REFR 10-K & 10-Q changes, risk factors and insider trading

Source and Need for Capital.Capital

As of December 31, 2024,2025, the Company had cash and cash equivalents of approximately $2.0$0.7 million, working capital of $2.5$0.8 million and total shareholders’ equity of $2.6$0.9 million. Based on our current operations, we expect to have sufficient working capital for more than the nextforeseeable future. 5Based yearson current operating levels and assumptions regarding future royalty growth, we believe our existing cash and working capital are sufficient to fund operations for the foreseeable future. However, actual results may differ from these expectations due to factors including licensee performance and financial stability, timing of operations.royalty receipts, and macroeconomic conditions.

History of Operating Losses.Losses

We may not generate sufficient cash flows to cover our operating expenses.expenses

We have never declared a cash dividend and do not intend to declare a cash dividend in the foreseeable future.future

We do not directly manufacture products using SPD technology. We currently depend upon the activities of our licensees and their customers in order to be profitable.profitable

We do not directly manufacture products using SPD technology. We currently depend upon the activities of our licensees in order to be profitable. Although a variety of products have been sold by our licensees, and because it is up to our licensees to decide when and if they will introduce products using SPD technology, we cannot predict when and if our licensees will generate substantial sales of such products. Our SPD technology is currently licensed to over 40numerous companies. Other companies are also evaluating SPD technology for use in various products. In the past, some companies have evaluated our technology without proceeding further. While we expect that our licensees would be primarily responsible for manufacturing and marketing SPD-Smart products and components, we are also engaging in market development activities to support our licensees and build the smart glass industry. We cannot control whether or not our licensees will develop SPD products. Some of our licensees appear to be more active than others, some appear to be better capitalized than others, and some licensees appear to be inactive. There is no guarantee when or if our licensees will successfully produce any commercial product using SPD technology in sufficient quantities to make the Company profitable. During 2025, one of our European licensees supplying an automotive OEM filed for bankruptcy and ceased operations. Although production was transitioned to another licensee, royalty recognition during portions of 2025 was affected. We rely on independent licensees to manufacture and sell products incorporating our technology. The financial distress, insolvency or operational disruption of any significant licensee could delay production, disrupt supply chains, affect the timing of royalty income or require transition to alternative licensees, which may not occur without interruption or additional cost.

SPD-Smart products have only recently been introduced.introduced

We have several large licensees that account for 10% or more of our annual fee income.income

During 2025, five licensees accounted for 21%, 20%, 20%, 19% and 13%, respectively, of fee income recognized for the year. During 2024, four licensees accounted for 34%, 28%, 11% and 11%, respectively, of fee income recognized for the year. During 2023, four licensees accounted for 39%, 16%, 16% and 13%, respectively, of fee income recognized for the year. The loss of all or a substantial portion of the fee income from any of these customers (or certain other significant customers) could have a material adverse effect on our business, financial condition, and/or results of operations.

SPD-Smart products face intense competition, which could affect our ability to increase our revenues.revenues

Declining production of automobiles, airplanes, trains, boats and real estate could harm our business.business

Limited source of SPD film.film

Our end-product licensees require a source of SPD film to manufacture finished products. Currently, Showa Denko Chemical and Gauzy Ltd. are is the only sourcessource of commercial quantities of SPD-film. There are several other companies that are licensed to manufacture SPD-film, but they have not begun commercial production of this film. Our end-product licensees’ ability to sell SPD products could be negatively impacted if there was a prolonged disruption in SPD-film availability. Such a disruption could also negatively impact our revenues, results of operations and financial condition.

We are dependent on key personnel.personnel

Dependence on SPD-Smart technology.technology

Our patents and other protective measures may not adequately protect our proprietary intellectual property, and we may be infringing on the rights of others.others

If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.affected

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. Certain license agreements contain minimum annual royalty provisions and prepaid royalty structures. In periods where sales volumes increase rapidly or supply transitions occur, royalty income attributable to such sales may be absorbed by previously paid minimum royalties and not recognized until thresholds are exceeded. As a result, our reported revenues in a particular period may not directly correspond to underlying product sales volumes, which could increase volatility in our reported results.

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 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 and the impact of COVID-19.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 cars within model like 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, which 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.

The Company’s fee income from licensing activities for the year ended December 31, 20242025 was $1,335,531$1,121,248 compared to $909,598$1,335,531 for the the year ended December 31, 2023.2024. This increasedecrease in fee income in 20242025 by $425,933,$214,283, ana increasedecrease of 47%,16%, was primarily the result of higher lower royalties from the automotive and aircraft markets, an increase by 48%, as compared to 2023.markets. The Company expects revenue in all market segments to increase further as new car models and other products using the Company’s SPD-SmartGlass technology are introduced into the market.

Operating expenses decreasedincreased by $152,237$437,287 for the year ended December 31, 20242025 to $2,207,397$2,644,684 from $2,359,634$2,207,397 for the year ended December 31, 2024. 2023. The decreaseincrease is the result of lowerhigher credit loss expense ($70,000$129,000), lowerhigher directors fees and expenses ($162,000, consisting of non-cash costs of stock options granted to directors), higher marketing and investor relations costs ($59,000), lower patent costs ($45,000$68,000) as well as lowerhigher film legalpurchase costs ($40,000) and higher professional fees ($37,000), partially offset by higher foreign taxes withheld on payments received from foreign licensees ($34,000). Operating expenses for the years ended December 31, 2025 and 2024 include $354,000 and 2023$84,000, include $84,000 and $137,000, respectively, of non-cash charges for stock options granted to employeesemployees, directors and directors. consultants.

Research and development expenditures decreasedincreased by $13,259$38,725 for the year ended December 31, 20242025 to $570,007$608,732 from $583,266$570,007 for the year ended December 31, 2023.2024. This decreaseincrease was the result of lowerhigher materialsoccupancy costs ($15,000$47,000), as well as higher employee compensation costs ($12,000) partially offset by lower allocated insurance costs ($14,000) partially offset by higher allocated facility costs ($17,000$25,000). Research and development costs include non-cash charges for stock options granted to employees of $5,000$21,000 and $8,000$5,000 in 20242025 and 2023,2024, respectively.

The Company’s net investment income for the year ended December 31, 20242025 was $95,339$39,227 as compared to net investment income of $124,938$95,339 for the year ended December 31, 2023.2024. This difference was primarily due to changes in interest rates paid on money market accounts and gain on sale of investments of $57,149 during the year ended December 31, 2023, as well as lower cash balances available for investment.

The Company recorded $47,357 and $35,152 of other income during the yearyears ended December 31, 20242025 and 2024, respectively, relating to an Employee Retention Credit, a refundable payroll tax credit available under the Coronavirus Aid, Relief, and Economic Security Act (“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 $1,311,382$2,045,584 ($0.04$0.06 per common share) for the year ended December 31, 2024,2025, whichas wascompared $596,982, (31%) lower thanto the net loss of $1,908,364$1,311,382 ($0.06$0.04 per common share) for the year ended December 31, 2023.2024.

During 2024,2025, the Company’s cash and cash equivalents balance decreased by $481,772$1,329,887 principally as a result of cash used for operations of $788,819$1,329,161 and for the purchase of property and equipment of $1,623, partially offset by cash generated from the issuance of capital stock and warrants of $300,000 as well as cash generated from the exercise of options of $8,670.$726. At December 31, 2024,2025, the Company had cash and cash equivalents of $2.0$0.7 million, working capital of $2.5$0.9 million and total shareholders’ equity of $2.6$1.0 million. Based on current operations, we expect to have sufficient working capital for morea thanperiod of at least 12 months from the next five yearsdate of operations.this filing.

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 nextforeseeable five years.future. 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. The 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.

During 2023,2024, the Company’s cash and cash equivalents balance decreased by $1,754,958$481,772 principally as a result of cash used for operations of $788,819 and for the purchase of property and equipment of $1,623, partially offset by cash generated from the exercise issuance of capital stock and warrants of $484,502$300,000 as well as cash generated from the sale and maturitiesexercise of marketable securitiesoptions of $5,491,535 offset by cash used for operations of $2,295,051 and cash used for the purchase of marketable securities of $5,434,386 and for the purchase of property and equipment of $1,558.$8,670. At December 31, 2023,2024, the Company had cash and cash equivalents of $2.5$2.0 million, working capital of $3.3$2.5 million and total shareholders’ equity of $3.5$2.6 million. Based on current operations, we expect to have sufficient working capital for more than the foreseeable future.

Contractual Obligations:

The preparation of condensed consolidated 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 condensed consolidated financial statements, and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025

The Company’s fee income from licensing activities for the three months ended MarchJune 31,30, 2026 was $136,319$86,346 as compared to $559,776$129,904 for for the three months ended MarchJune 31,30, 2025. This decrease in fee income was primarily the result of non-recurring royalties and upfront fees recognized by the Company under ASC 606 revenue treatment from a licensee newthat licenseceased agreementoperations enteredafter intothe second quarter of 2025, and what we believe to be a temporary slow-down due to non-technical issues by our licensee, Gauzy Ltd. in the first quarterproduction of 2025SPD emulsion thatand didfilm notand recur inother business activities, offset by higher royalties relating to the firstmotorcycle quarterhelmet ofand 2026.ski/snow goggle market. The Company expects revenue in all market segments to increase as new car models and other products using the the Company’s SPD-SmartGlass technology are introduced into the market.

ResearchOperating and development expendituresexpenses decreased by $17,527 to $145,350$148,706 for the three months ended MarchJune 31,30, 2026 to $627,216 from $162,877$775,922 for the three months ended MarchJune 31, 30, 2025. This decrease is primarily athe result of lower allocatedemployee insurance costscompensation ($10,000$111,000) and directors fees and expenses ($107,000), as well as lower allocatedmarketing occupancy and investor relations ($14,000) and lower insurance costs ($6,000$14,000), partially offset by higher credit losses ($26,000) as well as higher legal fees ($76,000).

The Company’s net investment income, consisting of interest income, for the three months ended MarchJune 31,30, 2026 was $5,048$9,586 as compared to income of $14,533$11,278 for the three months ended MarchJune 31,30, 2025 with the change due to lower cash balances available for investment.

As a consequence of the factors discussed above, the Company’s net loss was $525,365$660,168 ($0.02 per common share) for the three months ended MarchJune 31,30, 2026 as compared to net loss of $177,687$803,826 ($0.01$0.02 per common share) for the three months ended MarchJune 31,30, 2025.

On February 18, 2026, the Company entered into subscription agreements from a group of privateprivately accredited investors, which included family family members of a director of the Company, as well as the owner of a licensee of the Company licensed to produce SPD-SmartGlass products including for the retrofit architectural glass market.