Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss the second quarter of 2022 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, plans, forecast, 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 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 question, 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 call over to Joe Harari, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Caitlin. Welcome to our call. It's great to have you. And hello, everyone, and welcome to our second quarter of 2022 investor conference call. Research Frontiers remains in strong financial condition. We continue to have no debt, and as of June 30, 2022, the company had cash and cash equivalents of $1.9 million, working capital of $2.3 million, and total shareholders' equity of $2.4 million. The company expects to have sufficient working capital for at least the next two years of operations, which would take us into the middle to late 2024. This is based upon our lower quarterly burn rate of $300,000 to $350,000 per quarter, with higher projected revenues during that period, mostly from new car models. In our last conference call, we spoke about new car models coming into production in Q3 and Q4 of this year with our SPD Smart Glass technology in it. This is still on track despite the supply chain and other disruptions around the world. In aircraft, last year there were significant new projects in the aircraft industry, including the ACJ-220 program by Airbus, Comlux, and Vision Systems. That's pretty electronically dimmable windows by Vision Systems in the new Epic aircraft and in the Daher TBM-960 aircraft. You know, a lot of people are worried about the recession and inflation. Some have asked me how these items will affect Research Frontier's business going forward. Some of you may know that I started my professional career as an economist at the Federal Reserve Bank of New York. That experience taught me to look for broad macroeconomic trends and also to look for and act upon based on leading economic indicators. When I was at the New York Fed, we were experiencing high levels of inflation, like today's That was driven by disruptions in the labor market and international debt crisis, high energy prices, and a variety of other factors. Does that sound familiar? Ronald Reagan had just become president, and my ultimate boss was Paul Volcker. But with some pain and focus and applying basic principles I learned studying economic tools and history, we were able to fix things. And even though we went through this four decades ago, I never lost the lessons I learned from that period. Research frontiers has been through eight recessions. Probably the most recent one that had many of us worried, other than perhaps the current situation, was the world economic crisis in 2008. But if you look back on that period, companies that produced high-end products, such as Mercedes, Porsche, and Audi, and BMW, have reported in some cases even record profits. Nothing is totally immune to reduced economic activity, such as a recession, But some of the businesses we are in are felt to be recession-proof, and history has supported this. I, of course, do not wish high energy prices on anyone, but we're also seeing in the United States gas prices that only existed in Europe historically. If you look at how Europe reacted to that over the last few decades, they tended to be on the forefront of energy efficiency in cars, homes, and offices. Our SPD technology makes a major contribution in this area. Our SPD smart technology can increase the gas mileage of cars, lower CO2 emissions by four grams per kilometer, and extend the driving range of electric vehicles by 5.5%. The data also shows that we can lower heat inside a vehicle by 18 degrees Fahrenheit. So we expect that even though there is uncertainty and turmoil in other parts of the market, If history and experience is a guide, research frontiers and our well-run licensees will actually do quite well. Am I worried about inflation? Well, personally, yes, but professionally, no. Our license agreements have built-in inflation hedges. In addition to certain CPI adjustment provisions in our license agreements that benefit us, more importantly, remember that we get paid on the percentage of sales by our licensees. Simply put, the higher those sales, the higher our license royalties. And going back to my experience at the Fed, I mentioned that we look at broad macroeconomic trends, and today we spoke about some of the bigger ones, such as recession and inflation. Now let me talk about leading economic indicators, which is the other thing that I used to focus on as an economist to get a clear look at the future. In our last conference call, I reported on multiple car models that were expected to come out in the near term using our SPD smart glass technology starting in the second half of 2022. As I mentioned, that's still on track. Also, the information that we have received is now that even more cars than originally expected will use SPD near term. My internal estimate is that these near term automotive introductions can use more than double the amount of SPD film sold by Hitachi in their best year so far. I may be wrong, looking again at the leading indicators. Gauzy has made substantial additional investments in expanding production capacity. So the area that I may be incorrect about is not whether our business will expand, but by how much. I spoke about a doubling of the levels of SPD film from our best year. Gauzy is almost done with quintupling their production capacity. I think that investment by Gauzy and also the follow-on production capacity increases by other key licensees and the need for a 5X increase in SPD film capacity is the most important leading predictor of economic activity in our industry. And Gauzy has been productive in many other areas on the business side. On the personal side, I want to take this moment to send a special congratulations to GALZI CEO Eyal Paitho and his wife, Sapir, on the birth of their new son earlier this week. Eyal, nothing made me happier than to see the photo of you holding your new son that you sent me from the hospital that day. Mabrouk, mazultav, and congratulations. See, I did that in three languages. With that, I look forward to answering your questions. Kayla, let me take a few that were emailed to me, and then we'll open the queue up for additional questions. First, Jared Albert. Can you explain how you are generating the prospective cash burn guidance? What revenue streams are you including and excluding? What is the forecast period? Okay. Well, from an accounting standpoint, we look forward 12 months. That's a typical look forward period from an accounting standpoint. from having a clear visibility on where our licensees and their customers are, you know, I look forward at least 12 to 18 months. So we're talking about cars that are coming out the second half of this year and next year. Another question from John Nelson. Are car makers using or planning to use SPD film and heads-up displays? Yes. Any provisions in the Congressional Inflation Reduction Act that would encourage use of SPD? Yes, actually, the Dynamic Glass Act provisions are still in there, and that would benefit us because it gives us tax credits for smart glass by cars. Is the transparent OLED market led by LG and Panasonic growing significantly? It's expected to, and they're making substantial moves in that area. And are there any significant rise in cost to make SPD film? No, there aren't. Jeff Harvey asked, did I talk about Haleo as a competitor with a competitive technology? I had the opportunity to actually see Haleo's product at the CES this year. And, you know, they, like all the other smart glass companies, are using a variant of an electrochromic technology where they have an electrochemical reaction inside the glass. And it has the same limitations that all electrochromic devices have, which is it's slow and non-uniform. Now, what they do to try to mask that, and you can't see it unless you go up to the window to look through it, but that's where people can actually see the glass is there. And you see little grid lines. What they do is they put microwires or microgrids inside the glass to trick it into somewhat of a honeycomb pattern to make it think that it's a bunch of small windows. But it's, you know, very visible when you come close to it, so I don't think it's going to really have the aesthetic quality that, you know, we have in terms of clarity. Jeff Harvey also mentions, we have not heard about architectural wins. What is holding up adoption of SPD in this market? View has won some large applications, and they are in terrible financial condition. Okay, there's a couple things to unpack from that question. First of all, about architecture, we've had architectural projects use the new Gauzy film. The backlog that we're having, which is why also they're expanding their production capacity, is really focusing where their film is going right now to the automotive market and the train market, you know, in particular automotive, though. And architectural is a great market. It'll probably be our biggest market within three years. But right now, the most predictable large market is automotive and trains and also aircraft. So we are focusing the efforts there. You asked about VUE and their financial condition. There's a lot of things going on there, and, you know, I think I was probably one of the first people to pick up on the fact that they had a warranty issue, and that ultimately led to a very extended period of time when they had an accounting fraud going on and they couldn't file their financial statements and finally got everything in shape. When they did file their numbers again, though, they found some interesting things. So in their last financial filing, and the next one is on the 8th of August, so not too far away, they were talking about their revenues being up, from $9.7 million to $17 million. Sounds like a nice increase, except that they bought two companies that are in facilities management and electronics. Their smart class revenues actually went down 37%. So a fairly substantial decline in the first quarter of 2022 versus 2021 of 37%. they were kind of saying, well, our revenues went up quite a bit and our cost of revenue only went up a little bit. Their cost of revenue went up 12%, and we believe that almost all of that, if not all of it, is in the smart glass area. So what they were doing is, in my opinion, fully subsidizing, even to a larger extent than before, their customers' purchases. And that's good if you can do that and reduce your costs and gain market share and things like that. But, you know, with their smart glass sails where they are, we actually in our licensees have higher sales levels historically, and we didn't spend $2 billion to achieve it. By my estimate, unless they raise capital, VUE will be out of cash by mid-November. Our other public competitor, Crown Electric Kinetics, I believe by my estimate will run out of cash even though they did two offerings including one at a pretty high dividend rate of 12% with a redemption premium of 25%. Even with all of that and a million share public offering, they're probably going to run out of cash unless they raise more capital and when they file their financials, maybe we'll know more. by August 25th, so they all have pretty short runways there to come out against. Let me see what other questions we had. I believe that might have been most of them that were emailed, and I thank everyone that took the opportunity to email us the questions so that we can either incorporate them into our presentation or answer them efficiently. So, Kayla, if you wouldn't mind opening up the floor to any questions that might exist.

Absolutely. 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 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 will take our first question from Alan Jimsburg. Your line is open.