LETTER TO OUR SHAREHOLDERS
Since our letter to you in last year’s Annual Report, there have been some dramatic and exciting changes at Research Frontiers and in the various industries that our SPD light-control technology serves. In 2001 the Company’s most important long-term goal—commercialization of SPD technology—was successfully accomplished! The supply infrastructure that we have been building over the years continues to grow and now consists of 15 companies licensed to make SPD emulsions, films and end-products. And now that SPD Inc.’s factory in Incheon, South Korea is in production, SPD-Smart™ products are beginning to be sold for a variety of applications worldwide.
In January 2001, our licensee, Hankuk Glass Industries (HGI) announced the creation of SPD Inc. as a subsidiary whose business is exclusively devoted to the manufacture and sale of SPD film and end-products. Three months later in April, SPD Inc. announced acquisition of a manufacturing plant located in Incheon, South Korea. SPD Enterprises, Inc., a subsidiary of Research Frontiers, purchased a minority interest in SPD Inc. for 1 billion won (about $750 thousand). Several of Korea’s leading venture capital firms and major banks also purchased minority interests. Plant capacity is about 4.3 million square feet per year, and can be expanded if necessary. We are extremely pleased to report that mass production of SPD film began during the first quarter of 2002 and SPD Inc. is now offering shipment one month after receiving orders from its customers. SPD Inc. now offers laminated glass with SPD .lm already incorporated into it, as well as energy-efficient insulating glass units (IGUs) which are windows consisting of SPD-Smart™ laminated glass, an air gap, and a separate glass sheet having low emissivity (heat reflecting) and UV blocking coatings. These products have electrical connections in place and can be readily placed in a frame and electrically activated. SPD Inc. has reported that the number of daily inquiries they receive from customers has increased sevenfold after attending their first major trade show of the year (GlassTech Asia) held in Singapore in late February, and business has increased again for them after their North American debut of an SPD-Smart™ House at this year’s National Glass Association show in Houston, Texas in late March.
Recently, the world’s largest glass company, Saint-Gobain, increased its ownership position in our licensee HGI to over 35%. The two companies have had close business relations for many years, and we regard their alliance as potentially very promising for the worldwide dissemination of SPD technology.
On August 15, 2001, the sale of the world’s first product using SPD technology was announced by our licensee InspecTech Aero Service, Inc. Incorporating SPD film purchased from SPD Inc. into plastic, InspecTech obtained FAA certification, and announced to the world that it had equipped the world’s first executive jet (a Learjet 25C) with SPD-Smart™ windows. Subsequently, InspecTech has also announced installing SPD-Smart™ windows in two Bell/Textron helicopters, one of which was offered as original equipment and even featured in the Neiman Marcus 2001 Christmas catalog, and subsequently sold. In addition to these announced installations, InspecTech has reported that they have been filling other customer orders, including orders for SPD aircraft windows from some of the world’s largest jet manufacturers. In April 2002, InspecTech and Aircabin GmbH, a wholly-owned subsidiary of Airbus, exhibited the interior of an Airbus Corp. Jetliner (ACJ) with innovative interior lighting systems, including SPD windows. This aircraft mock-up was featured at the Hamburg Airshow and received very favorable customer and media attention.
InspecTech plans to achieve its announced sales goal of reaching 5,000 SPD aircraft windows per month in 2002 by selling and installing these windows through various market channels, including manufacturers, completion centers, aftermarket suppliers, as well as selling directly to end-users such as airlines, charter fleets and fractional ownership companies. InspecTech is partnering with various companies to supply components to be used in SPD window systems, an example of which is its recently announced alliance with Goodrich Corporation which will be producing power supplies and switch circuitry for elegant touch-control switches specially designed for InspecTech’s SPD-Smart™ aircraft windows.
Depending on the type of aircraft, SPD-Smart™ aircraft windows generally sell in the range of about $400–$1,500 per window, and Research Frontiers will receive from InspecTech a royalty of 10% of net sales. Worldwide, it is estimated that there are approximately 2,000,000 conventional aircraft windows in existence, and it is expected that in future years many of these windows, along with their shades, will be replaced with SPD-Smart™ windows, because the lighter weight and non-mechanical construction of SPD windows should enable aircraft to reduce fuel consumption, maintenance, downtime and operating cost while at the same time enhancing customer enjoyment and control of their lighting environment.
Our licensee ThermoView Industries, Inc., one of the largest publicly traded companies dedicated to the home improvement and renovation industry, announced in June, 2001 that it was developing a new line of “smart” SPD windows, and planned to begin manufacturing and selling them to residential home customers in 2002.“We expect these smart windows will offer value to homeowners who want to control light and glare while retaining their picturesque views,”Charles L. Smith, President of ThermoView Industries, commented. The General Electric Company, which has a film-making license from Research Frontiers, is a part-owner of ThermoView Industries, and supplies some materials to them. ThermoView has partnered with Winchester Industries to manufacture SPD-Smart™ windows, and currently expects to begin selling SPD windows in the third quarter of 2002.
Research Frontiers sponsored an important survey of 50 U.S. window manufacturers by the Townsend Research Group. The manufacturers questioned in the survey expect 6.2% of the windows in commercial buildings and 3.6% of windows in residential homes to use some type of “smart” window technology by 2005. Three possible types of “smart” windows were included within the survey’s scope, namely liquid crystal, electrochromic and SPD. Liquid crystal windows, because of their haze, high price, lack of tunability and inability to block light well, have only garnered a small niche market position, mainly for indoor use or uses where privacy is important. Moreover, several major companies have reportedly abandoned electrochromic window projects because of very high costs, slow response time and other technical problems. This appears to now leave SPD technology in a dominant position as the only cost-effective, available technology for most “smart” window applications.
Based on market research published by The Freedonia Group, worldwide .at glass production was about 37 billion square feet in 1999 and is now approaching 40 billion square feet annually. Flat glass sales growth is expected to be strong, particularly in Asia. In addition, Research Frontiers estimates that 150-300 billion square feet of windows exist worldwide from cumulative past production, which constitutes a gigantic potential market for retrofitting (modification) with SPD-Smart™ films and windows.
On June 29, 2001, at the invitation of NASDAQ, Research Frontiers had the distinct honor of officially opening trading for the NASDAQ stock market in a Market Open Ceremony at the NASDAQ MarketSite in Times Square,New York City. Employees of Research Frontiers, senior executives from several of our licensees, and friends of the Company attended the special ceremony, while the Company’s name was prominently displayed in huge letters on the outside of the building. The fact that we were invited is perhaps an indication or portent of our Company’s increasing importance in the world of technology.
From July 1 through October 31, 2001, again at NASDAQ’s request, Research Frontiers’ SPD technology was showcased in a substantial exhibit at the NASDAQ MarketSite. Frequent tours through the site gave members of the public an opportunity to experience for themselves the “View of the Future,” which featured SPD-Smart™ windows and other SPD products for aircraft, home and automotive use.
Several new license agreements were entered into during 2001. In February AP Technoglass, a subsidiary of Asahi Glass Co. Ltd., Japan’s largest flat glass company, was granted a non-exclusive license to make SPD-Smart™ sunroof glass.AP Technoglass is the leading automotive glass and sunroof glass supplier in North America. In 2000 an estimated 6.2 million sunroofs were manufactured worldwide or 11.6% of the estimated 53.8 million cars and SUVs produced annually. SPD-Smart™ glass could expand this market since it will enable vehicle occupants to be more comfortable and have better control over their environment. SPD technology will also enable car manufacturers to continue the trend towards increasing glass content in their vehicles. Interest by the world’s automakers in SPD sunroofs and other products remains high, and SPD Inc. currently reports that Mercedes Benz is testing SPD sunroofs on their vehicles as well.
In March 2001, Film Technologies International Inc. (FTI) was granted a non-exclusive license to make and sell SPD films to our current and future SPD end-product licensees. FTI is reported to be the world’s fifth largest manufacturer of specialty films for windows.
During 2001, N.V. Bekaert S.A. of Belgium took over the non-exclusive license previously held by Material Sciences Corp., to make and sell SPD film as part of Bekaert’s acquisition of MSC Specialty Films Inc. Bekaert Specialty Films is reported to be the world’s second largest producer of specialty window films. Bekaert is also a major producer of films including the electrically-conductive transparent plastic film used in SPD film.
In December, Research Frontiers granted a non-exclusive license to Avery Dennison Corporation covering certain display products. Although Avery Dennison is better known for its office products, adhesives and sealants technologies, it has an interest in the display area as well. SPD displays can be used in a wide variety of applications because of their high brightness, excellent contrast and wide angle of view. Since year end, Research Frontiers also licensed BOS Automotive for SPD sunshades and sunvisors, and the Italian glass company, Isoclima S.p.A. for SPD architectural and automotive windows.
Considerable progress was made during 2001 by two of our emulsion-making licensees, Hitachi Chemical Co., Ltd. and Dainippon Ink and Chemicals Incorporated. The emulsions will be used as material from which SPD film can be made. These companies have already delivered samples to other Research Frontiers licensees and are working with these companies to supply larger quantities as well as more advanced materials.
We also sadly note that our close friend and colleague, Dr. Bernard Gold, who served as a Director of the Company since June 1991, passed away in September, 2001. His great faith in the Company, staunch support, wisdom and excellent advice will be sorely missed.
Victor F. Keen, who has served as the Company’s Secretary since 1987, was appointed a Director in June, 2001.Victor is thoroughly familiar with the activities of Research Frontiers and is a Partner and Chairman of the Tax Department of Duane Morris & Heckscher LLP, a law firm of 475 attorneys with offices in 20 cities throughout the United States and Europe. We are most pleased to have Victor continue his involvement with Research Frontiers by joining our Board.
Our net loss for 2001 of $4.5 million or $.38 per share was sharply lower than comparable figures of $7.6 million and $.63 per share for 2000, primarily as a result of reduced non-cash charges. Our financial position at year-end 2001 remained strong with working capital of $8.0 million, $7.9 million in cash, cash equivalents and marketable securities, and no debt. During 2001, institutions increased their ownership in Research Frontiers from about 3% to 10.4% of our outstanding shares.
Research Frontiers is no longer a “concept company.” Now that commercial production and sales of SPD film and end-products has begun, we anticipate a rising tide of licensee sales and rapid growth of earned royalties as our licensees sell products using SPD light-control technology. In February 2002 Joe Harary was promoted to the position of President to help lead Research Frontiers as it embarks on this new and exciting phase with SPD-Smart™ products being introduced for many applications throughout the world. In March 2002, we promoted Mike LaPointe to the position of Vice President–Marketing to head our expanding marketing department to expedite penetration of the numerous markets for SPD light-control technology, as well as to coordinate our worldwide marketing efforts with those of our licensees.
We warmly thank our employees, licensees, shareholders and many friends for their hard work and faith in our Company, and we pledge to continue to work diligently to make SPD technology known and respected throughout the world.
Sincerely,
Robert L. Saxe
Chairman and Chief Executive Officer
Joseph M.Harary
President and Chief Operating Officer |
