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Research Frontiers, Inc. (NASDAQ:REFR)

Q4 2012 Earnings Conference Call

March 14, 2013 16:30 ET

Executives

Joseph Harary - President and Chief Executive Officer

Seth Van Voorhees - Chief Financial Officer and Vice President, Business Development

Analysts

Frank Gildner - Raymond James

Stephen Ohlemacher - Private Investor

Todd Wiseman - Private Investor

Operator

Good afternoon, ladies and gentlemen. Welcome to the Research Frontiers’ Investor Conference Call to discuss results during the 2012 Fourth Quarter and Full Year. 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 at 12 PM on March 15, 2013 in the Investors section of Research Frontiers’ website at www.smartglass.com and will be available for replay for the next 60 days.

Please note that some of the comments made today may contain forward-looking information. The words expect, anticipate, plans, forecast, 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 and Reform Act of 1995. These statements reflect the company’s current beliefs and a number of important factors could cause actual results for our 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 the conference call either in their presentation or as part of the Q&A session at the end. (Operator Instructions)

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

Joseph Harary - President and Chief Executive Officer

Thank you, Jamie, and welcome to Research Frontiers’ conference call to discuss our 2012 results and recent events.

Joining me today is our CFO and Vice President of Business Development, Seth Van Voorhees and we are pleased you are taking the time to be with us today, and I thank you for your continuing support of Research Frontiers. I also thank all of you for e-mailing in your questions. This is going to allow us to cover more ground, and to the extent that Seth and I have an answer to your questions in the course of our presentation or if there are additional questions, there will be an opportunity at the end of the call to ask those questions.

Today, I will outline for investors what our strategies have been for your company and in each of the four main industries using our SPD-Smart Technology, which are automotive, aircraft, architectural, and marine. I will discuss our achievements in these areas and we will also discuss how we plan to continue successfully growing our revenues from each of these markets. We will also talk about new markets and opportunities and then we will answer questions from participants in today’s call, but first it’s useful to go over our results of operations.

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

Seth Van Voorhees - Chief Financial Officer and Vice President, Business Development

Thank you, Joe. Good afternoon everyone and thank you for joining us on this call. As always, I will discuss the financial results in the approximate terms and cover some highlights from our fourth quarter and 2012 full year results. For more details, please see the financial statements along with the notes thereto.

First, let me comment on our income statement. For the year, fee income increased from $846,000 in fiscal year 2011 to just under $2 million in fiscal year 2012, representing an absolute increase of $1.1 million year-over-year, and a relative increase of 131%. In terms of the nature of this fee income, 84% of our royalties come from the automotive market, 8% come from the architectural market, 6% from the aircraft market, and 2% of the royalties come from the marine market.

On a quarter-over-quarter basis, fee income improved by 56% or almost $200,000 from the fourth quarter in fiscal year 2011 versus the same period in fiscal year 2012. And this fee income has been steadily growing since the second quarter of fiscal year 2012 topping out at $552,000 recorded in the fourth of 2012. As the consequence of this increased top line, our net loss improved by $1.1 million from a negative $4.1 million reported loss in fiscal year 2011 to a reported $3.1 million loss in fiscal year 2012. It still has a long way to go to achieve our breakeven goal. However, fiscal year 2012, we made significant progress in getting there.

Now, let’s discuss our balance sheet. In fiscal year 2012, we have strengthened our balance sheet substantially, and in doing so, reduced the risk profile of our company making it more attractive to investing. Specifically, our current assets are up by about $10 million to $14.3 million as a result of three stock offerings totaling approximately $12.3 million in net proceeds.

Cash, cash equivalents, and short-term investments increased by $9.8 million from $3.7 million in fiscal year 2011 to $13.4 million at the end of fiscal year 2012. We have no debt outstanding and has approximately $55 million in net operating loss carry-forwards that maybe used to reduce taxable income in the future. We completed three financings during fiscal year 2012 that led to this improved balance sheet that I would like to comment on now. At the end of the second quarter of fiscal year 2012, we had $2.9 million in cash, which represents approximately one year’s worth of cash to fund our operations at its current burn rate. At the end of July, we raised $1.75 million at $2.97 a share plus warrants at a 50% premium to that price. Approximately a month later, we were able to raise $5.6 million on the same terms as the July offering, which represented a small premium to the trading share price at its close.

We saw noticeable buying in the open market from the participation in the August 2012 offering and our stock price increased as a result. In October of fiscal year 2012, we took advantage of a new opportunity to raise an additional $5.6 million at issuing shares at $4.49 a share plus warrants again that were priced at 50% above that price. The attractive price in this offering represented a 50% premium to our July and August equity transactions.

Now, let’s discuss this financing as it relates to our cash flow. Our increase in revenues reduced our burn rate by $700,000 from cash used in operations from negative $3.4 million in 2011 to negative $2.7 million in 2012. With our current cash on hand of $13.4 million as of December 31, 2012 even without the revenue increases and burn rate reductions that we expect in the future, our current cash balance would fund our current cash used in operations for five years.

Finally, from an investor relations standpoint, the equity offerings completed in 2012 greatly increased liquidity in our stock. Currently, more than 160% of our trading volume we are currently trading at as compared to our pre-offering equity offerings. These equity transactions also increased our institutional ownership from just under 8% prior to the equity offerings to over 20% today. And finally, we ended 2012 with two security analysts that admire our conditions on our company.

I will be pleased to answer any of your questions about these matters or any other issues at the conclusion of this presentation. And with that, Joe?

Joseph Harary - President and Chief Executive Officer

Thanks, Seth, and thank you once again for participating in today’s call. As Seth has indicated, we had positive triple-digit growth in revenues, which generally strengthened our balance sheet and increased institutional ownership in our company, all strategic goals for Research Frontiers. We also had new product launches in several industries, which I will talk about in more detail.

The first was the major launch of the Mercedes SL. This just became available in Europe at the end of March and in the U.S. on May 2. It’s usually with German premium automakers that the cars are first introduced in Europe and then in the United States one to two months later and then in Asia and the rest of world with right hand drive countries usually in getting their cars last. So, that’s a typical rollout schedule and that was probably here. Also in June of this year BMW debut at the Paris Motor Show their Active Tourer Concept with the Cool Shade. The Cool Shade is what they refer to the all SPD glass roof that was on that vehicle. That car just appeared again last week at the Geneva Auto Show that we attended.

Another major development was Vision System’s factory in France was opened up in 2012 and the plans for the U.S. facility which is a duplicate of that facility is schedule for the first half of 2013. Now the idea behind the U.S. factory is to be able to service U.S. customers of Vision Systems such as HondaJet and also have dollar denominated production and also better logistics to service their North American customers. Another event that happened in 2012 was the preliminary launch of the museum market. Here we’re protecting priceless art work using SPD-SmartGlass and also the expansion of the automotive aftermarket especially in Russia.

Let’s talk a little bit more about the numbers that Seth had given you earlier. Fee income was up 2.3 times or $1.1 million to just under $2 million this past year. This is primarily from higher Pilkington sales from better than expected sales of SLK and SL as compared to Mercedes original projections for these two vehicles. Also in the area of new revenue we got additional revenue from the automotive aftermarket primarily from the Russian market. And we expect even higher revenues attributable to the Russian market in 2013 due to the addition of two new licensees in this area of the world Tint-It and Advnanotech.

We also achieved higher sales and royalties from the architectural market. And we expect even more penetration and visibility in the architectural market this year due to the increased activities from some of our licensees in this area and the addition of new licensees in 2013 from key geographic markets for our architectural products. We had about the same level of sales in the aircraft and marine markets in 2012, so we expect higher sales in the aircraft and marine markets in 2013 and this is primarily because of the introduction of the new HondaJet which will have SPD Smart windows as standard equipment and deliveries of these aircraft to customers is expected towards the end of 2013. We also expect other aircraft sales and growing activity in this market due to the increased efforts by our existing licensees in this area and the entrance of Isoclima to aircraft market during 2012 and Vision Systems to the marine market in 2012 as well. And also additional revenues contributed from our entrance into new markets such as the museum display case and frame market.

Let’s talk about looking forward what are our strategy for each market and what can our shareholders expect. Let me start with the largest market and the biggest source of our revenue and also the biggest source of sales for the company the automotive OEM business. There are our strategies very straightforward to make sure that SPD is being considered by the OEMs on every feasible vehicle that can benefit from it. Number two, make sure that we are work in conjunction with our automotive licensees to win this OEM business. And three make sure that the automotive OEMs are getting everything they need from Research Frontiers and the entire supply chain that we have licensed to serve these OEMs. And how do we intend to grow this business is also very straightforward. First our starting assumption is that our sweet spot in this area is cars over $45,000 MSRP and the timing of their introduction is either when these cars are redesigned which typically is once every seven to eight years, we are on major refreshes which occur midway.

Since our last conference call where we discussed our quarter results there were no cars in this category that were candidates for SPD, so we haven’t missed any opportunities. So, later this year there could be some and I invite everyone to stay tuned. One nice thing about the automotive market it is very large but it’s concentrated and an addressable one. 37% or 750,000 cars are made each year in the premium category by our launch customer Mercedes. 29% or about 605,000 cars are made by BMW which has their Active Tourer Concept introduced this past year. 12% or 254,000 cars are made by Volkswagen mostly in their Audi and sports model lines and as people that followed us well at the last Frankfurt Auto Show they introduced a concept with an all-glass SPD roof. 8% or 170,000 cars are made in this premium category by Tata Motors in their Jaguar and Land Rover model lines and 6% or 117,000 cars are made by Toyota through their Lexus brand. And at the last Tokyo Motor Show they actually showed a Toyota Century vehicle with side glass using SPD technology.

So, if you look at this market the top two car makers controlled two-thirds of the world’s premium car business or about 1.35 million premium cars. If we move to the top three which were all headquartered in Germany that’s 1.6 million cars or over 78% of the market. And if we are in the top five they control 92% of the relevant premium market or just under 2 million cars. And they all have strong markets internationally which helps them diversify and also they all are very strong in the largest car market in the world China.

What should we expect in automotive, we are now working with these and other OEMs that we have very broad coverage. And as I mentioned you could see public evidence of their work either on the road or in the vehicles that we mentioned that were launched at the Paris Motor Show, the Frankfurt Auto Show, the Tokyo Motor Show and more recently at the Geneva Auto Show. We are also currently in the Mercedes SLK and SL as an option. And combined these two car platforms represents a little less than 10% of the premium market made by Mercedes or about 68,000 vehicles. So, one of our goals is to be offered on the other 90% of the Mercedes premium line. And also our goal as outlined above is to also move to serial production vehicles within BMW, Audi, Toyota, Jaguar, Land Rover and other automotive manufacturers and very good progress is being made on these areas as well.

Moving from automotive to aircraft strategy, we saw that we had great success in the automotive market by having the right combination of working relationships between Research Frontiers, the OEM customers and their suppliers who are our licensees. Now, our strategy is to duplicate this in the aircraft market and up until recently we had smaller companies involved, but now we have some of the largest suppliers in the aircraft industry involved. But some of these relationships have been publicly announced like Vision Systems’ relationship with (Vopel), which is the interior plastic supplier to Boeing since 1948, so very strong relationship there and also Vopel has strong relationships in Airbus as well. So, we have seen these strategic alliances formed in the aircraft industry among our licensees and large partners and this has allowed them to target very large high volume projects in the aircraft market including some very narrow body lines in both the transport and general aviation categories.

One of the things also that I think has helped us is there has been somewhat of a public dissatisfaction that’s growing among passengers and airline customers with the speed in the darkness of existing electrochemical window technologies. And fixing this issue and running new business in the aircraft industry are the clear targets that we and our licensees have. In this area we have invited competitive technologies such as electrochemical windows to do a side-by-side performance in cost comparison with SPD. Surprisingly they turned us down, but their customers now have access to do their own side-by-side comparisons and this is very good for Research Frontiers and our shareholders.

Our performance is the best in the industry with the fastest switching speeds and darkest and most controllable uniform window space out there. And our window has been the first to be certified by the FAA, the first to fly in the general aviation market with 11 years of experience in that market. And we are now in the most different models of aircrafts which have now number over 30 mostly aftermarket. And we are also penetrating the OEM market in general aviation with the first aircraft in this category 100th coming out later this year. And as I mentioned earlier we are slighted for standard equipment on this jet. And is a nice backlog of those as well. In the transport category market, we also have a number of risks about we have been flying the longest with the SPD window shades on every A380 that Airbus has delivered the Qantas since October 2008 being SPD Smart.

So, now let’s move to some of the other markets on our strategy. The strategy for the marine market and transit markets, which encompasses yachts, cruise ships, and motorhomes, trains and buses for mass transit, is also very straightforward. Recently, our licensees have demonstrated some very innovative products in these industries, and they have had very strong and popular showings in the world’s major marine bus and train industry events. I think it’s particularly noteworthy that Vision Systems, which entered this market only this year was the first time exhibitor at the METS Boat Show and won the Best in Category award for their SPD Nuance product. It’s known as the DAME award and it’s quite an honor for anyone to receive it, but it’s almost unheard of a newcomer to the industry to get that.

Our strategy here was very simple with the minimal need for expenditure by Research Frontiers. We simply picked the best licensees in the world that are already supplying these markets, and let them show the benefit of SPD Smart Technology to their customers. And we have a strong group of licensees here, Isoclima, Vision Systems, Diamond Sea-Glaze, and others.

So, now that we have had success in these other three main markets for our SPD technology. Let’s turn to our strategy to the architectural market. This is what we turned our attention to this past year and we saw sales were up in this past year. It’s a large market with diverse drivers and towards the use of our technology. One is esthetics you could basically preserve your views and have very sleek designs that are very clean with a lot of benefits attending to that. High performance, we can block a lot of heat. We can actually have very fast switching speeds, which allows you to do things like audio visual presentations and others in conference rooms. Differentiation, you can actually substantially differentiate your properties without having to spend a lot of money by using SPD-SmartGlass in it, and adding functionality you can change the configuration of buildings and also how they operate.

Our strategy here is also very straightforward, educate the relevant public on how smart their glass can really be, educate the public on the differences in the technologies that are out there, because there is a lot of confusion and noise if you will out there that we are working to clear up. And one way to do this is to promote side-by-side comparisons to eliminate a lot of the rhetoric and have people focused on the true performance characteristics of different SmartGlass technologies. And just to name these performance differences, our windows are 30 times darker than heat controls, electrochemical windows, and 300 to 400 times faster.

Our windows are at least four times darker than saved electrochromics and 300 to 400 times faster. And up until now, our requests for side-by-side comparisons have been met by our competitors either by declining our invitation outright by silence or simply not showing at the same events that we do. A recent example of that was the Northeast Glass Show, where Sage really only showed up some brochures and a handheld sample, which was so much startling for us. But such comparison events are inevitable and we really look forward to them and we expect that we are going to make good progress in during the year this year in terms of LI technology stacks up from a performance in jet cost and durability standpoint compared to these other technologies.

Also public awareness, which is part of our technology in SPD, is growing because of our success in the other three markets. And we and our licensees have expanded the number of projects around the world that use SPD-Smart Technology, and this too in turn expanding awareness. And we have a very proactive effort going on in this area. So, we can expect continued progress in the automotive market with the introduction of new vehicles using SPD-SmartGlass and part of our focus there is also even though we are getting better than expected take rates from the Magic Sky Control feature for the SL and the SLK working now to even improve that, now that we have some experience and visibility under our belt.

Another focus for 2013 is continued expansion in the automotive aftermarket and expansion in the architectural market. One way to do that is to get better messaging out on the safety and the energy efficiency and the design benefits of using our technology and we have begun to do that. We had major presentations at Glasstec recently and we have others coming up to hear about, but also geographically, there is the South American market, the Russian market, the European market, the Middle Eastern market, and the hotter climates in North America like South Florida, California, and Arizona, and then the addition of new markets, which are very exciting for us such as the launch of the museum market.

To sum up coming events that you look forward to, well last week there, we had a very successful showing at Northeast Glass Show by our licensee Innovative Glass. We also had two vehicles, Mercedes and BMW equipped with SPD at the Geneva Auto Show last week. Next week, there is active glass event that is being sponsored by the leading glass consultancy to buildings in the world, Israel Berger & Associates, and we are looking forward to that, because it’s an opportunity through some side-by-side comparisons of electrochemical glass by Sage, SPD Glass obviously from Research Frontiers’, liquid crystal glass and even thermochromic glass.

Coming up, we have the Amberger Show from April 8 through 12. We have the Shanghai Auto Show April 18 through 25. To the museum market, there is a major event for the industry in Maryland, which we will be participating, the EBACE Aircraft Show in Geneva May 20 to 23, the Paris Air Show June 17 through 20, the Frankfurt Auto Shown September 9 through the 12, the NBAA Aircraft Show from October 22 to 23, The Fort Lauderdale Boat Show from October 31 to November 3, the METS Boat Show November 18 and 21, and the Tokyo Motor Show November 20 to 26. There is also the LA Auto Show coming up also at the end of the year.

And I am going to talk a little bit later about special events also that would be in addition to that list that could be very significant to Research Frontiers. So, as told what we would do is take some questions over e-mail to us that we haven’t already answered in the course of mine and Seth’s remarks, and then we will open up the conference call to additional questions. There were a number of questions that were submitted and they fall into some common categories.

The first one I will address is can we comment on the recent change in the composition of our Board of Directors? First, we were asked whether there was something about the company’s prospects or operations that caused this change, and I am happy to say that the answer is unequivocally no. As each director made clear, there was no disagreement with the company as to any of these things. And if you look at our 10-K annual results, which we just reported, each of our markets were expanding. Revenues increased by triple-digit percentages. We have strengthened our company by solidifying our balance sheet. And we have had an expanding licensee base. So, a lot of good things have happened in several major product launches as well.

So, from an operations and finance side, things have been going very well. So, let me go into a little bit more about this. This year two Directors were up for reelection and one next year, and because of this, this is the logical time for them and the board to discuss whether to re-up for another three-year term, and especially since the directors had left or leaving at the end of the Annual Meeting at June. We are on the upper end of the age range of our board between 68 and 71. They are probably thinking about what they personally wanted to do and how they were going to spend the next half of their life.

We have given as a board a last thought of discussion as to what the right size of the Board is and what the best composition of it should be for 13 employee companies. And 7 directors seems like too large of a board. We also saw for last year’s election that shareholders preferred to have fellow shareholders representing them. So, when we select a replacement candidate, so the board will soon be strong and consider this as a factor, and I will try to pick someone that our shareholders will be very happy with. Victor Keen has been on our board the longest and I just want to say a few things about that and he has even involved with the company as an early investor even before we went public. We have asked Victor if we would be willing to address our shareholders at the upcoming Annual Meeting on June 13, and Victor like rest of us is the shareholder of the company and it indicated that he intends to maintain his investment going forward, and he graciously accepted our invitation to speak to all of you at our Annual Meeting. So, we hope you all can attend it’s going to be June 13 here in Long Island at the (indiscernible).

Another question we have been getting is why is the stock price been dropping. And I thought maybe I would ask Seth to address that while I take a break with my voice here.

Seth Van Voorhees - Chief Financial Officer and Vice President, Business Development

Thanks Joe. Obviously, this is a hard question, I mean, at its poor, we can’t control the stock price, is the market does that. I can tell you that we are – we are disappointed in the recent stock price performance with declines. We are disappointed for a number of reasons, the basic of which is that many of our – most of the management have significant personal stakes in this company. In last year, we reported as in aggregate management and Directors own approximately 15% to 16% of the stock in this company which is both a significant personal as well as professional investment.

So, we believe strongly in the value of this company and very much wants to see strong stock price performance from both personal and professional bases. I think the best thing that we can do in terms of the stock price though is some of the things that I have stressed on this call is that number one is that we need to go from being a cash burning entity to a breakeven level. We made some improvement between in the last year in achieving that goal, but we still believe to go to achieving it in full. So, in terms of my personal view in terms of the stock market will best appreciate and value Research Frontiers as a company is when we can get to a breakeven in profitable basis and we hope to do that as quickly as we can. And until then, we are going to continue to try to do everything that we can to make Research Frontiers an attractive investment whether it’s – we were talking about improving liquidity, improving transparency and communication with our investors and getting our message out to potential new investors as well.

And with that, I’m certainly open to any suggestions that any shareholders might have that we have not considered up-to-date. Thank you very much, Joe.

Joseph Harary - President and Chief Executive Officer

Thanks Seth. Another question we got was what attributes are in process regarding a potential takeover the company or acquisition of other companies. This question might have been triggered by a recent renewal of our shareholder lifespan in February. First of all, let me just say there is no pending acquisitions being entertained by us or for us and this was simply I think a factor of that for the last – each of our last two shareholders right plans lasted for 10 years and our Board thought it would be in the best interest of the company and its shareholders to have this protection continue in place. So, renewed it for another 10 years, but it’s not in response to any overtures that were made to buy the company. Speaking personally and to echo what Seth said earlier I think our stock price is substantially undervalued and I think that almost everyone of our shareholders would agree with me on this. And as Seth indicated we are very open to suggestions on how to change the supply and demand dynamics for our stock.

Moving to some other questions, do we expect additional announcements concerning additional luxury vehicle models? Yes. Am I still optimistic from our October 12th presentation that SPD will be another production vehicle behind the SL and SLK by July 1, 2013? Yes. Can we comment on recent articles that describe a special events being held in the automotive industry to launch a new S-Class and also comment on reports that the S-Class will use Research Frontiers’ SPD-SmartGlass technology.

I’m some unlimited because we have NDAs in place with all the world’s major auto companies, but we can’t say anything definitive until they say something. However, I can’t say that the automotive press usually get things right and also this is because there is a good dialog between the automotive press and the automakers. And these articles are awesome, very incredible publications. And to those who have not read the articles, they are saying them the new S-Class is being launched on May 15th in Hamburg, Germany that the new S-Class will be in showrooms this September and will offer Magic Sky Control as an option. So, while we can’t confirm this at this time, this SPD SmartGlass did appear on the new S-Class, it would be a highly significant event for Research Frontiers.

First, this would mark Mercedes moving to using our SPD SmartGlass from convertible roadsters to much higher volume sedans. And financially, it still be very significant, because there are 30% to 50% more S-Classes produced than the SLK and SL combined. Also the roofs under these vehicles used more glass, so we expect perhaps higher royalties per vehicle. And we also believe that moving from roadsters to sedans with our technology, which would have a much broader impact and influence over the entire automotive industry, including the plans and the timetables from other automakers.

The next question, can I say anything about Mercedes elimination of the solid metal roof option on the SLK and SL in many markets last year? Just to describe what that is often vehicles are offered with a metal roof and a glass sunroof. What Mercedes did late last year in some of their SLK and SL convertibles is eliminate completely the metal roof option? And so now you have an option of either getting the standard glass roof, which is actually a polycarbonate roof, who are the Magic Sky Control roof, which is our technology. This is certainly a positive event for Research Frontiers since now the only option that a customer has to decide it whether they want Magic Sky Control or not and this presumably would increase the take rates even further.

Another question relating to automotive is there any talk about this eventually becoming a standard item on cars, since it only has 2% to 3% of the price of the car. Typically, new technology starts as a standalone option like Magic Sky Control and that moves to something, sometimes as part of a bundled option package that it makes us way to standard equipment. So, that’s too of many things that are standard on cars today that were wizbang technologies when they were first introduced like anti-lock brakes, airbags, and even automatically dimming rear-view mirrors. If we do become standard equipment on a car, there are some significant benefits that will occur that don’t necessarily happen while we are just an option. For example, use of our glass according to the Mercedes test reduces cabin temperatures by 18 degrees Fahrenheit on the SLK. If every SLK at our technology has standard features, then air condition is to be made much smaller on that car, CO2 emissions would be reduced, gas mileage would increase, and essentially the way you design many systems at a car would be positively impacted.

I will just comment on Soladigm, which now is known by view as a competitor. First of all, they received government funding and I personally only seeing the one project that they published any information about, which is the W Hotel in San Francisco. It has relatively small windows in the lobby and they don’t switch at least not noticeably, although there is a handheld sample that’s much smaller, but it’s very slow with a very limited light range. And the contrivers told me that the windows in the lobby take between 30 minutes to an hour to switch. So, the switching speed and range of light transmission is important at a switchable glass, and we think those are few things that are basically essence of any switchable technology, then given the current performance I am not that concerned about view as a competitor. Of course, everybody has the sustained effort to improve their technology, including us and I am sure there are efforts underway for them to try to do better.

Are there any plans behind tradeshows to promote awareness of SPD technology? Well, let me first say something about tradeshows. Tradeshows are important, but for subtle reason, maybe not obvious. Auto shows, aircraft shows, marine shows are not likely a typical houseware show, people don’t show up with an order book. At these shows, people are continuing negotiations that they start before the show, getting new ideas, and assessing the capability as the company is finding new suppliers and finding new technologies. And for us more importantly, these are every efficient ways to meet relatively informed with lots of key executives in a very short period of time.

The real marketing work that is underneath the surface, in a lot of this you don’t see, but we have an entire staff here at Research Frontiers that has grown in the last two years, and it continues to grow with added outside people that are acting as consultants in different industries. A good way to think about this is that well, Research Frontiers maybe the call back orchestrating some of these efforts we now have over 20 licensees. So, we also do a lot of work to coordinate our marketing with theirs. And we do have a lot of much great resources that work between us and these companies. Secondly, the division responsibilities, for example, maybe with customers to make sure they are working with the best licensees of what they are trying to accomplish in a particular industry. And we want to make sure I understand what SPD-SmartGlass is capable of doing. We also make suggestions on how they could be more effective in what they are working on and also just working their development cycles based on our own experience.

And in general make sure that our supply chain is delivering what the customer needs. A lot of this is technical and marketing support to the customers as well as the licensees. That’s hard to make very specific things. We also take it by ourselves to build awareness in general about how smart your glass can really be. And you will see this with our existing design center here in Woodbury, industry articles that we have authored as the thought leaders in the areas, such as daylight harvesting and green building design. And we routinely speak at various roles and conferences, and we are also expanding in places where people can go around the world experience SPD-SmartGlass cutting some new places that are opening up that are very close to the part of the Manhattan architectural market. So, a lot of good things are happening on the visibility front.

One shareholder asked a very insightful question. Are there any plans to open up the smart sales and marketing office in Germany, where almost 80% of luxury market resides. We actually discussed this in the Board about 18 months ago. And for now, we find this function is already being handled effectively by our licensees. And we have at least (indiscernible) auto glass production licensees our technology. But when we do get involved, it’s also on a more senior executive to senior executive level, and this is more feasible not by having a sales office, but by periodic and routine trips primarily to Germany, which is where I spend a lot of my time, and I was just there last week.

Movement by the government towards smart windows was another question. This is a highly politicized process and it also takes a long time. Government has funded other technologies, but as Sage’s experiences shown, it’s a very low budget process that does not happen on the scale needed at least in our minds for commercialization in our industry. So, we try to work much faster than our government. And I think that’s been a good strategy for us, because it also makes us more of a master of our intellectual property, which leads to the next question about our efforts to unlock additional value in our patent portfolio.

Well, there is two ways of doing that. One is licensing additional companies and you are beginning to see an acceleration of that process and the other would be determining whether other people are infringing on patents and taking appropriate action. And we discussed this in prior conference calls and this is still very part of our near-term plans. Another question was the status of Boeing, we can’t comment on this to say that they are very much aware of how effectively our licensees in the aircraft market can solve their current problems that they have with the electrochemical windows on the 787 Dreamliner in terms of the slow switching speed, the transmission of too much heat, and the inability to effectively darken the cabin. And adoption by other OEMs has certainly helped us in this area as well. So, what I would like to do now, because we are taking quite a bit of time to discuss the questions that have e-mailed just to make our presentation is maybe open up operator the conference call to any additional questions that might be in the queue.

Question-and-Answer Session

Operator

At this time we’ll begin the question-and-answer session. (Operator Instructions) And our first question comes from Frank Gildner from Raymond James. Please go ahead with your question.

Frank Gildner - Raymond James

Joe, this is Frank Gildner. I had a question that follows on the revenue reports from the last quarter, I haven’t got a chance to look at these numbers yet, but I ask Seth, because in the report that I saw the revenues were down, when I thought they would be up since Mercedes introduced the SLK, and I guess, the S model to begin with, but I asked them what Mercedes paid in royalties and he said Mercedes don’t pay any royalties, the royalties come from the window producer.

Joseph Harary

So, we get our primary royalty for the glass manufacturer although in the case of Mercedes, there is a relatively small royalty compared to the others that we get for each car based on our electronic patent. So, we do get something from the directly from Mercedes in that area, but as far as the lion’s share and what shareholders are focused on is the royalty from the sale of the glass products.

Frank Gildner - Raymond James

Well, just one question that, because I have heard you say that you get your maximum effect when you go to the end manufacturer. And in this case, the end manufacturer is not Mercedes, but is it the glass manufacturer in England?

Joseph Harary

But in this case, it’s tokens and that’s why we are collecting the royalty, which is the highest value added before the retail purchase.

Frank Gildner - Raymond James

So, that’s going to be the case with the window production for buildings and for anything that comes in the United States, it’s going to be on the glass side rather than the individual Mercedes, I think Lincoln would be natural for this year in the United States since their connection in the luxury area, and what they have done with some of their new models, but they won’t be paying, it will be the glass manufacturer that supplies forward?

Joseph Harary

Lincoln doesn’t have to be the licensee unless they want to use our electronics and use wire for that.

Frank Gildner - Raymond James

Okay. Yeah, I understand the licensing fee that they don’t pay the royalty which is where you get your biggest bank from is what I thought?

Joseph Harary

But Frank, just maybe for the benefit of other people on the call, I think that it’s important to understand that well, Lincoln doesn’t have to be a licensee. We have licensed 75% in the world’s automotive glass production. So, they can pickup the phone that any of their existing suppliers and get SPD Smart Glass.

Frank Gildner - Raymond James

Well, the difference is it’s not a retail end it’s a commodity end if you are talking about the glass that way and it’s that affects the way differently than what I thought it was before. I am glad you cleared that up for me. Thank you.

Joseph Harary

Yeah, there will be some markets where you are getting a royalty based on the sales of the consumer. If someone, for example, sells windows for the residential market, we are getting the royalty based on what the homeowner will pay for the windows to the licensee in the B2B area, which is typically the vehicle markets, the odds, the aircraft, and the automotive, it’s usually B2B and that’s what you are getting it from. But even in that area, we try to collect the royalty from the highest value-added part of the supply chain.

Frank Gildner - Raymond James

Okay, good. Thank you.

Joseph Harary

Thanks a lot.

Operator

(Operator Instructions) And our next question comes from Stephen Ohlemacher, who is a Private Investor. Please go ahead with your question.

Stephen Ohlemacher - Private Investor

Yeah, good afternoon. I am impressed with the latest postings on whom we have been signing and the numbers that are growing up. A couple of questions, which it only take a minute, but first of all, the Russians, the new people that we have signed on according to what I really know we have already had a lot of success with using this glass. I am curious as to how they were using it prior to having a license?

Joseph Harary

Sure. Let me address that first.

Stephen Ohlemacher - Private Investor

Okay.

Joseph Harary

In the case of tinted, tinted was a distributor for AGP, our licensee in this area. So, they basically open up the Russian market and we are buying laminated panels from AGP. They found that would be more efficient for them to actually manufacture it in Russia directly. So, that’s behind them. In the case of ABB nanotech, they have a strong presence in the liquid crystal window market and liquid crystal windows are fabricated very similar to an SPD window. There is an other side film, in their case, its liquid crystal, in our case, it’s an SPD film, but things like thus far as electrical connections, controllers, lamination techniques are all regular. So, it’s a lot of these companies fixed the ground running basically and they also have a strong customer base in Russia which has helped because these markets are premium glass markets. So, the ability to serve their existing customer base that they are used to dealing with that are offering them a better product certainly helps us.

Stephen Ohlemacher - Private Investor

Oh I see okay. So, they were a sub-track?

Joseph Harary

Nobody was infringing in Russia was it that they were part of AGC wasn’t selling SPD and since it was but as a distributor an authorized distributor.

Stephen Ohlemacher - Private Investor

Okay thank you. The other question I have on new these new investors that the pocket people that we see coming on board, they getting their stock purchases from what I would like to call a company store rather than on an open market. And I am wondering about the stock bonuses and things that management and employees have been receiving, if that is coming out of the so called companies are also wouldn’t be time possibly to the stockholders to receive a small dividend or stock dividend of some sort just as maybe a good faith gesture?

Joseph Harary

Well, certainly something we’ve done three times in the past stock dividends for shareholders and certainly things we will consider in the future. The thing about our stock dividend is you want to do it when your stock is at a higher level. And we certainly would consider it, but it’s not up to me, it’s up to the entire Board to do that. As far as your comment about them getting stock from the company store, they actually have had fairly substantial and probably bigger purchases in the open market and a lot of cases then they have got directly from the company and that was part of the strategy. If you looked at trading volume after our August offerings through Craig-Hallum where a lot of these investors came into the company as investors, you saw us fairly substantial buying activity following up that and we are very pleased that we were able to deliver on their expectations and that they bought more of the company stock. We take the trust of all of our shareholders very seriously and when you see that kind of buying activity coming from sophisticated institutional investors, it’s a nice development and it’s a nice validation.

Stephen Ohlemacher - Private Investor

Yes, yeah I was more than happy to see this guy coming is Mr. Douglas.

Joseph Harary

He has a very good track record and he sees a lot of potential for the company obviously which is why he has taken such a large position.

Stephen Ohlemacher - Private Investor

Okay. And one last short one on your last annual report I know you don’t list all your licensees on there?

Joseph Harary

Yeah, there is a list on our website of all of them. But with 41 now and growing it’s becoming really hard to look them all in one place and constantly update it. So, the best place is to go to our website and speaking of our website we mentioned in the last conference call that we are undergoing a substantial redesign of our website we are very excited about it and sometime between now and the Annual Meeting I think our shareholders will be very excited about it as well.

Stephen Ohlemacher - Private Investor

Okay. Thanks a lot and take care of that cold.

Joseph Harary

Thank you very much. I have been in four countries in four days last week, so a lot of it is just lack of sleep. Thank you.

Stephen Ohlemacher - Private Investor

Okay. Thanks a lot.

Operator

(Operator Instructions) Our next question comes from Todd Wiseman, Private Investor. Please go ahead with your question.

Todd Wiseman - Private Investor

Hi I had a couple of questions. My first question was I noticed that you have various patents with buyer even this month kind of keep rolling. And I was wondering (indiscernible) particularly with these patents that have expired or will be expiring in near term?

Joseph Harary

Alright, that’s a very good question. A company that’s been around as long as we have of course is going to have a number of patents at any given time car expiring. The ones that have expired or not significant to us, it’s I guess the corollary question is when do our significant patents expire and not till 2022, 2023, 2024 to what we consider the important patents in our technology begin to expire. We also have - very focused and sustained R&D effort so we do have new inventions coming online and new plans coming online all the time, and that’s a way to extend the revenue stream from our patent portfolio. So, I think we are very well-protected. We have about just under 300 patents and a similar number of patent applications pending around the world, but it’s a fairly substantial patent portfolio and the fact that we have attracted Fortune 100 companies, I think is a good validation that these are valuable. And as we see the revenues grow, I think that’s further validation that we are beginning to monetize these patents. So, I think we are well-protected by this. It’s a very good question and I appreciate you are asking it.

Todd Wiseman - Private Investor

Sure. Second one, you said earlier in the call that you hadn’t had yet missed any opportunities on sort of target market OEM type cars?

Joseph Harary

Right.

Todd Wiseman - Private Investor

And I wanted to ask you about the E-Class from Mercedes that was I think refreshed or introduced in January, did you see that as something that had potential or not so much?

Joseph Harary

We were told by Mercedes ahead of time that the E-Class that the refresh that they were doing was somewhat more of a cosmetic refresh, things like that the lights and things like that as opposed to wiring and structural and electrical more subset of electrical changes. The E-Class that I loved to be on is the 2016 one, because that’s the one that gets redesigned in a more major way, but in terms of what’s come out of the Mercedes pipeline, we haven’t missed any opportunities, but we are looking forward to a lot of very significant ones coming up.

Todd Wiseman - Private Investor

Okay. One other quick question, I noticed your receivables were up at the end of last quarter, if you could speak to that?

Joseph Harary

Yes, economic activity is also up, and I think that goes part and parcel. For example, if we typically will bill Pilkington quarterly, it’s usually after the end of the quarter that we build them, but we have to reflect as the receivables as of the end of the quarter. So, as you see increasing receivables a lot of those just due to the fact that you have to wait till the end of the quarter to know what you are billing people, and that’s what we do.

Todd Wiseman - Private Investor

Okay, thank you very much.

Joseph Harary

Thanks.

Operator

(Operator Instructions)

Joseph Harary - President and Chief Executive Officer

Well, I think what I’d like to do if there are no other questions is make just some very brief closing remarks. First of all, thanks again everyone for participating in today’s call. It’s nice to be able to end the year with such strength in so many different areas that we focused on. We have always felt that if you could end the year better than you started it, it’s always a good business strategy. And as I mentioned, we did that on a number of fronts from our solidified balance sheet, new product introductions, growing revenues, and new licensees and also new blood in our stock. So, all of these things have been very good for us, and has made up the stronger company.

I want people to remember that SPD-SmartGlass is the best selling smart window in the world. And this year, we have begun to see the success as products have entered the automotive market, the architectural market, the aircraft and marine industries, and we have done this by taking ordinary windows and sun roofs and making them smart. And four of the world’s major automakers representing about 85% of the worldwide production of premium cars have introduced concept cars or serial production vehicles using our SPD-SmartGlass. And in addition to that, HondaJet and Bombardier have publicly shown SPD windows on their next aircraft that are being introduced. Airbus has been flying SPD windows on the every A380s, but they have delivered to Qantas since October 12, 2008, but I want to leave you with a thought. And this goes to the whole idea of visibility and awareness.

Right now, today, March 14, thousands of times a day and over a million times a year people press a button and experience this cool magic that was brought to them by Research Frontiers and SPD-SmartGlass Technology. And each time they do this and each time they show it to their friends or share a video of the product using our technology, awareness of the technology grows, but not only this awareness growing, revenues are growing as well. Use of our technology is growing in each of the four main industries and we also are seeing success as we move into additional markets such as the museum market and the automotive (indiscernible).

I am confident in our future and the strength in the germination which with we are moving forward, but none of this would have been possible without the support and trust of our fellow shareholders. And through this, I thank you all and I thank you for participating in today’s conference call. And I look forward very much to sharing additional good news with you as it progresses. Thanks again everyone.

Operator

And ladies and gentlemen, we do thank you for attending today’s conference call. It has now concluded. You may now disconnect your telephone lines.

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