Research Frontiers Inc (REFR) 2021 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers investor conference call to discuss the third quarter 2021 results of operations and recent developments. (Operator Instructions)

This conference is being recorded today. A replay of this conference call will be available starting later today in the Investors section of Research Frontiers' website at www.smartglass.com and will be available for replay for the next 90 days.

Please note that some of the comments made today may contain forward-looking information. The words expect, anticipate, plans, forecasts and similar expressions are intended to identify forward-looking statements. Statements that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions that are part of the 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 their presentation or as part of the Q&A session at the end. In some cases, the company has responded directly to e-mail questions prior to this call or will do so afterwards in order to answer more questions of general interest to the shareholders on this call. (Operator Instructions)

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

Thanks, Paul, and hello, everyone, and welcome to our third quarter 2021 investor conference call.

This year, we showed our lowest loss in 26 years. And I'm sure it did not escape notice that in today's 10-Q filings and the related press release, we're able to use a word that neither we nor any other smart window shading company was ever able to use before. We had earned a profit in the third quarter.

As I have said in the past, however, because of the nature of our business, revenues can be choppy, depending on the timing of projects, vehicle production volumes, square footage of glass being used in projects and other factors. We and the other companies in our industry are clearly hunting elephants. Sometimes we land an elephant or 2 in the quarter, and sometimes we take down a (inaudible) to animal lovers like myself out there, but I thought that the metaphor was instructive.

This quarter, we had 3 major new events, 2 involve royalties due in the automotive and architectural markets from licensees' past activities. The third was the government contract in the area of specialty automotive. More information about these developments are in our 10-Q, but I can't say more, especially when you deal with certain areas of our government.

Besides landing some big elephants, we had some -- had success over the years hunting herds. Examples of this are having our technology go into serial production with Mercedes and McLaren.

We kicked off this year in January with a new customer. Cadillac announced at the prestigious Consumer Electronics Show, or CES, that they were introducing their new all-electric luxury flagship, the Celestiq, with an all SPD-SmartGlass 4-quadrant roof.

[More recently], the prestigious publication GM Authority with over 3 million readers highlighted the range-extending benefits of SPD-SmartGlass in this and other electric vehicles with a highly coveted 5.5% increase in driving range. They also noted the significance of the 4 grams per kilometer reduction in C02 emissions when SPD-SmartGlass is used in internal combustion engine vehicles.

But these are not the only benefits. We also make people more comfortable and safer and protect the interiors of cars. And as Bentley has noted in their public presentations about the future of sunroofs within them, there is a greater need for SmartGlass roofs because of the movement towards fixed, non-moveable panoramic roofs in cars. Bentley noted that SPD-SmartGlass can also reduce the weight of the roof [by] 13 pounds and eliminate the need for 54 components. This reduces costs and further increases driving range and reliability while contributing to stability of the car on the road.

These benefits in the automotive industry were also discussed in many other prestigious automotive publications such as Automotive News, Autoline, the Detroit Free Press, Wards Automotive News (sic) [WardsAuto] and others. More recently, we appeared on the Automotive News daily news program First Shift and also on the widely followed Daily Drive podcast. And I invite you to check some of these articles and videos out on our website and our social media platforms.

And with our strategic benefits in the areas of electric vehicle range extension and reducing CO2 emissions in ICE vehicles, I expect automotive attention and activity to continue to accelerate, especially when you consider that Hyundai, Sekisui and others heavily involved in the automotive industry have made substantial investments in our industry through equity investments in our licensee, Gauzy.

Let's talk about important developments in other key markets for our SPD-SmartGlass technology. Airbus announced this year that their A220 VIP jet would have SPD-SmartGlass electronically dimmable windows. Airbus has already announced orders for 15 of these transportation category-sized jets. Each of these A220 aircraft will have SPD electronically dimmable windows covering 50 structural windows.

This year, aircraft manufacturer, Epic, started delivering jets to customers with SPD-Smart EDWs. These planes are quite popular with a backlog, and our licensee, Vision Systems, expects a good year ahead. In addition to the Airbus and Epic, there are a number of other new aircraft models that have not yet been announced by our licensees in the aircraft industry, who are Vision Systems, InspecTech and Isoclima.

In yachts, Hatteras now has SPD-Smart skylights in 3 different production yachts. They joined Cheoy Lee [in the interior design] in the production yard area. Also, mega and custom yacht builders enjoy giving the best to their customers with SPD-SmartGlass, and you could expect other boats and cruise ships as well to deploy us.

This year, our shareholders saw Panasonic combine OLED display technology with SPD film to make high-definition displays and televisions that turn into clear windows at the touch of a button. And last month, you also saw LG Display do this for transparent vehicle windows at the Munich Auto Show. You also saw BMW introduce in Munich a stunning concept car using SPD-SmartGlass to control the look and output of the car's headlights.

And while we're still on the topic of new markets, let's talk about the architectural market. As many of you know from prior conference calls, with the opening of Gauzy's Stuttgart factory in the fourth quarter of '29 (sic) [2019] and its ability to [produce] SPD film 1.8 meters wide, this allowed us for the first time to practically address the large potential architectural market. The architectural market uses twice as much of the world's glass as the automotive market. Smart homes and buildings are potentially our largest (inaudible) as evidenced by the high valuations that some of our competitors are sparring for on just this market alone.

And we also learned in the process of competitive bidding on some very large architectural projects for SPD that we actually have gone from having a size disadvantage, and I'm referring to when SPD film was only coated 1 meter wide, to now having a size advantage of electrochromics, since they could do similar widths to Gauzy film of 1.8 meters, but have limitations on the height of the window. And of course, the bigger an electrochromic window gets overall, the slower it gets with tint switching taking tens of minutes with electrochromics compared to 2 seconds with SPD regardless of the size of the window.

In trains, our licensee Gauzy delivered SPD-SmartGlass train glass to their customer, Rehau, for the Deutsche Bahn Idea Train. Rehau is a large supplier to the train and other industries with over 20,000 employees. And I started to talking to them in '19 about using SPD in trains, and I'm really pleased that it has progressed the way it has in that industry. Trains use lot of glass, and SPD-SmartGlass preserve views on such iconic luxury and sightseeing trains as the Shiki-Shima train in Japan and the Rocky Mountaineer trains in North America. The Deutsche Bahn Train opens up SPD to a much larger new market, commuter and regional transport rails.

We talked about the new markets. Now let's talk about financial stability and why this is important. Our financial strength and low overhead and operating costs enabled us to survive and even thrive (inaudible) world events, supply chain disruptions and other calamities that have affected other industries. These resources have also enabled us to move [forward with firmness].

As of the end of this past third quarter, the company had working capital of $4.2 million, including $2 million in cash. We continue to have no debt and have been debt-free for 26 years. We have very steady, low and predictable expenses and cash to last for at least the next 2 years.

So now let me take some other questions that our shareholders have e-mailed to me. [Chuck Michael] has asked a number of questions, one of which is, please advise on REFR's current plans to get to profitability.

I think today's press release probably was a good example that we were successful, at least in recording our first quarterly profit. And the secret to this has been discussed on numerous prior calls. Basically, work to increase revenues. We do that by expanding existing markets and opening up new markets. And you could see this year that there's been a number of new markets that have been opened up. And add new customers like Cadillac. And also decrease expenses, and I think we're in our sixth or seventh year of constantly low year-over-year expenses. So these 2 areas, increasing revenues and decreasing expenses, are a constant focus.

[Jared Halpert] asked, "All right. Hi, Joe. Please give us your thoughts on the Dynamic Glass Act. As you know, I think if it passes in its current form, it will ignite a [feeding] frenzy in the smart glass world, just like blown-in insulation, rooftop solar, replacement windows and every other technology that [energy] credits. And then specifically, can you talk about the combination of the enhanced leads credits and the DGA credits, given that they are direct? And most importantly, if 2 years after being told, Gauzy was shipping 1.8-meter film, are they able to actually ship film? I note [Valentine Hoffman's] post that Gauzy is hiring for full-time production line workers in Germany, which I see as confirmation that they have mass production in sight." [Jared].

Well, thanks for the question, Jared . First of all, the Dynamic Glass Act gives a 30% to 50% tax credit, and we clearly sit within the definition of Dynamic Glass (inaudible) legislation. I do think that it'll substantially transform the economics by making smart glass more affordable. The question will then become, what about performance? Because I don't think that the Dynamic Glass Act will cause major projects to adopt the technology they won't otherwise use. But I do think it'll make us more affordable with this tax code subsidy. And that certainly makes the payback to the owner of the property or the facility manager much faster for them.

And it also makes it less likely that SPD will be cut out of projects it's specified in because of budgetary concerns. So lower costs are always a good thing, and we've been working very diligently and quite successfully to reduce the cost of the technology to the customer. This tax credit will give an additional win to our sales.

Regarding your other question. Gauzy is indeed shipping film. We and several licenses actually got rolls recently that look quite beautiful even in comparison to the Hitachi film. And yes, they're wider rolls than Hitachi produced, 1.4 meters wide. And they can currently coat up to 1 meters if a project requires it. And I believe this also answers another question that was e-mailed to me by [Robert Ringwald].

Another question. What, if any, is the potential impact on Research Frontiers' business potential if infrastructure bill gets passed by Congress and the President? And is SPD product designed for Cadillac LYRIQ electric vehicle going to be standard, an independent option or part of an option package? If an independent option or an option package [price has been such]?

Well, first of all, I think we discussed the importance of government legislation with the Dynamic Glass Act. And certainly, the infrastructure bill is very oriented towards environmentally friendly improvements in our society. So that benefits us well.

Regarding your question about Cadillac, right now, it's only announced in the Celestiq, which is their all-electric luxury vehicle. But I think and it's our expectation that it will be standard on the Celestiq and it'll either be standard or in an option on other Cadillac models. So thank you, [John].

Next question is about our stock price from [Jeff]. Submit that regardless of the progress and advantage that the company has made over, say, the past 3 years, the share price has not provided the company with a vote of confidence. Why is this confidence misplaced? And what would you consider to be the company's most significant advances or events that are not well understood and that what you'd expect to act as a catalyst for the share price?

Well, now I'm going to sound like my prior training as an economist. Stock price, most of the time, is not a function of fundamentals, although you do need fundamental performance over a sustained period of time to establish credibility. The stock price, especially in micro cap and small caps, is more of a function of supply and demand of stock itself. And there could be an oversupply. For example, if a company issues a lot of stock in a stock offering or if a shareholder has to sell a major position to, say, let's pay for a wedding or some other reasons.

And then there's demand for the stock, and some sectors become very hot and then not. Sometimes demand for a stock comes from investment banking transactions and the follow-up and analyst coverage. Also, money flows and funds tend to go into big [tech] funds rather than individual stocks. So I don't think it's really a reflection on any small cap company, including Research Frontiers, in terms of confidence or lack of confidence as much as it sees extraneous supply and demand factors.

So now if you look at Research Frontiers' operations compared to others in the smart window industry, where we have Crown Electrokinetics, which once again has reported no revenues. And probably our closest competitor in architectural smart glass market is View, and View lost $441 million in 2018, $290 million loss in 2019 and the $257 million loss in 2020. And in 2021, before they were forced to stop reporting their financials because of an accounting issue, they lost $55 million in their first quarter.

So I guess I'm a shareholder like you. So I certainly watch the stock price and want it to go up as much as everyone else that's a shareholder in our company. But I ask if shareholders are happier. View had a $4 billion valuation about 2 to 3 years ago when SoftBank invested in it, and that sounds like a lot. But by March of this year when they went public in a SPAC transaction, they lost half of that value of $2 billion. So they went from $4 billion to $2 billion. And then since mid-March, they lost another 1/3 of their value or another $600 million in shareholder value.

So it's a tough industry, but I think that especially this quarter, you could see that being lean and mean and focused on profitable business can be the right approach to this, and that's what we did.

Next question. Can you comment on the general state of the worldwide economy on your business and more specifically the impact of the automotive chip shortage and the COVID-19 pandemic?

Okay. So once in mind, keeping in mind my former job as an economist at the Federal Reserve Bank of New York, I do think about and factor in macroeconomic trends into a lot of the strategic planning for Research Frontiers. And first, as you could see, we are still actively doing business, especially as our recent reported numbers show. And of course, supply chain disruptions, inflation and an inconsistent and ever-changing economic outlook are never good for business or for planning purposes.

And I hope that as a world economy, we don't have the same whipsaw effect that happened in the 1970s where you had inflation. And when that was combined with certain labor market conditions and a drop in productivity and efficiency, that led to an inflationary wage spiral that took my former boss, Paul Volcker, a lot of effort and pain to continue to reverse.

But turning to our business specifically and maybe more to your point of the question. First of all, let's look at the general trends in the automotive industry and the aircraft industry. Suppliers in that industry reported a 34% lower revenues this past quarter. We had increased revenues in the automotive sector. And we have some things about our business that should make us less impacted by things like supply chain disruptions. One example is we're a film-based technology, so rather than having to coat directly on glass.

And this makes for much better logistics, including shipping. We could bypass bottlenecks with ocean freight lines and ports. And even before the pandemic and before the recent supply chain disruptions, SPD film rolls could easily be and were shipped by air whenever needed. So you kind of have the ability to bypass a lot of the issues that are out there. We also have the advantage of flexibility in diverse markets.

For example, if the construction industry in the northeast is stalled or may be slow, we and our licensees can easily target and deploy our efforts in markets where construction is strong such as Florida, Texas and elsewhere. And I note that our licensees, Gauzy and Vision Systems, have offices in Florida. And Gauzy also has an office in Texas. And as I mentioned, we have a very strong footprint internationally as well. So that gives us the ability really to cover a pretty wide berth where there is economic activity.

Next question. What are the advantages -- this is from [Rod Irdman]. What are the advantage of SPD over PDLC? What applications could use PDLC instead of SPD?

Great question, and thank you for it [Rod]. PDLC is good for privacy and for video image projection, and sometimes you'll see both of those things combined with SPD to make even better performance. But even by itself, SPD is good for these uses, but it's importantly -- but importantly as a shading technology and not just for privacy and projection. It adds the ability to control heat, light and glare, which gives us substantial environmentally firmly benefits.

So we've discussed a lot of topics to questions that have been e-mailed to us. I'm going to ask now our operator, Paul, to open up the conference to any additional questions that people participating today might have that we haven't already covered.

(Operator Instructions) And we have a question from [Leonard Leetzow].

How are things in Florida?

Things are wonderful down here in Florida.

I know there's a lot -- I know firsthand, there's a lot of construction going on.

Oh my gosh, all the time, every place. We've got 22 million people here now. And in the last 50 years I've been here, we've gone from 6.5 million to 22 million. So building is every place. Roads are interrupted. Everything is happening. And -- but the supply chain is definitely slowing things down, but we'll get there in any event.

Several years ago, when we talked about the company and the future of the company, we were kind of thinking about, once we achieve the profitability, we would probably get better quarter-by-quarter. And that was prior to COVID and supply chain problems and everything else. Do you anticipate that we'll be continuing in that vein? Or do you think there's too many disruptions or things are going...

Well, I think that -- yes, I think -- and that's a great question. So if our main -- when we had that discussion, our main business was in automotive. So you have typically an 8-year program with an automaker. And we ended up going from vehicle to vehicle within Daimler, and then we added McLaren and went from vehicle to vehicle. So we're in 5 different models in McLaren. And each one of those adds additional revenue. So it becomes accretive and it builds on itself.

Now that we're going into a market where our revenues are also going to come from things that are less predictable and less steady like architectural, potentially much bigger in terms of dollar value, but less -- you don't know if a building is going to have 10,000 square feet or 100,000 square feet of smart glass. And in Naples, there's some buildings going up that could do either that we're working with. So the predictability goes down, but the sheer volumes go up when you move into the architectural market.

So I think that you're going to see some choppiness. But intermediate term trend, that choppiness gets smoothed out and becomes kind of a steady positive trend. So yes, I think that the same thing will happen, although you may not see, one quarter to the next, steady increase. You may see some ups and downs depending on when projects come in and the size of the glass in the projects. But over time, you get enough irons in the fire where that smooths itself out.

Yes. Well, that's good. And I'm really happy to see this in architectural because I just came from an investment conference last week, and I see some of the predictions when we get to the new AI in the automotive market where things are going to change as far as number of units are expected to be produced in that market. And things like parking lots are not going to be needed, et cetera. And the number of automobiles over the longer trend, the numbers are going to be going down, not up in numbers of cars because it will be used more than 5% of the day or whatever it is. So being in these other markets with trains and buses and architectural, I think, are really the key for what's going to happen with Research Frontiers going forward.

Right. And the changing world diversity in terms of your business markets is really a very important thing to have. And that's one thing that we have that our competitors like View and Crown don't have is that they're in one market. They're in architectural, and they're in architectural in 5 markets, maybe 6 now when you start looking at some of the new things coming out. So it's good to have that diversity, and that also allows us to weather ups and downs in each of the individual markets, as I said before.

We have a question from [Art Brady].

Can you comment on the Korean company that's working on some kind of a glare protection?

Our licensee, Glatic. They're an excellent company that has some pretty good connections within the Korean industrial base. They came out of some pretty top companies. So I like those guys, and they're young, aggressive and connected. So it's a good combination.

But any product development at this point in time?

I'm not going to kind of preannounce what they're doing. They will do that.

Can you comment on Lippert? I think they're working with Gauzy.

Lippert, yes, and they also worked with other licensees like Vision Systems. They're a very good company. They're in many, many different industries. RVs is one of them that we know them very well for. And they bought a lot of companies, so their business keeps expanding into new and new industries, yes.

One more question is, do you have any perspective as to -- like last year, you commented you might be going into a second production factory. Has that been put on hold? Or is there some projections as to when that might start up again?

Well, I think that you saw part of it start to happen where, for example, Gauzy has quadrupled their production capacity for emulsion in Israel. What they do is they make the chemistry in Israel, they ship it to their Stuttgart facility where it's coated. And in the Stuttgart facility, it's a very efficient (inaudible). And I mean it was designed only for SPD and to be super-efficient, so we can get the costs down like we have and get them down even further with more volume.

But they did build in the ability to either build a replicated line right next to the current one if they wanted to keep everything in Germany or build it somewhere else in the world where the customer needs are. When you consider the fact that Hyundai has made a major investment in Gauzy, my guess is if you're going to see a factory, it would be somewhere in Asia.

Is anything happening with South America or Mexico.

Yes, there's activity in all of those areas. South America really got hit hard, though, with COVID. So we hope and pray that the countries like where SER is start getting back on their feet. All of North America is active for us, too.

And what's with Mexico? Anything happening down there? Are they expanding their automotive capabilities?

They are, and there's some major glass there like Vitro that we're very familiar with.

Our next question comes from [Jared Halpert].

I appreciate you (inaudible) sort of answer. But it's 30% to 50% of the installed costs, right? It's like solar panels that -- with the same kind of credit.

Right. I'm being a little reserved. I'm being reserved a little bit, [Jared], because we never know what's going to [make it] in the final bill. But yes, 30% to 50% is a huge credit. It's a huge credit that basically takes any cost disadvantage that SPD may still have. And we're not sure there is a cost disadvantage, by the way, because we're operating on a nonsubsidized basis and winning business. Companies like View and Sage are subsidizing heavily their bids. But -- so I don't know what their real costs are.

But it definitely makes it a very significant game changer when you get kind of tax credits. And this kind of what they call a tax expenditure, where you're trying to promote a certain result by encouraging people to deploy energy-efficient dynamic glass, it's great for our industry and great for us, I mean, no question. I'm just being reserved because you never know what's going to make it into the -- what gets signed into law.

I appreciate that. Hopefully, Congress passes it tonight. The Senate (inaudible) part of it see that. I know I understand, and also...

I'll make a few phone calls over to them.

Well, also (inaudible) for decades. So but it's -- the electronics, the framing, all of that is in the credit, right? I mean it's not just in solutions, the entire...

It's kind of like when you do your taxes and you get a credit for the (inaudible), you're not getting credit for the energy-efficient motor or something in the water. You're getting it on the system. So I imagine that this will extend to the entire system, within reason. I mean you always have to figure out where does -- yes, where does the system end and where does the building begin.

No, no, no. The investment tax credits like solar, you deduct the labor as well. So whatever they do (inaudible) all of that gets pulled out. Windows are windows. High-efficiency furnace is just a furnace. You can't -- if you run (inaudible) for 5 days, it doesn't matter. It's just the furnace.

Yes, I guess, my point is -- yes. I guess, my point, [Jared], is let's say you have a building control system that operates your smart windows, but also it does your music and your entertainment. And yes -- I don't know where they're going to draw a line somewhere or they're going to say the whole thing is basically creditable.

Obviously, the more the better because it makes these more sophisticated systems much easier to implement because you're amortizing it over many different functions besides the straight dynamic glass. But anyway, I'm very excited that they're doing that and they're recognizing dynamic glass.

So I had one more unrelated question, which is the S 580 Maybachs are coming standard now, it looks like, with MAGIC SKY on the front sunroof, but not on the back. Is that correct?

It depends on the market. Mercedes has a very interesting way of deploying.

But if we look at past history, my memory is not as good on the 560s, (inaudible). But my memory is starting to (inaudible) Maybach both those options again finally getting to sedan. This is kind of the first build of the Maybachs (inaudible).

I know that on the S 450, which is what we have at Research Frontiers for demo purposes. It's on both the front and back windows -- sunroofs.

I remember, though, that -- I mean maybe I'm wrong. But in some markets, you started on the front as an option, the back was fixed. Then it became an option on both pieces of glass on the sedans. Now it looks like it's built in the price on the Maybachs. So hopefully, it will just migrate the way it did the last time.

(Operator Instructions) And we have our next question from [Alan Ginsberg].

I was just wondering if you could give us any update on whether there's been any progress on the color of the film of whether you could -- to -- from blue to gray or a dark blue or whatever. Are you working on that? Is Gauzy working on that?

Okay. So yes, we are working on it. Gauzy is -- has been informed that we're working on, it's not ready yet. They're working on their own approaches. But one thing that I think is very important to note -- and I'll say that the film that we're getting now out of Gauzy looks, if I could use the term, blacker than the Hitachi film side-by-side if you put 2 of these films next to each other, and they're both the same coating thickness (inaudible) microns.

You put these 2 films next to each other, the Gauzy film looks more neutral in color. And if you permit me a 2-minute explanation of [physics], I think it will make sense, what I'm about to say. So why does an SPD window look blue? Window looks blue because the particles inside the SPD material are very, very efficient at blocking every area of the color spectrum except dark blue, the sapphire blue color. That's why when you look at, let's say, a Mercedes sunroof, it looks blue.

However, if -- and remember, there's blue light in daylighting. So that's why blue light comes through in an outdoor environment with an SPD window. In an indoor environment, it doesn't really look blue at all, it looks black because there's not much blue light in most incandescent lighting. So the physics is that we're blocking everything except the dark blue, and that's what's being transmitted through the SPD material. That's why it looks blue. We're blocking 99.5% of the light with a Hitachi film, which means 0.5% of the light is coming through. And some of that is blue, and that's why it looks blue.

For whatever reason, the Gauzy film with (inaudible) particles. I mean, obviously, they do their own chemistry, so they have their own secret sauces that they put on to it, looks much darker. So side by side, you put a Gauzy film next to a Hitachi film, and you're going to see that the Gauzy film looks a little bit more grayish for blackish because you're blocking that. So there's less than 0.5% of light coming through. So it looks blackish. But we are working on other things where the [particles] themselves or the materials that the particles are in will also block in more of the neutral spectrum. So block a little bit of blue so that it becomes black or gray.

Do you find that there's a resistant...

Sorry about the -- by the way, sorry about the science lesson, but I think it's important to understand where we're going on it.

But do you think that if you make progress in getting the color more neutral that, that will accelerate interest in the product, that there's some resistance because of what you just described?

If I had to, [Alan], pinpoint where the resistance was, it was on the high price of the film initially when we had one supplier. And by the way, that reminds me, someone asked the question, what do I consider the most significant development that maybe the market doesn't understand. The fact that costs have come down, the fact that we have 2 suppliers, the fact that we can make film are all huge significant events in Research Frontiers and the SPD industry. So my apologies for answering someone else's questions during yours.

But I don't think that the blue is a showstopper. And there actually were reports that one carmaker had advertised a switchable glass and it was using a dyed liquid crystal, which has its own issues in terms of not really blocking white and not having the durability you need in the automotive environment, especially on a sunroof.

But customers started complaining because they were hoping that it would be a blue glass. Because when you look up, you want to see sky, and it actually looked a little bit black. So I have a feeling that it's going to be really a customer choice and not a showstopper in terms of what the color is, but we would like to give customers more choice. So we're all working on different colors.

One last question. Has there been any progress in the car industry as far as other windows besides the sunroof?

Yes, yes. A lot of the things that are under development right now are talking about other areas besides just the sunroofs.

We have a question from [John Nelson].

Just has there been any -- just one question. Has there been any new developments as far as Daimay on the [Carvisor]?

Yes. They continue to work on their development, and they -- if you remember, they have a OEM partner that they're working with on it. So they're coordinating on that end.

We have our next question from [Ronald Rosato].

Listen, somebody may have asked the question. I don't know. I got in a little late. So if they did, I apologize. I believe there's a couple of car shows coming up. I believe there's one in LA. And I believe...

Yes, LA is this month.

Okay, this month. And I believe there's one in China also, if I'm not mistaken. I don't know which, but do you think we're going to see any representation there from any of our OEMs?

If we get confirmation, and I've been working to do that and usually get it a little closer to the car shows themselves. Because sometimes, the automakers will make a last-minute decision to include something or exclude something. We'll certainly try to get that word out so that people know.

And also, same goes for things like the Consumer Electronics Show where you have that in January. That's become -- even though it says consumer electronics, that's become a car show. I mean if you go to Las Vegas to the CES, an entire exhibit hall; and in Vegas, that's as big as any car shown in the world with full-blown cars. So it's always good. And they tend to be very tech-oriented there, which we like.

All right. Good. Something to look forward to. Okay, Joe, I appreciate it.

Our next question comes from [Bruce Denny].

A couple of quick questions. We've heard a lot about the display market with SPD as the backlight or light blocker for see-through displays. Has any of this stuff really hit the market yet? And is the market visibly expanding already? Or what's the status of that?

So there's been -- when we say hit the market, there's kind of a couple of different markets that they're targeting both at Panasonic and at LG. Certainly, one of the markets is what you saw at the Munich Auto Show, where they're targeting vehicles and putting information systems into the windows on vehicles. That's not the only market.

When I was at CES, I saw some amazing LG displays that were targeted towards other markets. Panasonic, the same thing. But if I had to kind of break it up, I would say that Panasonic is more focusing on the consumer and certain aspects of the B2B market and LG is going after other aspect, B2B market and then the vehicle market. And then there's things like museums and exhibitions and things where they have deployed this commercially as well.

So is it beginning to generate any significant revenue for us?

Well, our revenue in the display market was up this year and -- compared to last year. I think with both Panasonic and LG Display out there, these are 2 huge marketing and consumer electronic powerhouses. So I think it can be significant. And remember, Panasonic, basically, their marketing focus has always been centered around the Tokyo Olympics. And this year, we know what happened there. So it was somewhat of a disappointment that Tokyo Olympics got delayed and then kind of had so many fault starts, if you will.

But -- so it wasn't the way they were hoping for to launch new products, which probably is why you don't see more of this out there publicly yet until they have their own marketing push on it. So to quote, what's probably happening with the economy, all this stuff got delayed by the pandemic, but not derailed.

All right. All right. Okay. Another question is about the automobile sun visors. My understanding is that at least in the past, until the very near past, the possibility of using SPD for sun visor was out of the question because it couldn't default to dark according to the government...

Yes, Well, yes, the -- yes, the [FFDV 1-11] deals with that and some of the other things. But you can do whatever you want above the A/S line. So if you look at how this has been deployed by, for example, McLaren, where they have this built into the windshield, you're allowed to put it in the windshield as long as you go above the A/S line, which has been -- it's often that blue shade band that you see on cars.

But next time anyone is in their car, take a close look at the windshield, and you'll see a letter A/S. And anything above that, you can make as dark as you want. You could even paint it black with black paint. So that really wasn't the showstopper. A lot of it was cost and engineering. McLaren can put this in the [window]. I think Daimay is focusing more on the fold-down, more traditional sun visor, but adding the functionality of having it automatically adjust.

I see. Final question is, on the last conference call, I asked you about skyscrapers and major architectural installations. And you said there is a few of them that have been specced in. And I forgot to ask a very pertinent question, whereas they would be specced in, are these specced in for like an entire wall of the building? Or specced in for maybe the lobby or some smaller installation like that?

Usually, the way it gets deployed in skyscrapers, and this is true of every smart glass, is that they'll pick one area first that they think is either the most in need of controlling heat, light and glare. So let's say, a lobby or something like that. And then what they do is they make it available to the residents or to the offices on a case-by-case basis.

So once you have this in the lobby, you could also have it in the penthouse. You could also have it on -- have tenants decide whether they want it or not. And then eventually, and we're not there yet, but eventually, this can be something that just gets deployed as standard shading and gets hooked into the whole building control system. And that's obviously our goal and our dream is for that to happen. And with costs, that can happen, so cost reductions. So we're getting there.

Right. Is Europe subsidizing any of these green projects? Like in the U.S., we're now discussing the progress whether or not we're going to subsidize SPD glass. Does Europe have any discussions?

Yes. Europe, I don't know if there are specific discussions about dynamic glass. There are certainly penalties. I mean if you look at what's in the automotive industry, for example, there's a penalty of EUR 95 per gram per kilometer that your fleet, if you're an automaker, multiplied by the number of cars you sell in Europe. That's the penalty. That's a big number. In some cases, it was $1.5 billion on fleet for some of the automakers.

In some cases, like Mercedes, it was only $100 million. I'd say only $100 million, but -- facetiously. (inaudible) initially chose to legislate energy efficiency through penalties of the incentive or awarding penalties. But Europe has always been on the forefront of energy efficiency because of the high energy prices. So usually, they're well ahead of us on all these things. And I don't know specifically, I imagine Germany and France probably have strong incentives for this and maybe some of the other countries.

Our next question comes from [John Strobl].

So quick follow-up questions on your opening remarks. You talked about Research Frontiers earning a profit in the third quarter. And if I'm reading this correctly, it's $17,000. Not much, but still a first.

Yes, $20,000 with some other things, but right, it's a start. And I don't want people to get ahead of their skis on this because we are, like other companies, probably going to see choppiness until we hit a steady state of -- as you add more irons in the fire, it becomes less choppy. But it's certainly a very welcome development, I think, for everybody to see that. And we're the only company in the world, smart window company in the world that's achieved that. So let's all pat ourselves briefly on the back and then get back.

My question would be, do you expect profitability to continue into the fourth quarter? I'm not saying for the fourth quarter, but is there a momentum going in that direction?

Since some of the stuff were special (inaudible), special government projects and other things, it's hard to say whether that continues or not into the other -- into the next quarter or not or whether it skips a quarter. But I'm going to address that a little bit more in my closing remarks.

Okay. You mentioned that there are 3 big contracts Research Frontiers landed, including one with the U.S. government. Economists are saying that there is going to be a coalescing of forces sometime around the spring, where the pandemic will be under control. And when that happens, the economy will start heading back up. And when that happens, the supply chain crisis will be a thing of the past. Given all that, when -- let's say, hypothetically, that happens sometime over the next 6 months to 9 months. When do you expect these big contracts to start rolling out?

Well, I think -- and first of all, let's keep our fingers and toes crossed, [John], that those things happen and that things do -- are returning more to normal because we were on a good path before the pandemic and before some of the things that have happened that have caused these supply chain disruptions. And as you know, a lot of times, things don't happen in a straight line. And with COVID, we saw a temporary evening and then it resurrected. And then in some places, it's now back well under control. So let's just hope that we're able to [lick] this like polio and not have to worry about it ever again.

But assuming that it does happen, the pandemic is good and bad for us. And I hate to say that there's anything good about a pandemic, but it did cause some projects to actually get accelerated. People were able to focus on the things that were more intermediate term. Because if you can't make cars today, you still can develop cars for the future. So if you can't get a car off the assembly line because you don't have the chips, it doesn't mean that your development plans for the next-generation X or Y or Z car is getting put on hold. As a matter of fact, you may have more resources deployed towards that because you now have the luxury of doing that.

But on balance, obviously, and I said this earlier, nobody wants supply chain disruption. No one wants this stuff to happen. And I think in my own personal opinion that if we can have some [normalcy] and that the recovery is going to happen, that the return to normalcy is going to happen, things will really accelerate. I think that there's been so many false starts, though, that I think we really need to see as industries for an industry, so the automotive industry, the aircraft industry. Industry rent has to see a recovery as likely to be sustained and they're not going to get punched in the gut again. And if that happens, then it will return very quickly. If it doesn't, I think people will be a little bit cautious, but they still will put their toe in the water.

Okay. Last question. Chinese President, Xi Jinping, is amassing all power within his hands, especially economic power. Do we have to worry about that?

That's a much broader question than I think I can answer on this conference call. I do watch the Chinese government and the Chinese market very carefully. (inaudible) auto market in the world, but it's not some place where I would (inaudible) the secret sauce or teach them how to do it. I've been there. I know what the markets are. And I think we just have to -- we have a strategy for the Chinese market, but it doesn't involve teaching them how to do anything. Okay. One more question, Paul.

All right. And our last question comes from [August Berman].

Shall I call you, Dr. [Berman]?

Yes, in the near future. (inaudible).

Okay. I thought I saw somewhere that there was a doctor -- I thought I saw in the beginning of your name, there was a doctor. So my apologies if I misaddressed you in the past.

That's okay. Working on that. A couple of questions here, front and center. Gauzy, you mentioned at the show in September something about series production in 2023. Do we know if they're referring to specifically autos with SPD or autos with the LG combination in SPD product?

You're talking about LG at the auto show?

Yes.

Yes. We don't know specifically. And unfortunately, even if we did, we wouldn't be able to put a finer point on it, just because we like LG and we want them to like us.

Okay. And then they also get -- on a separate note, they had mentioned that there was interest in the headlight technology and that all cars would eventually be using that technology. Do you get a sense that, that's a highly sought after technology for the headlamps?

Yes. So since that BMW video came out, which was a gorgeous car, it's such a stunning use of our glass in the headlights. I mean if you haven't seen it, go on our website and watch it. But since that video came out, there's been a lot of inquiries and interest from headlight suppliers even about this. And if you think about it, (inaudible), which is where headlights are doing are notoriously hard to dim. It's not like an incandescent ball where you just vary the voltage and you're done.

So being able to vary the light output of a headlight becomes very important because you want adaptive headlights and not blind oncoming traffic and things like that. And the other thing is, if you look at how BMW deployed this, it was a very interesting shaped headlight that can change its shape from like an oval to think of like an iris of an eye and things like that. But for you to do that with a conventional non-SPD system means you have a bunch of individual incandescent or LED lights that are individually controlled and separated from each other.

Think about the labor of assembling of a 5-segment, for example, headlight that can change the way it looks. Think of a continuous piece of SPD film where you can laser etch the film to have infinite variability and segments. So all of a sudden now, you have almost no labor costs to make a multi-segmented headlight, so you're going to reduce cost there. So you (inaudible) functionality, you could dim it. You could vary the output, which is very hard to do with an LED. And you're reducing the cost because of the assembly costs and things, so you have one component if you can use headlight lens as opposed to something else. So yes, there's some real practical benefits to that.

Perfect. Another question, just going over the company, I think BOE and Fuyao, I believe, is the name, they seem to be getting a bunch of these lower-priced vehicles with their technology. It looks like the PDLC product, but really further into it. Looks like they also won like a contract of maglev speed train. Is it just cost at this point? Or is -- in terms of it, it looks like it's maybe the headquarters might be in China, so maybe they're getting some of those contracts versus looking at us.

I wouldn't rule out SPD on anything that Fuyao has. I wouldn't rule out SPD on anything that Fuyao has. That's all I could say. I think that you'll see it on different things.

Perfect. And then one last question. You mentioned Hitachi earlier today. Showa Denko, I guess, has been the new...

Right, they bought the Hitachi Chemical, right.

Honestly, I just hear nothing about them. I know we hear Gauzy. And Gauzy is fantastic. They are just -- but I wish we would have heard many, many years before. But at Showa Denko, are they making any strides? Are they still fighting for contracts? Are they working on the technology to compete with SPD or with Gauzy's SPD?

Yes. I just -- I don't think there is public about what they do for 2 reasons. Number one is cultural. And number two is, in the overall scheme of things Showa Denko is a much bigger company than the Hitachi Chemical even. So this is a (inaudible) perhaps in terms of their business. Whereas with Gauzy, this is their bread and butter, the meat of it.

So you kind of want both and you want a company with substantial resources doing this. And Gauzy, though, has garnered together substantial resources based on pretty large investments that have been made in them. So they have the strength and the firmness to get the job done, too. But they do have -- this is not a rounding error for Gauzy. This is essential. So we like that.

Perfect. All right. Congrats to us for our first profit -- quarterly profit. That's great.

Thank you. And I'm now going to -- I think we've answered most questions. If you don't have your questions fully answered, just e-mail me. And we'll do what we can to answer them. I'm just going to make one relatively short closing remark.

You look around, buildings and cars are getting smarter. They're becoming loaded with technology so that they could be doing (inaudible) and every major car company has announced an all-electric strategy. Energy efficiency and the reduction of CO2 and other emissions is an important topic that the government is also pushing.

And we should always remember that SPD technology and Research Frontiers can help in all of these areas. New aircraft have been announced this year and will be announced, new train applications. And now that Gauzy can coat SPD film 1.8 meters wide, new uses in architectural projects. And then innovative and other uses are starting to spring up in the consumer electronics and vehicle electronics such as what you've seen with Panasonic and LG Display.

Our licensees have expanded production capacity in all areas of this chain, from the chemistry production to the film, to the coating, to the fabrication of the end products for all industries, including architectural, automotive, aircraft, marine, transit and [consumer electronic] industries. So pretty much across the board, pretty substantial increases in the footprint that we see in these industries.

And then you have things like the Dynamic Glass Act, which is winding its way through Congress and seems likely to be enacted. Right now, it's offering a 30% to 50% tax credit. So it's making it very similar to other things in the energy efficiency area that have been promoted by the government.

One aside, and I just thought of this. Low-e glass, low-emissivity glass was invented by Asahi, who was the Glaverbel subsidiary, which has been a licensee since [I think] I got to the company in 1992. So -- but they invented low-e glass. And for a long time, they were very hard to sell until regulation and legislation and government made it, and now almost all glass is energy-efficient low-e glass.

So let's not underestimate that government mandates in proper areas, and not in every area, but in proper area can have a meaningful impact and change in the way people behave. And the Dynamic Glass Act can be a game changer in terms of the relative cost and performance of SPD-SmartGlass in the architectural markets.

Often and just kind of leave you with a frustrating part of the architectural business, everybody puts a shovel in the ground thinking that they're going to build what they plan on building. And all along the way, there's delays and cost overruns and things like that. And often, you have to make a decision, what do I cut in terms of what bells and whistles don't I absolutely need? Or can I delay or can I find a substitute for? And sometimes it's glass, not even smart glass, but it is regular glass. So things like the Dynamic Glass Act make it less likely that we're going to be on the chopping block for those kind of things, which I think is helpful.

And I just want to say one final word. Tesla was the first electric vehicle company to show a quarterly profit, and their revenues are choppy until they clearly started to show consistent, consecutive profitable quarters. And we were the first smart shading company to show a quarterly profit, and our revenues will undoubtedly be choppy at first.

As more and more projects come along for automotive, for aircraft, for boats, for homes and buildings and consumer electronics that bring the window -- the ability to turn a window into something marvelous like a TV or increase the headroom of a car by eliminating the shade or allowing you like Cadillac is going to do the -- give individual controls to 4 quadrants of the roof or put information on the side of the glass like LG, these things will cause our revenues to become less choppy and our profitability more consistent.

So I look forward to our shareholders in that ride together with us and our hard-working employees and licensees and their innovative customers to really begin to reap the benefits of their patience, their hard work and their investment. And to all of you, I thank you for your participation. I am so glad that we were able to achieve a profitable quarter and share it with you guys. And I look forward to future discussions and good events as well. Thank you.

This concludes today's conference call. Thank you for attending.