Research Frontiers Inc (REFR) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers' 2012 First Quarter Investors Conference Call. During today's presentation all parties will be in listen-only mode. And following the presentation, the conference will be opened for questions by pressing star, then one, to ask a question. (Operator Instructions).

This conference is being recorded today. A replay of this conference will also be available starting at 12.00 p.m. on May 2 [sic - see press release], 2012 in the Investors section of Research Frontiers' website at www.smartglass.com and will be available for replay for the next 60 days.

And now, the Safe Harbor announcement. 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 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 e-mailed to it prior to this conference call, either in your -- their presentation or as part of the Q&A session at the end. (Operator Instructions).

I would now like to turn the conference over to Joseph Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, Denise, and welcome to Research Frontiers' conference call to discuss recent developments in the four main industries using our SPD-Smart Technology and Research Frontiers' financial results for the first quarter of 2012. Joining me today is our CFO and Vice President of Business Development, Seth Van Voorhees. We're pleased that you're taking the time to be with us today and thank you for your continuing support of Research Frontiers.

I also want to thank all of the investors who e-mailed in their questions. We have tried to answer them in the body of our presentation and, to the extent that we haven't or there are additional questions, there will be also an opportunity later on in the conference call for participants to ask additional questions.

In March, when we had our previous conference call for investors, we discussed the fact that 2011 was a milestone year for your company and was a year of growth in many important respects, including adding people, both internally and externally; growth in terms of licensee resources, including much larger licensees getting involved with various aspects of the SPD industry; growth in customer resources and activity, including promotion of SPD Technology by Daimler, HondaJet, Bombardier, Audi and Cheoy Lee Shipyards. This also led to growth in the adoption, use and visibility of our SPD-SmartGlass technology.

We've tried to improve the quality, frequency and quantity of information that we supply our investors, with the goal of sharing as much meaningful information as soon as possible. Sometimes this is hard because of the industries that our technology is used in. Last year we started the regular practice of having conference calls when there was important news to discuss.

The first such conference call was in February 2011 to discuss what I consider to be one of the most important events in our recent corporate history, the adoption by Daimler of SPD-SmartGlass technology on the first serial production vehicles, the Mercedes-Benz SLK Convertible Roadster.

The next conference call was nine months later in November of 2011 to discuss a series of significant product introductions in various industries and to focus on our third quarter results in which, for the first time, one of our licensees exceeded their minimum annual royalties and did this one quarter ahead of projected schedules. This was due to sales of our SPD-SmartGlass by one of our licensees in the automotive market.

Just five weeks later, in December, we had yet another conference call to discuss another significant event in automotive, the adoption of our technology on a second vehicle by Mercedes, their new SL Convertible Roadster. And less than three months later, in March, we hosted another conference call to highlight Mercedes' third vehicle to use our technology, the Viano Pearl Limited Edition Luxury Van. We also focused on our fourth quarter financial results, where royalty income was up substantially from the prior quarters, once again primarily from sales in the automotive market.

Which brings us to today's call. Today, we will also discuss something of significance, our revenues for the first quarter of 2012, which are substantially higher than last year. The revenues we reported earlier this week represent record earned royalties for your company from product sales. This revenue growth is being driven almost entirely by sales in the automotive market. However, there have been good activity in other industries using our technology, which include the architectural, aircraft and marine industries, but not to the extent of significantly exceeding minimum annual royalties by licensees selling into these other industries.

Also significant this quarter are increased cash flow into Research Frontiers, not only from these higher revenues, but also from the payment by New York State under a program to encourage companies to develop new and emerging technologies. And also, the repayment of an investment that we had made several years ago in one of our licensees to help them develop sophisticated control systems for our glass.

I now turn the call over to our CFO, Seth Van Voorhees, to discuss these financial results in more detail. Seth?

Thank you, Joe. Good afternoon, everyone, and thank you for joining us on this call. As always, I'll discuss the financial results in approximate terms and just cover some of the highlights from our most recently completed first quarter. For more details, please see the financial statements, along with the notes thereto.

As discussed on our last conference call, Research Frontiers is a company undergoing an exciting transition from an entity that generates little revenue from the economic activity of our licensees to one that has meaningful revenues derived from economic activity of our licensees.

The next phase of our financial development will be to further accelerate these revenues so that we no longer are reporting operating losses. Based on fiscal year 2011 operating expenses, we would need to report approximately $5 million in fee income to achieve this breakeven goal.

We have a strong technology with many performance advantages and the potential market size and opportunities are significant. We have made excellent progress and are working hard to achieve these goals as quickly as possible. Now, let me turn my attention to our financial performance.

Fee income has been quite positive. The Company's fee income has improved significantly over the last four quarters, starting in the second quarter of fiscal 2011 and continuing through the first quarter of 2012. For each such quarter, our quarter-over-quarter reported fee income has increased by double-digit percentages that have ranged between 36% and 70% per quarter.

As a consequence of the improvement in the fee income from fiscal year 2011 until the first quarter of 2012, the Company's year-over-year fee income improvement improved dramatically. The Company's fee income for the three months ended March 31, 2012 was $482,578 as compared to $144,441 for the same period in 2011. The reported fee income between these two periods increased by approximately $338,000 or 234%.

Most of the increase in the fee income during this period was a result of higher product sales in the automotive market from one of our licensees. For confidentiality reasons, we do not disclose the minimum annual royalty for our licensees. However, this automotive licensee's sales level caused the royalties we were paid to exceed the licensees' entire minimum annual royalty level for the 2012 calendar year by approximately $237,128. Thus, our revenues for the first quarter include the full year's minimum annual royalty for this licensees, as well as the amount in excess of the minimum annual royalty.

Now, I'd like to turn my attention to our liquidity and capital resources. As of March 31, 2012 we had approximately $3.1 million of cash, cash equivalents and short-term investments, with no debt outstanding.

In addition to higher royalties, there were several nonrecurring events during the first quarter that has positive impact on our liquidity. The first of these events include the receipt of $613,397 from New York State for research and development credits that the Company applied for relating to the years 2006 through 2009. We received a payment of $448,297 in April 2012 and the remaining $165,100 is expected to be received shortly. This amount is not included in the our -- in the $3.1 million of cash that we reported as of March 31, 2012.

The second of these events was the repayment of a debt investment that we made in one of our licensees several years ago. On March 30, 2012 SPD Control Systems paid Research Frontiers $224,903 in full payment of the principal and accrued interest on that note. This amount was included in the $3.1 million of cash and cash equivalents that we reported as of March 31, 2012.

Now, I'd like to turn my attention to our investment communication program. The exciting developments that Joe highlighted earlier creates a good opportunity for us to attract a broader universe of potential investors in our company. Over the last 12 months we have undertaken a number of initiatives to broaden our communication program with the investment community.

We were pleased to be invited to present to a number of industrial investors attending the Cowen and Company Technology Conference last May and Craig-Hallum's Alpha Select Conference this past October. We will continue to seek out similar prestigious institutional investor conferences in fiscal year 2012.

We were pleased that an analyst of the stature of Steve Dyer of Craig-Hallum initiated coverage of Research Frontiers late last year. We believe having an independent outside view on our company is very beneficial to investors in our company.

Finally, we have initiated regular conference calls starting late last year to provide greater opportunities to share information regarding your company. Over the last six months we have had the opportunity to hold four such conference calls, including today's presentation. We expect greater visibility as our revenues continue to grow and our company becomes more visible and easier to model.

I will be happy to answer questions -- answer any questions you may have regarding our financial results later in the conference call. Joe?

Thanks, Seth. And thank you all once again for participating in today's conference call.

And as Seth noted before, there was some high percentage growth quarter over quarter in our fee income once the first product came out for the automotive market. And to echo what Seth said earlier, I believe that, apart from being extremely important from an operations standpoint and a cash flow standpoint, sustained revenue growth is also important from an innovation standpoint as well. With the increased visibility of our products, combined with the high percentage revenue growth, more new investment dollars should flow to our company on the retail side and on the institutional side. Also, with some of our initiatives to increase institutional ownership, this should also help in this respect.

Now, in our last conference call I discussed in detail various activities in all four of the main industries using our SPD-SmartGlass technology, so I will not go into detail again about these activities and refer you to more detail on our website and also on our YouTube channel, which you can access from the -- our website's home page. But, because of its importance to your company's operations and success, I'll say a few more words about our largest and most important near-term market, the automotive market.

After years of testing in some of the most extreme conditions on Earth, ranging from Death Valley to the Arctic Circle, Mercedes-Benz launched the first ever serial production vehicle using SPD-SmartGlass technology. And as those that follow our company knows, this has now grown nicely over that time.

The first car was announced in February 2011, the SLK Roadster, which made its world debut at the Geneva Auto Show in March of 2011. During the late summer, cars using our SPD-SmartGlass technology, which Mercedes refers to as Magic Sky Control, started leaving the SLK factor in Bremen. This, in fact, is the same factory where the SL is being produced. And we recently brought -- we recently bought one of the SLKs from our local Mercedes dealer and it was surprisingly affordable. You should experience this remarkable car for yourself if you can.

On March 31, 2012, the second car, the SL Roadster, became available in dealers' showrooms in Germany. And one week ago, on May 2nd, it became available here in the United States. The SPD-SmartGlass for the SLK, and also now for the SL, is made by our licensee Pilkington using Hitachi SPD film in Pilkington's factory in Witten, Germany.

In July the Viano Pearl, with Chromalight SPD-SmartGlass supplied by our licensee Isoclima, is scheduled for delivery to customers, primarily in Europe, the Middle East and China.

While it's still very early in the roughly 7 to 8-year program cycle lifetime for the SLK and the 10 to 11-year program cycle for the SL, early sales figures for the Magic Sky SPD-SmartGlass roof on these cars are very encouraging. I'm happy to say that, early on, the entire SPD supply chain were told to increase production levels beyond original projections in order to meet customer requirements.

Another thing I want to highlight is the visibility of these vehicles. The SLK is predominantly sold outside of the United States market. The primary market for the SL is the United States. So, in addition to higher take rates for this vehicle, because it's a more expensive car, we also expect to see higher visibility here in the US for the SL.

As we have noted in the case of the SLK in prior conference calls, the royalty guidance per vehicle that we have given investors is that we will receive between $100 and $150 per vehicle. And this is also similar for the new SL. We believe that, as good as the results have been so far for the SLK, now that the SL is in showrooms across the United States and also around the world and Mercedes has publicized this feature more in advertising and other promotional materials, dealer and customer awareness of this option will increase and this will benefit product sales of the Magic Sky Control roof in all vehicles and not just in the SL.

The anecdotal evidence that we're receiving is that word is spreading; from the dealers who tell us that those that know cars are not ordering the SL without the Magic Sky Control feature, to a 13-year-old kid who has no connection to Research Frontiers or any of its employees who told his dad, who I happen to know, hey, dad, did you hear about the new glass from Mercedes? So, word is spreading pretty broadly about the magic of SPD-SmartGlass.

Now, moving beyond these three vehicles, we and Mercedes currently expect additional vehicles within the Mercedes-Benz product line to use SPD-SmartGlass technology. And other OEMs are also working with us and our licensees to use SPD-SmartGlass on their own production vehicles. And I'm happy to say that we're now working with the OEMs that have a majority share of the relevant premium automotive market.

There are a significant number of car models out there that are being either refreshed or redesigned at any given moment. As we have noted in the past, this is the logical time to expect SPD-SmartGlass technology to be introduced on a vehicle. You can already see the beneficial impact that even one model car, the SLK, has had on our revenues and how these revenues can quickly ramp up.

Now, add this -- to this the cars that are just now coming online in the second quarter, such as the Mercedes SL, and the third quarter with the Viano, and you can get an idea of what is to come with just these already-announced vehicles. Now, add to this the number of other OEMs and you will see that we are at a very exciting time with great prospects and a strong pipeline of products coming out in the foreseeable future. And many of the initiatives that we and our licensees started implementing in prior years have begun to bear fruit and we are successfully achieving our objectives.

What you see announced by us and our licensees are leading indicators of what you can expect. The revenues that we reported in the 10Q we filed earlier this week are record revenues for your company from product sales. But, they're also the direct results of these efforts by Research Frontiers and our licensees in prior periods.

And although still a relatively new, but extensively tested and proven technology, already thousands of drivers have experienced the magic of SPD-SmartGlass and the Magic Sky Control roof on a growing number of Mercedes-Benz production vehicles. Awareness of what you saw when you first invested in Research Frontiers is now spreading worldwide. Architects, designers, engineers, manufacturers and consumers are now beginning to experience SPD-SmartGlass for themselves and find out why SPD-SmartGlass is currently the best performing and best selling instantly tintable SmartGlass on the planet.

I thank you all for your support and your time and attention today. We'll now answer some additional questions that were e-mailed to us that we weren't able to cover, and also take questions from participants.

The first question was e-mailed by [Robert Shoreman]. There are a number of questions. I'm going to take a few of them to leave time for other questions. When will the next major car company announce that they're adding SPD to their cars and what is the catalyst to move the stock price higher?

Well, the questions are somewhat related, because I think additional product models within Mercedes and a second and third OEM using our technology will be catalysts for our stock price. Also, I'll add to that list as far as catalysts having a additional source of film beyond the already large production capacity of Hitachi Chemical.

As far as when the next major car company will announce, the nature of the industry is that I have to let that car company speak first.

The next question was from [Pat Delaney]. Can you give us any update on GKN's sales activities? GKN is active in both markets that they're licensed for, both the armored glass and the aircraft market. And they're an industry leader, so they get a lot of attention when they visit customers.

This question is from [Jared Albert]. Congratulations. Very nice to see fee income growing. There is some question whether Pilkington exceeded MARs for the year by 237,000, or just for the portion allocated to Q1. Please clarify if possible.

Seth, you want to address this?

Sure. First, let me take a step back in terms of the accounting treatment of our MARs. In the beginning of the year, our licensees have a financial obligation to us in the form of a minimum annual royalty payment, or as we refer to them as MARs.

As an example, let's say a company -- one of our licensees has a $40,000 minimum annual royalty payment. What we will do is that minimum annual royalty payment is credited against any royalty they would owe us from economic activity. However, we do not know if there will be economic activity in -- during the course of the year. So, for conservatism, our accounting treatment is that we realize the income from that MAR over the four quarters of the year. So, in the first quarter in my example we would have recognized $10,000 of the MAR for that licensee.

Now, should that licensee from economic activity exceed the MAR, what we will do is recognize the entire MAR in the first quarter, as well as any amount that would exceed that MAR. So, in the first quarter for Pilkington, they exceeded the MAR as well by $237,000. So, we recognize in the first quarter their entire MAR for the year, as well as the excess amount that they achieved during that first quarter.

Another question comes from [Kerry Christy]. It says, some of the information that refers to Magic Sky Control technology on the web makes comments about and shows photos of a clear glass roof with no dimming and a reference to the frosting technique that seems more like LCD technology that was tried on interior windows some years back. Is all Magic Sky technology SPD, or is Mercedes and others working with a competitive technology?

Anything that is referred to as Magic Sky Control, I'm happy to say, is SPD-SmartGlass. And sometimes reporters just get it wrong, as hard as we try to correct them.

Next question is from [Mike Selnick]. Nice going with continuing rise in both revenues and royalty fees. Is there any visibility on the progress of the SPD remodeling work going on in that plant in Australia?

The -- what he's referring to is our licensee Eyeglass in Australia, which currently produces liquid crystal film and has a grant from the government of Victoria to upgrade their facility to produce SPD film in that same facility. That's the remodeling work that he's referring to. And our recent communication with them is that they're on track for production of SPD film at this facility in Australia.

The next question is from Bob Armstrong. I see R&D is up about 15%. I see REFR's long-term value being dependent on maintaining a technical value to its licensees. What, in general terms, are the issues, the R&D is directed towards?

Well, let me step back. Up until commercial introduction, there was a lot of R&D going into making sure the technology was stable and would work well. So, over the last several years a lot of our R&D efforts were going to improve stability of the materials, a wider range of light transmission, better adhesion and cohesion, basically increasing the robustness of the film and increased durability. And those are still goals to always improve on because those are like motherhood and apple pie, good things to achieve for our technology.

But, as noted in more detail in our 10K, the main things that we've delineated going forward are a wider range of light transmission and quicker switching speeds. Now, that may sound odd because we have the widest range of light transmission of instantly tinting, switchable technology and very quick switching speed. So, we always want to improve it. We're not going to sit on our laurels, but we are a leader in that area already.

Another area is different colored particles. It has always been the Holy Grail to try to achieve different color tints. Reducing the voltage and the power requirements. Even though it's pretty small right now, you could run 1,000 square feet of SPD Smart Windows in the fully clear, which is the most powered state, for less power than a 60 watt light bulb. We always want to reduce the power consumption.

We want to always improve the materials and data about the materials. We want to quantify the degree of energy savings and improve performance and reduced costs.

And let me just take a minute to talk about quantifying the degree of energy savings. Last week we spoke at the Buildings New York conference and we were part of a panel which included some of the world's most renowned architects in the area of building envelops and also innovative glass. One of our licensees participated in this panel. And one of the things that came out of that and one of our focuses from a R&D, but also from a marketing standpoint, is to help people understand SPD-SmartGlass is a system.

If you just looked at the waste of energy through a window, it really accounts for about 17% of the total energy footprint of a building. However, SPD-SmartGlass can affect more than just the energy wastage coming in and out of a window, in and out of the glass, if you will. For example, if you can bring day lighting in in the winter months, you could reduce your heating requirements and reduce your energy cost there. It also has other benefits as well in terms of conditioning the air, making people more comfortable, eliminating dust and pollen and other things that you want -- and particulates. So, there's a lot of things that go into a building's energy signature that you could either avoid or reduce by using our glass in the structure.

The part of the mission that we and a number of major architects now in the world are doing is carrying that banner about doing this as a system in a building and how significant the savings can be with SPD-SmartGlass.

The next question is -- I guess we'll give this to Seth. It's from [Clara Hotten]. Due to the inability of REFR stock to maintain the gains we saw last year from the good news regarding the automotive and other markets, do you think that the Company should put on a dog-and-pony show for the investment community? Seth already addressed some of this, but -- what we're doing in this area. And I think that what you'll find is our activity in this area will continue.

Another question for Seth is from [Jared Albert]. Can you indicate how much of the fee income is for sales booked in the fourth quarter of 2011 versus one -- the first quarter of 2012? Thank you. And I-- I'm going to turn this over to Seth.

Sure. All of the fee income that was booked in the fourth quarter of 2011 was reflected in the fourth quarter of 2011 financial reports. And as a consequence, all of the fee income that we're reporting in the first quarter of this year is for sales that we booked in the first quarter of this year.

The next question comes from [Darrel Dagel]. Can you comment on any issues or regulations concerning auto side and rear windows with SPD? Also, does rolling down and up of door windows create any problems that haven't been solved?

Well, let me answer the second question about a moveable window. We've had moveable windows in the architectural market for years now. It requires fairly straightforward methods of using hinges and wires to basically allow the window to travel and still maintain its intelligence with our glass.

In various test cars in the past couple of years we've also had moveable windows without any problem, side windows and also moveable sunroofs. And if you look at something where there's a lot of moving parts that do somewhat of a ballet dance in coordination, the roof of the SLK and the SL folds into the trunk of the car. So, those issues really are addressed by standard engineering approaches, so that's not an issue.

As far as regulations, let me summarize the regulations that exist here and in Europe and I think it'll make maybe some of the recent articles about Mercedes expanding into the side market a little clearer.

Of course, any type of glass has to maintain safety standards. You can't have it break into shards and cut somebody. And, fortunately, the SPD film actually enhances the security and the strength of the glass. It turns glass into laminated glass, which is very, very strong and is a step above even tempered glass, which is what's used on sunroofs right now.

As far as regulations, the regulators, both here and in Europe, kind of break up the world into cars and light vehicles other than cars, such as SUVs and vans. And in the US, you can do anything you want on a van or an SUV behind the B pillar. That's the piece of metal between the front windows -- from the front seat and the back seat. So, all the way back you could do whatever you want once you're behind the front seat of the car. And that's on vans.

In Europe, that not only applies to vans and SUVs and other light trucks, but also passenger cars. So, a passenger car in Europe, you could do anything you want behind the B pillar. In the US there are tint regulations that vary from state to state on what you can do on a passenger car behind and in front of the B pillar. But, we don't see any real problems there. They're big markets and a lot of vehicles are being sold in that.

The last question was a very timely one. It came from [Jared Albert]. Any comment on the SAGE Glass acquisition? And I note that the in-service date for their factory has been pushed back to 2013.

Well, what he's referring to in his question is, today it was announced that Saint-Gobain, a large, French glass company, which incidentally is a licensee of ours, acquired the remaining 50% interest in SAGE Glass that they didn't already own. They didn't give the details of the deal so I can't really comment on the economics of it. But, I will say that it wasn't unexpected to any of us at Research Frontiers that SAGE ended up having to sell 100% of their company to Saint-Gobain, or that there was a delay in the production date of their factory.

So, that covers the questions that we received via e-mail. Denise, if you could open up the floor to any questions that might be in the queue, I'd be happy to take them or Seth would be happy to take them, depending on their nature.

Thank you, sir. (Operator Instructions). And our first question this afternoon is from Steve Dyer of Craig-Hallum. Please go ahead.

Thank you. Good afternoon, guys.

Hey, Steve.

Hi, Steve.

Wondering if you're willing to comment on the take rates? I know it's very early days. When offered as an option, what you're seeing in the first couple Mercedes models?

Well, let me defer to much smarter people than I, which is Mercedes in Pilkington. A lot of the roof glass, especially the ones sold to Daimler, is supplied by Pilkington. And they even said that it's still very, very early in the process to even begin -- even for Mercedes to begin to know what the take rates are likely to be.

I will say that we're very encouraged by the data. As I mentioned earlier in the presentation, early on in the process I think even Mercedes was pleasantly surprised, because they instructed the supply chain to make more glass for the vehicles. So, we're seeing good results and we do get -- and this is -- maybe a good opportunity to give you an idea of the visibility that we have.

We typically will get royalty reports from our licensees on a quarterly basis. In the case of Pilkington, we get it on a monthly basis, which is helpful because it gives us near real-time looks at leading indicators of what the sales of the Magic Sky Control roof are going to be. We also get daily reports that typically come in batches about once a week from Mercedes on the number of vehicles that are leaving the Bremen factory that have our technology in it.

So, we're seeing an increase in the number of vehicles that are coming off the production line at Bremen with our technology and that is very encouraging.

Now, I also give the caveat that it's way too soon to tell. You have basically a short period of data, maybe three to four months of meaningful data coming out. And also, some of the glass sales could be inventory building, which is typical whenever you start a new car. So, we don't know how much of what's being produced by Pilkington is inventory building. We do know how many cars are coming off the line with Magic Sky Control and it's very nice. And the fact that we're starting to see the awareness at the dealers -- I walked into a dealer -- as I mentioned, we recently acquired an SLK and it didn't cost much more than the lease for my wife's Honda.

Okay.

But, what we've found over time, Steve, is that the dealers and the salespeople are much more aware of this option and are much more excited about it. And if they're excited about it, they're going to be pushing it.

So, taking you off the spot maybe, what has Mercedes told Pilkington to expect, or Pilkington told you to expect? Certainly, Mercedes would have to tell a manufacturer sort of -- give kind of a baseline expectation level.

Right. Well, now, they did give baseline expectation levels to both us and Pilkington, and then they upped them. But, I can't give more detail on that just because that's what Mercedes considers extremely confidential. However, in speaking to some of Mercedes competitors, I think they also know that the Magic Sky Control seems to be selling well and they're encouraged by that and that certainly helps us.

I'm sorry, Steve, I can't give you kind of the exact numbers that they told us.

With respect to the side windows, what is your sense there? There's a lot of outlets reporting pretty -- what sounds pretty definitive, that they are looking to move to the side windows. Is there anything you can say about that?

Well, the first foray into that was the Viano Pearl, which was the highly-upgraded luxury van that's being slated for the Chinese, Middle East and European markets. A lot of the performance tuners around the world, that's their favorite van to upgrade into a VIP vehicle. And I guess Mercedes felt that if they were going to -- they might as well grab some of that business for themselves, so they decided to make it a factory-installed upgrade option.

That got good customer reaction at the Frankfort show, which is why they put it into production. So, I think the initial indication that Daimler has gotten about putting this in the side glass has been very positive and that's why they did venture into the Viano. And we're seeing a lot of interest in that among other automakers as well. I think we're going to have to let that play out in the marketplace because I don't want to telegraph what's coming, but there is an interest in that.

And I think Mercedes is rightfully cautious in talking about the regulatory issues because they don't want everyone to start asking for this in places in the car that, right now, regulations wouldn't allow it. But, if you just took the side and rear glass of a car, you're talking about a substantial amount of glass out there that would be accretive to the business that we already have.

Is your expectation, both within Mercedes as well as other OEMs, that the sunroof will be the de facto first spot, or would you see some that may skip that altogether and go to the side view? I'm just trying to figure out, as you look at Mercedes, do we get more in the sunroof before we get a move to the side windows.

I think you'll get -- I can't comment on the quantities, the split between roof and side. I think you'll get both. Remember, if you look at this as -- the glass as a system, using more SPD-SmartGlass in a vehicle, and that would include the roof and the side windows, can reduce your fuel consumption, reduce your CO2 emissions and reduce your air conditioning requirements. So, as manufacturers look at this as a system, it has a lot of environmental, as well as comfort benefits and that dictates that they use it in as many places in the vehicle as they possibly can.

Steve, the only thing I would add to that is that it really depends on the application. For -- in terms of heat control, the sunroof is a major component of what will heat up a cabin in a car. So, if you're looking to minimize the temperature of a cabin, the sunroof is the most obvious first application. If you're looking for glare control or privacy control, you're going to be a lot more focused on the side window application, to put SPD window -- SPD technology in. It certainly contributes in terms of some of the heat buildup in a car, but not to anywhere near the degree that a sunroof does.

Okay. And then just a last question and I'll hop out. Is it safe to say now that you have, I guess, a couple models shipping, that revenue, at least over the foreseeable future, the rest of the year maybe, should continue to increase sequentially on a quarter-to-quarter basis?

I think we have to be cautiously optimistic. On the one hand, we don't know how much of the current sales are inventory building that are kind of initial inventory building. However, on the optimistic side, if you look at the fact that the SL only hit showrooms in Germany on March 31st and in the US last week on May 2nd, I think we have a lot more cars that are going to be sold once the SL comes online, especially since we expect higher take rates just because it's a more expensive car for the Magic Sky Control feature is an even smaller percentage of the vehicle cost. But, the SKL is selling and, like I said, it's surprisingly affordable, even with the Magic Sky Control feature.

Okay. That's all for me. Thanks.

Thanks, Steve.

(Operator Instructions). The next question will come from Michael Kay of Kay Associates. Please go ahead.

Hello, Joe. It's good to see those numbers. May they continue and triple, quadruple, quintuple, whatever.

Anyhow, I just have a slew of relatively short questions for a change. Number one, why do the -- why does the -- what progress is being made on having another licensee mass produce film so the Company wouldn't be totally dependent upon Hitachi being the only mass producer of film?

And another one would be, what are the prospects for the cost of the film going down, since it seems to me that that's a major obstacle in terms of penetrating more of the mundane markets.

Right. Okay. Well, the first question is it's always been part of our strategy to have multiple sources of film supply and it's something that benefits everybody in the end product and customer side of the SPD industry. Having geographic diversity is also very good and this is very much part of our strategy. And while I can't give you the details today, we have some very positive things happening in that area and we're executing on that strategy.

As far as costs coming down, that's going to come primarily from increased volume and increased capacity utilization at these factories. And then, there's the typical experience curve benefit of, as your production doubles, your cumulative costs come down by about 20%. So, that's why you see a lot of products that were very expensive when they first came out, like computers and cell phones and even cars, becoming very affordable very quickly. So, we expect that the same thing will happen with SPD.

Thank you. Now, in the auto, which -- now, initially -- I'm not that much of an auto person, so initially the Magic Sky Control was optional. Now, it's my understanding that there are some models by which it'll be or is standard equipment. Is that correct?

Yes, the Viano has it as standard equipment. But, keep in mind that's a limited addition, highly upgraded, fully loaded with stuff that doesn't appear even as an option on the regular Viano van. So, right now it's standard equipment on that. If automakers are going to get the full benefit of SPD in terms of reducing your air conditioning loads and making the car more fuel efficient and emission efficient, or in the electric vehicle market extending the range of the cars, using more glass as a standard feature becomes essential.

Would you say that whether or not Mercedes makes it a standard feature would in part be dependent upon the reception and enthusiasm and acceptance of Magic Sky as an option?

The customer is always right and Mercedes will build what the customer wants. So, whether they say it's a standard feature or an option that's highly taken, if customers want it, the supply chain is robust enough to deliver it. And I think, based on the accolades that we've gotten in the automotive press, which I think has created a sophisticated awareness among car enthusiasts about Magic Sky Control, that's helping a lot.

And it seems to me, even though it's a harder market to crack, the -- that the architectural market will be perhaps even more lucrative in the long run than the auto market, possibly. What's been the reception and what progress has been made in getting architects and building contractors to really get interested in SPD? Are they just waiting to see how long -- how it will go in these other vehicles and applications, because I know they're quite conservative?

Right. Well, like I said, last week at the Buildings New York Show we were -- we actually made a presentation to a standing-room-only crowd, which wasn't true of the other presentations that were there and I think that bodes well for the architectural market. And you've begun to see more architectural projects, at CERN in Switzerland. You have other projects here and our licensees are busy in that area.

It's true that architectural glass accounts for about 60% of the world's glass versus about 27% for automotive glass. But, remember, automotive is much more predictable at this stage because you know what the requirements are going to be for each program model.

Michael, if I could ask, either hold your questions or maybe --.

Oh, that's fine. I'm finished, thank you.

After -- you could reenter the queue if you like. I just want to make room for our next --.

That's fine. Thank you very much.

Thank you.

And our next question will be from Rich Knapp of Merrill Lynch. Please go ahead.

Can you tell us when you'll be able to give better estimates on the SPD glass for Mercedes or from others where you can do some modeling on this and do some forecasting in the future?

Yes, that's a fair question. I think as we get further and further along we become a lot more, I guess -- I won't say transparent, but visible. In the early months of introduction of any vehicle, the car makers really keep things as close to the vest as possible because they're trying to maintain a leg up on their competitors.

I think over time you start doing a back-of-the-envelope calculation on what our revenues are. And at a 10% royalty for all of our licensees in the automotive market you could figure out pretty much how many vehicles and then make some assumptions as to the take rate. Right now, it's too early to tell just because there's not enough data out there. I mean, even though there's thousands of cars with Magic Sky Control, you have -- it's still very early on in the program cycles for both the SLK and the SL.

We have to be very careful at Research Frontiers because we want to maintain as much information flow with the ultimate customers like Daimler as possible, which means we have to keep what they tell us confidential. But, for planning purposes, it's essential for us and our licensees to know what the likely expectations are in terms of production and revenue requirements.

So, what I think you'll see happening is, the leading indicators, and if you kind of look back at what we've announced as a company, they may not have seemed important at the time or maybe the stock reacted or didn't react to it at the time, but I think in the fullness of time all is revealed. And what happens is things that we announced last February, i.e. the SLK sales, are beginning to translate starting in the third, fourth and first quarter into ever-increasing revenues just from that one model.

So, I think you'll get better and better visibility. But, keep in mind that there are leading indicators and lagging indicators and revenues that we report are the lagging indicators. Of course, they're important because they're the measure of economic activity, but I think the information is out there to start modeling the Company and see where things are.

For example, you've got a couple of aircraft that are scheduled to come online in 2013, 2014, 2015. You have car models that are coming online. As they're announced, you'll be able to add that to the model fairly simply and figure out these different layers of revenue that are coming into Research Frontiers that build on each other.

Are you limiting -- the SUV coming out for Mercedes, it's a limited edition. Does that mean there's a limited number of models or number of units coming out?

Well, right now it's a VIP model.

Right.

So, they have an initial production target and then they're going to take it from there.

Also, a lot of times what car manufacturers do is they put it in the VIP vehicles first and then it migrates down into the other vehicles. So, I wouldn't be surprised if it starts in the Viano Pearl as an ultra luxury, super upgraded van for specific high demographic markets and eventually makes it into a number of different midlevel markets as well.

Okay. Last --.

But, that's typically how they deploy these things.

Last question. The stock is at multi-year lows right now with all this positive news. I'm a little surprised that none of the Board of Directors or insiders have been buying the stock at this level. The level is still at 20,000, 25,000 shares a day.

Well, I want -- let me address that. There are many times -- and if you just look at the volume of activity and announcements that have been at the Company over the last 12 to 18 months, there's been a lot of times when insiders have been restricted. Now, it hasn't been every day, so I can't account for that completely by the fact that we've been busy with positive news. But, right now, if an insider wants to buy stock, we have various procedures that they have to go through and we have to make sure that there's no pending developments that would prevent them from buying, like most companies.

Thank you.

Thanks.

(Operator Instructions). And this will conclude our question-and-answer session. I would like to turn the conference back over to Joseph Harary for any closing remarks.

Okay. Well, I think we just got one more question in the queue and we have time to take it, if you'd like.

No problem, sir. We have a question from Thomas McCarthy of Raymond James. Please go ahead, sir.

Hi there, Joe.

I saw you got in at the very last second, Tom.

Right. I appreciate it. In regard to the Viano van, the supplier of the glass is Isoclima. Who --?

Right.

Is making the film? Are they making the film or are they getting the film from Hitachi or somewhere else?

They've asked us not to disclose that information for certain business reasons at this point. So, unfortunately, I can't answer that question. However, they have active programs, both in making their own film and also working with others. So, they're a glass company and I think, to some extent, they're agnostic as to where the film comes from as long as it's of the highest quality.

May I ask a related question? Is Hitachi planning to sell film to others?

I think Hitachi's sales goals are to maximize the capacity utilization of their plant in Ibaraki. Right now, that plant can make 4.3 million square feet of film a year and they have capacity that they could use. So, I don't think they're going to turn down customers as long as these are quality customers that are deploying the technology in the correct way. And Isoclima is certainly a high quality company that has the highest standard -- one of the highest standards in the glass industry, so --.

And can we say the same thing about Hitachi selling the chemical emulsion to others?

That's a different question that I can't answer because, right now, most people want to buy the film and not the emulsion from them. It's a great film with a wide range of light transmission and great characteristics and I think -- we'll see what develops there.

Okay. Thanks, Joe.

They're not restricted, Tom. And maybe to -- the other answer to your question, they're not restricted. They could sell that emulsion to any licensee they -- that is an authorized user of it.

Okay, very good. Thanks.

Thanks.

(Operator Instructions). And I think we show no additional questions in the queue, so I'll turn the call back over to Mr. Harary for closing remarks.

This is a very exciting time for us at Research Frontiers. After a very long development effort, we're beginning to see not only results, but constantly improving results in terms of visibility, in terms of revenue. We're working hard to keep adding to the visibility and to the revenue.

You can tell from some of the recent developments that certain markets have begun to realize the benefits of SPD-SmartGlass outside of automotive. There's about 30 aftermarket aircraft that are currently flying with SPD. There's a number of OEM markets in the aircraft market that have been showcasing SPD on their new jets that are coming out.

More recently, in the museum market you see an increased awareness of how damaging light can be to artwork and to people. There's been some pretty high-profile technical issues out there in the museum market that SPD would be a perfect solution for and we've gotten a lot of attention in that market.

The studio market is also one that's -- has a growing awareness of SPD, which is nice to see. And, of course, the bigger architectural markets, the commercial and residential markets as well. So, it's exciting to see not only the main segments of these four industries start to use our technology, but some highly specialized and in some cases less cost sensitive applications as well.

So, we thank everyone for participating in the Company and enabling us to create an industry that is beginning to take hold. And I think the near future is very exciting for all of us and, the market's notwithstanding, I think we're in for some successful times together.

So, I thank you all once again for participating in today's call. I look forward to our next conference call and hope we have more exciting news to share with everybody.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.