Research Frontiers Incorporated

Good afternoon, ladies and gentlemen. Welcome to the Research Frontiers Investor Conference Call to discuss the first quarter of 2023 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 opened 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 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 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 Security 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 filing for the SEC. Research Frontiers undertakes no obligation to update or revise these foreign-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 questions, please remove yourself from the queue by pressing pound one. 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.

Thank you, Ross, and welcome aboard. Hello, everyone, and welcome to our first quarter of 2023 investor conference call. If you had a chance to review our 10Q or the press release we issued earlier today with your financial results for the first quarter of 23, you'll see that we're in very good shape. Total expenses were lower in the first quarter of 2023 compared to the same quarter last year. Investment income was up, and our net loss was down 26%. At March 31, 2023, we had no debt and more than $4 million in cash and cash equivalents in marketable securities and working capital of $4.6 million. We expect to have sufficient working capital for at least the next five years of operations. I think everyone will be very pleased to hear that royalty income for the first quarter of 2023 was up 91% from the previous quarter and was up 43% from the first quarter of 2022. This increase came from higher royalties in our two largest markets, the automotive and aircraft markets. Car models from Cadillac, Ferrari, McLaren, and at least one other Asian car manufacturer are expected to be introduced into serial production in 2023 using our patented SPD smart glass technology and their panoramic glass roofs. Sales continue in various models of aircraft, and you will see from recent announcements just a few weeks ago by our licensee, Vision Systems, they are now supplying SPD electronically dimmable windows on two very large aircraft from Airbus, the ACJ A319neo with AMAC Aerospace and the ACJ 220 with Comlux. Deployment of SPD on trains and boats continue as well as for architectural applications. 2023 started as an active year for SPD with debuts by Gauzy and many of their customers at the Consumer Electronics Show, including the keynote by the CEO of BMW, joined on the stage by Arnold Schwarzenegger. The car had SPD smart glass all around the side glass, as well as being featured in the keynote presentation in the heads up displays. What I like about this besides the sheer volumes of vehicles that BMW makes is that they're not only working with SPD to solve traditional problems of heat, light and glare coming into their cars from the roofs, but also to use it for range extension, fuel economy, And as Bentley also pointed out, reducing weight and the number of moving parts and components in a vehicle. As BMW recently demonstrated, they also have worked with SPD for non traditional uses for smart glass. Last year, they showed the dynamic headlights and this year SPD became an important feature in adding function and performance to their heads up displays to be introduced in cars starting in 2025. After CES, Gauzy and Vision Systems were at the Bus World in Detroit from February 4th through 7th. And since our last conference call, SPD was also showcased elsewhere around the world, including for helicopters at the Hela Expo in March in Atlanta. Gauzy will have SPD for architectural and other applications at Glass China in Shanghai starting this weekend, May 6th through 9th. And we expect more public exhibitions and trade shows and product and projects launches moving forward. With that, I look forward to answering your questions. And let's start with some of the ones that were emailed to us in advance of the meeting. In some cases, I'm combining several questions that are related to each other into one. This is from Patrick, Joe, can you please talk about your competition in various markets? Well, for a long time, Patrick, our competition was traditional curtains, shades and blinds, low tech solutions to shading, and often low cost. Then people realized that more elegant solutions were possible to shade light, while not blocking one's view. The three main technologies, Patrick, that are used in the smart glass industry are PDLC, electrochromic and SPD. And we are the leading and best performing technology when it comes to shade. and also the one with the longest track record of reliability of performance out there. We're also the most expensive, at least we think, because no one knows quite for sure because Electrochromic has been heavily subsidized. However, those costs are coming way down based on the capacity at the current factory at Galsey and are probably going to approach one-quarter to one-third what they were when the technology first came out. Let's talk about the different technologies. So Patrick, in general, there's PDLC, which is very good for privacy. And it's mostly used in interior applications for architecture, such as bathrooms and conference rooms. And it's relatively a cheap commodity type solution. It has been tried by some automakers, but one of the first to try it, Mercedes, eventually realized its durability and performance shortcomings and adopted SPD Smart Glass instead. Electrochromic technology, another type of technology, has received massive amounts of taxpayer dollars with not much to show for it as far as I'm concerned. Two companies, Sage and Vue, use this technology. Sage is a private company. Vue is a public company, so there is more information available about it. So just to give you some performance data, SPD will switch from tinted to clear in about one to two seconds. Electrochromics typically takes 10 to 40 minutes to switch, depending upon the size of the glass, maybe about 8 to 10 minutes for a sunroof and 40 minutes for a typical architectural application. It also changes from the outer edges first, creating a donut hole look in round aircraft windows and an iris effect in larger architectural windows. The technologies are different, but also the companies that we compete against are also much different, and probably they're good examples of how not to work with smart glass. And if you will allow me a little detour, Patrick, with your question, I think it will illustrate some key points about this in our competition. Vue is a public company, and as of this morning, their stock year-to-date was down over 72% after being down 75% last year. Vue also failed to file its proxy on time, and this makes me speculate that a stock split and even more diluted stock issuances, assuming that they could raise capital, need to be approved by their shareholders under NASD rules. In early April, Vue announced they were cutting 170 jobs, which represents about 23% of their workforce, and they needed funding to survive. Their smart glass sales were down over 16% in 2022 versus 2021. And they reported a loss of $337 million in 2022 and had 198 million in cash at year end and burned through $260 million during the year. I'm thinking that May 9th conference call should be very interesting. Another publicly traded smart glass company, Crown, is down 28%, well actually about 33%, after being down 95% in 2022. And they also had layoffs. They reduced their headcount for smart glass from 31 to 16 people. And from a technical and product standpoint, Crown is falling far short of their stated requirement of 1.5 meter wide film. They announced about two weeks ago that they can now make a prototype of 24 inches wide. And they're not in commercial production and years beyond their target date for that production. And to quote their shareholder letter about a week ago, this 24 inch wide film is quote by far one of our greatest accomplishments. Crown has not even delivered their first generation smart window inserts to customers, much less their highly touted second generation inserts. They lost $14.3 million in 2022. and burned through over $11 million in cash. They had about $800,000 in cash at year end. So based on their public filings with the SEC, I'm estimating that Vue runs out of cash in early September and Crown runs out of cash in late June. They both will undoubtedly try to extend these dates and try to raise additional financing if they can. And both of these companies, as I mentioned, had very large layoffs. They've also disclosed in their SEC filings and hidden in the footnotes that they had issued warrants to their key customers to get them involved. And I think that they've done some highly dilutive financing just to keep their doors open, and their prospects for continuing to do that keep diminishing. They've also bought other businesses to hide the fact that their lack of sales in their smart window products So I think that shows, and I appreciate the detour, Patrick. I know you asked a general question, but I went a little bit beyond that with some more detail. But I think it clearly shows how not to operate a smart glass business. We spoke earlier in this call about some of the accomplishments that we've had just this year. Our stock was up over 11% last year, and it expects this year we expect to reward shareholders again. Gauzy has been able to raise capital from key strategic investors like Hyundai and Avery Dennison and other industrial companies in their supply chain and are hiring people worldwide. So when you look at research frontiers and our licensees, I think you'll see some great real-world examples of how smart class businesses and products should be done. Let me take a couple more questions that have been emailed to us. Okay, so this one is from Jeff. Joe, the EV market is running into a roadblock. They cost too much. Witness Tesla lowering prices three times. Fisker, Rivian, and others not meeting their production quotas, and the rollout of charging stations is coming slowly. I think this will slow the rollout of mass-produced EVs in the near term and will affect your royalty stream. What is your thinking? Well, first, Jeff, we're We certainly can benefit the electric vehicle market. We increased the driving range of electric vehicles by 5.5%. But we're not relying on the electric vehicle market for increased revenues. Most new cars this year are internal combustion engines, vehicles that are coming out with our technology. And the new ones are also internal combustion as well as EV. So while electric vehicles give us a nice pushover time, They're not essential today or in the near term, you know, to our growth of revenue. And, you know, I think you've probably seen a little bit of that already. And right now only about 7% of cars in the world are electric vehicles. So we have a lot to go.

Another question from Colin. Let me just try to summarize this.