Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to Research Frontier's Investors Conference Call to discuss the third quarter of 2022 results of operations and recent developments. During today's presentation, all parties will be in a listen-only mode. 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 today. starting later today in the Investors section of Research Frontiers 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 accept, 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 can 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. This conference will be answering many of the questions that were emailed to it prior to this conference call, either in the 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 for other shareholders to ask their questions, please remove yourself from the queue by pressing pound one. Also, we ask that we 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.

Thank you, Bailey, and welcome aboard. Hello, everyone, and welcome to our third quarter of 2022 investor conference call. In our last call, we discussed how inflation and recession would probably not affect our business and the reasons for that. We were also asked about the energy situation and its impact on our business, especially in Europe. We also discussed in our August 4th conference call new cars being introduced in the third and fourth quarters of this year, as well as other developments in the smart glass industry. Let's see today how well we did so far with our predictions. A quick financial summary. As noted in the press release we issued earlier this afternoon, fee income from the automotive and aircraft markets were up this quarter. Expenses were down in the third quarter compared to the prior year. Expenses in the third quarter were also $192,000 lower than in the second quarter. That's not bad for an inflationary environment, and we run a pretty tight ship. And our net loss this quarter was $258,000 lower than the previous quarter. We remain in strong financial condition. We raise capital on favorable terms, continue to have no debt, and as of September 30th, 2022, the company had cash and cash equivalents of $4.8 million, working capital of $5.2 million, and total shareholders' equity of $5.4 million. We expect to have sufficient working capital for at least the next five years of operations. This is based upon our further reduced quarterly burn rate of 250 to $300,000 with higher projected revenues during the next 12 months, mostly from new car models. In our last conference call, we spoke about new car models being announced in Q3 and Q4 of this year with our SPD smart glass technology in it. This has indeed happened as we had indicated with Cadillac launching the Celestic for delivery to customers towards the end of 2023. And earlier in 2023, another sports car maker in Europe, delivering cars to customers offering an SPD smart glass panoramic roof. The Cadillac four-quadrant SPD smart glass roof is the largest piece of automotive roof glass ever produced and it's standard equipment. The other car, an SUV crossover, although it looks very much like a sports car, offers the panoramic roof as an option, but if you want glass, it's only SPD smart glass. So one introduction from a U.S. carmaker and one introduction from a European carmaker. We'd like to win the Triple Crown, and it looks like we will. This month, we expect yet another carmaker, this time in Asia, to introduce a vehicle with higher volumes than the other two that will offer SPD smart glass. Moving now from automotive to the aircraft market and other mass transit vehicles, such as trains and specialty vehicles. In aircraft, last year there were significant new projects in the aircraft industry, including the ACJ-220 program by Airbus, Comlux, and Vision Systems. Also, SPD electronically dimmable windows by Vision Systems in the new EPIC aircraft and in the Daher TBM-960 aircraft. Two of these aircraft were on display at the NBAA aircraft convention in Orlando two weeks ago, and I must say that I was quite impressed at how our technology looked and performed in the aircraft. Some of the new specially engineered materials by Gaussian Vision Systems that are used in conjunction with SPD are really amazing. Very well done. Vision Systems also had a nice booth at the NBAA. That follows on strong exhibitions by Gaussian Vision Systems at Innotrans and GlassTech, both in Germany in September. I also want to congratulate Vision Systems on the great successes they revealed in October with newly announced projects for SPD smart glass, which include 17 aerospace programs, nine marine programs, nine specialty vehicle programs, three railway programs, and three RV programs. InspectX SPD aircraft window business also picked up this past quarter. Let's look at some other economic trends. And forgive me, I used to be a Federal Reserve economist, so I can't help looking at various aspects of the world economy, especially when they have useful leading economic indicators. As noted, we set up our business to be resistant to inflation and recession. However, there's also a concern expressed in our last conference call about potential supply chain and energy issues. I'm happy to say that in these areas, it's not all gloom and doom out there, and we and our licensees remain relatively unaffected. First, we need to look at the way our licensees use energy. Gauzy's facility in Germany does not need high-energy machinery such as smelters. They basically just need to keep the temperature inside their facility comfortable and within certain levels for accuracy. They reported to me that they do not need to raise prices and pass on higher energy costs to their customers. Also in Europe, natural gas prices dropped 70% since their record highs in August when we had our last conference call. Shipping costs are down, too. About two weeks ago, I read an article which observed that while recently, and we all remember this, there was an epic backlog of container ships waiting to dock at the ports of Los Angeles and Long Beach. At one point this year, that backup stretched 109 ships deep and almost 60 miles from the coast. But now, the shipping situation is almost back to normal with the number of ships waiting to drop off their goods standing at just four according to the Wall Street Journal. Plus, the cost of sending a 40-foot container from Asia to Los Angeles has plummeted from its peak of more than $12,000 to almost $2,000, which is nearing its pre-COVID average. 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. Sorry, 2023. We've already seen the indications of cars coming in North America and Europe, with new cars expected to be announced this month coming out of Asia, with much higher volumes. It is expected that these cars will all start to be delivered to customers during 2023, so preparation for the production ramp-up has already begun. We also noted earlier increased economic activity in other product areas, including multiple programs by Vision Systems, Gauzy, AGP, which is now producing SPD for two new car models coming out next year, and LG Display with their transparent OLED display products using SPD film. You have seen major exhibitions of SPD at Intertrans and GlassTech in Germany, the aircraft show in the U.S., the specialty vehicles show in Europe, and it's expected that Gauzy and Vision Systems, and perhaps others, will have their largest exhibition ever at the upcoming CES show in Las Vegas in early January. And look for Vision Systems at the Marine Equipment Trade Show in Amsterdam, November 15th to 17th. It is the largest show of its kind in the world. In our last conference call, I noted that my internal estimate was that these near-term automotive introductions can use more than double the amount of SPD film sold by Hitachi in our best year so far. I also noted that Gauzy has made substantial additional investments in expanding production capacity, quintupling production capacity for SPD emulsion. We get our royalties on the selling price of SPD end products, and one of the most important and accurate leading economic indicators of sales levels of SPD end products is the sales levels of SPD film, which goes into all of these end products. So the capacity ramp up in hiring from Gauzy and others It's probably the best indicator of near-term sales and royalty income. With that, I look forward to answering your questions. And we took some of the questions previously sent in by our shareholders that were emailed to us. And in some cases, I'm going to combine several related questions into one. John Nelson asks, why did Research Frontiers do the $4.6 million private placement on September 16, 2022? Any more specifics on potential use of the funds? When will investors in the deal be revealed? Compliments to you on a well-designed private placement that was very protective of existing shareholders. Well, thanks, John. And there's several reasons we did it. First, fiscal responsibility and strength, and also flexibility to pursue future opportunities should they undoubtedly arise. Also, showing customers that they're part of a stable and reliable supply chain is very important. And a strong research frontier is coupled with strong licensees is good for our entire industry. We've seen companies like Vue have even their existing customers look for alternatives because of their ailing financial health and uncertain future. And as they say, an ounce of prevention is worth a pound of cure. If you look at what other public smart window companies have done just in the past month, Vue has doubled and Crown has tripled the number of shares that they have outstanding and highly diluted financing that just buy them months more of life. And I had predicted that in prior conference calls. Just this year to date, VUE has seen its shareholders lose 68% of their value as of yesterday. And Crown's performance was even worse with their shareholders losing 93% of their value. And we know from experience that they have quite a road ahead of them because they have yet to deliver a product to their launch customer. receive feedback on their narrow film strips, design and build their production line, and then generate revenue. Our shareholders have placed their trust in us, and we never want to have our shareholders even remotely risk such a tragic result. In fact, I think the market certainly realizes that we are a well-run company with excellent and stable growth prospects. As of yesterday, our stock was up 30% this year in a bad stock market where even after a record October, The Dow is still down 12%. NASDAQ is down 34%. The S&P 500 is down 22%. And small caps in the Russell 2000 are down 21%. One of the things we've learned over the years is that unless you want to substantially dilute your shareholders with desperate equity offerings at very low prices, the best time to raise money is when you do not need it. And if we don't use it, we can always return it to shareholders in the form of dividends or use it to accelerate the growth of our business. Getting to John Nelson's next question about who invested, another thing I've learned over the years is not how much money you raise is as important as how you raise it and with whom you raise it. And we were very fortunate to have some very large individual shareholders who already had substantial positions in the company and institutions that started investing with us as far back as the 1990s involved in the last offering. They understand where Research Frontiers is and where it's going, and we're willing to accept restricted stock, which has a holding period. And now there's a strong network of investors who participated in this offering, and we're very fortunate to have them supporting our efforts now and in the future.

Another question.