Research Frontiers Incorporated
Q4 2016 Earnings Call Transcript

Published: 14 Mar 2017

[Operator:]

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers Investor Conference Call to discuss Year-End 2016 Results and Recent Developments. During today’s presentation, all parties will be in a listen-only mode. [Operator Instructions] This conference is being recorded today. A replay of this conference call will be available starting later today in the Investors section of Research Frontiers website at www.smartglass.com and will be available for replay for the next 90 days. Please note that some of the comments made today may contain forward-looking information. The words expect, anticipate, plan, 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. [Operator Instructions] I would now like to turn the conference over to Joseph Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir.

[Joseph Harary:]

Well, thank you, Gary, and good afternoon, everyone. It has certainly been a tough year for all of us. In June, our friend and founder Bob Saxe, passed away. Bob left a career as a successful security analyst on Wall Street to start Research Frontiers. His goal was simple and straightforward

[Operator:]

Mr. Van Voorhees, your line is open on our end.

[Seth Van Voorhees:]

I’m sorry, everyone I had my phone on mute and didn’t realize it. So, good afternoon.

[Joseph Harary:]

Seth completed everything that he was about to say on mute and we don’t need to repeat it.

[Seth Van Voorhees:]

Well, pleasure to be here this afternoon. Our Annual Report on Form 10K will go through a lot of the details that we’re going to discuss today. And once our auditors, BDO are complete with their final audit review, we will file our 10K later this week. Because of the nature of our business as a licensing company, there are various fees and other payments that we receive from time-to-time that are non-recurrent. As was discussed in the last few investor conference calls, there were a lot of fees and other income items like the world’s fair in Milan that occurred in 2015 that by their very nature did not recur in 2016. This was one reason that our fee income for 2016 was lower than 2015. 35% or $275,000 of the difference in our fee income was related to these non-recurring revenues like the world’s fair. Another 22% of the revenue decline or a $170,000 was from not booking income where in our judgment the licensees were slow payer and we needed to get them back on track. As we discussed on the last few investor conference calls, there were a lot of fees and other income items like the World’s Fair that occurred in 2015 that by their nature did not recur in 2016. This was one reason that our fee income for 2016 was lower than 2015. 35%, or $275K, of the difference in our fee income was due to these non-recurring revenues like the World’s Fair in 2015. About 22% of the revenue decline, or $170K, was from not to book fee income where in our judgement the licensee was a slow payer and we needed to get them back on track. Once a certain amount of period of time has elapsed, from an accounting standpoint we do not reflect royalties from those licensees until their payment history improves. It is important to stress that our legal rights to collect on their contractual obligations from these licensees remains unaffected by this revenue recognition decision. We have had a good track record of getting these licensees back on track and collecting these royalties. This is something that we intend to do. This is also one of our main focuses for the coming months. The remaining 43% of the decline in revenues in comparing 2016 versus 2015 came principally from lower levels of activities from the automotive royalty activity. Lower overall volumes for the S-Class Coupe in its second full year, despite good take rates, was the principle driver for this performance. As discussed in the past, the second year of production historically has lower volumes than the launch year. Now, let’s talk about the balance sheet. Our balance sheet remains debt-free and as of December 31, 2016, we had working capital of about $4.3 million. In fiscal 2016, we used $4 million in operating activities. In the second half of 2016, we implemented a series of actions to reduce our cash expenditures that is expected to reduce our cash burn by at least $1 million in fiscal 2017. Based upon existing cash levels and levels of expenditures, even if our revenues stayed the same in fiscal year 2017 and did not increase as we expect them to, our cash would be sufficient to fund our operations until at least 2018. Based upon this and anticipated expenditures and collections of receivables, and our increased revenues projected for 2017 based upon production call outs from Daimler and other projections from various of our licensees, our cash position could carry us much further into 2018 as well. Now, let’s talk about our stock price. The last 12 months have been brutal. It’s not only been painful for investors on this call but as well as to management, which has significant equity positions in the Company. Over this period our stock price has declined by over 63% to a closing price of I believe a $$1.59 today. Given the shares outstanding, this stock price is indicating that our Company is worth approximately $40 million. I’d like to share some questions that we have received over the last several months and our comments. The revenues of the Company are not growing like we expected. Our response is you’re right, however, we believe that we understand the problem and have a plan to fix it. Another question is, is the Company going to run out of cash…Is an equity offering imminent? Our response has been the following. We have cash resources to fund our operations into 2018 without any additional capital based on 2016 revenue levels. We expect that our revenues will increase this year, which will make these resources last even longer. However, we’re not going to wait till the last minute to adequately fund our operations and maintain a strong balance sheet. Thus, we are actively monitoring this situation and we will take the necessary actions that are when needed. Another question comes from Steve Allmacher [ph] who asks - Allmacher askedif our currentshareholder rights planshould be removed to make room for a white knight to buy our company? First of all, thanks Steve for the question. A shareholder rights plan, sometimes also called a poison pill, would not prevent a white knight from acquiring our company. Our Board has a fiduciary obligation to redeem a poison pill if fair value is offered for our company. So the poison pill is not meant to prevent all takeovers, just ones that use unfair offer tactics that are not in any shareholders best interests, hence the name

[Joseph Harary:]

Thanks Seth. We were asked about the status of our patent litigation in which we are suing E-Ink, Amazon, Sony and Barnes & Noble for infringement of three of our patents. In late December since our last conference call, the Delaware District Court Judge in the case issued an interpretation of what some of the claims in our patents mean. If this interpretation stands then we would have a tougher time at trial proving infringement. So based upon our analysis of applicable case law, we decided that we should take an immediate appeal to have the appellate court in the Federal Circuit, take a look at the interpretation. This way, if the interpretation is modified towards the way that we, and incidentally the patent office, both believe that the words in our patents mean, we would have a much stronger probability of success in the patent infringement case. Because it’s still a litigation, we can’t comment more, and briefs will be filed next month, and I urge you to read them. If you’re interested, you’ll get a good sense of what the case law here says. But we are confident that we are correct in our interpretation of what our patents say, and because of that we, decided to take an immediate appeal here. Jared Albert asked the second question, actually they’re two related questions

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Josh Seide with Maxim Group. Please go ahead.

[Josh Seide:]

Hi, guys. Thanks for taking the questions. Can you talk a bit about the effect your marketing campaign to dealers is having on take rates within the S-Class over the last few months?

[Joseph Harary:]

So, we’re noticing an uptick in the awareness. Dealers know about it and the customers know about it. And we’ve been welcomed when we come into new dealers now with the demo samples and the information because they’ve heard about it through the great fun. And even as recently as this past week when I was at the Geneva Auto Show, I was sitting next to Ola Källenius. And it had gone up to the number two person in the company what we’ve been doing. So, it’s quite exciting. Another interesting thing that happened there was Gorden Wagener, the chief designer for Mercedes and I were talking about how our glass is being used on the Silver Arrows Yacht that Mercedes designed for Silver Arrows Marine. And to quote him, he said “your glass is awesome”. So, they really like the glass on all applications from cars to boats. Really for applications like cars, as I mentioned earlier, the key is to get the cost down to get us into the sweet spot where we’re as profitable as the most profitable options within Mercedes, like aluminum allow wheels and other things like that.

[Josh Seide:]

Great. And, can you give us a sense of the approximate volumes of the initial vehicle rolled out by the new OEM, will start as a lower volume vehicle, essentially similar to how Mercedes rolled out the technology and then ultimately move to higher volume SKUs, is that the right way to think of it?

[Joseph Harary:]

Yes. If we look back, history has been a good guide. It’s no accident that Mercedes picked the rollout schedule that they did. They start with SLK which is a moderate volume roadster, but it was only later that they really moved it into the high volume S-Class family. And that’s for two reasons. One reason doesn’t exist anymore, which was, you wanted to make sure that this was cutting edge technology and not a bleeding edge technology. And they’ve done their durability studies and really tested the heck out of this. And they’re pretty confident that it would hold up. But they didn’t want to tarnish the reputation of their flagship until they knew it was going to work. As I mentioned, based on the fact they have tens of thousands of cars on the road for years now without one reported problem, that’s not a consideration or an issue in the automotive industry. So then, the second thing is really just supply chain management. The Mercedes customer will have a certain expectation about what’s in the car. And this OEM is a different than Mercedes and their customer may have a different expectation. So, you test it out on a lower volume basis initially and then you move it into the higher volume cars, just like Mercedes did.

[Operator:]

The next question comes from Ishfaque Faruk with West Park Capital. Please go ahead.

[Ishfaque Faruk:]

Hi. Could you give me some sense on the new OEM’s likelihood of reaching the revenue levels of Mercedes?

[Joseph Harary:]

Judging from the product mix that this OEM has and recent developments in the industry regarding them, I think that they have comparable potential to Mercedes, even though, overall, the number of cars that they make is not as big as Mercedes. But then, again, Mercedes makes a lot of lower price cars under $30,000 as well as premium cars which we define above $50,000, whereas this OEM is mostly focused in the premium market. So, I think the potential is still there for focusing on the premium market. And it should be very interesting to watch how this company does it.

[Ishfaque Faruk:]

All right, great. Thanks, Joe. And when do you expect the revenues from this OEM to hit your P&L?

[Joseph Harary:]

So, it’s going to depend on a couple of things. Number one is when they actually introduce the car. And usually with a new product, the gear up is maybe a drop longer than with an established model. So, we may start to see revenues a little bit earlier than we would if this was a second, or third, or fourth car in their product line using our technology. But, I can’t really answer that question without also telegraphing when they’re going to be introducing the car. So, I have to reserve myself on that one until they say something.

[Ishfaque Faruk:]

Al right, okay. And you guys mentioned that you guys have seen some preliminary…

[Joseph Harary:]

One other thing to say just to maybe give a little bit more flavor to what we’d spoke about, I was pleased last week when I was at the Geneva Auto Show that the CEO of this second OEM knew all about our glass. So, it’s something that has been very widely discussed within this OEM.

[Ishfaque Faruk:]

Okay, got you. And sticking to the topic, do you think the final price going forward for these glasses would be around the same price point as Mercedes around the $2,500 range?

[Joseph Harary:]

It’s hard to say. Every company has its own pricing strategy. Costs have come down since Mercedes introduced these vehicles initially. So, you’d expect that if those cost reductions are passed on to the new OEM, they can conceivably price it lower, but also they may not have to because of the novelty of it within their product mix. So, I’ll leave that decision up to the OEMs. And it’s always good if we can get the cost down, because apart from whether the OEM passes the cost savings on to the customer or not, and you hope they do, because it just makes it a little bit easier for the consumer to get the option on their car. What really matters is, is the option profitable for the OEM. And if it is, they go and check the box every day and include it in the make rate, not necessarily the take rate. So, typical example I like to give is aluminum wheels. If you buy a car in the United States, it usually has an aluminum alloy wheel as an option whether you want it or not, and that’s because the car makers make a very good profit on that. There are certain options that don’t have such a high profit margin. There’s some active body control options on the Mercedes for example, which are amazing feats of technology. But it’s not something Mercedes makes as much money on as they do on let’s say Magic Sky Control or their Burmeister Stereo. So, when it comes time to deciding what to put on the car, you want to be in the higher profitable end of the spectrum, and that’s our goal for everybody.

[Ishfaque Faruk:]

All right. And how was your Q4 from the aerospace market?

[Joseph Harary:]

It’s rebounded nicely. I think we were actually a bit ahead of our internal projections on that. So, -- and I can’t say, Ishfaque, if we had higher revenues than projected because there was a pent up build up because the second and third quarter, there was a suspension of deliveries of the aircraft in general, or whether Textron is just delivering more planes. But, I expect that 2017 will also be a very good year for aircraft for us.

[Ishfaque Faruk:]

All right. My last question, you guys have seen some preliminary testing with Panasonic’s residential display for the SPD-SmartGlass. How’s that deployment played out so far and are you eyeing similar partnerships regarding that space?

[Joseph Harary:]

The answer is yes. Nippon Sheet Glass doesn’t have an exclusives with Panasonic. So, other companies that want to do something similar, certainly can get the combination PDLC/SPD panels that are made by Nippon Sheet Glass’ UMU division. And I think the intention is that will happen. There’s also some pretty high visibility applications for this type of display. I mentioned earlier in the conference call, imagine a department store chain where you walk by the window and they promote a new product or a sale that they’re having. But there’s a lot of other outdoor display applications where a projected system like this can be very dramatic. And I think we’ll start to see that. And we know that where they started was to test this out in some public high traffic areas like museums and others to basically refine the concept of how consumers interact with this type of display. And based on that they decided to do the full rollout. So, we’re happy with that.

[Operator:]

The next question comes from John Stovell [ph], a private investor. Please go ahead.

[Unidentified Analyst:]

The cost of SPD isn’t going to go down until second producer comes on line. Years ago, I asked where we were on competition to Hitachi. Can you tell us where we’re now?

[Joseph Harary:]

Sure. I could do my best, but understand this is an open conference call, and Hitachi maybe is on the call. But to give you a little flavor, there are things that we can do internally with the technology to help make it more cost-effective for Hitachi to produce at a lower cost, there’s also economies of scale as some of the ramp up in these markets happens, and that also reduces the cost. But we’re not only focusing on that and I can’t go into specifics about what other things we’re looking at for confidentiality reasons. And that’s just business confidentiality, not because we’re restricted by any agreements. But we do have a very strong initiative to make sure that one of the most expensive components in the system, which is the SPD film, comes down in price, one way or another.

[Seth Van Voorhees:]

Joe, if I could add a couple of comments to that. First of all, the challenge in terms of a second supplier of film is that there needs to be enough demand to warrant a second supplier of film. And today that is -- Hitachi Chemicals currently has more than enough capacity for the entire industry many times over. So, the premise of your question is does that mean there’s nothing we can do to reduce cost? I think is you can. And the reason I say that because it is in everyone’s interest. Our films licensee, our glass lamination licensees, as well as Research Frontiers’ interest, to make sure that we reduce cost to get substantially higher revenues -- excuse me higher volumes, which will drive higher revenues for everyone. So, that is the nature of the opportunity, not only for Research Frontiers but for Asahi Glass Corporation, the supplier of the S-Class glass, as well as Hitachi Chemicals. So, that we are collaborating with all these licensees as well as thinking about ways that we can take out cost that from our current processes, so that the end result is that we can have a lower price to our OEMs. So, in long term…

[Joseph Harary:]

And we’re not the only one thinking about that. Everyone in the supply chain is looking at their production processes and basically saying okay, we understand that if we can get the cost down -- Mercedes has said that, our volumes could be multiples of what they are right now. Let’s figure it out. And that’s been a very intense focus with companies in our supply chain and us working very closely together. Anyway, I think we should move to the next question, because there’s not much more we can say publicly on an open call about film production.

[Operator:]

The next question comes from Jeff Harvey, [ph] a private investor. Please go ahead.

[Unidentified Analyst:]

Hi, Joe, just a couple of questions. I was a little taken aback that you’re having trouble collecting royalties considering the type of licensees that you have. C can you give us any idea what kind of dollars we’re talking about, too?

[Joseph Harary:]

So, basically, I think in the 10-K you’ll see some more specific disclosure, because that hasn’t been filed, we’re not going to talk in detail about it. But let me maybe put some of this in context, just so people aren’t alarmed at all. A lot of our licensees are foreign entities, Asahi; Pilkington; Daimler; Vision Systems Isoclima. And they all pay us royalties, but they’re headquartered outside of the United States. Because of that there are certain tax treaties that exist. And these tax treaties require these companies to withhold in some cases a fairly substantial, depending on the country, percentage of the revenues or the royalty income unless certain things are filed with the taxing authorities. And these are part of tax treaties between the United States and these foreign countries. Some of these documents they we have to file are not available until December or January. So, basically even if we request the document in January and we get it in March, and this document is coming from our government for us to provide to their government. They don’t process it right away either. This is just an inherent process, and this wasn’t that big of a deal early on because quite frankly, all we had then is minimum royalty payments under our license agreements, and it’s only when we start to get into higher production that you started to see that at the end of the year, and these increase in the receivables because of that. So, it’s just the nature of the beast in terms of that; it’s not that the companies aren’t paying us. It’s just that in order to do that, there is certain documents that have to be in place with their home country’s governments in that case. There are also a couple of licensees that have been undercapitalized. And what we did this year is we probably took a very, very conservative approach, and basically wrote down a lot of those, not because we don’t think they are going to be collected-- we do. But we basically want our balance sheet to be very, very conservative. So, I’m not alarmed at that. Some of the companies that were on the list are no longer on that list, and we’ve collected from them.

[Unidentified Analyst:]

But you expect to collect more of that…

[Joseph Harary:]

Absolutely.

[Unidentified Analyst:]

Can you give us kind of a number, what we should expect?

[Joseph Harary:]

I want everything collected. So, that’s my expectation -- but I can’t give you a number yet, Jeff.

[Unidentified Analyst:]

All right. And then, other thing you didn’t talk about and I guess we should -- I don’t know if we should be downplaying the future of this is commercial airplane…

[Joseph Harary:]

Clearly that’s a significant part of our growth strategy. I was going to save some of this from my closing remarks. But, if you look at the airline market, it’s eight times bigger than the private jet market. We’re very strong in the private jet market. And we also are the longest lying technology in the airline market with the A-380. So it’s not a market that we can’t get into, it’s a market that we’re really targeting, and it’s not only us but our licensees and their product development efforts. We talked in the last conference call about Fokker Services has designed something specifically for the airline market, and it’s a cassette that basically allows you to quickly upgrade an ordinary window and turn it into an EDW. And I’ll talk a little bit more about that in my closing remarks because I think it will help put in context. We’re definitely focused on that.

[Unidentified Analyst:]

Okay. And because as you know each aircraft comes in periodically for a refresh and that would be a primary thing…

[Joseph Harary:]

Right, or even just a general maintenance check like a C check or D check…

[Unidentified Analyst:]

And it’s my understanding it’s fairly inexpensive to put a window -- you don’t have to do anything, you’re going to -- except on the inside, so it’s a retrofit. I guess you’ll answer more of that on…

[Joseph Harary:]

Yes. But, it’s certainly something we have our eyes on. We have the eyes on that prize.

[Operator:]

The next question comes from Bruce Valding [ph] a private investor. Please go ahead.

[Unidentified Analyst:]

I haven’t heard anything about - until just now, about aftermarket for aircraft. And I was just wondering if are you at the point you are actually clocking money in that’s there…

[Joseph Harary:]

There is a lot of aftermarket activity going on at our licensees. And I think right now, we’re on 34 different aftermarket models. So, that’s grown a bit. And as you know by the fact you’re asking the question, the aftermarket could be much bigger than the OEM market, so the aftermarket is certainly an important market for us. I’ll talk a little bit more about that, but it’s an area where we have this unique competitive advantage because you don’t have to change the structural window of the aircraft like you do with electrochromics.

[Unidentified Analyst:]

Yes. The other side of that is, are you making any progress do you think towards going on to full size, one and two aisle airliners in the not terribly distant future?

[Joseph Harary:]

Yes. There are definitely the ones that we’re focusing on. The premium carriers are the ones that fly those, and those carriers are the ones that try to distinguish themselves based on cabin amenities, and that’s certainly a very juicy target for us. We have to start wrapping up because of some other commitments we have. So, I’d like to maybe move on to the next question. And then in my closing remarks I think a lot of this will also be amplified a little bit.

[Operator:]

The next question comes from Michael Kay with Kay Associates. Please go ahead.

[Michael Kay:]

Hello, Joe. What is the status of the Vision Systems sunvisor market? It seems that that would have a very good potential to increase fee income?

[Joseph Harary:]

Yes, still a very good market and they’re still working on that, on all fronts. And when I say all fronts, I’m talking about automotive, aircraft, trains, just everywhere that glare control is needed, they’re focused on that and they see the same potential that we all do. I’d like to move to maybe the next question.

[Operator:]

The next question comes from Art Brady, [ph] a private investor.

[Unidentified Analyst:]

Hi, Joe. I’m just wondering if you could give us a vague indication as to when Continental or Gorilla Glass might make an appearance.

[Joseph Harary:]

I think they delivered a shot across the bow with that at the Consumer Electronics Show. Corning had presented this in a very -- it was a very well done and not inexpensive presentation with this vehicle but they put it on. But chemically-strengthened glass is not something unique to Corning, Schott for example has a chemically strengthened glass that some of our licensees in the aircraft industry like to use. So, the combination between SPD and either Gorilla Glass or some of the other chemically strengthened thin glasses, has been proven time and time again. That’s a good combination. I think it’s just a matter of time. The thing to understand is chemically-strengthened glass is a lot more expensive than regular glass.

[Unidentified Analyst:]

Right. Do you think it’ll take another two years…

[Joseph Harary:]

I can’t put a timeframe on it. I know that it seems as if the automotive industry is moving much quicker than I thought it would with chemically strengthened glass. So, hopefully, we’ll get some good traction there. If we could move on…

[Unidentified Analyst:]

The Panasonic displays, can you give us a little idea as to what the pricing is, like…

[Joseph Harary:]

They haven’t come up with the pricing on this because it’s going to be a custom system that’s tailored to different sized display units. So, if you have a large department store window, it probably is going to use a different projector and other types of things. They’re selling the entire system.

[Operator:]

The next question comes from John Nelson, [ph] a private investor, please go ahead.

[Unidentified Analyst:]

Hi. This is more of a comment. I know that one of the reasons the stock’s been weak is because of concerns about the cash position, which you’ve addressed in this call which I appreciate. But I want to add as an investor, if you should need money down the road, please consider a rights offering. And I think you got enough dedicated shareholders that would step up and provide you with enough cash that would help get you through any bumps in the road. The other thing I would say is I would also urge you is if you ever do need to do an offering, do a secondary offering, do not do a equity line of credit or a warrant because those are pretty much targets for investment -- for certain investment bankers to trying to obliterate the stock?

[Joseph Harary:]

I am very much aware and I thank you for your comments. It sounds like you have good experience in the world of corporate finance also. When we’ve done anything that involves warrants, and usually there’s some warrant coverage on any kind of deal, we’ve put special protections in those to mitigate any of those kind of things that you’re referring to. But, yes, there’s obviously a hierarchy of our preference in terms of what a deal structure would look like, and we’re very focused on making sure it’s not something that would harm our investors or create a dilutive situation down the road. But, thank you for the comments.

[Operator:]

The next question comes from David Klein [ph], a private investor. Please go ahead.

[Unidentified Analyst:]

With the information that you have available to you as far as future business and potential revenues, if you were to slag a quarter that you feel like we’ll be a breakeven or profitable, when would that be?

[Joseph Harary:]

I think as soon as we hit the Mercedes targets for cost reductions, we can certainly hit that. So, like I said, it’s something we’re very focused on. But until we achieve it and then until they factor that through their production call outs to the glass licensees, I can’t predict when that would be. But, we have a number of things now. And every time we add new market like, for example the Panasonic product which is a totally different and new market for our technology that becomes accretive to revenue also. So, of course, we’re focusing on our bread and butter, automotive and aircraft, but we’re also developing these other markets. And you start adding revenue stream on top of revenue stream and before you know it, you have positive cash flow. But the quickest way to move the needle in our opinion is to focus on costs because that’s going to have a benefit across every industry, not just the automotive industry.

[Operator:]

The next question comes from Thomas McCarthy with Raymond James Financial. Please go ahead.

[Thomas McCarthy:]

It appears that operating expenses from year-to-year dropped by about $650,000. In general terms, what were those reductions, are they sustainable, and do you anticipate further reductions?

[Joseph Harary:]

We certainly have -- yes, Seth, if you want to maybe take…

[Seth Van Voorhees:]

Would you like me to address that? Sure.

[Joseph Harary:]

Yes.

[Seth Van Voorhees:]

If you look back in 2015, we had about $6.3 million of total expenses. Now, some of those are cash expenses and some are non-cash, like depreciation, but in aggregate it was $6.3 million. And you correctly point out, if you look at our expenses in 2016, they decreased by about $800,000 to $5.5 million. And in our prepared remarks, we indicated that we expected that some of the initiatives that we’ve put in place in the second half of last year, we got partially -- we got some benefit in 2016 but we think a full year’s benefit in 2017 will take out yet another $1 million of cost. So, that the simple answer to your question is, is that the things that we targeted, we thought were discretionary, non-core activities involved in the Company that could be eliminated without harming its basic mission. And that’s something that we felt that it would be prudent to do, given where we’re as a company today. But moving forward, as we talked about, the best source of our cash needs is growing revenues, and that’s what mission one is for us. The second line of initiative is we have a $1.5 million of receivables on our balance sheet that we expect to collect this year. And beyond what’s on our balance sheet, the actual receivables that we’re entitled to when you factor in things that we have not booked is actually much larger than that. So, our second source of cash is actually just collecting the receivables that are owed to us. And then, finally, the third source of cash is to scrutinize the things that we spend cash on, which we -- we’ve taken a pretty hard look at over the last six to nine months, and we think we identified some things that were very, very non-core, I guess is the best way to describe it. It runs the gamut of activities but we do not feel, it will impact our mission. And we continue to look at other things that we could consider as well.

[Joseph Harary:]

Okay. Let’s wrap up the remaining questions if we can, and then I think like I said, some more details come with my closing remarks.

[Operator:]

The next question comes from Steve Almacker [ph] a private investor. Please go ahead.

[Unidentified Analyst:]

Hi. Good afternoon. I appreciate you taking the question on the poison pill earlier.

[Joseph Harary:]

Yes. I appreciate you asking it.

[Unidentified Analyst:]

Just wondering on the Corning Gorilla Glass combination, did Corning get supplied the film or are they working on their own solution?

[Joseph Harary:]

They were working with one of our licensees. In the case of the Corning One concept vehicle, that was done by Isoclima and Corning.

[Unidentified Analyst:]

Okay. And the other question is…

[Seth Van Voorhees:]

Steve, sorry to interrupt. One of the really important things about that, and I just can’t stress how exciting this could be, is that what Corning has is developed the glass substrate called Gorilla Glass that offers incredible strength and lightweight properties. But what they’ve done is they combined those great features with SPD technology to not only offer a lightweight, highly strong window for an automotive application but one that can control light incorporating our technology. So, it just shows you how one-plus-one has the potential to be much more than two going forward.

[Unidentified Analyst:]

Exactly.

[Joseph Harary:]

That’s a very good point. And some of the reasons that they’re pitching Corning Gorilla Glass is for example, you lower center of gravity on a car when you put lighter glass in the roof. Well that’s something we’ve also talking about since the SLK first came out in 2011, the importance of doing that and getting more headroom. So, Seth is absolutely right, there is some really good synergies between our companies. I think we have one more question in the queue and then I’m going to make some final remarks.

[Operator:]

The next question is a follow up from David Klein [ph], a private investor. Please go ahead.

[Unidentified Analyst:]

Hey, Joe, real quickly actually, touch on the earlier. On the last call, you’d indicated that you were seeking some help in investigation in some of the short activity and what may or may not be happening there. Have you made any progress or is there any feedback you can provide to the shareholders just what maybe going on there?

[Joseph Harary:]

When things are at a certain level within the NASDAQ and FINRA investigations, we get less information, not more. And we haven’t gotten any further updates on what’s happened there. And usually, if they were going to close it out, they say, look, there was nothing going on there. We would typically get a call saying, we appreciate you bringing this to our attention, we didn’t find anything. Thanks. But we haven’t gotten that call. So all I could say at this point is that they specifically said that we’re not going to be able to keep you guys in the loop on specifics because it has reached a certain level. Let me take a few minutes now to just maybe make a few closing remarks. And I think a lot of what we all just talked about today I think it will be tied together nicely. We have given a lot of thought to where our Company is and where we’re going. And we thought the time has come to share some of our strategies here. So, hopefully, this call is perceived as it was intended -- to be a very candid discussion of not only our prospects but the challenges and what we’re doing to fix them. I’ve heard that 80% of new products fail, and we haven’t failed. Thank God. But I think the statistics puts in context the upward battle that everyone in the smart glass industry faces. And over time we’ve seen competitors have come and gone - some are roadkill on the side of the road, some may be shortly, but we won’t be. And over this time, we have begun to succeed in some of the markets like automotive and aircraft, but there is still a lot of hard work ahead of us in order to reach the potential that I and all of our investors see for Research Frontiers and SPD-SmartGlass, both in financial terms and to bring back Bob’s vision to making the world a better place. We are in tens of thousands of cars across five Mercedes models. Could revenues have been higher? Absolutely. And we’re certainly disappointed in the results so far, but we’re working on that and we have a clear idea of what needs to be done here. And like most companies that supply the automotive industry, revenues can rise and fall based on the timing of new vehicle introductions and mid-model refreshes, and on the overall production volumes of the car model quarter to quarter. How do we address that? Well, the focus is very straight forward, get into more car models both within Mercedes and with the addition of additional auto manufacturers. And also build awareness within customers and dealers of the magic that we bring to the Magic Sky Control option and what I refer to as the take rate, build the awareness, and have customers ask for it. But another major focus of ours is to focus on the make rate

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.