Research Frontiers Incorporated

Good afternoon and welcome to Research Frontier's investor conference call to discuss the second quarter 2025 results of operations and recent developments. 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 the call. Some statements today may contain forward-looking information, identified by words such as expect, anticipate, and forecast. These reflect current beliefs, and actual results may differ materially from those expressed due to various risk factors, including detailed NRFCC filings. Research Frontier assumes no obligation to update or revise these statements. Today's call is in listen-only mode, with a Q&A session to follow. To ask a question, press star 1. The call is being recorded and will be available for replay on Research Frontier's website at smartglass.com for the next 90 days. During the question and answer portion of today's call, if you find that your question has been substantially answered as a courtesy and to allow time for other shareholders to ask 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 will now turn the conference over to Joe Harari, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Erica. Hello, everyone, and welcome to our second quarter of 2025 investor conference call. From an accounting perspective, the second quarter of 2025 results look disappointing, but much of this relates to one-time and non-cash charges and expenses that we elected to take in the second quarter. I'll go into this in more detail. From an operational perspective, things were actually much better with higher economic activity and sales of SPD Smart Glass during the second half of this year and lower cash expenses. But when you back out one-time accounting charges from the bankruptcy and replacement of one of our licensees supplying Ferrari and non-cash accounting charges from options issued last year that were approved for issuance by our shareholders this year, expenses would be essentially the same or lower than last year, and royalties would be up compared to last year. Deliveries of the Cadillac Celestique to GM customers have started. Sales of SPD Smart Glass sunroofs to Cadillac in Q2 2025 were substantial multiples higher than Q4 2024 and Q1 2025 combined. Ferrari roof sales were strong in the first quarter of 2025. However, because of the bankruptcy filing of the European licensee that was supplying Ferrari, with the bankruptcy coming from this licensee's loss and from other customers, not Ferrari. This licensee shut down operations in Q2 2025, so we did not book any royalty income from them for Q2 and wrote off some amounts. This is why royalty income was down this quarter. Also, this bankruptcy filing was anticipated by Ferrari, Gauzy, and Research Frontiers, and another existing licensee of ours in Europe, was successfully transitioned to supply Ferrari, and additional production for Ferrari has already started by this licensee. Now we get into a little bit of the accounting. Because we don't book additional royalty income until a licensee meets its minimum annual royalties, we have not yet seen additional royalty income from this additional supplier to Ferrari yet. So we booked nothing for the second quarter from the licensee that went bankrupt, and we weren't able to include any royalty income from the replacement licensee. Based upon the way our royalties under our license agreement were accounted for and the ramp up of sales to Ferrari, we expect to see additional income from this licensee recorded in the third and fourth quarters of 2025 relating to the Ferrari business. We also expect additional royalty income from other automotive projects starting in Q3 2025. Continued sales of SPD Smart Glass Roos for Mercedes and McLaren also occurred in the first half of 2025. Also, as I mentioned, we elected to make in the second quarter certain accounting charges and treatment relating to the bankruptcy file in the second quarter by one of our licensees. Backing out these, royalty income would be up compared to last year. Also, I note this comes off of a very strong first quarter of 2025 with 79% revenue growth from Q1 over the prior year and 214% from the prior quarter. This growth in momentum for research frontiers was driven by increased demand for SPD smart glass, particularly in the automotive sector and also in the aircraft sector, with growing interest in new projects in the architectural market. We continue to expect revenue in all market segments to increase further as new car models and other products using the company's SPD smart glass technology are introduced into the market. And apart from these blips in accounting treatment, our net loss would have been lower this quarter, and we are moving forward towards being cash flow positive. Turning to our financial condition and liquidity, we continue to manage our resources effectively. As of June 30, 2025, our cash and cash equivalents stood at approximately $1.3 million. It's $100,000 less than last quarter. And our working capital was approximately $1.7 million. We continue to be debt-free. We continue to also see progress and significant developments across our markets. Our SPD Smart technology is currently licensed or used by many major companies serving five major application areas. aerospace, architectural, automotive, marine, and display products in almost every country in the world. As I mentioned earlier, we included some questions previously sent in by our shareholders in our presentation today. I'll now answer some questions that have been emailed to us. So the first question comes from John Nelson. There's a number of questions here. SPD Black Development Update. I'm happy to report, John, that Gauzy may go into more detail on this on their call next week on August 13th, but everything is going well and faster than I anticipated. I was recently in Israel visiting their factory and saw the latest SPD film, and it looks really, really great. It looks far better than what I saw in January at CES, and I think even more important than what I think, the key OEMs really like it as well. You asked me about how the architectural window project is going and has it officially launched. Well, it's launched on the development side. We've submitted samples to testing for energy efficiency. We've worked out all of the details in terms of wiring and installation and production and things like that. And you ask, can you identify the licensee for us? Yes, it's LTI Smart Glass, which is in Massachusetts, and AIT, which is their affiliate in Largo, Florida. And you asked about some of the projects. They're definitely in the works. And You asked the last question. Any effects on your business from ongoing U.S. trade and tariff policy? No effect that we could see. Basically, the general automotive industry, for example, was shaken up quite a bit by tariffs, but they seem to have settled in now and has stabilized. The areas that we're in weren't affected at all, but the general market in automotive was affected. Okay. Next question is from Steve A. With world opinion turning against Israel, how is Gazi managing this situation and are they losing business opportunities from this situation and is it affecting Reefer? First of all, Steve, I disagree that world opinion has turned against Israel and neither we nor they have seen any business loss from this. Thankfully, everything is in good shape there and now that the Markets that we're in are starting to stabilize as people get used to things like the tariff regime and the negotiations. They're pretty much done in most major markets. I think everything is approaching back to normal again. They weren't affected directly because they have worldwide operations. Your second question, Steve, was with the stock market broadening out, including small caps, you have a great opportunity to present good news to get the stock price moving and much higher. This opportunity should not be lost. We have been stuck in this pattern for so many years. We need to get out of this present cycle. First of all, let me say amen to that. I'm not sure that I would say that the stock market is broadening out to include small caps. If you look at, for example, a comparison of the Russell 2000 relative to the NASDAQ 100, that relationship hit an all-time low last week. So small caps still, you know, continue to lag behind the Magnificent Seven in participating. So small caps haven't really rebounded yet from that. And as far as being stuck in this pattern for so many years, I looked at that same chart and this decline in the Russell 2000 compared to the Russell 100 really has been in a downturn for the past five years. Hopefully that will turn itself around. However, in our case, our plan is to become so big that they can't ignore us, no matter where we are in that market. Rick Sorrells asks, is the Chevrolet Corvette using SPD in their tinting roof system? And you also ask a question about the architectural retrofit market, which I've already answered. Getting to the Corvette, it's somewhat of a mystery. I've heard mixed things around the industry. about whether it's going to appear. I haven't seen in any of our licensee royalty reports any report of supplying that market, and I can't say much about it other than regardless of what they put in there, we may have other business within GM outside of the Cadillac that we're currently in that I know of already, but it's not something I could talk about on this call, but hopefully more details later. Kerry Christie asks, what happened with the VW i7, another PDLC roof win for a major player, not reefer? Why is SPD used in multiple prototypes and production is given to another competitor? SPD is supposed to be a superior product at a competitive price. Well, let's take one part of that first, and I think this explains a lot. The competitive price. While our prices have come down quite a bit based on increased volumes, and they could come down quite a bit more with additional projects coming online. Right now, PDLC is much cheaper than SPD. So my guess is if somebody puts it in a car, it's because they're comparing apples to oranges, not understanding that they taste different. And the VWI7 was talked about three to five years ago, but it doesn't change the nature of what I'm saying, which is You know, VW has been focused on PDLC in all of their cars, and even it spilled over to Rivian because VW invested about $10 billion in Rivian. So I imagine they're trying to use the same platforms and other products. That'll change. I sat in a Rivian the other day, and the car is beautiful. The roof really left a lot to be desired. You can clearly see whether the roof was in the clear or the frosted state. that a lot of light was coming through. You could clearly see things like light bulbs in the showroom ceiling and things like that that were coming through. So it's not really doing much at all to block the heat, light, and glare that's coming in. And that's really the reason you put this in there. Maybe turning to something else, which is future projects for SPD, we're beginning to see more and more of those come on board. So... While some projects may go to PDLC due to momentum within an automaker, I think a lot of companies are waking up to the fact, and now they're actually even telling us explicitly that they know that SPD has better performance than PDLC. So that kind of confirms once again that the price is still being offered at a lower price. It could be that they're being subsidized to get market share. Whatever the reason, Subsidizing to get market share only works to a small extent. And eventually, they're going to need to have economic pricing. Another one question from Elliot. How should we think about royalties for the retrofit windows? On sunroofs, you had mentioned royalties of about $100 per sunroof, depending on size. What do you hope to collect on architectural window replacements? Our licensee in this area is actually projecting sales in the first year in the high tens of millions of dollars. And if we have a 10 or 15%, right now it's a 15% royalty, but I imagine in high volume, they're going to ask me to reduce the royalty to 10%. And depending on the volumes, I certainly would consider it. You're talking about royalty levels that can make us clearly profitable, even in the first year of the retrofit being on the market. After that, we expect multiples of that. When I say we, the licensee that is producing and marketing this. And if you want their marketing materials, you can see it on the LTI AIT website.

OK.