Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates

The following accounting estimates are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

The Company recognizes revenue in accordance with ASC 606, "Revenue from Contracts with Customers". The Company determined that its license agreements provide for three performance obligations: (i) Grant of Use, (ii) Technical Support, and (iii) New Improvements.

The best method for determining the standalone selling price of our Grant of Use performance obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements. Based on the royalty rate comparison referred to above, any pricing above and beyond the average royalty rate would relate to the Technical Support and New Improvements performance obligations.

We recognize revenue when or as the performance obligations in the contract are satisfied. For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. Since the IP is determined to be a functional license, the value of the Grant of Use is recognized in the first period of the contract term in which the license agreement is in force. Since the costs incurred to satisfy the Technical Support and New Improvements performance obligations are incurred evenly throughout the year, the value of the Technical Support and New Improvements services are recognized throughout the contract period as these performance obligations are satisfied.

The Company has entered into license agreements covering products using the Company's SPD technology. When royalties from the sales of licensed products by a licensee exceed its contractual minimum annual royalties, the excess amount is recognized by the Company as fee income in the period that it was earned. Certain of the fees are accrued by, or paid to, the Company in advance of the period in which they are earned, resulting in deferred revenue.

Royalty receivables are stated less allowance for credit losses. The allowance represents estimated uncollectible receivables usually due to licensees' potential insolvency. The allowance includes amounts for certain licensees where risk of default has been specifically identified. The Company evaluates the collectability of its receivables on at least a quarterly basis and records appropriate allowances for credit losses when necessary.

Results of Operations

Overview

The majority of the Company's fee income comes from the activities of several licensees participating in the automotive market. The Company currently believes that the automotive market and the architectural market will be the largest source of its royalty income over the next several years. The Company's royalty income from this market may be influenced by numerous factors including various trends affecting demand in the automotive industry and the rate of introduction of new technology in OEM product lines. In addition to these macro factors, the Company's royalty income from the automotive market could also be influenced by specific factors such as whether the Company's SPD-SmartGlass technology appears as standard equipment or as an option on a particular vehicle, the number of additional vehicle models that SPD-SmartGlass appears on, the size of each window on a vehicle and the number of windows on a vehicle that use SPD-SmartGlass, fluctuations in the total number of vehicles produced by a manufacturer, and in the percentage of new car models produced with SPD-SmartGlass, and changes in pricing or exchange rates. Certain license fees, which are paid to the Company in advance of the accounting period in which they are earned resulting in the recognition of deferred revenue for the current accounting period, will be recognized as fee income in future periods. Also, licensees offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments.

In 2025 and 2024, the Company received royalty revenues from sales of SPD-SmartGlass products for various car models that were accretive to the Company's royalty revenue. Production efficiencies are expected to continue and accelerate with the introduction of the higher vehicle production volumes for various car models going forward, and the Company expects that lower pricing per square foot of the Company's technology could expand the market opportunities, adoption rates, and revenues for its technology in automotive and non-automotive applications. The Company expects to generate additional royalty income from the near-term introduction of additional new car and aircraft models from other OEMs (original equipment manufacturers), continued growth of sales of products using the Company's technology for the marine industry in yachts and other watercraft, in trains, in museums, and in larger architectural projects.

Three months ended September 30, 2025 compared to the three months ended September 30, 2024

The Company's fee income from licensing activities for the three months ended September 30, 2025 was $359,444 as compared to $354,408 for the three months ended September 30, 2024. This increase in fee income was primarily the result of higher royalties from the automotive market as compared to the third quarter of 2024 partially offset by lower royalties from the aircraft market. The Company expects revenue in all market segments to increase as new car models and other products using the Company's SPD-SmartGlass technology are introduced into the market. The Company has not booked any royalty income in the third quarter of 2025 from one of its European licensees that has in the past supplied Ferrari with SPD-SmartGlass sunroofs because of workforce reductions and a bankruptcy filing by this licensee in Europe. This has caused the reported royalty income in 2025 to be lower. In anticipation of this, Ferrari has fully transitioned its business for SPD-SmartGlass to another one of the Company's existing licensees in Europe, and production by this additional licensee for Ferrari has already commenced.

Operating expenses increased by $66,776 for the three months ended September 30, 2025 to $521,642 from $454,866 for the three months ended September 30, 2024. This increase is primarily the result of higher marketing and investor relations costs ($81,000) and higher professional fees ($15,000) partially offset by lower credit loss allowances ($25,000) and lower insurance costs ($7,000)

Research and development expenditures increased by $10,500 to $141,746 for the three months ended September 30, 2025 from $131,246 for the three months ended September 30, 2024. This increase is primarily a result of higher allocated occupancy costs ($21,000) partially offset by lower insurance costs ($7,000) as well as lower depreciation and amortization ($3,000).

The Company's net interest income, consisting of interest income, for the three months ended September 30, 2025 was $5,436 as compared to income of $29,736 for the three months ended September 30, 2024 with the change due to lower cash balances available for investment.

The Company recorded $35,152 of other income for the three months ended September 30, 2024, respectively, relating to an Employee Retention Credit, a refundable tax credit available under the CARES Act that was designed to keep employees on the payroll during the Covid-19 pandemic.No such credits were received during the three-months ended September 30, 2025.

As a consequence of the factors discussed above, the Company's net loss was $298,508 ($0.01 per common share) for the three months ended September 30, 2025 as compared to a net loss of $166,816 ($0.00 per common share) for the three months ended September 30, 2024.

Nine months ended September 30, 2025 compared to the Nine months ended September 30, 2024

The Company's fee income from licensing activities for the nine months ended September 30, 2025 was $1,049,125 as compared to $1,157,380 for the nine months ended September 30, 2024. This decrease in fee income was primarily the result of lower royalties from the automotive and aircraft markets as compared to the first nine months of 2024 and one-time royalty payments received by the Company in 2024. The Company expects revenue in all market segments to increase as new car models and other products using the Company's SPD-SmartGlass technology are introduced into the market. The Company has not booked any royalty income in the second and third quarters of 2025 from one of its European licensees that has in the past supplied Ferrari with SPD-SmartGlass sunroofs because of workforce reductions and a bankruptcy filing by this licensee in Europe. This has caused the reported royalty income in 2025 to be lower. In anticipation of this, Ferrari has fully transitioned its business for SPD-SmartGlass to another one of the Company's existing licensees in Europe, and production by this additional licensee for Ferrari has already commenced.

Operating expenses increased by $368,889 for the nine months ended September 30, 2025 to $1,934,041 from $1,565,152 for the nine months ended September 30, 2024. This increase is the result of higher non-cash compensation cost ($165,000) recorded during the period related to a grant of stock options to the Company's employees and directors, higher marketing and investor relations costs ($62,000), higher compensation costs ($18,000), higher professional fees ($33,000), higher occupancy costs ($18,000) and higher credit loss expense ($99,000), partially offset by lower legal fees ($32,000), insurance ($14,000) and marketing and investor relations costs ($21,000).

Research and development expenditures increased by $63,892 to $473,709 for the nine months ended September 30, 2025 from $409,817 for the nine months ended September 30, 2024. This increase is primarily a result of higher allocated occupancy costs ($58,000), higher materials costs ($16,000), as well as higher non-cash compensation costs ($10,000) recorded during the period related to a grant of stock options to the Company's employees, partially offset by insurance costs ($13,000) and lower depreciation and amortization ($8,000).

The Company's net interest income, consisting of interest income, for the nine months ended September 30, 2025 was $31,247 as compared to income of $78,995 for the nine months ended September 30, 2024 with the change due to lower cash balances available for investment.

The Company recorded $47,357 and $35,152 of other income for the nine months ended September 30, 2025 and 2024, respectively, relating to an Employee Retention Credit, a refundable tax credit available under the CARES Act that was designed to keep employees on the payroll during the Covid-19 pandemic.

As a consequence of the factors discussed above, the Company's net loss was $1,280,021 ($0.04 per common share) for the nine months ended September 30, 2025 as compared to net loss of $703,442 ($0.02 per common share) for the nine months ended September 30, 2024.

Financial Condition, Liquidity and Capital Resources

The Company has primarily utilized its cash, cash equivalents, and investments generated from sales of our common stock, proceeds from the exercise of options and warrants, and royalty fees collected to fund its research and development of SPD light valves, for marketing initiatives, and for other working capital purposes. The Company's working capital and capital requirements depend upon numerous factors, including, but not limited to, the results of research and development activities, competitive and technological developments, the timing and costs of patent filings, and the development of new licensees and changes in the Company's relationship with existing licensees. The degree of dependence of the Company's working capital requirements on each of the foregoing factors cannot be quantified; increased research and development activities and related costs would increase such requirements; the addition of new licensees may provide additional working capital or working capital requirements, and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes.

During the nine months ended September 30, 2025, the Company's cash and cash equivalents balance decreased by $863,796 as a result of cash used to fund operations of $863,214 and cash used to purchase fixed assets of $582. As of September 30, 2025, the Company had cash and cash equivalents of approximately $1.1 million, working capital of $1.4 million and total shareholders' equity of $1.5 million.

We currently expect to have sufficient working capital for more than the next five years of operations.

The Company expects to use its cash to fund its research and development of SPD light valves, its expanded marketing initiatives, and for other working capital purposes. The Company believes that its current cash and cash equivalents would fund its operations for more than the next five years. There can be no assurances that expenditures will not exceed the anticipated amounts or that additional financing, if required, will be available when needed or, if available, that its terms will be favorable or acceptable to the Company. Eventual success of the Company and generation of positive cash flow will be dependent upon the extent of commercialization of products using the Company's technology by the Company's licensees and payments of continuing royalties on account thereof.