March 6, 2003
Welcome to the inaugural edition of my "Ask Joe" column. You may wonder why the president of Research Frontiers is taking the unusual step of writing such a column. I am writing this column for a variety of reasons. First and foremost, Research Frontiers is owned by its shareholders (we are 10,000 shareholders strong) and our shareholders are entitled to know as much about what is going on with their company as we can tell them. The purpose of my column is not to be a "feel good love fest," or to defend every action or decision taken by your company. It is instead meant to candidly answer questions and concerns that undoubtedly arise from time to time.
It is also meant to help all of us at Research Frontiers do our jobs more efficiently. I sometimes get over 100 emails per day. While we receive many emails from architects, developers, manufacturers, and consumers regarding SPD-Smart products, I do receive a fair number of emails from our shareholders with questions, comments, suggestions and concerns. I appreciate the support expressed by many of you at what we and our 21 licensees are doing, and also appreciate the comments, suggestions, and yes, even the criticisms. I learned a long time ago that nobody is perfect, and every one can learn from listening to others. I hope that this column will encourage more frequent and better communication and updates, and also improve the way we do our jobs for you here at Research Frontiers.
This column has also become a practical necessity because it has become difficult for me to personally respond to individual inquiries, especially now that the pace of activity at Research Frontiers and our licensees is accelerating rapidly. I encourage you to send your comments about this column, and of course your questions and suggestions to the special email address that we have set up: AskJoe@SmartGlass.com. While I may not be able to respond to every inquiry, I will at least try to respond to those questions that are of a recurring nature or of interest to a broad group of our shareholders.
Now let me kick off this column with some personal observations which at times are likely to be free-flowing and informal.
A recurring theme expressed by shareholders is the current price and volatility of our stock, and thoughts and comments about certain individuals and hedge funds whose interests are contrary to those of Research Frontiers and its shareholders. So I’ll take up these topics first. With the general equity markets entering an unprecedented fourth straight year of losses, a host of corporate scandals involving public companies, and the prospects of war with Iraq looming, people are justifiably nervous about many things. They say that fear and greed move the stock markets, and we are undoubtedly experiencing a market where fear has ruled the day. Fear is often compounded by uncertainty. Uncertainty is compounded by lack of information or misinformation.
Since June 2001, an aggressive misinformation campaign was started by a small but vocal group of short sellers whose interests are diametrically opposed to Research Frontiers and its shareholders. At first they publicly proclaimed through the media, press releases, and internet bulletin boards, that SPD technology did not exist or would not work. About two weeks later, they were proved wrong when a long-planned exhibit of various products using SPD technology appeared at the Nasdaq MarketSite in Times Square. Shortly thereafter, they had to pull back on their initial public comments, and replaced them with a new proclamation that windows using SPD technology would never replace existing window shades in aircraft. A few weeks later they were again proven wrong as the first SPD aircraft windows were sold and installed on an aircraft – a LearJet. Since then, InspecTech has installed, or at the request of a number of jet manufacturers, engineered SPD aircraft windows (now being marketed internationally under the I-Shade™ trademark) for the following aircraft:
Airbus A320/380
Bell/Textron 430 Helicopter
Boeing 747, 757, BBJ 737
Bombardier Global Ex
Cessna Citation 525,525A,550,Excel,and CX
Gulfstream (all models)
LearJet 20/30 Series
Piaggio P-180 Avanti, and Pilatus PC-12
Raytheon King Air, Hawker, Beechjets and other models
The group which is financially motivated to harm our company was forced to pull back yet again. The steadily-retreating public position of our company’s detractors is now that sales of SPD-Smart products will never be significant. All of us at Research Frontiers, our licensees, and the marketing/distribution networks of our licensees are extraordinarily confident that this is in the process of being proven false also.
Throughout the long development period of doing something that has never been done before, throughout the production scale-up process, and throughout this early period of commercial introduction – we have been confident. At times our enthusiasm for the projected speed of developments was not matched in reality. We have been, and still are, forging new frontiers in light-control. We have had learning lessons. We learned we literally had to build an industry and an infrastructure to support that industry. But we took the challenge head on and have now licensed a robust and expanding supply chain and many end-product companies. We have spent over $45 million to arrive at this stage, and remain debt free.
When Thomas Edison invented the light bulb, he still had to get power to people’s homes and offices to power it. SPD products had a similar need for a supporting infrastructure. While we and our licensees have developed various SPD-Smart products, we also had to develop efficient ways to get SPD film to them for use in such products. We have now licensed seven companies to make and sell SPD film. And in order to get SPD film produced, we had to develop efficient ways to get high-quality SPD emulsions used to make such films to these SPD film manufacturers. The leaders in this effort are our licensees Dainippon Ink and Chemicals and Hitachi Chemical Company, and their SPD emulsion work is proceeding nicely and on the production schedule that they had previously indicated to Research Frontiers.
The initial job in building this infrastructure is done but we are also constantly striving to improve and expand the core of the infrastructure as well, including SPD film and emulsion supply. We expect that further improvements in the supply chain will be achieved. The addition of multiple sources of supply, especially by large companies with international operations, should further enhance product quality, pricing, and delivery times. I look forward to sharing these developments with you as they occur.
Another current task, collectively taken on by Research Frontiers and our licensees, is to develop widespread trade and consumer awareness of the benefits of SPD-Smart products. History tells us that introducing any new technology to the public is an extensive project. But I can tell you this – it is developing substantial momentum which is accelerating. The past two years have been breakthrough years for Research Frontiers as we moved from being a company with a technology under development to a company with products using our technology being sold by our licensees. Awareness of SPD technology is at an all-time high. The technology has also recently received some prestigious awards from Popular Science and the Society of Automotive Engineers, and this has also been helping sales and marketing efforts by us and our licensees.
Yesterday, we issued a press release indicating that sales of various SPD-Smart products during the fourth quarter of 2002 were reported by company licensees InspecTech Aero Service, Inc., Razor's Edge Technologies, Inc., SPD Inc., SPD Systems, Inc., and ThermoView Industries. Sales have begun and while modest at first, sales are growing. As you may know, under our license agreements Research Frontiers receives a 5-10% royalty on sales of SPD-Smart products.
It has become easier for our licensees to sell more products now because the delivery time has been shortened and the landed cost of SPD materials is lower. This is due to the fact that our licensee SPD Inc. has now been selling SPD film to our licensees, and we have even licensed Laminated Technologies to provide lamination services to our licensees. LamTech has very good experience with laminating SPD films and has worked with many of our licensees already. Now, quicker delivery times are possible because LamTech can inventory different types of SPD film and then, when an end-product licensee of ours requests it, can cut the film to custom sizes, laminate it to whatever of the many types of glass or plastic that the architect or customer specifies, and ship it out to the customer for installation. Thus, the selling cycle between when an order is placed, and when it is paid for, is much quicker than the original system where SPD glass was cut and laminated in Incheon, Korea, and then shipped to the licensee in the US or Europe. Not only has this speeded up delivery, but the landed cost of SPD components used by our end-product licensees is also lower. These cost savings were achieved in two main ways: (1) because the cost of shipping the SPD film from Korea to the licensee is much lower than the cost of shipping glass (because it is lighter and less likely to break in transit), and (2) because the customs duties paid on the SPD film sale is lower than the customs duties that would have been paid on the shipment of glass with SPD film already laminated within it. These developments have enabled our licensees here to offer better pricing and more precise delivery times to their customers, and this has improved the sales situation considerably.
One parting thought about the markets we are in. According to the Freedonia Group’s market research, demand for flat glass in the U.S. is forecast to increase 2.5% per year (faster than the general economy) to 6.3 billion square feet ($8.2 billion) in 2003. Within the flat glass industry, advanced flat glass (low-emissivity, reflective, smart glass, security glass, heads-up displays, ultraclear and self-cleaning glass) is forecast to grow faster (9.6% per year to $2.6 billion in 2006, representing 22 percent of the total fabricated flat glass market in the US at that time). Within this advanced glass category, smart glass is expected to grow the fastest (20% per year to $445 million of smart glass alone in 2006). This translates into substantially higher smart window sales. In the architectural glass segment, the trends are positive. There has been a continuing trend toward larger houses with greater window area, as well as increased popularity of double-or triple-paned energy-efficient insulating glass units (for both the new and replacement markets). Whenever you laminate film (whether it’s SPD film or other types of film) to glass, you will generally get a stronger window. Demand for security glass (bullet-and burglary-resistant glazings) is growing too, especially in government buildings, research facilities and laboratories, correctional facilities, and retail stores. In automotive, the trends are also favorable, as vehicles use more and more glass. A number of our licensees currently have projects going on in all of these areas and the expansion of these markets can only help them and us.
I look forward to sharing my thoughts and answering your questions in future columns. There is no set schedule for my columns-they will appear whenever there is something to say, so please check our web site often for updates. And please remember to send your questions, comments and suggestions to AskJoe@SmartGlass.com.
Joe Harary
smartglass.com |
