Research Frontiers Incorporated
Q3 2013 Earnings Call Transcript

Published: 8 Nov 2013

[Operator:]

Good afternoon, ladies and gentlemen. Welcome to Research Frontiers’ Investor Conference Call to discuss results during the 2013 Third Quarter. During today’s presentation, all parties will be in listen-only mode. (Operator Instructions) This conference is being recorded today. A replay of this conference call will be available starting at 12

[Joseph Harary:]

Thank you, Amy and welcome to Research Frontiers’ conference call to discuss our third quarter 2013 results and some very exciting developments at your Company. Joining me today is our CFO and Vice President of Business Development, Seth Van Voorhees. Thanks for taking the time to be with us today and thank you for your continuing support of Research Frontiers. I also want to thank all of the investors who emailed in their questions. This allows us to cover more ground and answer more of your questions. In some cases, Seth and I have tried to answer these questions in the body of our presentation and to the extent that we haven’t or there are additional questions, there will also be an opportunity later on in the conference call for participants to ask additional questions. There have been some very exciting developments since our last conference call and today we will discuss them in their significance a little later on in today’s conference call. But first I’d like to ask our CFO, Seth Van Voorhees, to delve a bit deeper into the numbers. Seth?

[Seth Van Voorhees:]

Thank you, Joe. Good afternoon, everyone and thank you for joining us today. As always I’ll discuss the financial results in approximate terms and cover some highlights from our third quarter of 2013. For more details please see the financial statements that we filed on our Form 10-Q with the SEC. First, let me comment on our income statement. Fee income increased by $330,000 or 24% for the first nine months of fiscal year 2013 versus the same period in fiscal year 2012. This overall increase is lumpy. As evidenced by the $35,000 increase or 7% for the three month period ending December -- September 30, 2013 versus the same period in 2012. Most of the increases in fee income during the nine months were from higher levels of royalties from sales activities of license fees in the automotive sector. Total expenses increased by 11% or $490,000 for the first nine months of fiscal year of 2013 versus the same period in 2012. 45% of this increase or $222,000 was from non-cash costs relating to the issuance of common stock in options. Now let’s discuss our cash flow and balance sheet. At the end of the third quarter of fiscal year 2013, we had current assets of approximately $12.2 million with current liabilities of $225,000, resulting in a $11.9 million of net current assets. For the nine months period ending September 30th, we consumed $2.2 million of cash from operating activities. This level of cash consumption annualizes to $2.9 million, which is comparable to the actual $2.7 million of cash consumption from operating activities in fiscal year 2012. Net current assets will last over four years at this current cash burn rate, which should actually last longer because the amount of cash used in operating activities is expected to decline as revenues increase in the future. In the IR front, we completed several stock offerings late in the second half of last year. As discussed previously, we took this action for two reasons. One to strengthen our balance sheet and two to increase our institution -- institutional participation in our Company. By increasing our ownership base, we believe there could be a significant improvement in trading liquidity for investors. Our institutional ownership increased from about 7% prior to the stock offerings to over three times that today. We are pleased to report that trading volumes for Research Frontiers has in fact shown significantly higher trading volume in fiscal year 2013, increasing by a 145% for the first nine months of fiscal year 2013 versus the same period in fiscal year 2012. This high level of trading volume is helpful in providing current shareholders with more liquidity and interacting institutional ownership in our stock, since these investors frequently want to establish large position in their portfolios. Over the past year, we note based on filings with the SEC that two investors Kevin Douglas and Goldman Capital had established significant ownership positions in Research Frontiers of over 11% and 5% respectively. I will be pleased to answer any of your questions about these matters or any other issues at the conclusion of this presentation. Joe?

[Joseph Harary:]

Thank you, Seth and thank you all once again for participating in today’s conference call. As Seth has indicated, fee income for the first nine months of 2013 was up 24% from the same period last year and fee income for the second quarter of 2013 was up 7% from the third quarter of last year. We also substantially strengthen our balance sheet and increase institutional ownership in our Company. To summarize, the Company is in excellent shape from an operation standpoint, in terms of revenues, expenses, and capital resources. Today given the amount of recent positive developments that have been announced, I thought it would be helpful both for new investors and long standing investors for me to give you an overview of what has transformed at your company, particularly in the past three months since our last quarterly investor conference call. There have been several major categories of changes at Research Frontiers. Number one, new vehicle platforms were introduced. Number two, expansion into new markets, number three an expansion of resources devoted to the SPD industry. Number four, product enhancements and five a general increase in visibility. First let’s talk about new vehicle platform. The best way to describe our business is that we’re in a step function business. We get on a vehicle platform then the next one, then the next one. Each platform tends to be long-term production programs. In addition to being relatively long-term revenue stream, these revenue streams build on each other. They usually start when a new car is redesigned, which typically happens within the core model every seven to eight years. Because each revenue stream builds on each other, while the new model introduction events and this is the thing that is typically announced by the OEMs and then by us and our licensees. My resemble is set of stairs, where we refer to it as the step function. But the revenues themselves resemble more of a steep upward ramp, because they’re building on each other. In terms of revenues and roof size, the Mercedes SLK and SL are similar, which is why this year our revenues are similar to last year. However, what’s going on underneath the numbers is more exciting. Normally the number of costs produced in the later years of a model are less than in the initial years. So the total number of SLK and SL vehicles being produced each year Mercedes is scheduled to go down. However, offsetting this is our take rates are going up. Magic Sky Control is a very popular option and also one that has received growing accolades from the Automotive and Lifestyle Press. Timing of new model introductions is also accelerating. The SLK came out in showrooms about two years ago. The SL came out here in the United States about 18 months ago. And based upon the success that Mercedes was having with Magic Sky Control in these two vehicles with take rates higher than Mercedes ever originally anticipated. Three months ago, it was announced that all -- the all new S-Class was going to offer a Magic Sky Control SPD-SmartGlass roof as an option. Two months ago, it was also announced that SPD-SmartGlass technology will be on the panoramic roof of the new S-Class Coupe, which many people will say is actually the fourth car to use SPD-SmartGlass because the S-Class Coupe is basically a CL that has been redesigned and renamed. So there you can see -- so you can see that while we’re in a step change type of business, the steps are clearly accelerating. Also the step-ups are getting bigger. The new S-Class is now projected to have about three times the annual production volume of the SL and SLK’s combined. The surface area of the roof is also about three times bigger than the glass roofs on the SLK and the SL roadsters. So in total, when you combine anticipated unit volumes with higher surface areas, there is the potential to have at least nine times as much SmartGlass out there on the roads with the S-Class than there is with the SLK and the SL vehicles combined. Also Mercedes people who understand their S-Class customer expect even higher take rates for Magic Sky Control with the new S-Class. And some of the good position to know even expect unprecedented annual sales volumes for the new S-Class. As early as the Frankfurt Auto Show in Early September, Mercedes announced that they already had orders for the 30,000 S-Class’s and how with even before the launch of the car and the two biggest markets in the world for the S-Class, the United States and China. And higher unit volumes and greater surface areas and take rates are certainly important to Research Frontiers, because remember we get our 10% royalty based on the selling price of the glass from the licensee to the car manufacture. But I think also equally significant is the fact that we were going from roadsters which is a relatively small and specialized market for the mainstream automotive market sedan. This shift towards sedan is also likely to bring other OEMs more quickly into production with their own SPD-SmartGlass products. We are already noticing the highly positive effect on the other automakers that we’re working with as a result the Mercedes launch of SPD in their S-Class flagship sedan. This too should lead to more and bigger steps as other OEMs introduce their own vehicles using SPD-SmartGlass. Remember as we discussed in earlier conference calls and at our various Investor conferences, we also spoke about another potentially large step-up and penetration, this time within Daimler itself with the much larger volume E-Class coming out in 2015-2016. The one key thing to understand as you try to model our business, the business itself is expected to continue to accelerate with the next big impact on revenues coming from the use of SPD-SmartGlass in the S-Class when this option becomes available around the second half of next year. And as I mentioned we expect that in our all important automotive business this success within Daimler will create other successes within other OEMs as they launch their own vehicles with SPD-SmartGlass. The trend with SPD being on other vehicle platforms is also been showing up in other areas as well. As I discussed the biggest and most exciting by far in terms of numbers with the introduction over the past three months of SPD-SmartGlass in Mercedes flagship, the S-Class which is the best selling luxury vehicle in the world and then introduction on the successor to the CL, the S-Class Coupe. But there have been other vehicle platforms that have also began to use SPD. Last week at the Fort Lauderdale Boat Show, Hatteras unveiled their 100 foot flagship motor yard with two SPD Skylights in the main galley. This is standard equipment and other customers will have this boat next year. Heat controls during the day and elimination of light pollution at night with the main reasons given by Hatteras for using SPD-SmartGlass although aesthetically they’re also quite elegant and it is also the core factor as expressed by the owner of the boat. The week before that Dassault launched their much anticipated super mid-sized jet, the Falcon 5X. It had something that no other plane in the world has, a Skylight. This was made possible by SPD-SmartGlass technology which will also be standard equipment in the Skylight on the Falcon 5X. We and our licensees also hope that SPD cabin windows on the 5X to be either standard equipment or a customer option later on in the design and production cycle of this aircraft when that part of the plane is determined. Also that same week at the National Business Aviation Association Show for private aircraft in Las Vegas, SPD dominated the electronically dimmable window category with product offerings and announcements by Vision Systems, GKN Aerospace, InspectTech, ATG, HondaJet, Lou Martin, MSA and of course the big news of the show Dassault. Yes, eight different exhibits in announcements of SPD technology for the aircraft industry. In November we’re certainly dominated by watercraft and October by aircraft. August and September was both dominated by SPD related news for land vehicles. The big news once again the S-Class announcement in August which we already spoke about in terms of what it means for our revenue for next year and also the visibility and motivation of other OEMs as they move even faster than they originally plan. And at the largest Auto Show in the world in September, the Frankfurt Auto Show, the results of the launch of the now famous banner for -- to those magic moments, Magic Sky Control for the S-Class coupe concept and the debut at the Frankfurt Auto Show, Webasto panoramic roof of the future, featuring SPD-SmartGlass from our licensee Isoclima. Also in early September in the automotive aftermarket, we also saw a Rolls-Royce Phantom with SPD-Smart rear doors for added security. These were supplied by Isoclima and were exhibited at the DSEI Security Show, in London. And a joint offering from RV Manufacturers Pilote and Le Voyageur at the big RV Show, in Paris, in late September. The Skylight in this RV used SPD-SmartGlass supplied by our licensee Vision Systems. You can see that there has been a lot of new vehicle offerings with SPD-SmartGlass over the past three months since our last conference call. In addition to new vehicle offerings, we’ve begun to open-up new markets in China, Russia, the Middle East and other parts of the world, some of which you will hear about in the coming months. In addition to geographic expansion, the results of product line expansions with the launch of our artwork and artifact-protection business VariGuard and the introduction of other new product and product expansions by our licensees such as the aftermarket sun visor developed by our licensee Vision Systems. In addition to market expansion and product expansions, there were added resources which have also contributed to our success and visibility. I mentioned earlier the eight distinct offerings and announcements of SPD Smart products at the recent aircraft show. There have also been some very large players who became involved with business units and product lines focused on our SPD Smart technology. We estimate that we now have about 75% of the world’s automotive glass production licensed to use our technology. In aircraft we’ve large companies such as GKN Aerospace, the largest producer of commercial aircraft windows in the world, Vision Systems who partnered with aircraft industry giant Vopel, who has been a lead supplier to Boeing since Boeing started their business in 1948 as well as having other aircraft OEMs as customers. ATG which is the leading pleated shade aircraft window manufacturer in the world not only offers customers their Panacea, which is a combination SPD pleated shade, but now offers a new product Tranquility which is an SPD only shade. And perhaps the most dramatic example of resource expansion, however, is the opening of a new factory by Vision Systems in Melbourne, Florida to supply SPD based Nuance and Noctis products to the Aircraft, Marine and Mass Transit industries. This is Vision Systems second factory line for SPD Smart products. I was at present at the Paris Auto Show in June when Florida Governor Rick Scott had a special award ceremony for Vision Systems and a highly skilled jobs they’re recreating in Florida with their new factory. In addition to technical and manufacturing resources and marketing resources, our licensees have also contributed another important resource ingenuity. In the area of product enhancements, we’ve seen SPD Smart windows controlled by smartphones and tablets, self-powered photovoltaic SPD Smart windows, fully automatic sun visors that can be retrofitted to existing vehicles, which further expand to the population of people who can experience the benefits of SPD Smart windows and other products, Virtual Venetian Blinds! and windows that have their controllers and even the electronics integrated right on the glass, so that you can simply touch the glass to control your smart window. These innovations make our already high performing SPD Smart technology even better, more accessible and easier for people to use. We are all working hard within Research Frontiers and other licensees and their strategic partners and customers to make SPD SmartGlass a success. It’s already the best selling smart window technology in the world and this success should multiply itself next year when the new S-Class comes out. I’d like to now answer some questions from our shareholders. We will first take some of the questions that were emailed to us that have been already been answered in the course of our remarks and also then I’m -- we’re going to open the conference call up to additional questions. One question we got is what is some of the marketing initiatives, particularly in social media that the company has been pursuing and how is that working out? First, I want to thank the shareholder for submitting that question in advance that allows me also to provide you with some recent statistics. We launched our new smartglass.com website in mid June around the time of our annual stockholders meeting. And the idea behind the new website was to make navigation to relevant information easier and more uniform, so that people could better find the information they were looking for about SmartGlass. So the other idea behind the new website was to help people recreate virtually what its like to experience SPD SmartGlass. Our other marketing initiatives are also designed to bring the well factor of touching a button in controlling glass to more people, not just to the growing number of Mercedes customers have Magic Sky Control in their car, but to a wider audience. Social media plays an important role in this and we promoted people internally and hired specifically to fill this need. Since these changes were made about three months ago. For example, likes on Facebook have quadrupled, followers on Twitter have increased, subscribers to our YouTube channel have increased and the number of views of our video tripled from our baseline activity prior to the social media initiatives in the first months and quadrupled in the second month after these initiatives were started. We also now moved up to the number two or three position in search engines right behind Microsoft SmartGlass gaming device. Although they spend considerably more in marketing than we do, so it’s not surprising that we’re not number one yet. Even more importantly interaction by those following us on social media has increased that they share our materials with their friends. This has increased the effectiveness of our later social media campaigns compared to the earlier ones, indicating that the audience is growing and more receptive to our messages. And as many people may know the main social media sites, Facebook, Twitter, LinkedIn, YouTube, etcetera are not accessible behind the internet firewall in China. Remember China is a very important market for the S-Class and most luxury goods. Because of the importance of the Chinese market, for example about half of the all S-Class is in the world are sold there, we’ve also established a social media presence among the major social media sites within China. Another question I got from a shareholder, Joe can you comment about the CEO of SAGE, John Van Dine stepping down from his position last month? What this question is referring to is recently announced that after leading SAGE for 25 years, John Van Dine was stepping down in October as the CEO. In my personal opinion John was a smart person and did a good job building awareness in obtaining government money for his Electrochromic Smart Windows. John had helped to build awareness and frame the conversation around SmartGlass in general. However, in order to fund his company further, when the government money and the private equity funding slowdown, he had to initially sell 50% of his company to Saint-Gobain and in mid 2012 SAGE sold the rest of them, sells to Saint-Gobain. However, John faced some great challenges, including technical issues, performance issues with electrochromics in general and only based on SAGE’s announcement a handful of installations using SAGE’s EC Glass for the architectural market. And they have very, very high overhead within SAGE. They also tried and were not successful to get into our bread and butter market, the automotive market as well as being in unsuccessful to generate business in the aircraft and marine markets. So -- while John did a great job, I think in the cars he was dealt, these problems remain for John’s successor and I wish him both well, because a continued discussion about SmartGlass technology can only add to the education of consumers and we welcome that. [Ph] Bob Wendell, a shareholder asked what is the likelihood that another luxury vehicle manufacturers like BMW, Audi, Nissan, Infinity or Lexus, the Lexus division of Toyota will start using Research Frontiers SPD film technology on sunroofs for the production modeled vehicle in the near future. I appreciate the question Bob and also just to add to your list of the premium car makers, Jaguar Land Rover is a drop bigger than the Toyota division of Lexus. So to answer your question very simply, I think it’s highly likely especially now that Mercedes moved from roadster to sedan with the new S-Class that we will be seeing that. [Ph] Bob Wendell as well as Harvey Wise and Jerald Albert asked some questions about the status of Vision Systems new factory in Melbourne, Florida near Cape Canaveral and also about the new aftermarket sun visor product by them? To answer these questions, the new factory is already up and initially staffed. And to answer the questions about the sun visor product itself, first I wanted my opinion on its potential. I personally think it’s a great product with huge market potential and also since it’s an aftermarket product, it also had the added ability to bring the benefits of SPD technology to a wider group of people. We’ve also been asked to describe the new sun visor and how it’s going to be installed and when -- and where it will become available. It’s a retrofittable sun visor that is installed using a few screws to a fixed right up against the windshield of the vehicle. It’s been tested with Vision Systems and a major OEM for about two years, although the pricing and the availability is not yet been set. We expect this to be set shortly. (Indiscernible) asks, would you provide an update on the lawsuit that Research Frontiers has filed? He is referring to our litigation against E Ink, Amazon, Sony and Barnes & Noble for patent infringement that we filed on July 12. I can’t comment too much on pending litigation because courts don’t like company’s to try their cases in the court of public opinion. But I just have referred to some of the public documents, the defendants answers to our complaint are currently due tomorrow and this always can change is the courtesy of strategic reasons. But other than what’s been publicly filed I can’t comment on the lawsuit while it's ongoing other than to say that we’re very optimistic about our prospects. And so our attorneys since they’re working on a contingency basis on this case, so they too have indicated by this, their view of the strength and size of the case. From Kerry Christy, do you expect Research Frontiers to actually make a profit soon? The answer is, yes. We’re in this to become highly profitable, and the S-Class alone can make us profitable depending on the introduction dates and the take rates. But based on what we’re seeing things look very favorable in that respect. [Ph] Dennis D. Hosay says; where do you see the company a year from now? Well, I see us having a higher automotive revenues from the S-Class, also revenues from the SLK and the SL, may be some other vehicles as well. The Honda Jet being ready to be delivered to customers with SPD windows as standard equipment and other vehicles and architectural installations, and also I see a much higher visibility for us because the S-Class is the car that’s already receiving tremendous visibility around the world and tremendous orders, and being part of that I think is just going to help us in generally. With that, I’d like to ask the operator, if they could please open the conference call up to any additional questions that might be in the queue.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Steve Dyer with Craig-Hallum Capital. Please go ahead.

[Greg Palm:]

Hi, guys it's actually Greg on for Steve today. How are you guys doing?

[Joseph Harary:]

Hi, Greg. How are you?

[Greg Palm:]

Doing well. I wanted to dig into the S-Class a little bit more. It looks like there will be a handful of different term levels for that vehicle. Do you expect that expositional class will be an option on most or all of these?

[Joseph Harary:]

Yes, I think the only one that is and it's the canvas convertible top that we won't be on.

[Greg Palm:]

And how should we think about take rates as it compares to those on the SL and SLK?

[Joseph Harary:]

Okay. I think what's more important is how Mercedes view the take rates, and they view that the take rates on the S-Class will be even higher than on the SL and the SLK and those exceeded their initial expectations by an nice factor. So, we think the take rates will be pretty high. In the United States the S-Class is scheduled to have a panoramic roof as standard. So the percentage of those panoramic roofs that are SPD is going to determine our revenues from the U.S. market, and the whole world I think the vast majority of vehicles are expected to have a panoramic roof, so a high take rate of SPD on the panoramic roof should result in fairly large numbers. And then of course the number of vehicles themselves is expected to be quite high and in some cases as I mentioned earlier Mercedes, some people in Mercedes is in a position to know, believe that the number of S-Class’s produced will be unprecedented because of this car.

[Greg Palm:]

And how should we think about that ramp, is it expected that you guys will start beginning to recognize revenue in Q3 of next year or how should we think about that?

[Joseph Harary:]

I think Q3 is a safe bet. The car, what we said publicly is the car is coming out in the second half of the year. I know with a lot more precision when it's coming out, but unfortunately it's not something we could share publicly. And of course the car comes out when it comes out, but prior to that is when the sales from our licensee to Mercedes happens so get our royalties based on those sales. There’s usually a 30 to 60 day kind of lag between at the B-to-B level when our licensee is selling the product to Daimler as opposed to when Daimler is actually selling the car to a consumer.

[Greg Palm:]

Okay. Kind of moving on this question is probably more for you Seth. How is the VariGuard business progressing? What has the feedback been from customers and kind of how should we think about the grill through that going forward?

[Seth Van Voorhees:]

I think we’re in the development stage, the education stage. The people that we’ve talked to about the product had been very enthusiastic and we’ve had some successes. However I’d say that our biggest challenge is simply lack of knowledge in the industry of about the advantages that we offer. And we’re working on trying to get the word out. So, I think the market has significant potential, but I think we’re in the earliest development stages in terms of educating the market to the product.

[Joseph Harary:]

If I could give maybe also just an anecdotal layer on top of that, what's interesting is we’re noticing that there are some fairly high visibility projects that are approaching us and to protect very, very significant and valuable or priceless artwork and documents. So the word is getting out I think very effectively, and of course in addition to the revenues generated by the VariGuard business, just the use of SmartGlass with these very high visibility projects like the Treaty of Paris, and that couldn’t have been shown in this country without SPD-SmartGlass. Those types of things and more things coming I think will benefit the Research Frontiers and our licensees business because of the visibility. And then the other thing I think to note about some recent initiatives we’ve been doing in social media is, we’ve been targeting fairly specifically the right demographics and customers for the VariGuard business and the response rate that we’re seeing is much higher and faster than we expected. So, there is an interest out there and word is spreading and accelerating which is nice to see.

[Greg Palm:]

That’s good to hear. That’s all for us for now. Thanks a lot guys.

[Joseph Harary:]

Thank you.

[Seth Van Voorhees:]

Thanks Greg.

[Operator:]

(Operator Instructions) Our next question is from Michael Kaye, at Kaye Associates.

[Joseph Harary:]

Hi, Michael.

[Michael Kaye:]

Yes. Hello, Joe. Do you envision a time where SPD will be standard rather than options on the various vehicles?

[Joseph Harary:]

I think that a typical path is for options to become standard. We’re already seeing it in the aircraft market where it is moving to be standard. It's a little bit difficult to speak about standard versus options because if we just take the S-Class technically a panoramic roof is an option although it's a very high percentage option that’s almost on every car that’s produced, and in the United States if you take a big step, submarket of the S-Class it is standard. The panoramic roof is standard as opposed to being an option worldwide. So, I think you’ll see flavors of standard, maybe is a better way of putting it in the automotive market, but we’ve already begun to see SPD and the confidence in SPD cause it become standard equipment on other things like aircraft and Navios. The only thing I would add is that there is a strong economic expense’s to ultimately get to standard equipment because as it -- once you put an SPD window at standard equipment on a car it allows the card to remain cooler and that’s when you have the opportunity to reduce the size of the compressor for air conditioning. While it's still an option you have to maintain the compressor at the maximum level. But once the SPD window is incorporated into a car as standard equipment that’s when you can design the compressor to that optimized level. So there is that, a strong economic incentive to become standard equipment and we look forward to that happening one day.

[Seth Van Voorhees:]

Yes, it will definitely flash around the way cars are designed.

[Michael Kaye:]

Will Hitachi be the licensee that will be manufacturing most of the emulsion and film, and do they have enough capacity to meet the increased demand that you’re forecasting?

[Joseph Harary:]

Let me answer that question in two ways. The current factory line at Hitachi has the ability to make 400,000 square meters of film which is 800,000 SLK or SL sunroofs so it's vastly more than the number of SLK’s and SL’s produced. We’re told by them that to make a new factory, let’s say a new OEM comes in and they’ve exhausted their capacity. It's not a long period because they know what to build and also having additional film makers is something that’s always been a goal of ours. So, that should answer the film manufacturing question.

[Michael Kaye:]

To tell you honestly, I’m a very, very, very long-term shareholder and things really are going at a fast pace, and as I want to say, is there really anything that worries you, in other words the technology has been on the market, there’s been no complaints about it, it's being adopted by more and more OEMs and it's durable, it does the work, it's environmental friendly. What could possibly go wrong? Why shouldn’t I back up the firm and …?

[Seth Van Voorhees:]

Well there’s only one thing that really worries me Michael, well two things. Number one is, are we doing everything humanly possible to maximize the potential of SPD technology. And I think we’ve definitely developed critical mass both as you can see from today's conference call internally and other licensees and their customers. And then the other thing is, would there be a takeover of the company before our stock price reflects our true value and that’s really the thing that bothers me the most is that we want to do everything possible to build shareholder value as quickly as possible for that if there is a acquisition our shareholders are getting paid based on a premium from today's price and a substantial premium is my personal opinion.

[Michael Kaye:]

But isn’t there impairment, isn’t there a so called poison pill, it's structured in such a way that this should not be a problem that …

[Seth Van Voorhees:]

We have a good set of shock repellents, but that doesn’t prevent a determined acquirer from taking over a company because you see companies being taken over every day. I’d like to maybe move to the next question, because I want to make room for covering more ground.

[Michael Kaye:]

Thank you.

[Operator:]

Our next question is from Fred Schoner, Private Investor.

[Fred Schoner- Private Investor:]

Hi, Joe; I haven't spoken to you in a while.

[Joseph Harary:]

Fred, I miss talking to you.

[Fred Schoner- Private Investor:]

Yes. Well, I’m a shareholder and not as active as I used to be, but the company is certainly impressing me. The question I had, I didn’t hear and forgive my ignorance, but I haven't heard anything about architectural, are you doing everything on that side?

[Joseph Harary:]

We certainly are, but we can only talk about what's been announced and what's out there. I mean there are some potentially major projects that could be iconic that would certainly benefit from SmartGlass and we’re in the process of developing those further. Now we have probably the best companies in the world for architectural glass licensed. When you talk about high-end architecture glass, some of our licensees in Europe are natural magnets for the top glass projects in the world.

[Fred Schoner- Private Investor:]

Another question, did you -- have you seen the, and I haven't; have you seen the sun visor?

[Joseph Harary:]

I have seen prototypes of it. I had to be at the Aircraft Show when it was appearing at Busworld, so I didn’t have a chance to actually be in Belgium when they unveiled it there. But the reaction has been good at the show and also from the press. So, I’m very optimistic about that and I love the fact that it's a retrofittable aftermarket sun visor because I think the market for that is enormous.

[Fred Schoner- Private Investor:]

Yes, (indiscernible), but it's been great talking with you again Joe.

[Joseph Harary:]

Great. I hope you come visit also Fred.

[Fred Schoner- Private Investor:]

Sure, I will. Thanks.

[Joseph Harary:]

Thanks.

[Operator:]

(Operator Instructions) The next question is from [ph] Steve O'Maker, Retired.

[Unidentified Analyst:]

Hello.

[Seth Van Voorhees:]

Hi, Steve.

[Joseph Harary:]

Hi.

[Unidentified Analyst:]

Hi, Joe.

[Joseph Harary:]

Hi.

[Unidentified Analyst:]

Thanks for having the call today, I appreciate it with all the rumors going around it, it's nice to be able to clear the air occasionally.

[Joseph Harary:]

Right. I appreciate everybody taking time out from the Twitter IPO to be with us also.

[Unidentified Analyst:]

Yes, that ate up all the TV time for sure. I was going over the last quarterly report, and I see that all the fee incomes are up and revenues are up, but also costs are up. I guess and I’m not trying to insult anybody, but had those costs not went up and this is maybe a little more for Seth but, would we have declared a zero profit or a one penny profit per hand.

[Joseph Harary:]

No.

[Seth Van Voorhees:]

No.

[Joseph Harary:]

But the big revenue is also, and what we’re really all working towards don’t start until next year. But in order to really expand and leverage the marketing and build the awareness that should increase the take rates of the various vehicles that have our technology. It makes sense to spend marketing money now, but we’re not breaking the bank and if you saw our social media budget it's laughably small but very, very effective as you can tell from some of the numbers. A lot of the increases in costs were also non-cash accounting charges. Some of that’s related to our stock price being up 27% year-to-date. So, these things also kind of filter through if you will into the expense side. But we’re certainly very frugal and we’re fortunate that we’re leveraged with growing teams of people that are licensees that are picking up a bigger part of the share of activity.

[Unidentified Analyst:]

Well, I’m kind of familiar with the Webasto. As far as I know, if they’re not the largest in the world, they maybe in this aftermarket group.

[Joseph Harary:]

They certainly are a very formidable company and one that we’re very pleased as they’re involved with SPD. For years they’d looked at other things as well and you’d see wisps of this or wisps of that but when it came time to debut the panoramic roof of the future it was SPD and we’re happy about that.

[Unidentified Analyst:]

I got some of that off of their website that they’re actually supplying the entire rough structure to some of the automakers. Is that correct?

[Joseph Harary:]

They do a large component of the roof systems.

[Unidentified Analyst:]

Now in all reality they could be the biggest payer of all of them when they’re done.

[Joseph Harary:]

Let’s see how the market works out, but obviously we’re very encouraged by the growing interests of people.

[Unidentified Analyst:]

Okay. Well, it was nice talking to you and I appreciate you taking the time.

[Joseph Harary:]

Good talking to you too. Thank you very much.

[Unidentified Analyst:]

Take care.

[Operator:]

The next question is from Thomas Mccarthy with Raymond James. Go ahead please.

[Thomas Mccarthy:]

Hi there, Joe.

[Joseph Harary:]

Hi, Tom.

[Thomas Mccarthy:]

What cost do you expect it to be for somebody who takes the SPD’s roof option in the S-Class; how much extra are they going to have to pay?

[Joseph Harary:]

Well the cost to Mercedes has comes down between the SLK and the SL and they’ve come down between the SL and the S-Class. I’m not of liberty to reveal the price because Mercedes hasn’t announced that yet. But we expect that, I mean maybe to bottom line if for everybody on the conference call we expect our royalties per car which we’ve given a range for the SL and the SLK of between $100 and $150 per car. We expect our royalties on the S-Class to be higher than that.

[Thomas Mccarthy:]

Twice as much perhaps?

[Joseph Harary:]

Well there’s three times as much glass and it's going to depend on the take rates and, but there is a nice cost reduction that is expected and filtering through the SmartGlass industry which should result in broader adoption.

[Thomas Mccarthy:]

Okay. Thank you.

[Joseph Harary:]

Thanks.

[Operator:]

Our next question is from Steve Shaw with Sidoti & Company. Go ahead please. Hi, Steve.

[Steve Shaw:]

Hi, guys. With the addition of the S-Class, what total percentage of Mercedes vehicles will those three vehicles make up?

[Joseph Harary:]

It's roughly about a quarter of the vehicles, and if we add to that the E-Class for 2015, 2016 you’re talking about the vast majority of their vehicles.

[Seth Van Voorhees:]

Just a point of clarification, what Joe is referring to as the luxury vehicles, as our price comes down we would also hope to break into non-luxury vehicles. But just within the luxury vehicle segment, E-Class is the major opportunity for us representing literally hundreds of millions of dollars.

[Steve Shaw:]

All right. Thank you.

[Operator:]

The next question is from Seth Nickerson, a Private Investor. Go ahead please.

[Seth Nickerson:]

Good afternoon, Joe.

[Joseph Harary:]

Hi, Seth. How are you?

[Seth Nickerson:]

Okay. I was just wondering, MB has been dealing with SPD for a while. It started with a Setra TopClass as I recall about 10 years ago?

[Joseph Harary:]

Yes, that’s quite right, yes. Yes, they’ve had very positive experiences with SPD which is why they keep adopting it.

[Seth Nickerson:]

Well, the question is, since they have it out in the SL and the SLK, why is there a six month delay before it comes out in the S-Class?

[Joseph Harary:]

Because typically when you have a new supplier and this is a new licensee for them, remember Pilkington is doing the SLK and the SL. We have a different supplier for the S-Class. You typically give that licensee some time to gear up their production processes and things to achieve the efficiencies that they need. So that’s basically the idea.

[Seth Nickerson:]

But if Pilkington had its own path, why did they switch to Isoclima?

[Joseph Harary:]

I didn’t say did they switch to, but typically the car makers like to have multiple suppliers and you’re talking about very, very large volumes needed for the S-Class, so you need a very good high volume reliable supplier for the S-Class and remember this is their baby, this is their flagship. They don’t leave anything to chance with this. So bringing up a second supplier is certainly what they want to do and that’s what they did and they chose well.

[Seth Van Voorhees:]

And that’s the basis of our strategy is that, we hope to license most of the automotive glass suppliers, so within Daimler or BMW or BW or any other OEMs, who wants to put glass on their car they can go to their existing suppliers. And as Joe indicated most OEMs have multiple glass suppliers that they split up the business, and so the S-Class just happens to be a different glass supplier than the SLK and the SL.

[Joseph Harary:]

For fun next time you walk in a parking lot, if you look at the Japanese cars they take this literally where if the front rear glass is Pilkington the side glass is (indiscernible) and vice versa. So they actually literally split the car into half when they award glass business. If you look within the European auto makers it's not, usually it will be one supplier for a particular model. But when you add up the models they tend to give the business out to multiple suppliers to keep everybody in business but also on their toes and competing because believe me, Pilkington knows that there are other SPD suppliers and for Daimler that’s a good factor.

[Seth Nickerson:]

All right. Thank you.

[Joseph Harary:]

Thanks.

[Seth Van Voorhees:]

Thanks.

[Operator:]

The next question is from John Maddy, a Private Investor. Go ahead please.

[John Maddy:]

Yes. Hello, Joe.

[Joseph Harary:]

Hi, John.

[John Maddy:]

Hi, long time I even talked to you. I was enquiring about there’s a solo window out there, I was wondering if there’s any possibility of maybe incorporating something like that technology?

[Joseph Harary:]

Well actually Vision Systems had a self powered aircraft window at this last Aircraft Show, and obviously that same technology can propagate itself into the other markets as well. So, I envision a lot of self powered SPD smart windows. The thing that makes us also very feasible is the power required to operate the SPD window is miniscule. So photovoltaic including transparent photovoltaics like they’re using here is very feasible. So, it's something we’ve always wanted and they did.

[John Maddy:]

All right, well thank you very much, Joe.

[Joseph Harary:]

Thank you, John. I appreciate the question.

[John Maddy:]

Okay, bye.

[Joseph Harary:]

Bye, bye.

[Operator:]

The next question is from Jeff Harvey, a Private Investor. Go ahead please.

[Jeff Harvey:]

Hi, Joe.

[Joseph Harary:]

Hi, Jeff. How are you doing?

[Jeff Harvey:]

Good. I certainly think the company is in the best position it's ever been. So congratulations on that. Just a minor point, I believe you filed your 10-Q on the 5th and today’s the 7th. I think going forward like most companies I would suggest you release your earnings at 4

[Joseph Harary:]

We’ve given a lot of thoughts and I appreciate the suggestion. One other things that we wanted to do though is give people an opportunity to email in questions because as you could tell there’s been quite a number of developments in the last three months and we wanted to be able to cover that …

[Jeff Harvey:]

I understand that. I just think going forward you’re going to have hopefully increased revenue or we’re going to have more and more positive results, and I just think that market place being as volatile it is, it's just better -- I’m just suggesting it's better to have it the same day.

[Joseph Harary:]

Right. Well we’ll certainly consider the timing of this and making sure that we kind of balance the various considerations including the right ones.

[Jeff Harvey:]

Certainly things are very exciting and I certainly look forward to the great future.

[Joseph Harary:]

Yeah, and Jeff you probably remember a time in our history when we couldn’t say a lot about anything. We didn’t have the same level of transparency, and we used to had to kind of fight with our licensees and fight with the customers I mean not literally fight, but really impose upon them to be able to say things. And I think if you look at the level of transparency that exists now, just by virtue of how quickly announcements are coming out, how often they’re coming out and also if you follow us on social media, the ability to really get the news out quicker. We’re trying to change into a company that is really releasing information that’s close to real time if possible and it's nice to be in that position. It's nice to have too much to talk about on a conference call than before when we had to wait.

[Jeff Harvey:]

Absolutely -- absolutely. I totally agree. Great job. Thank you.

[Joseph Harary:]

Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joseph Harary for any closing remarks.

[Joseph Harary:]

Well, thank you Amy. Every day more and more people are now experiencing SPD-SmartGlass. As you could see from today's call awareness in visibility is growing because, one; we’re on more new vehicle platforms, and with the biggest and highest volumes ones coming next year. We have expanded the geographic markets that we’re targeting, and through partnerships and building new factories, we and our licensees have expanded the resources that are going into the SPD industry. Products have been enhanced to make them better and easier to use, and easier to install for that matter. And our expanded marketing programs particularly those in the area of online and social media have been highly effective both in terms of results and cost effectiveness to help recreate the wonderful experience of being in control of your glass. Millions of times per year people are pressing a button in their home, on their cars or boats and aircrafts now or on their smartphones and other devices and taking control of their environment, thanks to SPD-SmartGlass. They’re making their homes, offices, boats, planes and other vehicles that they ride in, safer and more comfortable and more energy efficient. 1000s of cars are on the road and more being produced everyday that use our SPD-SmartGlass Technology and next year the largest switchable glass sunroof in the world makes its debut using SPD-SmartGlass Technology. And when you combine the higher anticipated unit volumes and the greater surface area of the car using our technology the new S-Class could have more than nine times the volume of SPD-SmartGlass than the current SLK and SL vehicles combined. Excited to say our Company is in the strongest position ever, awareness is at a high and growing level and next year it looks like a great year for your company. I thank you all for participating on today's conference call, and most importantly through your support and trust and we really look forward to sharing continued good news with our investors. Thank you very much everyone.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation and please disconnect your lines.