Research Frontiers Inc (REFR) 2004 Q4 法說會逐字稿

Good day and welcome to the Research Frontiers Incorporated fourth-quarter and year-end earnings conference call.

At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

This conference call may include statements that may constitute forward-looking statements as referenced in the Private Securities Litigation Reform Act of 1995.

Those statements usually contain words such as believe, estimate, project, intend, expect or similar expressions.

Any forward-looking statements are made by the Company in good faith pursuant to the Safe Harbor provisions of the Act.

These forward-looking statements reflect management's current views and projections regarding economic conditions, retail, industry environment and company performance.

Factors which could significantly change results include but are not limited to sales performance, expense levels, competitive activity, interest rates, changes in the Company's financial condition and several business factors.

Additional information regarding these and other factors may be included in the Company's quarterly 10-Q and 10-K filings and other public documents, copies of which are available from the Company on request.

By making these forward-looking statements, the Company undertakes no obligation update these statements for revisions or changes after the date of this conference call.

At this time, I would like to turn the conference over to Mr. Joe Harary, President of Research Frontiers.

Please go ahead, sir.

Thank you very much and thank you all for participating in today's conference call.

Today, we will talk about the Company's operations, activities by our licensees, timelines and also will have an opportunity to answer many of the questions you all have submitted.

Thank you all for taking the time to submit your questions via e-mail.

This is somewhat of an experimental format for us.

We've received numerous questions and even after eliminating all of the duplicates, we still have a lot of ground to cover here today.

Basically so people know where we are going with the questions, basically they can be categorized into 7 different categories -- what our licensees are doing and which ones are active, was RFI is doing to help our licensees.

Questions were submitted about our investment in SPD, Inc. and some of the issues that generated with the first generation of a SPD film.

We have also received questions about our recent financing, also activities regarding the sales and marketing efforts by our end-product licensees in the automotive, aerospace and architectural markets, and activities regarding production of next generation SPD light-control film and also about our dividend policy.

Some of the questions that were submitted were answered in our 10-K and some shareholders were kind enough to basically note that but if your question has not been answered, there will be plenty of opportunities after the conference call and at our annual meeting and throughout the year to ask them of the Company.

Some of the questions I'll also answer in my narrative and some I will read at the end so people can get an idea.

First of all, like the title of one of Clint Eastwood's early movies, 2004 was a year of the good, the bad and the ugly for Research Frontiers.

We're working very hard now with our licensees in hopes of adopting the name of one of his more recent movies "Million Dollar Baby".

However, we want to replace million with billion or some even larger denomination.

Let me go through the good, the bad and the ugly.

As far as the good, in 2004, a much better film came out.

It had a wider range of light transmission, it had much better optical properties and multiple sources of manufacturers are expected to be producing this film locally in Asia, North America and in Europe.

Also, our company is in strong financial shape.

Our licensees are doing a much more effective job at selling SPD glass.

We have some very active emulsion and film licensees.

End-product licensees have been working with our customers are waiting for this next generation film.

Since the last conference call, we have added a substantial number of new licensees, including some of the largest chemical, film and glass companies in the world, and that has improved the landscape for SPD tremendously.

The adoption rate of our technology is increasing.

Some of our licensees have had financial issues but as a whole, our infrastructure is the strongest and probably the most active it has ever been before.

A lot of larger companies, as I mentioned, are getting involved.

This brings a lot more resources, more global operations.

Some of the licensees are even expanding their reach into new markets and territories as a result of their early successes with SPD Technology.

These companies are also very quality control and customer service driven, which has made a meaningful difference in the way things are perceived by the architects, designers, automakers, etc., of the world.

In essence, the customers are happy with the companies that they're dealing with.

Also, these companies have access to executives at companies and at their customers that we simply do not have by virtue of their size and their prior relationships.

These licensees are shaking things up out there and that has been a big help to us as well.

SPD Technology has been appearing at frequent trade shows, industry conferences, industry events and not only by our licensees but also by their OEM customers.

A good example of that is the recent introduction by Sorkorsky (ph) in their S-92 VIP helicopter of SPD Windows.

If people go to our Web site at Smartglass.com, you could actually see some video from that show, which features those Windows.

Also, SPD appears to be gaining some good traction among several key industries, including what I will describe as the bread and butter industries, which are automotive and aviation.

The are bread and butter because of the standard sizes, the high potential unit volumes, the growing number of square feet of glass that is being used in these markets and the growing need for switchable glass as more glass is being used in vehicles and in homes and offices.

Inquiries are at the highest level since May of 2004, so despite the lack of production of former generation SPD film and customers waiting for the new generation of film, awareness is still very high and interest is still very strong.

I really attribute that to the efforts of our licensees and the performance characteristics of our technology.

I will give you more detail about this and the specifics a little later on in the conference call but however, before I get off the subject of the good, the good really is not what is has happened but what is happening and what is going to happen by us and by our licensees.

This will become apparent to the world as it happens.

Let me switch over now to the bad.

They were many challenges last year and that has led to disappointment.

First of all, this year, on a personal note, we lost several very good friends of the Company and close personal friends.

That is always sad to see.

We've had a lot of business challenges as well.

One challenge, which happened in April of 2004, was the loss of the sole producer of SPD film in Korea, SPD Inc.

We got a couple of questions about number of questions about that and I will address that a little later on.

What happened with that is that it resulted in our end product licensees being forced to sell product out of existing inventory of the original SPD film.

Because of that, they had to turn down larger projects.

This was very frustrating to all of us, including our licensees, because awareness of SPD was at a very high point among architects and builders, as well as the automakers.

Licensees had become very effective at selling the SPD glass but then they were faced with a situation where they had limited product to sell, so they basically had to pick their spots in the market.

Sometimes this meant only going for higher profile projects.

If people have seen our DVD, you can open up the DVD cover and you'll see a number of those projects around the world that use our SPD technology.

If you'd like a copy, please contact the Company.

We would be happy to send you a copy.

One other thing just to note here.

Because of some of the financial difficulties at a small number of our licensees, we actually took a much more conservative approach to booking royalty income and to taking reserves against royalties receivable.

Had we not done so, fee income for 2004 would have been higher than the prior year.

I've gotten a number of questions about what I'll consider the ugly.

I talked about the good and the bad, now the ugly.

These are the questions we received about short sellers.

I'm not going to spend a lot of time discussing this.

First of all, in my personal view, the best way to address short sellers is to succeed in business.

That is what everybody at Research Frontiers and among our licensees is committed to and focusing on.

We've spend a lot of time in internal resources and we even hired some former federal prosecutors over the past couple of years to help us present the evidence and the documents about short-selling abuses in our stock to the SEC and the NESD.

I must say I am disappointed to see that not much has been done by these bodies.

I'm sure some of our shareholders have expressed the same frustration as well.

There seems to be some new rules that been imposed by the SEC regarding this but time will tell if they have any teeth and whether they are in fact going to make a meaningful difference.

One notorious short seller that was plaguing us resigned his license from the NESD and if you look at our short interest position, it has been declining.

So perhaps the short sellers are seeing what many of us do, which is that it is becoming more and more apparent that we and our licensees and their customers will be successful with SPD-Smart products.

Anyway as I mentioned, in prior years, we spent some time and resources dealing with the short sellers.

Some of our efforts seem to have fallen on deaf ears, so let's move onto the Company's operations and about our future.

Fee income for SPD in 2003 and we lost some ground and 2004.

Part of that, as I mentioned, was because of the reserves we took against fee income and also basically with the loss of our sole source of SPD film production in April, it should not be a surprise.

Fee income for the fourth quarter of 2004 was higher than for the other quarters in the year.

Also, I would not read too much into quarterly numbers because, as I mentioned in prior conference calls, these numbers can be choppy until market penetration increases and becomes diversified across the world and also across various industries.

Our net loss for 2004 was approximately $4.26 million or 33 cents per share compared to $4.77 million or 38 cents per share for 2003.

This net loss was down about $509,000 or just about 11 percent.

Operating expenses have declined steadily for us for the past 5 years, resulting in a cumulative savings over such period of approximately $750,000.

Over the same period, as our technology has advanced and matured, R&D expenses also declined a cumulative $590,000.

This year, however, we were subjected to substantially higher accounting fees and over a $200,000 increase as a result of new rules required by Sarbanes-Oxley.

One of the questions we got was about whether our internal controls have been effective.

I'm happy to say that we got a clean opinion from KPMG, our independent auditors, not only on our financial statements but also on the effectiveness of our internal controls over financial reporting.

Without these additional expenses, which may not reoccur at the same level in future years, operating expenses would have declined in each of the past 5 years for a cumulative savings of almost $1 million in operating expenses.

Most of these expenses are down, including payroll, and the only things that are really increasing are accounting fees and health insurance costs.

One thing about SPD Inc. -- we did make an investment in them and we lost approximately $780,000 net.

We did receive a $44,000 distribution in liquidation in November of this past year.

We had bought a 6.9 percent minority interest in the Company and although we were in constant communication with SPD Inc., we were in fact surprised by their decision to shut their doors in April of '04.

However there work in their initial SPD film helped make SPD Technology the best known Smart window technology in the world and it got the attention of some very large companies.

In fact, Daimler had introduced SPD panoramic roof systems in their Cetra (ph) tour bus and we have received some questions about that which I will discuss a little later on.

As far as our financial condition, liquidity and capital resources, they all remain very strong.

We have no debt; we've had no debt since 1986.

At year end, we had approximately $2.6 million in cash and $2.2 million in working capital.

Since then, we have raised $5 million through a direct sale of our common stock and warrants (indiscernible) investment funds.

This stock was registered with the SEC pursuant to a registration statement and it is free trading.

Basically one of the questions we did get about that was why did it take so long to raise the money?

Well, we're in a different capital market environment right now and in addition to that, we wanted to make sure that the investment group that invested in this round of financing had a long-term commitment to Research Frontiers.

We did due diligence on them.

They did about 5 months of the diligence on us.

They met with us in New York and we met with them at their headquarters as well.

I guess, more significantly, these funds spoke to our largest licensees and to the large OEM customers of our licensees.

It was very kind of them that they have shared some of the results of their due diligence.

They shared a statement with me that they got from a senior automotive executive that SPD Technology in the automotive industry is not only inevitable but is also going to be very, very big.

I was told this was pretty much a consistent and representative viewpoint by the automotive industry from the people that they did speak to there.

So it is great to get that kind of validation.

One of the funds actually is headed up by a former executive at one of the automotive manufacturers who is familiar with SPD Technology beforehand in his prior role.

Anyway needless to say, we're delighted that we got this independent confirmation for what most of us already know about Research Frontiers and that is that the automotive market is really a bread and butter high profit market for us and for our licensees.

It is also nice that these companies not only wrote some pretty big checks in investing in us but these funds have been very, very helpful in matters outside of just financing us since that financing.

So it is very much appreciated.

Let me talk a little but about automotive.

I shared with you the comments that these funds had shared with me about their due diligence but this is also borne out by the activities of our licensees in the automotive industry.

Many different carmakers are working closely and continuously with our licensees to incorporate SPD products not only into limited production vehicles and concept cars but also high-volume production vehicles as well.

Part of this conference call, I've been asked to name who these manufacturers are and the specific vehicles they are working on.

If you go to any autoshow, you will see a number of vehicles that are being introduced by virtually every automaker in the world that use more glass in the roof systems.

These basically range from larger sunroofs to glass strips that go across the entire length of the roof to even all-glass roof systems.

It has become a very popular trend in the automotive industry.

Unfortunately and while not legally restricted, there's business considerations on why I cannot reveal the specific automakers and models that they're planning to introduce SPD Technology on.

Like I said, our license agreements do not restrict this but our licensees do have MBAs with their customers and we have to respect the need here for competitive reasons for confidentiality.

We also get requests from licensees to keep information about their customers confidential.

We have got 2 such requests just this week.

While it is frustrating to us and our shareholders, it is a business reality, especially in the automotive business.

In some cases in automotive and in aerospace, the customers have been very clear that they will not place an order if strict confidentiality is not maintained.

So, in order for us and our licensees to properly plan for production in the automotive and aerospace industries, we need to have the information flowing as accurately and as freely as possible.

That often requires us basically to keep confidential information that is provided to us.

We're at the threshold of realizing the success we all see for SPD Technology and for Research Frontiers.

In order to help secure our success as shareholders, I must first ensure the success of our technology and our licensees.

We all understand that Research Frontiers and our employees and our licensees and our shareholders, our financial and sometimes even emotional partners in this venture and we never lose sight of that.

The trends in automotive are very favorable to us and to our licensees.

You can expect to see a growing number of concept and production vehicles use SPD Technology in the near future and here is why -- glass is being used as a larger percentage of vehicle content.

Right now, 25 percent of all cars have sunroofs.

This is double the number from just 3 to 4 years ago and in the high-end vehicles, which is the primary target for SPD Technology. 80 to 100 percent of these vehicles have sunroofs and the trend is toward larger sunroofs or, as I mentioned earlier, glass strips that go across the entire length of the roof or all-glass roofs.

Fredonia (ph) had predicted that current penetration is about 2 percent of these all-glass roof systems.

That is predicted to be 40 percent by 2010 -- 40 percent penetration.

Now, when you are using that much glass, shading becomes of paramount importance because of the solar heat gain issues and also, believe it or not, automakers can save a substantial amount of costs with the interior materials used and fabrics and other interior materials if the materials are protected from heat and UV.

Also, they could use smaller, more efficient air conditioners, which increases gas efficiency and reduces emissions.

Virtually every automaker in the world has expressed a strong interest in SPD Technology and they're working with our various licensees and sometimes also directly with Research Frontiers.

There is also a very strong interest in the aircraft market in electronic window shades by the major OEMs there.

Our licensees have been working directly with these OEMs to satisfy their demands and we're also in direct contact with them.

While no technology has been officially announced by any manufacturer yet, we expect that SPD to be the lead contender here because it has very fast switching speeds, ease of installation, very uniform appearance, the ability to save weight by using plastic instead of glass, and basically enhancing the performance of the aircraft and adding to passenger comfort.

Traction has begun, as SPD windowsills are being used in a number of different aftermarket aircraft, including fixed-wing aircraft and helicopters.

Some of these models are listed in our 10-K if anyone is interested.

We also believe that the real money will not only be made in the original equipment market but also as these original equipment manufacturers service aircraft that are in-service in the aftermarket as well.

There's also a close connection between aircraft and yachts, especially among private jet owners who often -- often on yachts.

SPD Smart windows have begun to be used in yachts as well.

In the architectural market, our licensees have been selling jobs in this area.

With the prior film, haze was a bit of a showstopper because when windows are exposed to most lighting conditions, there was no visible haze but when the sun was low on the horizon, it was a lot like driving with a dirty windshield; you don't really noticed the dirt on your windshield until the sun is low on the horizon and coming directly into the glass.

That is what was happening with the old SPDI film.

One of the questions we got is, why did we invest in an inferior technology?

Well, SPDI was making very good strides for awhile and improving their technology.

Their range of light transmission and their optical performance was improving but, for some unexplained reason, they ceased production -- (technical difficulty) -- external factors or competitive technologies and sometimes I am led to believe by them and by others that it was because the next generation film, which they had seen and which they had -- they knew the performance characteristics of -- was basically far superior to what they were producing.

We had encouraged them to retool their factory.

We had walked through there and given them suggestions on how to improve the technology but for some reason, they decided that they did not want to compete with the larger companies.

Getting back to architectural window market for a moment, there are some pretty big potential users of SPD glass and some very highly visible applications.

One of the questions we received was whether SPD has been presented to the architects and designers of the Freedom Tower, which replaces the World Trade Center.

I must say that actually not just one licensee but several licensees have been talking about that project to the architectural firms.

Of course, the glass in that project is several years away, so I do not think it is going to make a meaningful dent in our revenues for the next couple of years, but it is nice to get that kind of attention once SPD glass starts being used in higher visibility applications.

A lot of these customers in the architectural market have seen the next generation SPD film and are willing to wait for it.

It is really a much better product than what they had seen previously.

The architectural glass market accounts for roughly 60 percent of the world's use of glass.

However, the architectural market is the hardest to predict.

It is not like automotive where you know if you are a 20 percent option in a vehicle. one year, you may be a 30 percent option, the next year, at a 50 percent option, the following year in a -- standard equipment the year after.

With architectural, you do not have these platforms of growth to build off of that are predictable.

The way we deal with that is that our marketing department spends a large block of their time presenting to the world's largest architectural firms to ensure that they are aware of the benefits of Smart glass.

So, what are the key of all of these things happening?

The production of next generation SPD film -- in April of 2004, as I mentioned, SPD Inc., which at the time was the sole manufacturer of SPD Smart light-controlled film, announced that it was ceasing its business activities.

Obviously, that created some uncertainty in the marketplace.

Because of that, most of the balance of 2004 resulted in curtailed sales from what there otherwise would be, although as you can see, there was some positive development there as well.

The licensees and their customers have seen the next generation film.

They like what they have seen.

One of the questions we got was does the new generation film have the same haze issues as the older film?

The answer to that is no.

The data on the next generation film has significantly lower haze levels to the point of we can look at our film through bright sunlight coming directly on without any visible haze, so it is really a remarkable product.

I just want to give a little bit of guidance as to when the next generation film is going to be out.

Understand that this is not up to us; it is at our licensees.

Because these companies are very quality control driven, they're going to make sure that they get it right.

Sometimes that means waiting an extra month or two from predicted introduction dates before they do release a product.

However, I can say that, based on what our licensees have expressed to us, we expect that the next generation SPD Smart film will be available not only from one source but from multiple sources of supply in Asia, Europe, and North America in 2005 with initial SPD production coming online on dedicated factory lines very soon.

I'm going to go through some of the questions that I received from shareholders about the call.

One question that not only is one that our shareholders are asking but one that we constantly ask ourselves is why is everything taking so long?

Well for one reason, no one has ever accomplished what Research Frontiers and our licensees already has, the introduction of large scale, fast switching Smart windows.

Many larger companies have tried and failed an I'm happy to say that, through very determined effort not only by us but by our licensees, we are beginning to see the fruits of our success.

We are also very unique.

In other areas of competitive technologies, usually there is a single source of supply.

In our case, we are unique in that we have a family of very large, specialized licensees and must multiple sources of supply.

What took so long?

Number one, we had to develop SPD technology.

Number two ,we had to develop an infrastructure and we had to license and train that infrastructure.

We had to protect ourselves to make sure that our intellectual property would result in meaningful revenues for many years to come.

Right now, our patent portfolio extends to the year 2023 and new patents and patent applications are constantly being filed and coming online to extend that date.

We also learned that no one company could do it all, so we had to establish 3 levels of licensees, chemical companies, film companies and then product companies, and then get the infrastructure to work together.

In the past when we shared some of the timelines, we based our predictions on those given to us by our licensees but as people know, especially on difficult tasks, sometimes things take longer than you think.

That is not only true at Research Frontiers but also it was true among our licensees.

But the last critical step is really the production of SPD film using the next generation technology and that is beginning to happen now.

The infrastructure is in place and it seems to be working fine.

Licensees are collaborating and communicating.

One of the things that really helped that was the SPD licensee conference.

IT was the first one ever held this past April.

We had over 50 people from various licensees attend.

Presentations were given by some of the larger film and emulsion companies and the feedback we got -- one of the questions we were asked by shareholders was do we plan on doing that again?

The answer was a resounding yes.

Our licensees got a lot of out of that conference.

It moved the technology along with -- in great leaps and bounds and it was certainly a very worthwhile event for us to have.

One other question we got is what can RFI do to accelerate the progress?

Well, we work daily with our licensees to make sure that they get everything they need to be successful.

It is our primary activity company-wise, both from an R&D standpoint and from a marketing standpoint.

I did get some questions about the financing.

Will there be any more shares sold for financing?

Well, that always depends on the price but the current financing that we have will meet our needs until at least early 2007.

We're very sensitive about not diluting shareholders.

We have 13.8 million shares outstanding.

For a company that has spent $57 million to develop a technology, that is not a large number of shares but we do intend, at least speaking personally and for internal management, to pay dividends so we do not want a large number of shares outstanding.

That was another question.

Will we ever see cash dividends?

Our business model is such that we do not have very high capital needs and we have very predictable expenses.

So once we are profitable, it becomes very easy for us to allocate a portion of those profits towards the payment of dividends.

Current internal management is definitely in favor of paying dividends and of course, that decision, from a corporate governance standpoint, will be made by the entire Board of Directors making that decision at the appropriate time.

Speaking once again personally and for our internal feeling, we do expect to be paying dividends out of our profits.

Another question we got is when will the stock price start to reflect the fact that SPD has moved from being an idea to being an actual product?

Well, looking at the price that I paid for my stock -- and there has been a lot of insider buying -- I certainly am not an expert in market timing but it is reasonable to assume that, once the activities of our licensees become more publicly known and we have encouraged them to make more public what they're doing, the stock price should reflect this.

I think it is reasonable to assume that.

Of course, we've encouraged our licensees to be more public.

That not only helps Research Frontiers and our shareholders; it also helps our licensees and their customers as they make these types of public awareness of what they're doing.

One question -- I mentioned insider buying.

One question we got was insiders have been buying RFI stock.

Some say RFI is paying them to do this to project a positive image and support the stock.

Please comment.

I'm very pleased to see that insiders have been buying steadily over the last couple of years.

There have not been any sales and pretty steady and in some cases substantial buying at times.

Research Frontiers gives no financial help to anybody that makes a purchase.

Purchases are made out of personal funds and we're happy that they're doing that.

I will read a couple more of the questions.

Are you giving advance notice as to orders in order to determine revenues for the coming 6 to 12 months?

We do not give formal notice of future sales.

However, we do have a pretty good idea of the details of what is in the pipeline and there are some nice projects out there.

Licensees under our license agreements have an obligation to report historical sales after the end of each month or each quarter but they do share with us, because they know we keep the information confidential, what is in there product pipeline as well.

One question we were asked is why were investors never told prior to last year that there were haze problems with the SPDI produced film?

Well, certain applications such as sunroofs and aircraft windows were not affected by the hazing.

It was really an item that was affecting certain architectural applications but because of the -- well, because of the improvements that SPDI was making, it was not a foregone conclusion that that haze issue would remain.

We did give them suggestions because inherently the technology is very low haze if it is produced into a film correctly.

We gave them suggestions on how to efficiently retool their factory to do what we had suggested.

Unfortunately, they did not take our advice on that.

As a licensor, it is not appropriate for us to denigrate a licensees' product.

Basically, it was only after we were getting pretty clear feedback from the marketplace and that was around the time that SPD Inc. ceased its operations that the haze issue became something that had to be dealt with and it was dealt with but unfortunately for us and unfortunately for (indiscernible) Glass Industries, our license, the way they dealt with this was by having other companies produce next generation film.

One question I got in that regard also was RFI surprised by SPD Inc.'s decision to discontinue its operations and what impact has this had on RFI and could it have been prevented?

It couldn't (ph) have been prevented.

We suggested improvements, as I mentioned, and it is just something that they didn't, for whatever reason, want to adopt or retool.

I did get a question about whether we plan to have another licensee conference.

Yes, we do have plans because of the benefits that our licensees did get out of that conference.

One other question -- when will the RFI Web site be updated and improved?

We definitely understand there is a need to improve our Web site, especially the Photo Gallery section of the Web site.

That is in the works.

It is one of the priorities for the coming couple of months.

It has not been holding backsales but on the other hand, we do not want our Web site to be a barrier either to any product sales happening.

Going to some of the questions we got about film production -- it says, if current licensees have demo products with SPD film, who are they getting it from and why doesn't the use of that film result in sales to REFR?

When a film maker provides samples to an end product licensee, there is usually small or little charge to the licensee.

Also, the filmmakers are not obligated to pay us royalties; we collect that when an end-product licensee sells that to their customer.

The other part of that question is, who are they getting it from?

Actually there has been a number of different sources of samples being provided so that customers of our end product licensees can see the next generation film.

That is coming from several different sources around the world, which is a good thing because these licensees have flash film and it is great that people are seeing that.

Are some licensees now actively working to create generation 2 film wider than 24 inches?

If so, how much wider?

Yes, they are working on wider widths with the architectural applications primarily.

There's plans for 1 to 1.4 meter width film being produced.

Do I expect the initial price of generation 2 SPD film and plastic and glass to be less than what was charged by Hankook (ph)?

Some of the price projections I've seen are going to result in a lower initial price and also a fairly steady decline in price over the years, very similar to what you see in the semiconductor and consumer electronics industries.

Another question -- have there been further improvements in range and switching speeds since the Florida conference and related announcements?

Yes.

Looking at the data we have gotten and that we have independently tested from our licensees, they are getting better results from even the good results that they did announce at the April 2004 conference.

One question in automotive -- where do I feel the greatest short-term opportunity for RFI is, automotive, architectural?

Basically, as I said earlier, I think the bread and butter in terms of predictability and large volumes in standard sizes is automotive and aircraft.

However, 60 percent of the world's glass does go to the architectural market.

While it is harder to predict, those are very large markets to also penetrate.

I did get a question.

What happened to the centra (ph) bus application?

This refers to Daimler's luxury tour bus that was introduced by then with an SPD roof system, a panoramic roof, in September of 2003.

Do we have reliable evidence rather than hopes that generation 2 SPD film will be used in such buses on a larger scale?

Let me first say that long before it SPD Inc. announced that they were going out of business, Daimler had asked one of our other licensees who they had dealt with for a lot of their glass requirements to basically take any film that they had and put it in inventory for their use.

While it is not enough to do a full-scale marketing campaign and that is one of the reasons I believe that Daimler hasn't been actively featuring the (indiscernible) sky panoramic roof with a switchable glass at recent shows, they are still very interested in it.

When they were producing that as -- on their buses, they were getting extremely good customer reaction.

They certainly wanted to do a lot more with it and unfortunately, until the next generation film coming off of the production line could be validated, they had to curtail some of their efforts.

But they are and they remain very interested in SPD class for the bus application.

More importantly, they are interested in it for -- and other auto manufactures are interested in it for higher production vehicles as well.

So that is something that bodes very well in the automotive industry.

Once again, I just want to -- I think it bears repeating that most of the world's major OEMs have expressed a strong interest in SPD technology.

It is not a guarantee that products will be introduced by all of them or what the timeframe will be but it is certainly something that is very encouraging, especially in light of the trends in the automotive industry.

Moving to the aircraft market, one of the questions we got is when are we likely to know for sure if SPD Windows will be used in Airbus?

I think they are referring to the 8380, the Boeing dreamliner, the 77 or the 787 and the Lockheed Marine 1 or sorkorsky (ph) equivalent.

As I mentioned, Sorkorsky (ph) has already featured SPD Windows at the most recent airshow in Las Vegas in October; it was the S-92.

Our licensees had prior contact with Lockheed and other manufactures as well as Airbus, Boeing and basically everybody out there producing jets and helicopters.

While these companies have not officially announced what technology will be used in these vehicles, in these aircraft, it is something that certainly bodes well for SPD because of the performance of them just that we have.

One question we got was regarding FAA approval, had FAA approval of generation 2 film been granted?

Basically, according to the experts, the FAA considers the difference between -- or for purposes of regulations between first generation and second generation film to be a minor change.

Basically this gets tested within a matter of days from submission of a material.

These kind of tests are not one-time tests but typically are down by our licensees continuously as part of their FAA compliance, so it is not anything new or something they're not used to dealing with.

As I mentioned, it is something they expect they could receive in a very short period of time.

A couple of more questions that we received -- because I know we're running out of time.

What are the remaining priorities for improving SPD Technology?

Our 10-K lists some of them, some of our top initiatives in R&D.

Where always trying -- (technical difficulty).

As I mentioned, our patent now extends to 2023 but new patents and patent applications are always coming online so we would like to keep extending that date.

We want the technology to always be easy to work with.

We want to always improve the range of light transmission.

We would like to get even faster switching speed so the (indiscernible) can be pierced once video SPD is achieved.

We want to make the materials even more robust than they are now.

We want to have different -- one of our goal has been to improve the electrical performance.

Several years ago ,if you looked at the energy requirements for an SPD -- (technical difficulty) -- right now, it is .02 watts per square foot. (technical difficulty) -- he is a major -- (technical difficulty) -- and has actually come up with 3 different patent applications, some of which have already issued as patterns, on the most efficient ways of controlling SPD Windows.

At our SPD licensee conference, as part of Al Malvino's (ph) presentation, he presented an SPD software calculator where you can plug in the voltage and frequency requirements for any locality in the world and it will basically figure out how much an SPD-Smart window would cost to operate.

Just to give you what a typical result would be, if you were using basically the current frequency (ph) here in the United States, you could run an average size Windows 24 hours a day, 7 days a week for an entire month and it would use about 4.f4 cents worth of electricity to power the window in the fully clear state.

In the dark state, we use no power and in the semi-dark state, we are using less power than even that.

So we are talking about very minuscule electrical draws.

That has been important in the automotive and in the aircraft market where these Windows are run off of battery power typically.

Just to sum up our R&D initiative, we will do whatever it takes to result in ever-increasing market acceptance and like I said, that includes things like improving the range.

Even though our range right now is beyond any performance that our competitors can achieve, we would like it always to continue to improve.

One other question I got is, who are the active emulsion and film licensees?

I will list them alphabetically.

Air products and chemicals here in the United States, (indiscernible) chemicals in Japan, Hitachi Chemical in Japan, Esoclema (ph) in Europe, (indiscernible) glass in Japan.

Dupont appears to be very active but they keep the details of their project to themselves pretty much, so I can't really comment on their level of activity, at least publicly.

In the past, work was done in the laboratory.

I'm happy to say that now work is being done on large-scale equipment.

One of the questions we got was whether any licensees had established dedicated factory lines for SPD?

The answer is yes.

What kind of investment do they make?

We're talking about multi-million dollar investments in the equipment.

These things are happening around in different areas of the world.

One last question I got -- and I know we're running out of time -- what are the top 3 reasons today to invest in Research Frontiers?

To me it is pretty apparent.

We have a very good technology with significant markets.

There is an infrastructure that is doing their job, especially the larger licensees, and RFI, thanks to our recent financing, is in very good financial shape.

We have also implemented a number of operational efficiencies which are beginning to bear fruit.

So those are the basic reasons why I think Research Frontiers is an excellent company.

I will say that I know that many of us are disappointed, especially longtime shareholders, and I'm included in that group, and our Board is as well, but personally I am disappointed.

Things have taken longer than anyone inside or outside of the Company would imagine it could.

More importantly, we've disappointed our shareholders and that seems to be something that is going to change.

We -- not only us but with the help of some very strong and cable business partners, we will do better.

We are on the verge of success and our infrastructure is now strong and working very well.

We're confident that, based on the level of activity out there, that we and our licensees will be very successful.

So with that, I would like to turn the call back over to the conference operator, who has some replay information, and I also want to thank all of our shareholders for sending in their questions.

I have tried to answer as many as I can within the time constraints that we had but I do want to encourage all of you to continue to ask questions of the company you have invested in, to call us up, to e-mail us.

We would love to see you and this year's annual meeting on June 9.

Also we hope to be sharing and our licensees hope to be sharing some of the significant developments that are going to happen.

So thank you very much, all, for participating.

Thank you, Mr. Harary.

If you wish to access the replay for this call, you may do so by dialing 719-457-0820, the passcode 459-4466.

This concludes our conference today.

Thank you all for participating and have a nice day.

All parties may now disconnect.