activity to continue to accelerate, especially when you consider that Hyundai, Sekisui, and others heavily involved in the automotive industry have made substantial investments in our industry through equity investments in our licensee galaxy. Let's talk about important developments in other key markets for our SPD smart glass technologies. Airbus announced this year that their A220 VIP jet would have SPD smart glass electronically dimmable windows. Airbus has already announced orders for 15 of these transportation category size jets. Each of these A220 aircraft will have SPD electronically dimmable windows covering 50 structural windows. This year, aircraft manufacturer EPIC has started delivering jets to customers with FPD Smart EDWs. These planes are quite popular with a backlog, and our licensee vision systems expects a good year ahead. In addition to the Airbus and EPIC, there are a number of other new aircraft models that have not yet been announced by our licensees in the aircraft industry who our vision systems inspect at Ganesha Clima. In yachts, Hatteras now has SPD Smart Skylights in three different production yachts. They join Troy Lee and his design in the production yacht area. Also, mega and custom yacht builders enjoy giving the best to their customers with SPD Smart Glass, and you can expect other boats and cruise ships as well to deploy us. This year, our shareholders saw Panasonic combine OLED display technology with SPD film to make high-definition displays and televisions, that turn into curved windows at the touch of a button. And last month, you also saw LG display do this for transportation vehicle windows at the Munich Auto Show. You also saw BMW introduce in Munich a stunning concept car using SPD SmartClap to control the look and output of the car's headlights. And while we're still on the topic of new markets, let's talk about the architectural market. As many of you know from prior conference calls, with the opening of Jassy's Stuttgart factory in the fourth quarter of 29 and its ability to FPD film 1.8 meters wide, this allowed us for the first time to practically address the large potential architectural market. The architectural market uses twice as much of the world's glass as the automotive market. Smart homes and buildings are potentially our largest, as evidenced by the high valuations that some of our competitors are aspiring for, on just this market alone. And we also learned in the process of competitive bidding on some very large architectural projects for SPD that we actually have gone from having a size disadvantage, and I'm referring to when SPD foam was only coated one meter wide, to now having a size advantage over electrochromics, since they can do similar widths to gauzy foam, 120 meters, but have limitations on the height of the window, and of course, bigger an electrochromic window gets overall the slower it gets with pin switching taking tens of minutes with electrochromics compared to two seconds with spd regardless of the size of the window in trains a licensee jowsey delivered spd smart glass train glass to their customer rehau for the deutsch von idea train rehau is a large supplier to the train and other industries with over 20 000 employees and i started to talk to them 2019 about using SPD in trains, and I'm really pleased that it has progressed the way it has in that industry. Trains use a lot of glass, and SPD's smart process preserves views 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 rails. We talked about the new markets. Now let's talk about financial stability and why this is important. Our financial strength and low overhead and operating costs enabled us to survive and even thrive during the whole world events, supply chain disruptions, and other calamities that have affected other industries. These resources have also enabled us to move forward firmness. As of the end of this past third quarter, Your company had working capital of $4.2 million, including $2 million in cash. We continue to have no debt and have been debt free for 26 years. We have very steady, low, and predictable expenses and cash to last for at least the next two years. So now let me take some other questions that our shareholders have emailed to me.

Chuck Michaels asks,

asked a number of questions, one of which is, please advise on research current plans to get to profitability. I think today's special release probably was a good example that we were successful, at least in recording our first quarterly profit. And the secret to this is, you know, has been discussed on numerous prior calls. Basically, work to increase revenues. You do that by expanding existing markets and opening up new markets and you can see this year that there's been a number of new markets that have been opened up and add new customers like Cadillac and also decreased expenses and I think we're in our sixth or seventh year of constantly low year-over-year expenses so these two areas increasing revenues and decreasing expenses are our constant focus Jared Albert asks, all right, hi, Joe. Please give us your thoughts on the Dynamic Glass Act. As you know, I think if it passes in this current form, it will ignite a heating frenzy in the smart glass world, just like blown insulation, rooftop solar, replacement windows, and every other technology that got aesthetics. And specifically, can you talk about the combination of the enhanced leads credits and the DGA credits, given that they're directs? And most importantly, if two years after being told Gauzy was shipping 1.8-meter film, are they able to actually ship film? I note Valentin Hoffman's post that Gauzy is hiring for full-time production line workers in Germany, which I see as confirmation that they have mass production in sight. Sorry. Well, thanks for the question, Jared. First of all, the Dynamic Glass Act gives a 30% to 50% tax credit and we clearly fit within the definition of dynamic glass as defined in the legislation. I do think that it will substantially transform the economics by making smart glass more affordable. The question will then become, what about performance? I don't think that the Dynamic Glass Act will cause major projects to adopt the technology they wouldn't otherwise use, but I do think that it will make us more affordable which is tax code subsidy and that certainly makes the payback to the owner of the property or the facility manager much faster for them and it also makes it less likely that SPD will be cut out of projects it's specified in because of budgetary concerns so lower costs are always a good thing and you know we've been working very diligently and quite successfully to reduce the cost of the technology to the customer this tax credit will give an additional win to our sales. Regarding your other question, Gauzy is indeed shipping film. We and several licensees actually got rolls recently that look quite beautiful, even in comparison to the Hitachi film. And yes, they're wider rolls than Hitachi produced, 1.4 meters wide, and they can currently code up to 1 meter if a project requires it. And I believe this also answers another question that was emailed to me by Robert Wingwald. Another question. What, if any, is the potential impact on research centers' business potential if the infrastructure bill gets passed by Congress and the President? And is SPD's product design for Cadillac Lyric electric vehicle going to be standard and independent option or part of an option package? If an independent option or an option package, is that price has been set for it? Well, first of all, I think we discussed the importance of government legislation with the Dynamic Glass Act and certainly the infrastructure bill is very oriented towards environmentally friendly improvements in our society. So that benefits us well. Regarding the question about Cadillac, right now it's always from the Celestique, which is their all-electric luxury vehicle. But I think and it's our expectation that It will be standard on the Celestique, and it will either be standard or an option on other Cadillac models. So thank you, John. Next question is about our stock price from Jeff. To admit that regardless of the progress and advances that the company has made over, say, the past few years, the share price has not provided the company with a vote of confidence. Why is confidence misplaced and what would you consider to be the company's most significant advances or events that are not well understood and that would you expect to act as a catalyst for the share price? Well, now I'm going to sound like my prior training as an economist. Stock price most of the time is not a function of fundamentals, although you do need performance over a succinct period of time to establish credibility. The stock price, especially in micro cap and small caps, is more of a function of supplying the stock itself. And there could be an oversupply. For example, if a company issues a lot of stock in a stock offering or if a shareholder has to sell a major position to, say, let's pay for a wedding or some other reasons. And then there's demand for the stock. And some sectors become very hot and then not. Sometimes demand for a stock comes from investment banking transactions and the follow-up and analyst coverage Also, money flows and funds tend to go into big tech expunged rather than individual stocks. So I don't think it's really a reflection on any small cap company, including Research Frontiers, in terms of confidence or lack of confidence, as much as it's these extraneous supply and demand factors. But now, if you look at Research Frontiers operations compared to others in the smart window industry, where we had Kron Electrokinetics, which once again, has reported no revenues. And probably our closest competitor to textual smart glass market is Vue. And Vue lost $441 million in 2018, $290 million lost in 2019, and there was a $257 million loss in 2020. And in 2021, before they were forced to stop reporting their financials because of an accounting issue, they lost $55 million in their first quarter. So I guess, you know, I'm a shareholder like you, so I certainly watch the stock price and, you know, want it to go up as much as everyone else that's a shareholder in our company. But, you know, I ask who shareholders are happier. You know, you had a $4 billion valuation about two to three years ago when SoftBank invested in it. And that sounds like a lot, but by March of this year, when they went public in a staff transaction, they lost half of that value of $2 billion. So they went from $4 to $2. And then since mid-March, they lost another third of their value, or another $600 million in shareholder values. So it's a tough industry, but I think that, especially this quarter, you can see that being lean and mean and focused on profitable business, can be the right approach to this, and that's what we did. Next question, can you comment on the general state of the worldwide economy on your business, and more specifically, the impact of the automotive chip shortage and the COVID-19 pandemic? Okay, so once in mind, keeping in mind my former job as an economist at the Federal Reserve Bank in New York, I do think about and factor in macroeconomic trends into a lot of the strategic planning for research frontiers. And first, as you can see, we are still actively doing business, especially as our recently reported numbers show. And, of course, you know, supply chain disruptions, inflation, and an inconsistent and ever-changing economic outlook are never good for business or for planning purposes. And, you know, I hope that as a world economy, we don't have the same whipsaw effect that happened in the 1970s where you had inflation and And when that was combined with certain labor market conditions and a drop in productivity and efficiency, that led to an inflationary wage spiral that took my former boss, Paul Volcker, a lot of effort and pain to contain. Reverse. But turning to our business specifically, and maybe more to your point of the question, you know, first of all, let's look at the general trends in the automotive industry and the aircraft industry. Suppliers in that industry reported a 34% lower revenues this past quarter. We had increased revenues in the automotive sector. And we have some things about our business that should make us less impacted by things like supply chain disruptions. One example is we're a home-based technology, so rather than having to code directly on glass. And this makes for much better logistics, including shipping. We can bypass bottlenecks with ocean state lines and ports. And even before the recent supply chain disruptions, that's pretty some roles could easily be and were shipped by air whenever needed. So you kind of have the ability to bypass a lot of the issues that are out there. We also have the advantage of flexibility and diverse markets. For example, if the construction industry in the Northeast is stalled or maybe slow, We and our licensees can easily target and deploy our efforts in markets where construction is strong, such as Florida, Texas, and elsewhere. You know, and I note that our licensees, Gauzy and Vision Systems have offices in Florida and, you know, Gauzy also has an office in Texas. And as I mentioned, you know, we have a very strong footprint internationally as well. So that gives us the ability really to cover, you know, a pretty wide berth for this economic activity. Next question. What are the advantages of SPD over PDLC? What applications could use PDLC instead of SPD? Great question and thank you for that. PDLC is good for privacy and for video image projection and sometimes you'll see both of those things combined with SPD to make even better performance but you know even by itself SPD is good for these uses but it's importantly But importantly, as a shading technology and not just for privacy and projection, it adds the ability for heat, light, and glare, which gives us substantial environmentally friendly benefits. So we've discussed a lot of topics, the questions that have been emailed to us. I'm going to ask now our operator, Paul, to open up the conference to any additional questions that people participating today might have that we haven't already covered.

If you would like to ask a question, please press star 1 on your telephone keypad now. You'll 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 Leonard Lietzow. Your line is open. Hey, Joe. Hey, Len, how are you?

I'm doing all right, sir. How are things in Florida? Things are wonderful down here in Florida.

I know for a stand there's a lot of construction going on.

Oh, my gosh, all the time, every place. You know, we've got 22 million people here now, and in the last 50 years I've been here, we've gone from 6.5 to 22 million. So building is every place. Roads are interrupted. Everything is happening. And, you know, the supply chain is definitely slowing things down. But we'll get there in the event. You know, several years ago when we talked about the company and the future of the company, we were kind of thinking about once we achieved profitability, we would probably get better quarter by quarter, and that was prior to COVID and supply chain problems and everything else. Do you anticipate that we'll be continuing in that vein, or do you think there's too many disruptions or things are going... Well, I think that... Yeah, I think... And that's a great question.

So if, you know, our main... You know, when we had that discussion, our main business was in automotive. So, you know, you have typically an eight-year program with an automaker, and, you know, we ended up going from vehicle to vehicle within Daimler, and then we added... and went from vehicle to vehicle, so we were in five different models of McLaren. And each one of those adds additional revenue, so it becomes accretive and it builds on itself. Now that we're going into a market where our revenues are also going to come from things that are less predictable and less steady, like architectural, potentially much bigger in terms of dollar value, but of less predictable. You don't know if the building's going to have... 10,000 square feet or 100,000 square feet of smart glass. And, you know, in Naples, you know, there's some buildings going up that, you know, could do either that we're working with. So, you know, the predictability goes down, but the sheer volumes go up when you move into the architectural market. So I think that you're going to see some trappiness, but, you know, they, you know, intermediate term trend, that choppiness just smooths out and becomes kind of a steady, you know, positive trend. So, yeah, I think that the same thing will happen, although you may not see one quarter to the next steady increase. You may see some ups and downs depending on when projects come in and the size of the glass in the projects. But over time, you get enough irons in the fire where that smooths itself out.

Yeah, well, that's good. I'm really happy to see it's an architectural because I just came from an investment conference last week and I see some of the predictions when we get to the new AI in the automotive market where things are going to change as far as number of units are expected to be produced in that market and, you know, things like parking lots are not going to be needed, et cetera, and the the number of automobiles over the longer trend, the numbers are going to be going down, not up in numbers of cars because it'll be used more than, you know, 5% of the day or whatever it is. So, you know, being in these other markets with trains and buses and architectural, I think are really the key for what's going to happen with its research frontier going forward.

Right. And, you know, in a changing world, diversity is, in terms of your business markets, is really a very important thing to have. And that's one thing that we have that our competitors like you and Crown don't have, is that they're in one market, they're in architectural, and they're in architectural in five markets, maybe six now, when you start looking at some of the new things coming out. So it's good to have that diversity, and that also allows us to weather ups and downs in each of the individual markets, as I said before.

Yes. Okay. Well, thank you very much for your comments, Joe. Thank you. We have a question from Art Brady. Hi, Joe.

Thank you.

Hey, Art. How are you?

Good. Can you comment on the Korean company that's working on some kind of a glare protection?

are licensee Gladick. They're an excellent company that has some pretty good connections within the Korean industrial base. They came out of some pretty tough companies. I like those guys. They're young, aggressive, and connected. It's a good combination.

Any product developments at this point in time?

I'm not going to kind of pre-announce what they're doing. They will do that.

Can you comment on Lippert?

I think they're working with Geyser.

Lippert, yeah, and they've also worked with other licensees like Vision Systems. They're a very good company. They're in many, many different industries. RVs is one of them, though, that we know them very well for. And they... They bought a lot of companies, so their business keeps expanding into new and new industries.

One more question is, do you have any perspective

As to, like, last year you commented you might be going into a second production factory. Has that been put on hold, or is there some projections as to when that might start up again?

Well, I think that you saw part of it start to happen where, for example, Gauzy has – quadrupled their production capacity for emulsion in Israel. What they do is they make the chemistry in Israel, they ship it to their Stuttgart facility where it's coated. And in the Stuttgart facility, it's a very efficient coat. I mean, it was designed only for SPD and to be super efficient so we can get the costs down like we have and get them down even further with more volume. But they did build in the ability to either build a replicated line right next to the current one, if they wanted to keep everything in Germany, or build it somewhere else in the world where the customer needs are. When you consider the fact that Hyundai has made a major investment in Galaxy, my guess is if you were going to see a factory, it would be somewhere in Asia.

Is anything happening with South America or Mexico?

Yeah, there's activity in all of those areas. South America really got hit hard, though, with COVID. So, you know, we hope and pray that, you know, the countries like where FDR is start getting back on their feet. You know, all of North America is active for us, too.

And what's with Mexico? Anything happening down there? Is there anything there with automotive capabilities?

They are, and, you know, there's some major glass there like Vitro that, you know, we're very familiar with. Okay.

Thank you. Thanks a lot, Art. Thank you. Our next question comes from Jared Alpert. Hi, Jared. Hey, Jared.

How are you? Good. Thanks for taking my question. And I appreciate the show-don't-tell-addict sort of answer. But it's 30% to 50% of the installed cost, right? It's like solar panels value, the same kind of credit.

Right. I'm being a little reserved. I'm being reserved a little bit, Jared, because you never know what's going to make the final bill. But, yeah, 30% to 50% is a huge credit. It's a huge credit that, you know, basically takes – any cost disadvantage that SPD may still have, and we're not sure there is a cost disadvantage, by the way, because we're operating on a non-subsidized basis and winning business. Companies like Vue and Sage are subsidizing heavily their bids, so I don't know what their real costs are, but it definitely makes it a very significant game-changer for when when you get in a tax credit and you know this kind of what they call a tax expenditure where you're trying to promote a certain result by encouraging people to deploy energy efficient dynamic glass is great for our industry and great for us i mean no question no question i'm just i'm just being i'm just being reserved because you never know what's going to make it into the uh you know, what gets signed into law.

I appreciate that. Hopefully the Congress passes tonight and the Senate votes on its feet and that part of it stays. I know I understand. And also, I'll make a few phone calls when we're done. But, you know, also it's best to show that how it just stays. I mean, I've been in this thing for decades. But it's the electronics, the framing... All of that is in the credit, right?

I mean, it's taxes to the police, and it's the entire... You know, it's kind of like when you do your taxes and you get a credit for the water. You're not getting a credit for the energy-efficient, you know, motor or something in the water. You're getting it on the system. So I imagine that, you know, this will extend to the entire system within reason. I mean, you know... You always have to figure out where does the system end and where does the building begin, you know?

No, no, no, no. The investment tax is like solar. You deduct the labor as well. So whatever they do to the roof, whatever they do to put up your driveway, all that gets pulled out. Windows is like windows. You know, high-efficiency furnace, just the furnace. If you run dogs and HVAC guys in there for five days, it doesn't matter. It's just the furnace. Yeah.

I guess my point is, let's say you have a building control system that, you know, operates your smart windows, but also it does, you know, your music and your entertainment and, you know, I don't know if they're going to draw a line somewhere or if they're going to say the whole thing is basically, you know, creditable. You know, obviously the more the better because it makes these more sophisticated systems much easier to implement because you're advertising it over many different functions besides the straight dynamic glass. But anyway, I'm very excited that they're doing that and they're recognizing them. Yeah, and that they're recognizing dynamic glass.

I have one more unrelated question, which is the S580 main box. are coming standard now, it looks like, with Magic Sky on the front, on the front front roof, but not on the back. Is that, is that correct?

It depends on the market. Um, you know, Mercedes has a, a very interesting way of deploying.

But if we, if we look at past history, my memory is not as good on the 560s or the TTTs, but my memories of starting the coupe, winning the NAVOC, both as options, then finally got in the sedan. This is kind of the first build of the Maybach.

I know that on the S450, which is what we have at Research Frontiers for demo purposes, it's on both the front and back windows.

I remember though that it, I mean maybe I'm wrong, but in some markets it started on the front as an option, the back was fixed, then it became an option on both pieces of glass on the sedans, and now it looks like it's It's built in the price on the Maybach. So hopefully it'll just migrate through the last time. Yeah. Okay. Thank you very much.

So fingers crossed. Okay. Yes.

Thank you.

Thank you. As a reminder, if you do have a question, please press star one on your telephone keypad. And we have our next question from Alan Ginsberg. Good morning, sir.

Yeah, hi, Joe. How are you?

Hey, Alan. How are you?

Okay. I was just wondering if you could give us any update on whether there's been any progress on the color of the film, whether you could, you know, from blue to gray or dark blue or whatever. Are you working on that? Is Gauzy working on that?

Okay. So, yes, we are working on Gauzy. has been informed of what we're working on. It's not ready yet. They're working on their own approaches. But one thing that I think is very important to note, and I'll say that the film that we're getting now out of Gauzy looks, if I could use the term, blacker than the Asaji film, side by side. If you put two of these films next to each other, and they're both the same coating thickness, you know, any microns, you know, you put these two films next to each other, the gauzy film looks more neutral in color. And, you know, if you'll permit me a two-minute explanation of this, I think it will make sense what I'm about to say. So why does an SPD window look blue? The window looks blue because the particles inside the SPD material are very, very efficient at blocking gas. Every area of the color spectrum except dark blue, the sapphire blue color. That's why when you look at a, let's say a Mercedes sunroof, it looks blue. However, you know, if, and remember, there's blue light and daylight in here. So that's why blue light comes through in an outdoor environment with an SPV window. In an indoor environment, it doesn't really look blue at all. It looks black because there's not much blue light in most incandescent lighting. So the physics is that we're blocking everything except the dark blue, and that's what's being transmitted through the SPD material. That's why it looks blue. We're blocking 99.5% of the light with a Hitachi film, which means half a percent of the light is coming through, and some of that is blue, and that's why it looks blue. For whatever reason, the gauzy film with particles, and obviously they do their own chemistry, so they have their own secret sauces that they put onto it, looks much darker. So side by side, you put a gauzy film next to an Itachi film, and you're going to see that the gauzy film looks a little bit more grayish or blackish because you're blocking... that so there's less than half a percent of light coming through you know so it looks blockish but we are working on other things where the particles themselves or the materials that the particles are in will will you know also block in you know more of the neutral spectrum so block a little bit of the blue so that it becomes rock or gray do you find that there's a resistance sorry about the science by the way sorry about the science lesson But I think it's important to understand where we're going on it.

But do you think that if you make progress in getting the color more neutral, that that will accelerate interest in the product, that there's some resistance because of what you just described?

You know, if I had to, you know, if I had to, Alan, pinpoint where the resistance was, it was on the high price of the film initially when we had one supplier. And by the way, that reminds me, someone asked the question, what do I consider the most significant development that maybe the market doesn't understand? The fact that costs have come down, the fact that we have two suppliers, the fact that we can make a role, you know, huge significant events in research frontiers in the FPD industry. So my apologies for answering someone else's questions or yours. But I don't think that the blue is a showstopper. And there actually were reports that – One carmaker had advertised a switchable glass and it was using a dyed liquor crystal, which has its own issues in terms of not really blocking light and not having the durability you need, you know, the automotive environment, especially on a sunroof. But customers started complaining because they were hoping that it would be a blue glass because when you look up, you want a sky. And it actually looked a little bit black. So I have a feeling that it's going to be really a customer choice and not a showstopper in terms of what the color is. But, you know, we would like to give customers more choice, so we're all working on different colors.

One last question. Has there been any progress in the car industry as far as other windows besides the sunroof?

Yes. Yes. A lot of the things that are under development right now are talking about other areas besides just the sunroof. Okay.

Thanks very much. I appreciate it.

Thanks, Alan. Good talking to you.

Thank you.

We have a question from John Nelson. Your line is open.

Hey, Joe.

How are you doing? How are you? Hey, pretty good. Just one question. Has there been any new developments as far as... Downing on the car visor?

Yeah, they, you know, they continue to work on their development, and they, you know, if you remember, they have a OEM partner that they're working with on it. So, you know, they're coordinating on that end.

Okay. Thanks. That was it. Thanks a lot, John. Okay. We have our next question from Ronald Rosado.

Your line is open.

Hello, Joe. How are you doing?

Hey, Martin. How's it going?

Oh, it's going pretty good. Listen, somebody may have asked a question. I don't know. I got in a little late, so if they did, I apologize. I believe there's a couple of car shows coming up. I believe there's one in L.A.

L.A. is this month.

Yeah, L.A. is this month. Okay, this month. And I believe there's one in China also, if I'm not mistaken. I don't know which, but Do you think we're going to see any representation there from any of our OEMs?

If we get confirmation, and I've been working to do that, and usually get it a little closer to the car shows themselves because sometimes the automakers will make a last-minute decision to include something or exclude something, we'll certainly try to get that word out so that people know. Okay.

Okay. Superb. That's really the only thing I had, Joe. Thank you so much.

And also, you know, same goes for things like the Consumer Electronics Show, where you have that in January. That's become, even though it says Consumer Electronics, that's become a car show. I mean, if you go to Las Vegas, to the CES, an entire exhibit hall, and in Vegas, that's as big as any car show in the world, with full-blown cars. So it's always good. And they tend to be very tech-oriented there, which we like.

Very good. Something to look forward to. Okay, Joe. I appreciate it. Thank you very much. Thank you so much.

Thanks, Ron. Okay. Thank you. Our next question comes from Bruce Denny. Your line is open. Hi, Joe. How are you? Hey, Dr. Denny. How are you?

Very well. Thank you. Hey, a couple quick questions. We've heard a lot about the display market with SPDs as the backlight or light blocker for see-through displays. Has any of this stuff really hit the market yet, and is the market visibly expanding already, or what's the status of that?

So there's been, when we say hit the market, there's kind of a couple of different markets that they're targeting, both at Panasonic and at LG. One of the markets is what you saw at the Munich Auto Show, where they're targeting vehicles and putting information systems into the windows on vehicles. That's not their only market. You know, when I was at CES, I saw some amazing LG displays there. that were targeted towards other markets. Panasonic, the same thing. But if I had to kind of, you know, break it up, I would say that Panasonic is more focusing on the consumer and certain aspects of the B2B market. And LG is going after other aspects, B2B market and then the vehicle market. And, you know, then there's things like museums and exhibitions and things where they have,

deployed this commercially as well. So is this beginning to generate any significant revenue for it?

Well, our revenue in the display market was up, you know, this year and, you know, compared to last year. I think with both Panasonic and LG Display, you know, out there, these are two huge marketing and consume electronic powerhouses so I think you know it can be significant and you know remember Panasonic basically their marketing has always been centered around the Tokyo Olympics and this year you know we know what happened there so it was somewhat of a disappointment that Tokyo Olympics got delayed and then kind of had so many false starts if you will But, you know, it wasn't the event they were hoping for to launch new products, which probably is why you don't see more of this out there publicly yet until they have their own marketing push on it. So to quote, you know, what's probably happening with the economy, all this stuff got delayed by the pandemic but not derailed. Right.

All right. Okay. Okay. Another question is about the automobile sun visors. My understanding is that at least in the past, until the very near past, the possibility of using STD for sun visor was out of the question because it couldn't default to DART, according to the government.

Well, yeah, well, yeah, the SF111, you know, deals with that and, you know, some of the other things. But you can do whatever you want above the AS line. So if you look at how this has been deployed by, for example, McLaren, where they have this built into the windshield, you're allowed to put it in the windshield as long as you go above the AS line, which is, you know, it's often that blue shade band that you see on cars. But next time anyone's in their car, take a close look at the windshield and you'll see a letter A slash S. And anything above that, you can make as dark as you want. You can even paint it black with black paint. So that really wasn't the showstopper. A lot of it was, you know, cost and engineering, you know. A McLaren can put this in the wing. You know, I think Darnay is focusing more on the fold-down, more traditional sun visor, but adding the functionality of having it automatically adjust. I see.

Final question is on last conference call I asked you about skyscrapers and you know major architectural installations and you said there's a few of them in that have been spec'd in and I realized that I forgot to ask a very pertinent question. Whereas they could be spec'd in are these spec'd in for like an entire wall of the building or

sections or maybe the the lobby or some small installation like that usually the way it gets deployed in skyscrapers and this is true of every smart glass is that they'll pick one area first that they think is either the most in need of you know controlling heat light and glare so let's say a lobby or something like that and then what they do is they make it available to the residents or to the offices on a case-by-case basis so you know once You know, you have this in the lobby. You could also have it in the penthouse. You could also have it on, you know, have tenants decide whether they want it or not. And then eventually, and, you know, we're not there yet, but eventually, this can be something that just gets deployed as standard shading, you know, and just looks into the whole building control system. And that's, you know, obviously our goal and our dream is for that to happen. And with cost, that can happen. So, you know, cost reduction. So we're getting there.

Right. Is Europe subsidizing any of these green projects? Like in the U.S., we're now discussing in Congress whether or not we're going to subsidize STD glass.

Yeah.

I don't know if there's specific discussions about dynamic glass.

There are certainly penalties. I mean, if you look at what's happening in the automotive industry, for example, you know, there's a penalty of 95 euros per gram per kilometer that your fleet, if you're an automaker, you know, multiplied by the number of cars you sell in Europe, that's the penalty. That's a big number. You know, in some cases, it was a billion and a half dollars for some of the automakers. In some cases, like Mercedes, it was only 100 million. I say only 100 million, but... you know, initially chose to legislate energy efficiency through penalties as the incentive for avoiding penalties. But Europe has always been on the forefront of energy efficiency because of the high energy prices. So, you know, usually they're well ahead of us on all of these things. And I don't know specifically. I imagine Germany and France probably have strong incentives

for this and maybe some of the other countries. Okay. All right. Very good. Thanks very much, Joe. Thanks, Dr. Denny. Good talking to you. Okay. Bye-bye. Bye. Thank you. Our next question comes from John Strobel.

Your line is open.

Hey, Joe. Quick follow-up questions on your opening remarks. You talked about research frontier is earning a profit in the third quarter, and if I'm reading this correctly, it's $17,000. Not much, but still, at first. Yeah, $20,000 with some other things. It's a start, and I don't want people to get ahead of their fees on this because we are you know, like other companies, probably going to see choppiness until, you know, we hit a steady state of, you know, as you have more irons in the fire, it becomes less choppy. But it's certainly a very welcome development, I think, for everybody to see that. And we're the only company in the world, smart window company in the world, that's achieved that. So let's all pat ourselves briefly on the back and then get back, you know. All right. My question would be, do you expect profitability to continue into the fourth quarter? I'm not saying for the fourth quarter, but is there a momentum going in that direction? Since some of this stuff were special rituals, you know, special government projects and other things, it's hard to say whether that continues or not into the other quarters. into the next quarter or not, or whether it skips a quarter. But, you know, I'm going to address that a little bit more in my closing remarks. Okay. You mentioned that there are three big contract research ventures landed, including one with the U.S. government.

Economists are saying that there is going to be a coalescing of forces sometime around the spring. where the pandemic will be under control, and when that happens, the economy will start heading back up, and when that happens, the supply chain crisis will be a thing of the past.

Given all that, let's say, hypothetically, that happens sometime over the next six months to nine months. When do you expect... these big contracts to start rolling out well you know i think and first of all let's keep our fingers and toes crossed john that those things happen and that you know and that things do they're returning more to normal because we were on a good path before the pandemic and you know and before some of the things that have happened right of closing supply chain disruption um and you know as you know a lot of times things don't happen in a straight line and with COVID you saw a temporary easing and then it resurrected it and then it you know some places um you know it's now back well under control so let's just hope that you know we're able to lick this like polio and you know and not have to worry about it ever again but um but assuming that it does happen um you know the pandemic is good and bad for us um and I hate to say that there's anything good about a pandemic, but it did cause some projects to actually get accelerated. People were able to focus on the things that were more intermediate term because if you can't make cars today, you still can develop cars for the future. So if you can't get a car off the assembly line because you don't have the chips, it doesn't mean that you're your development plan for the next generation X or Y or Z car is getting put on hold. As a matter of fact, you may have more resources deployed towards that because you don't have the luxury of doing that. But on balance, obviously, and I said this earlier, nobody wants supply chain disruption. Who wants this stuff to happen? And I think, in my own personal opinion, that if we can have some in that the recovery is going to happen, that the return to normalcy is going to happen, things will really accelerate. I think that there's been so many false starts so that, you know, I think we really need to see, you know, as industries, so the automotive industry, the aircraft industry, you know, industry rent, has to see if recovery is likely to be sustained and they're not going to get punched in the gut again. And if that happens, then it will return very quickly. If it doesn't, I think people will be a little bit cautious, but they still will put their toe in the wound. Okay, last question. Chinese President Xi Jinping is amassing all power within his hands, especially economic power. Do we have to worry about that? That's a much broader question than I think I can answer on this conference call. I do watch the Chinese government and the Chinese market very carefully. There's a lot of market in the world, but it's not some place where I would even use the secret sauce or teach them how to do it. I've been there. I know what the markets are, and I think we just have to You know, we have a strategy for the Chinese market, but it doesn't involve teaching them how to do anything.

Oh, good. Okay. Thank you.

That answers my question. Great. I appreciate you asking that question. That's it for me. Okay. One more question, Paul. All right. And our last question comes from August Furman. Your line is open.

Hey, Joe. How are you doing?

Hey, August, should I be calling you Dr. Bourbon?

Yeah, in the near future. That's funny you said that, though.

Okay, I thought I saw somewhere that there was a doctor. I thought I saw in the beginning of your name there was a doctor, so my apologies if I missed the drop to in the past.

That's okay. That's okay. No, no, working on that.

Good luck.

Thank you. A couple of questions here. Clinton Center, Ghazi mentioned at the show in September, Something about series production in 2023. Do we know if they're referring to specifically autos with SPD or autos with the LG combination SPD product?

You're talking about LG at the auto show?

Yeah.

Yeah. We don't know specifically. And, you know, unfortunately... Even if we did, we wouldn't be able to put a fine point on it just because, you know, we like LG and we want them to like us. Right.

Okay, and then they also did, on a separate note, they had mentioned that there was interest in the headlight technology and that all cars from BMW would eventually be using that technology. Do you get a sense that's a highly sought-after technology for the headlight?

Yeah, so since that BMW video came out, which was a gorgeous car, It's such a stunning use of our glass in the headlights. I mean, you know, if you haven't seen it, go on our website and watch it. But since that video came out, there's been a lot of inquiries and interest from headlight suppliers even about this. And if you think about it, LEDs, which is where headlights are going, are notoriously hard to dim. It's not like an incandescent bowl where you just vary the voltage and you're done. So being able to vary the light output of a headlight becomes very important because, you know, you want adaptive headlights and, you know, not blind oncoming traffic and things like that. And the other thing is, if you look at how BMW deployed this, it was a very interesting thing. shaped headlight that can change its shape from like an oval to, you know, think of like an iris of an eye, you know, and things like that. For you to do that with a conventional non-SPD system means you have a bunch of individual incandescent or LED lights that are individually controlled and separated from each other. Think about the labor of assembling a, you know, a five-segment, for example, headlight that can change the way it looks. Think of a continuous piece of SPD film where you can laser etch the film to have, you know, infinite variability and segment. So all of a sudden now you have almost, you know, no labor costs to make a multi-segmented, you know, headlight. So you're going to reduce cost there. So you have functionality. You could dim it. You could vary the output, which is very hard to do with an LED. And you're reducing the cost because of the assembly costs and things. So you have one component. you know, continuous headlight lens as opposed to something else. So, yeah, there's, you know, there's some real practical benefits to that.

Perfect. Another question. Just going over the company, I think BOE and Fuyayo, I believe is the name. Yeah, yeah. You're using a bunch of these lower-priced vehicles with their technology. It looks like a PDLC product. But, you know, a little further into it, it looks like they also run, like, a contract for the Mad Glove Speed Train. Is it just TOS at this point, or is, you know, in terms of it, it looks like maybe the headquarters might be in China, so maybe they're getting some of those contracts versus looking at us.

I wouldn't rule out SPD on anything that Fuyo has. I wouldn't rule out SPD on anything that Fuyo has. That's all I could say. I think that, you know, You'll see it on different things.

Perfect. And then one last question. You mentioned Hitachi earlier today. Showa Denko, I guess, is the new lab.

Right. They brought in Tachychemical, right.

Are they – I just hear nothing about them. I know you hear Gauzy and Gauzy's fantastic. They are just what I wish, you know, we would have heard many, many years before. But is Showa Denko – are they – are you making – Any strides? Are they still fighting for contracts? Are they working on the technology to compete with SPD?

Yeah, I just, you know, I don't think they're as public about what they do for two reasons. Number one is cultural, you know, and number two is in the overall scheme of things, Sheldonko is a much bigger company than the Clash of Chemical even. So this is a route perhaps in terms of their business. Whereas with Gauzy, this is, you know, they're bread and butter, you know, the meat of it. So, you know, you kind of want both of them. You know, you want a company with substantial resources doing this. And Gauzy, though, has, you know, garnered together substantial resources based on, you know, pretty large investments that have been made in them. So they have the strength and the firmness to get the job done, too. But they do have – this is not a rounding error for Galaxy. This is, you know, essential. So we like that. Perfect.

All right. Well, thank you, Joe, and congrats to us for our first corporate profit. That's great.

Thank you. Thanks, August. You know, and I'm now going to – I think we've answered most questions. If you have your questions fully answered, just email me, and, you know, we'll be glad to answer them. I'm just going to make one relatively short remark. You look around, buildings and cars are getting smarter. They're becoming loaded with technology so that they can be doing things. And every major car company has announced an all-electric strategy. Energy efficiency and the reduction of CO2 and other emissions is an important topic that the government is also pushing. And we should always remember that SPD technology and research materials can help in all of these areas. New aircraft have been announced this year and will be announced. New train applications. And now that JALSI can coat SPD's home 1.8 meters wide, new uses in architectural projects. And then innovative and other uses are starting to spring up in the electronics and vehicle electronics. This is what you've seen with Panasonic and LG Display. Our licensees have expanded production capacity in all areas of this chain, from the chemistry production to the film to the coating to the fabrication of the end products for all industries, including architectural, automotive, aircraft, marine, transit, and electronic industries. So pretty much across the board, you know, pretty substantial increases in the footprint that we see in these industries. And then you have things like the Dynamic Glass Act, which is winding its way through Congress and seems likely to be enacted. You know, right now it's offering a 30% to 50% tax credit. So it's making it very similar to other things in the energy efficiency area that, you know, have been promoted by the government. You know, one aside, and I just thought of this. Low-e glass, low emissivity glass was invented by Asahi. It was their Cloverbell subsidiary, which, you know, has been a licensee since it got to the company in 1992. But they invented low-e glass, and for a long time, very hard to sell until regulation and legislation and government just made it. And now almost all glass is energy efficient, low-e glass. So, you know, let's not underestimate that, you know, government mandates in proper areas, I mean, not in every area, but in proper areas can have a meaningful impact and change in the way people behave. And, you know, the Dynamic Glass Act can be a game changer in terms of the relative cost and performance of SPD Smart Glass in the architectural markets. Often, and I'll just kind of leave you with a frustrated part of the architectural business. You know, everybody puts a shovel in the ground thinking that they're going to build what they plan on building, and all along the way there's delays and cost overruns and things like that. And often you have to make a decision, what do I cut in terms of, you know, what bells and whistles don't I absolutely need or can I delay or can I, you know, try to substitute for. And sometimes that's glass, not even smart glass, but just regular glass. So, you know, things like the Dynamic Glass Act make it less likely that we're going to be on the chopping block for those kind of things, which I think is helpful. I just want to say one final word. Tesla was the first electric vehicle company to show a quarterly profit. And their revenues were choppy until they started to show consistent, consecutive profitable quarters. We were the first smart shading company to show a quarterly profit. And our revenues will undoubtedly be choppy at first, but as more and more projects come along for automotive, for aircraft, for boats, for homes and buildings and consumer electronics that bring the window, the ability to turn a window into something marvelous like a TV, or increase the headroom of a car by eliminating the shade or allowing you, like Cadillac is going to do this, give individual controls to four quadrants of the roof, or put information on the side of the glass like LG. These things will cause our revenues to become less choppy and our profitability more consistent. So I look forward to our shareholders taking that ride together with us and our hardworking employees and licensees and their innovative customers to really begin to reap the benefits of their patience, their hard work, and their investment. And to all of you, I thank you for your participation. I am so glad that we were able to achieve a thought quarter and share with you guys. I look forward to future discussions and good events as well. Thank you.