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Operator: Good afternoon ladies and gentlemen. Welcome to the Research Frontiers Investor Conference Call to discuss the Second Quarter of 2024 results of operations 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, 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 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. If you find that your question has been substantially answered as a courtesy and to allow time for other shareholders to ask their questions, please remove yourself from the queue by pressing star two. Also, we ask that you keep your question brief in the interest of time. I would now like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Joe Harary: Thank you, Paul, and hello everyone and welcome to our investor conference call to discuss the second quarter of 2024. On our last conference call, we anticipated higher royalty income for the second quarter based on leading indicators. Indeed, compared to the same quarter last year, our royalty income increased by 165%. The first quarter of 2024 was dynamic and the second quarter saw royalty income rise by over 56% from those elevated levels. For the first half of this year, royalty income surged by over 85% compared to the same period last year driven by substantial growth in our two largest markets, automotive and aircraft. This impressive revenue growth builds on the strong performance from 2023 where fee income increased by 69% over 2022 and overall revenue was up by 109% from the prior year.

The second quarter of 2024 marked our sixth consecutive quarter of revenue growth compared to the prior year. Looking ahead to the second half of this year, we expect Q3 and Q4 royalty income to surpass last year’s levels, further solidifying our growth trajectory. We expect our growth this year will come from growth in our existing markets and from new product introductions. Expenses this quarter were about $105,000 lower, bringing our net loss for the second quarter to just $94,000 or $0.0 per share. Our average cash burn rate has been steadily decreasing. Based on projected revenue growth, I do not anticipate the need to raise additional capital in the foreseeable future unless a strategic reason arises. We continue to be free of debt and are in strong financial shape.

And as of June 30th, 2024, the company had over $1.9 million in cash and cash equivalents and our working capital was $2.8 million. We currently expect to have sufficient working capital for more than the next five years of operations. Now let’s together look underneath these numbers so we can all better understand where we are and what we can expect. Sales of cars using our SPD-SmartGlass technology at Ferrari and McLaren remain quite strong. Ferrari has stated that in order to maintain the exclusivity of the Purosangue, which uses our SPD-SmartGlass, they will voluntarily limit production to 20% of their total unit production for all Ferrari cars. Based on these numbers, an extremely high percentage of Ferrari customers are opting for the SPD-SmartGlass roof option.

Ferrari just reported an excellent second quarter in terms of sales. Additionally, third quarter production at Ferrari is typically their highest.So if these trends continue with the Purosangue, we can expect higher royalties from it next quarter as well. Remarkably, even though we’re only halfway through the current 2024 year, these roofs have almost equaled the total number of roofs from all of last year. The popularity and high take rates of the McLaren models using SPD-SmartGlass are also evident. Even though we’re only halfway through 2024, the total number of routes on just one model of McLaren puts us on track to triple the number of SPD roofs this year as compared to last year. I also want to take this opportunity to congratulate our licensee Isoclima on the introduction of SPD-SmartGlass on the panoramic roof of the Gemera by Koenigsegg Automotive, the beautiful car made even more beautiful and comfortable by SPD-SmartGlass.

Isoclima announced this new program in June. In our last conference call, we noted with anticipation the IPO of our licensee, Gauzy, and the introduction of a retrofit application by our licensee, LTI, at the AIA show in Washington, D.C. Both took place in early June. We also highlighted the successful development of an SPD-SmartGlass sunroof for a flagship, relatively lower-priced, midsize model from an Asian auto manufacturer. This program is still on track for introduction, and we, along with Gauzy, are eagerly awaiting the OEM’s launch announcement to share more details. There is a meeting about the launch of this car scheduled for later this month. What’s particularly exciting is that the manufacturing cost of products using our technology has decreased significantly, making it feasible for use for the first time in moderately priced vehicles like the one I just mentioned.

This creates opportunities for higher volumes of SPD-Smarttechnology in middle-market cars worldwide. Moving to our second-largest royalty-generating market, aircraft, we also once again had higher revenues there in the second quarter. There’s been a fundamental improvement in that market for us as well. This stems from the way that decisions are made. For general aviation aircraft, private jets mostly, we are on the HondaJet and the King Air and a number of other models. In those and other cases, the OEM made the decision about putting our high-performing SPD technology on their aircraft. The significant shift is that in larger aircraft made by Boeing and Airbus, now it’s the customer that decides. This has been tremendously enabling for our licensees selling SPD electronically dimmable windows or EDWs because the performance in terms of switching speed, being instantaneous, and the wide change in tint also being uniform has made it an easier choice by the customer to pick SPD.

And apart from the obvious benefits of improving the passenger experience by giving them more control over their environment and reducing noise in the aircraft cabin, there are temperature benefits as well. Half of heat comes from infrared and the other half from solar heat gain from visible light. IR has always been relatively easy to block. It is the visible light where the other half of heat comes from that historically has been challenging. We block 99.5% of that visible light. Heat inside the cabin has always been a known issue and until takeoff, aircraft had to hook up expensive terminal or auxiliary power of the electricity or run their engines and waste fuel to generate power while on the tarmac. I’ll give you one example of what’s been observed.

Our licensee and spec tech had done a SPD EDW installation on a LearJet. One day there were two Lears parked next to each other on the ramp, so they were in the same environmental conditions. Both Lears were being worked on that day for maintenance. One of them had in spec tech’s SPD EDW and the other didn’t. The maintenance crew said the cabin in the Lear with SPD was 26 degrees Fahrenheit cooler than the one right next to it. Now remember in cars Mercedes tests show that there’s an 18 degree Fahrenheit reduction in temperature. Once we had a NASA scientist at our office at the research frontiers and I asked him why it would be higher in an aircraft and he went to the whiteboard and seven different equations and three diagrams of the fuselage and later he stopped talking and said and that’s why and I told him that I simply was glad it worked well.

The first line of defense against heat right now while aircraft is sitting on the ground is trying to prevent the cabin from becoming excessively hot to begin with according to Charles Horning who’s a professor of Aviation Maintenance Science at Embry-Riddle Aeronautical University. He says many of us have been on flights where the flight attendants have all asked passengers to close the sliding windows before they get off the aircraft. That’s probably the best thing that could be done to try to keep the cabin from heating up. But here’s the problem with that approach. It’s been historically difficult to get passengers to close shades and the flight attendant unions have balked at directing their passengers to do that and rather than simply closing the shades SPD EDWs have proven to be more effective at blocking light than closed shades are.

And I think it’s noteworthy that other technologies such as electrochromic technology can actually create unwanted heat. They can actually generate heat and this sometimes has been shown in videos to cause the window to crack in mid-flight because they operate a lot like your cell phone battery. So electrochromic EDWs automatically switch to their maximum heat transmitting state when a plane is at the gate and notably SPD EDWs automatically switch to their maximum heat blocking state when at the gate. So it’s a much more preferable environment and effect. And it was recently reported about cabins being so hot sitting on the tarmac that passengers were taken off the plane and some passengers were hospitalized. This has caused some to call for more stringent government and FAA regulations about heating the cabin and we are in an excellent solution there.

And the customers themselves are now picking SPD for the larger aircraft. Comlux and Airbus just delivered another ACJ-220 in late June and have another one expected to be delivered later this year and next year they’re targeting four to six of these large aircraft with SPD EDWs. Even bigger is the international airline referred to in Gauzy’s IPO registration statement. In this case it’s for part of their Boeing fleet, so we have Boeing and Airbus. Now let’s discuss the architectural glass market. In our last conference call we highlighted the cost and logistical benefits of an architectural retrofit application for SPD-SmartGlass. AIT, the parent of our licensee LTI SmartGlass, launched this publicly at the American Institute of Architects or AIA show in Washington D.C. that was in early June.

The General Services Administration of the U.S. government or the GSA is the world’s largest customer for energy efficient glass and has new mandates and programs to upgrade government buildings for energy efficiency and security. These initiatives are positive drivers for our business and since the AIA show we’ve identified and are working to scope out some initial government projects for SPD-SmartGlass. Additionally, the Dynamic Glass Act offers substantial tax credits of between 30% and 50% for adopting SmartGlass and putting it into service, encouraging its adoption in all types of buildings and homes. This legislation will help the private sector adopt SPD-SmartGlass. We have also begun work on private projects utilizing SPD-SmartGlass as well.

Now in the interest of time and to cover as much ground as possible, I’ve taken a number of the questions that we have received by email and incorporated them in my presentation today. I’d now like to open up the conference to additional questions. And first I’ll read and answer some of the questions we received by email and I encourage people to email their questions before the conference call so we can tell our presentation to cover the most ground for the benefit of all shareholders and cover all of the topics of interest. So here are some of the additional questions that were emailed to us and in some cases I’m combining several related questions into one. Can you please talk about some of the developments with your competitors in the SmartGlass industry?

Well as many of you know, View recently filed for bankruptcy and Crown ElectroKinetics dodged another delisting bullet on NASDAQ by effectuating a second reverse stock split. This time it’s 150 to 1 reverse stock split. So if anyone’s keeping track they’ve done a cumulative of 9,000 for one reverse stock split during the past year or so and pre the reverse split Crown would be trading at three one hundredths of a penny as of yesterday’s close. So that’s why they did the split. And they’ve yet to produce their long-promised smart window inserts after many years of it being just around the corner. And I actually welcome the day if it ever comes when they finally do that, because I think their product in a side-by-side comparison may actually be our best salesperson.

Another company, Halio, which used to be known as Kinestral and has received substantial glass company investments is in the process of liquidation. We and our licensees actually have been approached to see if we want to buy any of their equipment or hire some of their senior executives. And the severe negatives in the SmartGlass world fortunately are all or fortunately for our shareholders not for the other companies are all related to other technologies. SPD is doing quite fine in comparison and on a positive note for our industry and squarely in the SPD-SmartGlass column our licensee Gauzy had a successful and traditional IPO rather than trying to go public using the SPAC route and raised their targeted $75 million. They’ll be using this money to expand production lines, further R&D and increase their sales and marketing.

All of this helps Research Frontiers and the SPD-SmartGlass industry. And if you remember my comments on our last conference call together I noted that to do the SmartGlass industry correctly, if you’re a manufacturer or a marketer and Gauzy is both, you need production capacity, factories, people and a diverse geographic footprint to cover the world and the industries that SPD-SmartGlass serves and now with their IPO Gauzy has expanded resources to do all of that. I would also pay attention to their actual quarterly financial filings and investor calls. They’ll be a good source of information not only about Gauzy but about Research Frontiers as well. And as I noted last time our shareholders now have the benefit of two leading players in the SPD industry Research Frontiers and Gauzy as public companies releasing information and announcing developments.

And while we’re on this subject I wanted to address another shareholder question we received. As we noted many times Gauzy film sales is the leading indicator of sales of SPD Smart products, end products. Gauzy sells their SPD film to our end product licensees such as the glass laminators who then fabricate them and sell the finished product to the customers such as the automakers, the airlines and the aircraft manufacturers. One of our shareholders Sam Finta emailed us his questions. Did you see the Ferrari Purosangue showing up all over the place with a very high percentage having the SPD-SmartGlass? Sam if you knew how high it was you’d be amazed. The Cadillac CELESTIQ has also been spotted on the road in addition to the McLaren that has offered SPD for years.

All three of these are very high-end vehicles ranging from $400,000 to $700,000. Can we assume that the royalty on these vehicles are much higher versus a $50,000 to $100,000 vehicle such as the Mercedes where it was a $2,500 option? The Ferrari SmartGlass roof is a $20,000 option. It would seem that we collect a far bigger royalty than we used to on a $2,500 option. Well, thanks Sam for that question. And as many of you know we get our royalty based on the selling price from the glass laminator or the end product licensee to the car manufacturer. So it’s the selling price of the glass to the car manufacturer. And we can only collect the royalty once. So we currently collect it on the highest practical value area of the supply chain which is on the end product sale rather than on the SPD film sales.

And as you would expect this royalty could be higher on more expensive cars because the bells and whistles that go along with the SPD-SmartGlass roof are often part of that selling price by the laminator to the customer. As a practical matter the higher priced cars can put more of those bells and whistles and additional functionality into their roofs because of the price point that they sell at. So the higher the price of the SmartGlass roof the higher our royalty and the higher the price of the car, the more features that can be put into the roof systems. Oh that’s clear. So it’s still only on the selling price from the laminator to the car manufacturer, but usually that’s a much higher end piece of glass that they’re selling, so it’s selling for a higher price and the royalty should be higher per car.

Now for high volume cars such as the upcoming Asian auto manufacturer in the mid-price range that we talked about, as you could expect the economies of scale and also just higher sales volumes and purchasing power would result in a lower selling price for the SPD roof from the licensee to that automaker. And there we’ll get a lower royalty per car but presumably much higher overall royalties based upon the higher expected volumes. So getting back to Gauzy’s SPD film sales are a leading indicator for activity for researcher interiors and for sales buyer and product licensees where we generate our royalties. Gauzy gave guidance about their second quarter revenues about two weeks ago. And their second quarter 2024 revenues are expected to be in the range of $24 million to $24.5 million, which is up 22% compared to the prior year quarter.

First half 2024 revenues are expected to be in the range of $48.7 million to $49.2 million, which is up 31% compared to the prior year. This basically puts Gauzy on a target to generate almost $100 million in revenues this year and I’m going to read a quote from Eyal Peso who is the Gauzy co-founder and CEO and he’s also one of our newest and esteemed directors. He noted — our exceptional start to 2024 extended into the second quarter with revenue that is expected to exceed expectations. As expected the robust pace of revenue growth in the first half is driven by a number of key customers that accelerated a portion of their full year purchasing commitments to earlier in the year to meet robust demand. We believe we are poised to produce strong double-digit revenue expansion in the second quarter and then even more notably Mr. Peso continued in this press release.

Since our IPO we continue to be laser focused on executing against our goals. We are seeing OEMs expand utilization of our SmartGlass technologies, major cities replacing mirrors on their bus fleets with their ADAS and CMS systems and our products being incorporated into iconic new commercial and hospitality projects. We are highly excited for the future and the progress we are making to fully deliver against our plan for 2024 and beyond. Okay. So here’s some more questions that were emailed to us, from Steve Azer. Also can you update on Hyundai and did they pull out of their investment in REFR Gauzy? Well, as many of you know Hyundai was a strategic investor in Gauzy. And I saw a confusing report on one of the websites that talked about a Hyundai exit from their investment in Gauzy.

But I think that’s because they consider an IPO an exit event. But I asked and I found out Hyundai did not sell its Gauzy stock before or during the IPO and is still a strategic investor in Gauzy, so they didn’t sell anything. Also next question from Steve Azer. Also Gauzy had higher revenue forecast, will this be tied to future REFR sales? Yes as I noted earlier in my presentation Steve, SPD film sales are a very good leading indicator of our royalties. And if you start tracking things you’ll probably see a correlation. Finally as another question from Steve, finally my concern is still the lack of any new positive news releases over the last few years as it seems there is less business coming in. We had more press releases years ago but it seems now less news.

Thank you. I wouldn’t say there’s less business coming in if you look at the revenues there’s actually a lot more business coming in and Steve you’ve been a long-term and loyal shareholder and never just a cheerleader, so I really appreciate all that. But I think the fact that we’ve moved from being a technology company in the development stage to one where products are used by many different large companies like Ferrari and General Motors and Mercedes, McLaren and Boeing and Airbus and Bobcat and others has maybe paradoxically reduced our ability to make announcements. In the past we can announce the entry of a new license agreements and this type of announcement was in our control. But now that we basically have the who’s who of the major companies in the glass industry and their customers as licensees and customers we have less new licensees that need to be signed on board.

And with the major companies as customers industry practiced by us and by our licensees such as Gauzy is that we must wait for the customer to announce. And that may change somewhat in the architectural industry because less keeping things close to the vest by the customers there. But until then we must wait for the customers in the automotive and aircraft industries to speak first. And those are our two biggest industries right now, so it’s the world we live in. And as I noted, that might change as we move to architectural. But in the meantime the numbers will do the talking. And I think this quarter and last quarter they’ve spoken loudly both we and Gauzy have had high growth especially in the first and second quarters of this year as we all gain more and more traction.

We’ve discussed a lot of exciting topics so far today. And now I’ll ask our Operator Paul to please open up the conference to any additional questions people participating today might have that we have not already covered. And some of our largest shareholders have suggested trying to keep these conference calls much shorter. So I’m going to ask your assistance with this. If your question was substantially answered but you need more details feel free to email us. And as you’ve done in the past we’ve had very productive conversations as a result. And today you know please try to keep your questions short and focused. So Paul, if you wouldn’t mind opening up the queue for questions.

Operator: My pleasure. [Operator Instructions] And our first question comes from Neal Goldman of Goldman Capital Management. Your line is open. Mr. Goldman, please go ahead.

Joe Harary: Neal, you may be on mute.

Neal Goldman: Okay. Is that good?

Joe Harary: Oh, there we go. Hi.

Neal Goldman: Okay.

Joe Harary: Now we can. How are you doing?

Neal Goldman: Good. I’m doing great. First question is Gauzy was up 22%. We were up 56% in royalties. Who are the other key distributors for us?

Joe Harary: Well, they’re supplying the film and then it depends on the markup. So Ferrari is a substantial portion, McLaren, Cadillac is a small contribution by one of the same licensees that’s doing the Ferrari. And then you have the aircraft markets, which is vision systems and inspect that primarily. So, those are the things where you have. The film price is basically the same for all the industries. The end product price can change dramatically, depending on who the customer is, in the bells and whistles, like I talked about before, can contribute also. And it’s all good.

Neal Goldman: Before Gauzy does major expansion with the incremental funds they got from the IPO. If they were operating at capacity today, if demand was there, what kind of incremental revenues would be receiving from Gauzy?

Joe Harary: Well, that’s a hard question to answer. So if they were at capacity, it would probably be about a million square meters and figure the average Ferrari sunroof is, 1.267 square meters, roughly 1.3 square meters. A typical sunroof may be one meter. And then if you have the front and back panoramic, it could be a meter and a half to 1.8 meters. So that’ll give you kind of an idea of the number of sunroofs. But if they’re at a million square meters capacity, I imagine that the royalty per car because of the volumes will be lower for us. So, it could be 25, 50, 75, 100, 150 or even $200 per car, depending on the dynamics. If that same film is going to aircraft, a million square meters could produce a couple hundred million dollars in revenue.

Neal Goldman: And what would be our share?

Joe Harary: No, to us.

Neal Goldman: To us.

Joe Harary: Right.

Neal Goldman: Say that number?

Joe Harary: So it really depends on the market it goes to, like the same 1.2 square meter, square foot window, for example, would sell for a lot less if it was put into a sunroof than if it was put into an aircraft window, just because the selling price to the –

Neal Goldman: And what did you say the price would be if they were all aircraft, the incremental volume to us?

Joe Harary: Probably about $100 million. I’m not predicting that because, there’s wide planes. But that’d be the high end of the market.

Neal Goldman: Okay. But that would be –

Joe Harary: Yes, that would be probably the highest price per square foot we were getting.

Neal Goldman: Yes. $3 a share just from that.

Joe Harary: Right.

Neal Goldman: Okay. Right. Thank you, Joe

Joe Harary: Thanks, Neal. Bye.

Operator: And our next question comes from Michael Kay of Kay Associates. Your line is open.

Michael Kay: Hello, Joe.

Joe Harary: Hey, Michael. How are you?

Michael Kay: Okay. Let me just. Okay. Just a dissenting voice about something. One of the reasons I’m still in Research Frontiers, never sold a share for the last 25, 50 years is because your conference calls are so detailed, you entertain questions, and you don’t put any time limits compared to some other companies where I’m a shareholder, where I can’t even get on the line. Of course, they have very strict timeframes. And so, I think that’s a tremendous plus. I don’t even care.

Joe Harary: Thank you. And it’s a self-serving plus, because sometimes the only way to really get information when you see the noise of a stock price that fluctuates is to actually listen to what’s going on. And when you have a company that happens to be in industries where you can’t always talk about everything, sometimes these conference calls are the best venue for doing it. So it’s our pleasure to do that. Thank you.

Michael Kay: Yes. And I really appreciate the fact that you don’t put time limits, take email questions, and give everyone a chance regardless of how many shares they own to answer questions. I think now, we have now a consistent earnings the last few quarters, uptrend, things with Gauzy. The fact that any technology, given the climate change, which now I think even the most ignorant individuals who thought it was a Chinese hoax must agree just by reading the newspapers or listening to the news, that any technology that could show to decrease interior temperatures certainly is a major plus. And I’m wondering, what is the company doing to inform institutions, money managers? There are mutual funds, micro-cap funds about the existence of research frontiers, because even if they buy a car with SPD, they may not realize that that has been developed by Research Frontiers.

So will you be initiating any systemic program to inform money managers about the existence and prospects of the company?

Joe Harary: Okay. Excellent question, Michael. So first of all, let me say that regardless of whether climate change exists or doesn’t, it’s always good to be energy efficient and increase comfort and security and all of the things that SPD does. Back in 1965, I’m not really sure that the world was thinking so much about those things and now they are, fortunately, but it’s always a good thing. So we would be doing it whether there was climate change or not, because conserving resources is always a good thing. In terms of making this known, I’ll tell you what we won’t do and what we will do if I could do that. Yes, there’s been a number of companies that what the SEC refers to as ESG washing where they basically just tout ESG and they’ve gotten into big trouble because there’s nothing underlying that.

We’re probably the opposite. We’ve been a green company since day one before the term green was even coined and that’s fine. What are we going to do to bring this to the attention of money managers? Well, the message is very, very consistent, okay? And now it’s being amplified by another licensee that is even dealing with larger money managers and that’s Gauzy is you talk about the benefits of the technology and what you’re doing. Electric vehicles, we’re increasing the range of the driving range. Cars were increasing fuel economy. Buildings, we’re increasing energy efficiency. Planes, we’re doing, we talked a lot about the energy efficiency aspects and the comfort aspects and there’s the security aspects as well. So you talk about the messages consistently.

And we were talking about CO2 reduction in vehicles before it became fashionable to do that, because it’s the right thing to do. So we’ll continue to do that. But now we have kind of a partner with a megaphone next to us doing the same thing. And what you’re having also is a lot of the noise that used to be in the market dropping away. What do I mean by that? Well, you had a public company view that is now no longer public. You have a company, Crown that was promising a smart window technology and hasn’t yet delivered it. You had companies like Halio, which were getting a lot of very favorable publicity, probably right up until the day they liquidated. So there’s a lot of these players that have tried and failed, tried and failed, tried and failed.

And you’re going to see more of them. We’ve tried and succeeded. And we’ve done it in a way where it allowed us to remain in the game as the markets developed around our technology, it allowed us to remain in the game to have the resources to help our licensees and allowed us to remain in the game so that these licensees can build their businesses like Gauzy did and some of our other licensees around our technology. So, you have more and more players out there that are highly credible, highly, well resourced and focused on this, carrying that same message as we are. And, if you look at the post Gauzy IPO, Research Frontiers did well just based on the attention they got. Because you don’t have to be a genius to look at a company like Gauzy, look at the reliance they put in SPD-SmartGlass as a key technology and come to us.

So all of these things are very positive and we’ll continue to build on them.

Michael Kay: Thank you. One more brief question. Is Gauzy basically the only company or the major one that does the production of the film? Or is it like, is it Hitachi or some other company, is it Isoclima?

Joe Harary: Well remember, they bought Hitachi’s SPD business from them. So yes, that was in their registration statements. That’s a very positive development, because now they’ve expanded capacity through acquisition and they’ve also expanded expertise through that process because, Hitachi was a very smart company, I could tell you. And they developed a lot of good know-how around SPD technology, which now is residing with Gauzy and allows them to really accelerate what they’re doing even further.

Michael Kay: Does Isoclima make a film?

Joe Harary: They don’t make a film. They buy it. They buy it from Gauzy.

Michael Kay: Thank you and continued success to you and the company, Joe.

Joe Harary: Thanks, Michael. Hope to see you soon.

Operator: [Operator Instructions] And our next question comes from Jeff Harvey of Private Investor. Your line is open.

Jeff Harvey: Hi, Joe.

Joe Harary: Hey, Jeff. How are you?

Jeff Harvey: A couple of things. First of all, I have to say, I think the Gauzy IPO was one of the worst IPOs I’ve ever seen in my 35 years in business. I don’t know what happened there, but the underwriters are supposed to support the market after the initial offering and they certainly didn’t do that very well.

Joe Harary: No, judging from the stock price, they didn’t. But Gauzy did get its target price and the $75 million they were looking for. So they have the resources they expected. But it would be nice if you would see price appreciation. And look, they had a very good first quarter compared to last year and they had an excellent second quarter. And we’ll see what the market does when the actual numbers are released.

Jeff Harvey: I think I missed what you talked about the middle level car that’s going to be introduced from Asia. When do you expect that to happen now?

Joe Harary: As I said, there’s a meeting at the end of this month about the launch. So we’ll know more about it probably than us and Gauzy.

Jeff Harvey: Okay, great. Thank you very much.

Joe Harary: Thanks.

Operator: And our next question comes from Allen Ginsberg of Private Investor. Your line is open.

Allen Ginsberg: Yes. Hi, Joe. How are you?

Joe Harary: Hey, Allen. How are you?

Allen Ginsberg: Okay. Is there going to be a breakdown at some point between what Gauzy does with PDLC as opposed to SPD, because that would be helpful to see what Gauzy is doing with both technologies?

Joe Harary: I doubt it because the SEC rules kind of require companies to lump things into what they call business units. So, Gauzy, if you look at their business units, they have ADAS and they have other things like that and they have smart film. So I think this would be probably combined with smart film.

Allen Ginsberg: Okay. Because that would be helpful, if that would be possible, but —

Joe Harary: Sure. But remember, they also have a much higher margins on the SPD business. So they and we have a vested interest in more of their business being that if their interest is revenue growth and profitability, and I read you the quote from the OpEx [ph], so I think you can see the same thing.

Allen Ginsberg: Just as a follow-up to a question that was just asked about getting the word out to various stock people. Wouldn’t it be a good idea to hire a financial public relations firm at this point since you have so much going on and not just Gauzy?

Joe Harary: We’ve been interviewing, yes.

Allen Ginsberg: Okay. Good. I hope you do. Thank you.

Joe Harary: Thanks. Thank you.

Operator: And we have a question from Leonard Lietzow of Private Investor. Your line is open, sir.

Leonard Lietzow: Joe, since they raised their $75 million and since in their notes in their S1 where they had contracts on all of the SPD film for this year that they could make. I would assume that they’re expanding their line. I think they could put a second line right next to the one they got right now.

Joe Harary: That’s exactly right. They’ve laid out the second line if they wanted it to be in Germany right next to the first one in the Stuttgart area. Or they may decide they’re going to do it in Asia near the other customer or the U.S. depending on where the need is logistically, but film is pretty easy to ship wherever it needs to be in the world. So if it was all done in Germany and shipped worldwide, there’s plenty of companies that successfully do that with even harder things to ship and film is relatively light and easy to ship. So it could be anywhere, but they have the ability to do that.

Leonard Lietzow: With architects and that coming on and with autos and airplanes using everything that they can make right now, I would think that they have to get something up and running pretty good if they’re going to be sell, that’s a big number?

Joe Harary: We saw this –we’ve seen this now twice, where large capable companies develop SPD production lines, first Hitachi and now Gauzy. And once you know what to build, and that’s part of the know-how, and how to configure it, which is another part of it, because there’s a whole system of rollers and other things and tension that you put on the film and things like that that becomes very important in keeping yields up. Once you know how to do all that stuff, it’s not hard to replicate it. And assuming you had the building permits or the factory line or the warehouse was already there, it doesn’t take more than I would say six to eight months to get another line up.

Leonard Lietzow: Okay. Because that’s the only way we can continue to grow revenue is to be able to sell more film.

Joe Harary: Right. And as long as Gauzy is making money on that film, they have every incentive to keep making more and more factories.

Leonard Lietzow: Okay. Thank you.

Joe Harary: Yes. Thanks.

Operator: Okay. I am seeing no further questions in the queue. I’ll turn the call back over to our host.

Joe Harary: Okay. Well, look, as a reminder, if we haven’t fully answered any questions, or either email to us or in our presentation today or in the live Q&A, please feel free to call or email us. And now I’m just going to make a few closing remarks. The outlook for the SmartGlass industry remains extremely promising, bolstered by growing revenues in automotive and aircraft and increasing regulatory support like the Dynamic Glass Act providing substantial tax credits for adoption that should bring other markets like the architectural market more mainstream for us as well. Research Frontiers is a recognized leader with an innovative, high-performing and reliable solution. And we and our licensees are seeing increasing demand from respected, iconic brands worldwide and from their customers.

And in some industries where the customer can choose, they are selecting SPD as shown by the new Airbus and Boeing programs. And our close strategic partnership with Gauzy continues to create opportunities in multiple sectors as we continuously work together on business development and product innovation. As a matter of fact, we have a meeting on Monday coming up together. Gauzy’s recent IPO also has brought greater transparency and resources to the industry and their expanded production and marketing will further reduce cost of using SPD-SmartGlass and highlight the immense potential of SPD technology to an ever-widening audience of customers and investors. And in our last conference call, we predicted higher royalty income for the second quarter based on the leading indicators that we saw at that time, and we were right.

We achieved this and saw a 165% increase compared to the same quarter last year, and we had a great first quarter this year, and our second quarter royalty income rose over 56% from those elevated levels from the first quarter. And if you go to the first half of the year, our royalty income increased by over 85% driven by significant growth in our automotive and aircraft markets. And looking ahead, we expect Q3 and Q4 royalty income to surpass last year’s levels. And this growth, just to put it in context, builds on a very strong 2023 where pre-income increased by 69% over 2022, and overall revenue was up 109%. And in the second quarter of 2024, it marked our sixth consecutive quarter of revenue growth compared to the prior year. So you got this now sustained revenue growth.

And I think I mentioned in prior calls that as we get further and further along, revenues are going to look less choppy. You’re not going to have a lot of up and down quarters. They’re mostly going to be in one direction, and we all hope and work towards it being up and we got it. And looking ahead, we expect automotive and aircraft revenues to continue rising in the coming quarters. And that’s driven by new product introductions, the introduction of new automakers, offering SPD-SmartGlass on the new car models, and increasing penetration at existing customers. And of course, the retrofit market for buildings also represents a significant new growth catalyst as we work to enable smarter, more sustainable infrastructure worldwide. So as we conclude today’s call, I want to thank our shareholders for their steadfast support.

It’s really helped us all. The momentum we’ve built over the past six quarters evidenced by our consistent revenue growth and successful strategic initiatives positions us strongly for current success and future opportunities. Our SPD-SmartGlass technology is increasingly recognized as a standard of excellence in the smart glass world, further validating our leadership in the industry. And our industry itself has become stronger, at least the SPD part of it, with our licensees gaining more resources to expand and our technology being adopted across diverse industries and for new uses. So we’re constantly gaining more traction, leveraging our innovative energy efficient light control technology and our strong partnerships to drive further advancements in value creation for our shareholders and for our industry.

And I want to thank you all for being part of our efforts and we look forward to sharing more milestones with you in the near future. Thank you all very much.

Operator: This concludes today’s conference call. Thank you for attending.