Good afternoon, ladies and gentlemen. Welcome to Research Frontiers’ Investor Conference Call to discuss the First Quarter of 2019 results and recent developments. During today’s presentation, all parties will be in a listen-only mode. [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 emailed to it prior to this conference call, either in their presentation or as part of the Q&A session at the end.

In some cases, the company has responded directly to email questions prior to this call or will do so afterwards, in order to answer more questions of general interest to shareholders on this call. I would now like to call over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir..

Thank you, Erica. And good afternoon everyone, and thanks for being here. Joining me today is Seth Van Voorhees, our CFO and our special guest Rachel who is an intern here that is doing some special research on the electric vehicle market for us. In past conference calls, I outlined our initiatives for Research Frontiers.

These involve reducing the cost of our SPD-SmartGlass technology to the customer, opening up new markets and new customers and operational efficiencies. As we will talk about today, we have achieved results in all of these areas. Fee income was up 13% this quarter compared to last quarter.

Although there was a slight decrease between the first quarter of this year and the first quarter of last year when non-recurring items are accounted for from the first quarter of 2018, fee income would have increased by $26,384 in the first quarter of this year as compared to the first quarter of last year.

We had higher levels of fee income in the automotive, aircraft and display market sectors, and slightly lower fee income from the architectural market this quarter.

As I noted on our last conference call two months ago, 2018 represented the fourth consecutive year that expenses at Research Frontiers have decreased and the fifth consecutive year of lower operating losses for your company compared to the prior year. The improvements in these two areas continued in the first quarter of 2019.

Expenses declined by over 20% or by $247,312 for the first quarter of 2019, as compared to the same period in 2018 due to our cost reduction initiatives. The company's net loss was about the same for the first quarter of this year compared to the same period last year or $0.03 per common share.

The company's net loss would have been $238,000 lower or $556,307 or $0.02 per common share for the three months ended March 31st, 2019 as compared to $793,767 or $0.03 per common share for the three months ended March 31st, 2018 when you back out non-cash accounting expenses from marking to market the value of certain warrants issued as part of an equity offering we did during the third quarter of 2018.

Almost all of the warrants issued in connection with our February offering were exercised more than four years before they were set to expire bringing in over $1.1 million in additional capital to our company. Cash and cash equivalents increased by $369,000 since the end of 2018.

So our business is growing, expenses are lower; our net loss on a cash basis is substantially lower than last year, and our cash position grew since the last quarter keeping our balance sheet debt-free and strong. We're in good financial shape with plenty of resources to move forward.

Probably the most significant achievements during the first quarter of 2019 were the operational ones. As many of you know, we are in the SLC and SL roadsters at Mercedes, and since 2014, we have expanded to their flagship S-Class and Maybach models.

We have shown our reliability with SPD-SmartGlass being used in the most extreme environments and toughest position on the car, the sunroof. And with tens of thousands of these cars on the roads since 2011, there still has not been one reported problem with SPD-SmartGlass used in any of them.

I mentioned earlier that automotive royalties were higher this quarter. As I noted in the past, as cars get further and further away from their initial introduction date, the total number of cars produced each year for that model declines.

So to maintain steady royalties under that environment requires higher and higher take rates for options or that new car models be introduced using our technology. This is indeed what happened. In March, we announced that McLaren Automotive now has SPD-SmartGlass on three car models including their popular 720S Spyder.

McLaren makes about 1,500 of these 720s each year and they tell me that based upon their experience, they expect take rates for this roof to be in the very high double digits.

You can see footage of it on YouTube and on automotive sites and the automotive press absolutely loves it! One reporter during a test-drive said it was the coolest thing he had seen in a car ever.

Another reporter couldn't stop pressing the button to switch the roof tint and the third one had commented that the prior McLaren with an all glass roof was like sitting in a microwave oven, but the SPD-SmartGlass roof made the new McLaren so much more comfortable and fun to drive.

So have some fun and look around the internet to see these reactions, and let me know what your favorite videos are, and please post them on social media. And in January 2020, the third McLaren the Speedtail will be delivered to customers. It uses SPD in the roof and also in other areas of the car.

We also announced in March that two electric concept vehicles debuted at the Los Angeles Auto Show that used SPD-SmartGlass in their roofs. These vehicles were also the hit at last month's New York Auto Show. These two vehicles are expected to be in production in 2020.

We're talking about less expensive vehicles with substantially higher volumes than McLaren and perhaps even substantially higher volumes that than we currently have with Mercedes. These vehicles have been getting a substantial amount of attention in the automotive world since their November debut at the Los Angeles Auto Show.

There is even more good news and new models coming in automotive. At our most recent board meeting last month, we listed and discussed 19 vehicles that we and our licensees are working on for SPD that are being built in the United States, Europe and Asia.

Of course, experience has shown that a few of these models may not make it into production, but some are being introduced this year and many next year and the year after. In March, I spoke at the Auto Industry Glass Summit in Berlin. As you would expect my presentation focused on SPD and its benefits.

But surprisingly enough four other presentations from automakers and from their suppliers also mentioned our SPD-SmartGlass technology. One automaker even noted that using SPD-SmartGlass can eliminate 52 -components and six kilograms of weight, that's over 13 pounds, by eliminating roller shades and mechanisms.

We clearly have become very well known in the automotive industry and some of you might have seen the article that reported on yesterday's Automotive Glass Conference in Michigan and my presentation there.

The focus of most of the presentations was on electric vehicles, autonomous or self-driving vehicles, reducing CO2 emissions and other major automotive trends. Once again SPD-SmartGlass plays an important role in all of these areas. We can increase the driving range of electric vehicles by 5.5% and reduce co2 emissions by 4 grams per kilometer.

Another major development in the first quarter involved our SPD film producing licensee Gauzy. After a ribbon-cutting of their first factory line in Tel Aviv in early October, Gauzy announced the second even larger factory line in early February to be strategically located in Stuttgart, Germany.

This factory has the capacity to produce 1 million square meters of SPD-smart light control film per year as well as being optimized for highly efficient and functional SPD film production and quicker delivery times.

This factory can produce enough film for one to two million sunroofs per year; 8 to 10 million aircraft windows or over 700,000 architectural windows. It can also coat SPD film 1.8 meters wide making it possible for us to more effectively address the large architectural SmartGlass market for the first time in our company's history.

This is a major market about 60% of the world's glass goes to architectural applications. And there is a growing need for energy efficient green buildings. Gauzy's factory is expected to be operational this summer and everything is not only on track but Gauzy has even expanded their plans for Stuttgart from what they previously announced.

And of course having a second source of supply of SPD smart film adds an appropriate level of competition and the supply of SPD film to our licensees. This has already resulted in a meaningful reduction in costs for what is often the most expensive component of a smart window, the film.

We received by email before this call questions from investors and we addressed many of them in the general topics in our presentation today. But here are some additional questions that were emailed to us. A question comes from Jared Albert.

Can you make some statements about Gauzy's SPD sales thus far and also about the near-term expectation for Gauzy sales? Well, I think Gauzy actually answered this one Jared by building the second factory line and having it come online in this summer.

Your second question, does the Sun Partner bankruptcy affect inertia and other self-powered applications or as transparent photovoltaics enough of a commodity these days to just switch suppliers? Yes. The answer is that vision systems is was and is not relying on Sun Partners for their transparent photovoltaic.

So this is not going to have much of an effect on them or any of our other licensees. And there are other transparent photovoltaic makers that you know we and they have been working with, so that's not a concern.

Second question also from Jared, if you could comment on this is, is the expectation that the W223 will be the first model to use SPD Sunroofs and enough volume to get their alloy wheel pricing ratio. First of all, let me just do a little translation.

The W223 is the new s-class coming out after the current one and Jared's reference to will it get the alloy wheel ratio pricing, refers to a comment I made in previous conference calls where Mercedes had indicated to us that they could do 3x to 5x the business that they currently do with us, if we could get our pricing down to the point where they make as much on us as they make on another high profit item like alloy wheel, aluminum alloy wheels.

And first of all, we've already achieved cost reductions throughout the supply chain which I talked about, but also and I will talk about a little further, but also I expect that some even higher volume cars may come out before the new s-class comes out. And they'll get the benefit of the lower pricing as well. So everything is on track.

You also asked if our pricing can get down to View subsidized price. And the answer is well; first of all, we don't subsidize our prices. And we believe that some of the costs that are being quoted for our technology will be blow many of our competitors including View.

And then your last question related to View with that Softbank values View at more than $60 per REFR share is there an effort to get that comparison out into the investor community. That's a good question.

We do put this in our presentation with some of the relative valuations are between us and View or between us and Sage which are companies that have had transactions where there have been public values assigned to them. I think the real interesting question is what happens if View goes public.

What valuation will that be? And if our valuation for a company that's in five different markets is not higher than one that's only in one of those markets. I would be somewhat disappointed. So I think that View going public can actually help us and our shareholders a lot.

Another question at the bell ringing interview, this refers to the February first celebration that we did with Gauzy about their new factory line. He -- also mentioned bidding on the biggest and best projects. Are there -- are some of these in the architectural space or are all in automotive? They're in both.

We're seeing a real uptick in the level of activity throughout both of those industries based on Gauzy's efforts and the fact that they have a wider film available. And then the other question you would ask is in the UK more than half of outdoor display advertising revenue is from digital medium.

Can you comment about the future for SPD as a glare control technology for outdoor advertising? We've seen a number of very novel and innovative uses of SPD, including the outdoor advertising market, retail advertising and to create a more of an experiential effect for retailers has been a very big trend in the retail industry, and projecting images and other things on Windows has become an important part of that.

And Gauzy has been doing a lot of work on that. Panasonic has been doing a lot of work on that and Nippon Sheet Glass and others have.

So SPD, I believe will be a important part of that market as well as some other things that are coming out in the consumer market that I think are much different than people have seen, but quite exciting and with the potential for high volume and just going to the CES every year has become more and more of an interesting experience for me because of what you see displayed and what you see being only displayed behind closed doors.

Another question, a moment, this one comes from John Nelson.

Do you have architectural orders for the television production line at 1.2 meters wide? When approximately will you be producing 1.5 meter rolls size? Is a second Gauzy plant located in Germany on plan to be in production by the summer of 2019? And any progress on efforts to make SPD-SmartGlass more affordable? Can you detail how much in percentage terms that the costs have been brought down over the last couple of years? In some cases, the costs are less than half of what they were in the beginning.

And we've seen that even bring it down further than that. In terms of the other questions about Gauzy's sun production and orders. I addressed it in the last question but like I said they're building a second factory. Another question comes from Len Liitle says I know back in the 80s, Bob Saxe had a plan to become profitable.

I'm sorry he isn't here to see but we know it's about to happen soon. Once that happens he wanted to start paying dividends as the overhead is not that great than the need for cash is diminished.

Now that the architectural market is opening and the auto, airplane, train and others finally recognizing the added value that these products get by a SmartGlass. We should be finally at the destination where dividends could be considered in the potentially near term. That time may be as near as 12 to 24 months.

Is that your current thoughts as well? Well, first of all, Len, thank you for the question. To put it simply, we've set up Research Frontiers as a licensing company to minimize overhead and to eventually become a royalty collecting and dividend paying machine. And that hasn't changed. We're just a lot closer to that goal right now.

Our costs have come down so our breakeven point is lower than it was. Revenues are up and what we see happening in automotive in the next two years or so can be substantial. So, of course, it's up to the board and there are other tax considerations and other things, but personally I would like to see us paying dividends as soon as possible.

One thing I'd like to mention, first of all, thank you for mentioning Bob Saxe in your email. We think about him and the work that he has done to create this industry every day. Last week his brother Steven who used to be a director at the company had passed away also. So it was a sad week last week as well.

And I knew Steven personally from the early years when he was on our board of directors. There are two related questions. One comes from Rick Tyler. I thought a SmartGlass international are licensee of Research Frontiers is involved with the Equinox hotel in the first phase of the Hudson Yards project.

Is Research Frontiers SPD film being used in any of the phases of the Hudson Yards projects? And is there an opportunity for Research Frontiers to be used in future Equinox hotel projects? The answer is, yes, and there was a related question from David Clang.

Would you provide information about Research Frontiers involvement in the Hudson Yards project? We got involved with that early on with SmartGlass international and because the wider architectural film was not yet available at the time they needed it, we're not on phase one but they were very favorably impressed with the performance of SPD-SmartGlass and I wouldn't be surprised if we're not only on later phases but also other projects by Equinox as they expand their hotel projects.

Two other questions from David Clang. Would you provide information about Research Frontiers involvement in the Rivian Electric Auto? I can't really talk about specific car makers and what our involvement is, but as I mentioned earlier on, there are a very large number of models that we're working with.

I mentioned 19 and I also mentioned that the one that launched at the Los Angeles Auto Show has been getting substantially positive attention in the automotive industry, and we're very happy to see that.

Your other question is what is the PR firm doing to get Research Frontiers in front of true investors and what value has the contracted firm provided to date? I guess you can maybe judge from our stock price. When they started the stock was at $0.80 and they began their work in late August and our stock is substantially higher now.

So and the trading volume is substantially higher. So I think they've got a very good job personally and getting us in front of new investors. And I think also just because of the more widespread adoption of SPD in the various industries has brought us to the attention of many, many investors as well.

What I'm going to do now is we were asked about our public relations also some moving from investor relations to public relations and social media efforts. And I'm happy to say we've expanded our activities in all of these areas, as well as investor relations.

And also in about two weeks I'll be presenting and demonstrating our SPD-SmartGlass technology at the Loudoun Berg Technology Expo in New York. So today we discussed a lot of exciting topics.

And I will now ask our operator Erica to open up the conference to any additional questions people participating today might have that we have not already covered..

[Operator Instructions] Our first question comes from Austin Hopper. Please state your question..

Hey, guys. Thanks for taking my questions. You touch one s-class a little bit.

Can you just help me understand if I'm a buyer of an s-class Mercedes what is this option, what is it generally going to cost me?.

Sure. So they call it the Magic Sky Control option and depending on which car you buy it from it's going to have either one or two roofs. If it has one roof, you're paying $2,500 for that roof and that's the SLC the SL which are the two roadsters, the convertibles.

And also the s-class coupe which has a 1.3 square meter front to back panoramic roof that's made out of SPD-SmartGlass. If you buy the Maybach or the s-class and that's either the S550 or the S450 does have both have two roofs and that option is $4,950..

Okay, great.

And then can you give us a sense for the production of those automobiles and kind of what percentage of them that you're in currently?.

Mercedes will not allow me to disclose take rates. You can kind of back into it based on some of the comments I made earlier that take rate seem to be rising because as you get further and further away from the introduction date of any car model, the number of cars they produce gets reduced.

And if our royalties are going up and the numbers of cars are being reduced, you could just infer the percentage is going up. And we're seeing on our weekly report that we get from Daimler and the monthly and quarterly reports we get from the companies that are supplying them with glass. That's a very positive trend..

Our next question comes from Michael Kay. Please state your question..

Hello, Joe. Recently Mayor de Blasio of New York City made the headlines because it was somewhat erroneously reported that he was going to ban glass skyscrapers, however, he the clarified it by saying that if a company wants to build a big skyscraper they can use a lot of glass if they do all the other things you needed to reduce the emissions.

And I think then that SPD would be a natural for this and I think it would be good if the company got in touch with Mark Chambers, he's the Director of the Mayor's Office of Sustainability. And I think he's not aware of SPD at this time. I think he'd be very interested in knowing that it could reduce emissions..

So his comments about banning glass skyscrapers, first of all it was I believe meant to be a little bit of hyperbole to get some national attention, but a couple years ago, reminds me a couple of years ago of a presentation I gave to a major European architect. And I said I started it with a picture of a bomb shelter.

And I said if you want to build the most energy-efficient building you could remove all of the windows, cut out any connection with the outside world and you'll have a very energy-efficient building. But no one's going to want to live in it. And that's kind of my view of what the initial proposal was.

And it's a fairly lengthy proposal that sounds very good in theory, and it's going to be very difficult in practice for anybody to build anything he wants to. Q - Michael Kaye But it was clarified later on that he didn't mean that..

Of course, politicians say one thing and then they correct themselves later on. You're 100% correct that SPD-SmartGlass is a highly energy efficient product that would actually allow architects to increase the ratio of glass in a building. Our solar heat gain coefficient is 0.06 in some configurations. That's the best on the planet.

So it's something that we certainly view as a positive trend that maybe legislation will help legislate either more and more smart glass. It's certainly helping us in the other markets like the automotive market where regulations about co2 emissions have greatly benefited us..

Our next question comes from Chuck Michaels. Please state your question..

Yes. Hi, Joe.

I had a question if you can give us an update on what is happening in the commercial airline passengers market?.

So our aircraft revenues are up. We're still approaching both the OEMs and there are four major OEMs in the transport category. Boeing, Airbus, Embraer, and Bombardier and but also the approach has been to the airline's themselves because what I'm seeing out there is that the switching speed of what's on the Dreamliner is not very good.

Even in its second and third generation iterations and because of that the airlines want something better for the environment..

Our next question comes from Thomas McCarthy. Please state your question..

Hi, Joe. In regard to the 19 vehicles that you mentioned that are seriously considering using SPD.

What was the wording you used to describe them? Are they planning to use SPD? Are they seriously evaluating it? How would you describe that?.

They're all working with us in our licensees on SPD..

Okay.

How many car companies does that include?.

I don't break it down by different car companies, but I think in our last conference call we had mentioned that we're working with 12 of them. And I believe also that Gauzy had used a similar number..

12 car companies?.

Right. But I have prepared on that list of 19 so it may be more..

Okay.

Besides use in the roof are there other considerations being evaluated, particularly sun visors?.

Yes. Including yesterday's conference in Michigan that was very important for the sun visor market..

Right. And when we say sun visor we're talking about the first few inches of the front class..

We're talking about both that and an aftermarket..

Our next question comes from Art Grady. Please state your question..

Hi, Joe.

Anything happening in the museum market?.

Yes. Matter of fact our new licensee VeraGuard has something going on in the Baseball Hall of Fame. So there's a lot of very high visibility stuff that's going on in that market. And we're still very excited about it..

Another question that I have is regarding Gauzy. They recently signed up a distributor in Brazil.

Do they have to take out a license from you also or is it just all filter through Gauzy?.

No. They have to take out a license from us or we have to get special permission for them to have in effect a license underneath the Gauzy umbrella..

Will that take place or you will sign them up?.

I certainly hope that they will be offering SPD because I believe that's their intention. And we're talking about substantial volume..

Okay, good luck..

More on that later..

Our next question comes from James Wyle. Please say your question. James, please go ahead..

Hi, Joe. It's Jamie Weil from RBC. Just look back at the revenues over the last couple of years, $1.24 million in 2016; $1.51 million in 2017; $1.49 million in 2018 and just trying to get an idea of when we may actually see some increase in revenues..

That's a great question, Jamie. So when you consider the fact that we have more and more cars coming online, which is the largest share of our revenue.

And my statements in prior calls about 2020 being a much higher year revenue wise, I think that you'll start to see some meaningful up uptake and I'm going to talk a little bit more about that in my closing remarks..

How many quarters before you actually see some increase in revenues?.

We're not going to give such precise guidance because some of the cars are introduced mid-year, some are introduced at the end of next year. And obviously that's going to affect when our revenues get recorded..

One of the things that I was curious about is that Gauzy has a pretty big plan up and running now. They're building a second one but if the revenues aren't increasing it doesn't appear that they're getting any revenues off even the first plan..

Remember, they just did their ribbon cutting on that in October. And the bulk of what we expect is coming from automotive. And if you look where that factory is located, it's located in Stuttgart. So that should give you some ideas as to where they think the revenue is coming from too.

And that has lead times so you're not going to see that revenue until those projects start to hit, but they're out there and we're very excited about it..

At this time, we have no further questions..

Great. Well, if we haven't fully answered any questions that were emailed to us or if you felt that we haven't fully answered any of the questions or didn't have a chance to ask them in the live Q&A today, just email us and we'll get back to you. I'd now like to make some closing remarks and my closing remarks will be brief.

I'll let the results that we outlined earlier that we're beginning to see -- speak for themselves. Moving forward we have a number of growth areas for our business.

In automotive, the focus has been on premium vehicles and reducing CO2 emissions where we could save 4 grams per kilometer of pollution, and with the new standards coming in Europe in the next few years this amounts to a savings of €380 per car in avoided penalties.

And there's also a pronounced movement towards electric vehicles and our SPD-SmartGlass technology can increase the driving range of electric vehicles by 5.5%.

And today we spoke in detail about the work that is being done by Gauzy, about their new factory in Stuttgart, and the continued expansion of our business especially in the automotive industry. 2019 and 2020 are expected to be the beginning of highly significant years for us in the automotive industry.

Trains are doing well and could be our second-biggest market over the next few years. And our aircraft business grew again this quarter thanks to the effort of our licensees in this area, and Mike Lapointe, our Vice-President of Aerospace products.

And with the introduction of a wider and less expensive film and new competition among the SPD filmmakers, Hitachi and Gauzy all markets will benefit and it also opens up for the first time the very large potential architectural smart glass market.

For the past several years on our conference calls together, I've focused on some basic themes that have driven the direction of our company has moved in. First was the need to make our SPD-SmartGlass technology more affordable to the customer.

And we knew that we'd be highly successful if we could make our SPD technology more affordable to the customer without sacrificing performance or quality. We did this. Costs came down in the lamination, in the fabrication, and even in the electronics.

We're proud that we have the best performing and most durable and reliable smart glass in the world as shown by SPD-SmartGlass technology having the largest number of installations in the field. There are tens of thousands of SPD-SmartGlass equipped cars, yachts, aircraft, homes and offices using our technology for years.

Our licensees invested in process improvements and equipment to make SPD-SmartGlass products even more reliable and efficient. Licensees such as AGP and Vision Systems have made recent and substantial investments and they have even built new facilities surrounding their SPD-SmartGlass businesses.

Our licensees have continued to hire people to support their growing SPD-SmartGlass businesses. They have made substantial investments in the coming success. They see it coming and they're acting on it. And many of our investors have also seen this success coming and they are acting upon it.

New investors have established large positions in Research Frontiers, existing long-term investors have also added to their positions. And we're working hard to expand upon these successes. We are creating jobs, helping the environment and making people safer and more comfortable every day.

I want to thank everyone for being part of this effort, for your participation on today's conference call, and for your support over the years. And please remember to vote your proxy. I look forward to seeing many of you at our Annual Meeting of Stockholders that's being held on June 13th here at Research Frontiers. Have a nice day everyone.

And thank you very much for your time..

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