Research Frontiers Incorporated (REFR) Earnings Call Transcript

Good afternoon, and welcome to Research Frontiers Investor Conference Call to discuss the second quarter of 2026 results of operations and recent developments. The company will be answering many of the questions that were e-mailed to it prior to this conference call in their presentation. In some cases, the company has responded directly to e-mail questions prior to this call or will do so afterwards. [Operator Instructions] Some statements today may contain forward-looking information identified by words such as expect, anticipate, and forecast. These reflect current beliefs, and actual results may differ materially from those expressed due to various risk factors, including those detailed in our SEC filings. Research Frontiers assumes no obligation to update or revise these statements. The call is being recorded and will be available for replay on Research Frontiers' website at smartglass.com for the next 90 days. I would now like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

Thank you, [ Paul ], and good afternoon, everyone. I'd like to welcome all of you to our second quarter 2026 investor conference call. And before I begin discussing the current quarter, I'd like to start by talking about our last conference call. Many of you have noticed that unlike virtually every other conference call we've held over the years, we did not have a live question-and-answer session. Some shareholders criticized that decision, and I understand why. The reason wasn't because we were trying to avoid questions. In fact, throughout our history, we've devoted an extraordinary amount of time to answering shareholder questions, not only during our conference calls, but also before and after them by e-mail and telephone. And I estimate we've probably spent more time in open dialogue with shareholders than many companies our size. But the decision last quarter was driven by timing. At the time of our last conference call, there were significant court proceedings underway involving our principal licensee, Gauzy. We believe it would have been inappropriate and potentially harmful to speculate publicly while those proceedings are still unfolding. Judges generally prefer that important matters be resolved in their courtroom rather than in the court of public opinion, and we believe the responsible course was to allow that legal process to move forward. Today, the situation is much clearer than it was 3 months ago. And so rather than simply reading mostly from a prepared script, I'd like this call to be more of a town hall meeting. I'll spend a few minutes discussing where we are today, what has happened over the past several quarters, and perhaps more importantly, what has not happened. Then I'd like to devote most of our remaining time to answering your questions. Out of respect to your fellow shareholders, and so we can answer as many live questions as we can on this call, I ask that you try to keep your questions to those that are of general interest to shareholders. When I step back and look objectively at the past 9 months, I think it's important not to lose sight of the bigger picture. We spent the last several quarters dealing with an extraordinary situation, but let's be clear about what that situation actually was. And understanding this is important because it explains almost everything that has happened over the past 9 months. It was not a technology problem. It was not a product problem. It was not a customer acceptance problem. It was not a competitive problem. It was fundamentally a supply chain disruption resulting from the financial restructuring of our principal SPD film manufacturer and licensee, Gauzy. Everything that followed flowed from that one event. And making that distinction is important because it explains both the challenges we experienced and why we remain optimistic about the future. Sometimes companies and their investors become so focused on what did happen that they lose sight of what did happen. We did not lose confidence in our technology. We did not lose our intellectual property. We did not lose our automotive qualifications. We did not lose our development pipeline. We did not lose customer interest. And remarkably, we did not lose the major programs already underway. In fact, what impressed me most over the past 9 months was the patience shown by our customers and the hard work by our licensees. These are sophisticated global companies with many alternatives available to them, yet they remain committed to SPD, and that tells me something very important. They understand the unique performance advantages SPD technology provides, and they continue to believe those advantages are worth having and worth waiting for. I think that patience is perhaps the strongest independent valuation of our technology that we could have asked for. Another proof point came from something that occurred during this very challenging period. We actually entered into a new license agreement with Klim, a division of New York Stock Exchange listed company, Polaris, and a globally recognized leader in premium motorcycle equipment, to develop SPD applications for motorcycle helm visors and sports goggles. Think about what that says. During one of the most difficult periods in our industry's recent history, another company carefully evaluated SPD technology, evaluated our intellectual property, evaluated the markets they wanted to serve, and decided that now is the right time to become a Research Frontiers' licensee. Companies don't make long-term product development decisions based on technologies they don't believe in. They do so because they see opportunity. And that agreement wasn't just another press release. It was another independent validation of where SPD technology is headed. Many people have asked what has management been doing during these past several quarters? And the answer is simple. We haven't been standing still. While Gauzy worked through its restructuring, we continue to support them as well as moving the business forward. Development of Black SPD technology continued. Another encouraging validation came from the CEO of LTI or AIT, the company that developed our retrofit product for the architectural market. He not only remains enthusiastic about the opportunity for SPD retrofit products, but also personally participated in our February friends and family financing. I believe that's another indication that people who know this technology best and know our industry best continue to have confidence in where it's all headed. Our retrofit product for the architectural market continued to advance and is well-positioned to move forward as film production moves returns to normal. And we continue supporting automotive OEM programs. We continue supporting aircraft programs. In fact, 2 major new programs were won during this period. We continue working with our licensees and customers around the world. We continue strengthening relationships with existing customers while adding new ones. And we continue managing our expenses carefully while preserving the financial flexibility necessary to position the company for future growth. In other words, we didn't spend 9 months waiting. We spent 9 months preparing. We spent 9 months navigating through the challenges that Gauzy faced and help them and their customers and their industries move forward. Some investors have asked, "Why don't we simply establish another SPD film manufacturer immediately?" It's a reasonable question. And historically, Research Frontiers has had only one commercial SPD film manufacturer at any given time, first Hitachi, then Gauzy. Producing automotive-grade SPD film is not like purchasing an off-the-shelf commodity. It requires years of development, substantial capital investment, highly specialized manufacturing expertise, and perhaps most importantly, consistent quality that automotive manufacturers demand. Could there be additional film manufacturers in the future? Certainly. But those decisions have to be made thoughtfully because consistency and quality are absolutely critical in the automotive industry. I'd also like to briefly address 2 accounting matters that a few shareholders had asked us about right before this call. First, the reserve and going concern language relating to receivables associated with Gauzy and Vision Systems. Our accounting treatment reflects uncertainty regarding timing, not uncertainty about our expectation of ultimate collectability. And the test is you have to have auditable proof that you're going to get paid within 12 months to count something. We believe these amounts will ultimately be collected in full. However, because the exact timing depends upon court supervised proceedings outside of our control, our auditors appropriately recommended that we take a conservative accounting approach. We would not have to do that had the court indicated, for example, that on September 17 or 18, distributions will be made to creditors. In any event, this is prudent financial reporting, and it should not be interpreted as a change in management's confidence regarding ultimate collection. Second, regarding our NASDAQ listing compliance. Our Board and management are actively monitoring the situation. Our objective remains to regain compliance through improved business performance and improve market valuation. We believe that's the appropriate long-term solution rather than something like a reverse stock split. And one thing I've learned over many years in this business is that technology companies are often tested not when everything is going well, but when unexpected events occur. Over the past 9 months, I believe the entire SPD ecosystem has demonstrated remarkable resilience. Mercedes has continued supporting its existing SPD-equipped vehicles. Programs with Ferrari remain intact. Programs with Cadillac remain intact. Programs with McLaren remain intact. Aircraft opportunities continue moving forward. And as I mentioned earlier, 2 new ones from a large OEM were won recently. Retrofit development and project acquisition continues. New applications continue to emerge. New licensees continue joining us. Customer enthusiasm has remained strong. And when I look at all these facts together, I don't see a technology or a company in retreat. I see a technology whose underlying momentum has continued despite a temporary interruption in its supply chain. Our business model remains exactly what it's always been. We invent, we innovate, we license, and our licensees manufacture. Our customers incorporate SPD into products that improve the lives of people around the world. That business model has enabled us to build an extraordinary intellectual property portfolio while addressing markets ranging from automotive and aerospace to architecture, marine, transportation, and now premium eye wear. In addition to what our licensees have invested, Research Frontiers has invested well over $125 million over the years to bring SPD technology from the laboratory and into commercial production. Many companies spend years proving that a technology works in the laboratory but never succeed in commercializing it. Others achieved commercialization but never reached the quality, consistency, reliability, and cost structure demanded by industries like automotive and aerospace. We and our licensees have accomplished all that. SPD today is not an experimental technology. It is a proven, reliable, commercial product that has met the demanding standards of some of the world's leading manufacturers, and we're the only company that has done that across 4 different automotive OEMs. Many companies never get that far. They never accomplished that. Many spend considerably more and -- before ultimately abandoning their technologies. We did it. SPD is proven and reliable commercial technology. And when I step back today and look at where we are today compared with a year ago, I actually see more reasons for optimism than pessimism. The smart glass market continues to expand. Our intellectual property portfolio is strong. Our application pipeline continues to broaden. We've added a new licensee. We added 2 new aircraft programs, and our customers have remained committed. And the restructuring process that has dominated so much of our recent discussion regarding Gauzy is substantially closer to its conclusion and to its beginning and may be concluded as soon as next month. Nine months ago, some investors wondered whether SPD technology could survive the disruption created by Gauzy's restructuring. Today, I believe the evidence points to a very different conclusion. SPD didn't simply survive. It continued attracting customers. It continued attracting new licensees. It continued opening new applications, and it continued earning the confidence of companies making long-term commitments to the technology. Our job now is to convert that resilience into renewed growth as production returns to normal. We have a great deal of work ahead of us, and I remain very confident in the long-term opportunities for SPD technology and the dedication of the people who work every day to realize that opportunity. With that, rather than continue with prepared remarks, I'd like to turn this town hall discussion over. So let's open the floor to questions. And as always, if your questions are of general interest to our shareholders, we'll answer as many as we can during today's call. If we don't get to your question or if it's specific to your individual circumstances, please contact us after the call, and we'll do our best to respond as promptly as possible. We usually respond to e-mail questions within 24 hours. Thank you, and let's begin.

And as we wait for people to join the Q&A queue, let me answer a question received from several shareholders about the status of current production of SPD emulsion and film and possible scenarios that Research Frontiers might be considering. This is probably the most asked question I have received, so I know it's on many people's minds right now. As Gauzy has publicly disclosed, its financial restructuring substantially affected its operations over the past several months. Like many companies undergoing court supervised restructurings, there were periods when liquidity constraints affected its ability to operate at normal production levels. Also, workers were unpaid and some left and some were laid off. As a result, production of SPD emulsion and film slowed significantly and at some point, essentially stopped while those issues were being addressed. Then things start to flow again. Gauzy has continued supplying customers using existing inventories of SPD emulsion and film while working through the restructuring process. That inventory, together with careful prioritization of customer requirements, had allowed important programs to continue even though production has not yet been at the level any of us would like. You can see this reflected in the lower royalties that we had this quarter. Looking forward, there are several possible paths by which the supply of SPD film can continue, and they all ultimately support the same long-term objective, restoring and expanding production capacity. The first plan, plan A, is what we believe to be the most likely outcome. Gauzy successfully completes its restructuring and resumes full-scale production of both SPD emulsion and SPD film. This would be the least disruptive to our supply chain and the timing of product deliveries. Another possible outcome, plan B, would be for Gauzy to continue manufacturing SPD emulsion while another qualified company coats that emulsion into finished SPD film. Plan C would be for another qualified manufacturer to produce both SPD emulsion and SPD film under license from us. And finally, depending on circumstances and opportunities that may arise, plan D is that Research Frontiers itself could participate more directly in preserving or acquiring certain SPD manufacturing assets, if doing so, were determined to be in the best interest of our shareholders. The important point is that none of these scenarios changes the long-term opportunity for SPD technology. They simply represent different paths forward towards restoring and expanding manufacturing capacity. Some may be more disruptive to our supply chain than others, so we are also factoring that in. Variants of these contingency plans are all underway. But once again, our expectation is that Gauzy will successfully emerge from bankruptcy shortly under plan A. And our objective remains exactly what it has always been, to ensure that the market has a reliable, high-quality supply of SPD film capable of supporting the growing demand we continue to see across automotive, aerospace, architectural, and other markets. Paul, if we have any questions in the queue, let's try them.

[Operator Instructions] And our first question comes from [ Jeff Harvey ], an investor.

A couple of questions. First of all, given the financial difficulty that the Gauzy is in, I'm very concerned they're not going to be able to get funding to the level that they would need to really be able to ramp up film production for your customers. The second thing is, as you mentioned to me, it was announced that Clayes bought Vision Systems and then you told me that they never got approval for aerospace applications. I guess I wondered if you could talk a little bit about that. And today, Gauzy traded 230 million shares, which is a highly unusual number.

Yes, it is.

[ And ] ended up at $0.40 and it's now $0.38 after hours. I don't know if we have something today at the French court.

Okay. Great questions, Jeff, and thank you for asking them. Let me start with the first question you had, which is about the financial ability of Gauzy moving forward. And I'm going to throw out some numbers, and it's my best understanding of the situation in France, in Germany, and in Israel. So in France, there was a bankruptcy proceeding, an involuntary bankruptcy proceeding or what they call a rehabilitation proceeding, filed. And as part of that process, Gauzy presents a plan of continuation, and they're presenting a revised plan on September 7, so coming up. But the plan of continuation that they presented actually had major funding coming from the sale of a division that doesn't involve SPD technology. And my understanding was that it was an American company that was well-capitalized in the industry that offered $125 million. For some reason -- and that was for a sliver of the Vision Systems company business. For some reason, I'm not sure what it was, the court instead directed that the entire Vision Systems company, including that division that could have been sold for $125 million, be sold to a company called Clayens, which is a local company not too far from where Vision Systems is in France. We may never know what happened there and the lawyer representing France committed to suicide at some point right before the hearing. But it just seems odd that they would reach that result where they would accept EUR 9 million or roughly $10 million for the entire company compared to a signed agreement for EUR 125 million for part of it. So that's one of the things that I think in September will work itself through. Now what I'm told is one of the rules of tendering, like Clayens did, is that if you lose an appeal, you lose the money you put down. So they put down EUR 9 million as being held in escrow by the court. And regardless of whether Gauzy wins or loses that appeal, that [ EUR 9 ] million is released to pay Vision Systems debt, which pays us in full. If they win the appeal, they still get the EUR 9 million, but they also get EUR 125 million. So that alone can be a substantial benefit to Gauzy, but they're not just relying on that. In Israel, they've got a court approval on June 18 -- on July 18, rather, so very recently, for a debt restructuring plan. It's not through a bankruptcy proceeding. It's through a negotiated process under Israeli law. And what that process does -- and I'm not an expert in Israeli reorganization law, but what it does basically is it pays all of the employees $100 on the dollar immediately. That's great because we got to get people back to work and making film and emulsion. It also takes some of the institutional creditors like the Israeli equivalent of the IRS and their pension fund -- pension regulatory agency, and it pays them off over 5 years after a 6-month break before they start paying. So 5 years, they get pushed out interest-free and they pay that off. Larger creditors, we don't qualify for that is my understanding, get paid after a 6-month hiatus over 3 years. And then companies like us owed less amounts of money, and we get paid immediately from that. But in order to do that, Gauzy has to show that they have the money to execute on that plan. So they've arranged for -- and I know 2 of the participants are former directors of Gauzy that have invested substantial amounts of money, and I think they're each billionaires, in Gauzy over the years to supply a $7 million financing. That financing allows them to pay off the employees and the smaller creditors, get production started again in Germany. And I'm told, as of this morning when I spoke to the CEO of Gauzy, that money has started to flow towards Germany now as a result of that financing. So things are starting to restart because of all this. And I think ultimately, what's going to happen is Gauzy is going to emerge from this as a leaner, better capitalized, and I think, more focused company, and that will be good for us. Your second question was why would the court sell Clayens to a company that didn't have the necessary operating permits to run an aerospace company? It's very hard to get an answer on that. So I can't opine. But my understanding was that the equivalent of the French FAA actually weighed in to confirm that Clayens did not have the permits necessary to run an aerospace business. So we'll see what happens in September on that. And your third question, I'm trying to remember, I'm sorry.

Well, as I mentioned, the Air stock traded 230 million shares today. So was there something that...

There was no news that either I nor the CEO of Gauzy was aware of that would account for that kind of price movement in volume. I think at one point, it went up to $0.94. It was crazy. We were actually on the phone when it was happening. So around 10:30 this morning, the volume and the stock was going nice.

So how -- and looking back, Joe, what would have been the process of switching to another manufacturer? I mean I'm just concerned this is going to drag on a long time. Your revenue is going to be down for the next few quarters as a result of this. Why not go to what the plan B and switch to somebody else?

Yes. Well, that takes time. And given the fact that there would be 2 entrants in the market sharing a market, it becomes a little more difficult than if there's one entrant in the market. But it's one of the plans that we're pursuing, Jeff, is to talk to a third-party manufacturer that can do everything. But it also takes time for them to gear up. I mean if you look at Hitachi, they had this as the special project of the President with all the resources and best engineers and any money they needed, and they were licensed in 1999, and it wasn't until 2010, that after 5 years of testing at Mercedes, that a commercial product came out. So the situation is different. You have an established market now. You don't have an emerging market with no customers like existed back then. But if you just do the math, it took them 4 or 5 years to get SPD film up to automotive quality. And this is Hitachi Chemical, which has excellent precision coating capabilities. Now Gauzy took less time to do it. And because the technology is matured and technology is advanced, such as coating and curing technology, it probably is not going to take as long to get a new person up and running. And in our discussions, a lot of the companies already have the necessary equipment and capabilities. So that's kind of the things we're pursuing in parallel here.

Our next question comes from [ John Nelson ], an investor.

Thanks for supplying a lot of useful information on updates for the company and the Gauzy situation and the options provided or available. The questions I have are more related to the product line. You had mentioned the German plant was not producing film, but I'm assuming the Israeli plant is still producing?

Well, it's not really a matter of producing film. A lot of the people weren't allowed to return to work until there was actually a plan in place to pay them. I mean, remember, these are countries that protect workers quite strongly. So once things started flowing back towards Germany and in Israel with the recent developments, including the July 18 court hearing where the court approved the debt restructuring plan, and it still has to go to creditors, but where they approve that, that started the flow of money towards getting people back to work. So we don't have to wait for every T to be crossed and I to be dotted for that to happen. And, in the meantime, I think Gauzy doesn't want to deplete their inventory completely because they need to replenish it for some of the bigger orders that are waiting.

So are you -- or I should say, is Gauzy currently shipping products to your -- some or all of your current customer list?

They have been. And as of today, I don't know if they have to wait to make more film, but everybody has been pretty much kept in the information loop and we're able to plan around this disruption, which is something that Research Frontiers took a very active role in as well in terms of helping these customers as well as Gauzy. So we want to keep the customers happy.

Okay. Good. And do you think you'll be able to name the 2 new major aircraft programs that you said...

This morning, I went on the manufacturer's website. And for whatever reason, they just said smart windows. They didn't name it yet. So -- but I think like everything, with the passage of time, we're able to reveal more and more. So let's let the customer have a little bit of time. And then after that, you may hear their name on the conference call, our future conference call. Similar to what we did with Ferrari, where we announced it a couple of years before we formally -- or Gauzy formally got permission, but we were able to do it.

Okay. And then you mentioned Ferrari. They have a new model that they've introduced. Is there any indications that your product will be offered on the new model as an option?

I don't see on their configurator a lot of information about it. And that doesn't mean that it's not an option or not. But I think at some point, we'll be able to perhaps say something. It's a weird world that these automotive companies live in. And I can understand it. I mean, they want you thinking about their name, not Research Frontiers or anyone else's name. So they're very reluctant to name who the suppliers are.

Understood. And then you had mentioned that the SPD Black development program was still moving, continue...

Moving forward, yes. Yes, yes. So this is -- the idea with the black SPD, obviously, is to get something that's not the sapphire blue, but more of a black. And I've seen samples of the product that looks amazing. I saw it when I was in Israel. I saw it in the back room at CES, a much cruder form than when I saw it in Israel. So basically, it's advanced a lot. And really, it's just a matter of resource and people. You -- they have the emulsion. They need people and the ability to put that through, but there's certainly -- it's an exciting product.

Okay. Good. And then on the retrofit product, is -- has that been officially introduced or marketed? And do you have -- and if not, do you have any sense of when the timing when that product will be available for customers?

Sure. Yes. Let me share with you a conversation, and I think it will probably answer your question indirectly, if I could, John. So the CEO of LTI, he owed money from Gauzy. We had a conversation maybe about a week ago. And I gave them an update as to everything that I knew was going on at Gauzy based on kind of my own analysis and my conversations almost on a daily basis with Gauzy. And he said, "That's all really good, Joe. But the main thing I'm interested in is getting film production to restarted again because there is huge business in the retrofit that dwarfs anything I'm owed." So yes, he's already started and is ready to hit the ground running with that.

Okay.

And what I like about that is the lead -- and what I like about the architectural retrofit is the lead times are much more within everyone's control. It's really a sales and marketing and spec job. You speak to the project, you get it spec-ed in and then you deliver the glass as opposed to automotive where it could take 3 or 4 years. This is a lot quicker. And especially when to retrofit where there's not a lot of prep you have to do, you could just go in over a weekend and upgrade an existing building.

Okay. Good. Looking forward to seeing some product sales out of that category.

And then our next question comes from Bruce Danny, an investor. Mr. Denny, Can you hear us?

Can we come back to him? You may..

[Operator Instructions] And our next question comes from Michael Kay of Kay Associates.

I may have to leave in the middle because someone will be coming if there was a conflict in terms of time. Could you hear me?

Sure. Can we hear you. And by the way, congratulations, Professor, on the award that the university gave you. It's very nice recognition.

Thank you. I appreciate it. Several things during many conference calls, you indicated 2 things -- more than 2, that the SPD was superior to all other types of light control technologies on the market. And also that in terms of cost cutting, the sweet spot had been reached. And given that, I mean, even before the Gauzy fest or whatever you want to call it, it seems that...

I call it hitting a brick wall, which is -- it's true. I mean the performance and the cost were all coming in line nicely and then around that same time. I think that was in September and by November, they hit the brick wall. So...

Well, I wanted to ask that I would think that given those 2 attributes, lower cost and superiority of the technology, that there would be -- would have been many more contracts and deals being made with OEMs. And I would think also that given the price of the shares, I mean, just pennies that some companies simply wouldn't acquire Research Frontiers unless there's a poison pill or something like that, that would make it difficult.

There is a poison pill in place and other sharp repellents to make sure that when we do get an offer, our shareholders are getting a fair offer. But as far as deals, the way this works is you don't see an announcement of a deal between us and, let's say, a car company. You see a supply agreement being granted to a glass company, and that's usually the extent of the visibility. And usually, that happens well after the contract has been awarded. I mean, I remember with Mercedes, I once asked the head of the project that's, I said, [ Hans ], why don't you announce that Pilkington and Asahi haven't won the business. He goes, no, we keep everybody off balance a little bit in our supply chain. So we wait until the last minute.

The other thing is one of the positives, I've been a very, very, very long-time shareholder that you had mentioned several times that it was important to have another company that could do the film and the emulsion and that was extremely prescient, so to speak, because now that would have come in handy to have a backup company that could do it given the mishigas, if you pardon the expression, that happened with Gauzy. So it didn't follow through on your feeling about the importance, maybe even having a company in the United States that could put a film and emulsion and such. So...

Well we -- I addressed it a bit earlier. I'm not sure if you were on the call back then, but we talked about that specific question about why do you have one film supplier and not multiple ones. So anyway...

The other thing, the last one, what I didn't understand, do you have contact to the SEC or something because given the share price of the company, the fact that it did not meet -- it's not profitable, but especially that it's been trading well under $1, how come it's not forced to be -- it's not -- has not been delisted? Now I don't want such to occur, of course, but how...

Well, it's not the SEC -- sure. Well, no, it's not a matter of circumvention. So we received the notice from NASDAQ. It wouldn't be the SEC. The SEC basically deals with the registration of securities and making sure that in that process, there's proper disclosure of everything to investors. That's the extent of what the SEC really does. And they also prosecute insider trading and all this other stuff. But basically, they don't get involved with listing. That's under the umbrella of NASDAQ or the New York Stock Exchange, who sets the listing standards. We did receive a notice when our stock went below $1 for a certain period of time that we had 180 days, which puts us until the end of November, basically to come back in compliance. And that also puts us in compliance with the market value requirement as well. So what I said earlier was we plan on addressing that by good old-fashioned operational excellence and results of operation. If it doesn't happen, we'll reevaluate that as we get closer to November. And usually, they give you another 180 days, although it's not guaranteed, if you don't meet the first one. So...

So basically, if you have until November or even later to comply with the...

Right. And what I believe is going to happen, Michael, is that once the cloud is lifted over Gauzy -- because all this happened really as a result of Gauzy hitting that brick wall that they did. Once that's lifted...

I apologize but...

Thank you. Good talking to you. We'll catch up after the call if you want.