Joe Harary: The past two years have been important for Research Frontiers as we move from being a company with a technology under development to a company which actually has a product in production and being sold by our licensees. When I joined Research Frontiers in 1992 SPD Technology was virtually unknown and many large corporations, many of whom had been backed by funding from various domestic and foreign governments, were working with alternative technologies such as electrochromics and liquid crystals, We’ve come a long way since then and we're now considered by the glass industry to be the lead technology and the only company that has successfully introduced smart windows to the world that work well that are practical and that are feasible in many product applications and they are now in mass production. Awareness of SPD technology is at an all time high and we’ve recently received some prestigious awards recently including the Best of What’s New Award for Home Technology Products from Popular Science and we’re also named as one of the top new technologies for 2002 by the Society of Automotive Engineers. So we’re quite proud of the recent accolades and more importantly we’re quite proud of the fact that industry awareness is really, really high at this point.
In the preceding year SPD windows were installed in many different aircraft as well as architectural, automotive and appliance glass projects. And more recently two of licensees, SPD-Systems and InspecTech Aero service have announced products in the marine industry. For yachts and cruise ships. I’m happy to say that development projects for yachts and cruise ships with specific customers is already underway and those products were really just launched a few weeks ago.
Now I’d like to just give you some highlights from our annual report and Form 10 K, which we filed on Friday morning. First of all, over the last three years, expenses have gone down each year and our net loss has also gone down in each of the last three years. 2002 our net loss of (.33) a share or 3.9M compared to 4.5M or (.38) per share for 2001 As of the end of 2002 we had working capital of a little over 5 million dollars and our shareholders’ equity was just under 6M dollars. Our cash position went from 7.9M to 5.1 M. Our fee income from licensing activities also increased and I’ll talk about that a little later. And this increase in fee income was primarily the result of new license agreements that were entered into in 2002, minimum annual royalty payments paid by end-product licensees and in addition for the first time in our history, royalty income from sales of licensed products from sales of licensed products for some of our licensees actually exceeded their minimum annual royalty payments. So we were able to book new income from that as well. And if you’ll look at that were filed in the10K in the 1Q our 53,125 2q was 28,125 3q was 31,519 and in the 4q it jumped up to almost equal to the prior three quarters combined 104,750. Now this is modest but I think the trends are very positive and I think it indicates that SPD technology is well on its way to commercialization. The other thing I just want to highlight is marketing for SPD products really began in earnest towards the end of November so in the 4 quarter we had about 1 week in November and 4 weeks in December where the marketing programs were just hitting their stride.
Now I’d like to discuss the activities of our licensees. Earlier this month we announced that sales of various SPD products were made in the 4 quarter by several of our licensees, InspecTech Aero Service, Razor’s Edge Technologies, SPDI, SPD-Systems Thermoview. And as many of you know under our licensing agreements RF will receive 5-10% royalties on the net sales of licensed products by our licensees. Currently our 21 licensees are categorized into 3 main areas, emulsions, film and end-products. Our emulsion makers produce the basic chemicals, the SPD particles, various special polymers that work in conjunction with these particles. The filmmakers use a thin film of emulsion. Then that’s coated and cured between two sheets of coated plastic and that forms an SPD film that allows you to control the amount of light passing through the film. The end-product licensees then to various end-product manufacturers. Raw materials and the finished film is continuously being made by SPDI in Korea and being sold to our end-product licensees. Licensees have inventoried this film in the US and I’ll go into more detail about this later and better film is coming out of SPDI. They’re constantly making improvements in the range of light transmission and other optical characteristics. In the emulsion making area the most active of our emulsion making licensees are currently Dainippon, who’s the world’s largest producer of pigment and Hitachi Chemical, asked whether there are any technical problems in making this emulsion and I’m happy to report the answer is no. And we have validated what they are making to smaller samples that we are making in our lab for quality control purposes and I’m happy to say that what’s coming out of these two companies is excellent, excellent quality. These two companies have also presented us with their production schedules and they’re also right on schedule. Now because these two companies compete with each other, I can’t publicly provide more details about this except to say that both companies have plans to produce tons of emulsion and for those familiar with the size of these two companies it should be no surprise that in order to get on their radar screen for the SPD emulsion business, we have to be talking about a fairly large and substantial production and these companies are well on their way to doing so. Let me make an analogy here if I will, in the early days of the computer industry those of us might remember that there were different classes of computer chips. The IBM XT and then AT came out and then the Pentium I, the Pentium II I think we’re up to Pentium 4 or 5 right now. And the SPD Inc.’s film is like the equivalent of the first personal computers that came out with the XT microprocessor. The original emulsions that we trained Dainippon and Hitachi on had better performance characteristics and this we consider the equivalent of the AT class of the computers And then in February, just last month we provided Hitachi and Dainippon both with a formula for a new and improved emulsion that had an excellent range of light transmission and other optical properties and faster switching speed and even better durability. This, I guess would be considered the first Pentium class computer processor. And the analogy breaks down there I guess because unlike Pentium where you would require major plant changes at Intel to incorporate new chip designs, our new emulsions can quickly be incorporated into the existing production because these are very straightforward changes in the chemistry and would not cause any real practical delay in the current production schedules, just basically a change in some of the materials and the way we process them.
And also I just want to say that any new company that gets involved with emulsion production should be able to hit the ground running and should quickly be able to come out with their own emulsions.
Another analogy would be with cell phones. I don’t know if people remember the clunky luggable cell phones that used to be in like a backpack or side case and those were replaced by phones that were installed in cars but were still a little big and clunky and the service wasn’t so good and those then were replaced by small handheld that everyone carries around nowadays and service is excellent. So with any new technology you see a development stage where technology constantly improves, costs come down and adoption rate increases. |
