Research Frontiers Inc 10-Q/A for FY2021 Q3
Research Frontiers Inc (REFR)
About this 10-Q/A
Research Frontiers Inc filed this 10-Q/A on February 24, 2022, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $723.47K
- up 336.8% from $165.63K a year earlier
- Net income
- $21.61K
- compared with a net loss of $434.22K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES AND EXCHANGE ACT OF 1934
| For
the quarter ended |
Commission
File Number |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code (
| Securities registered pursuant to Section 12(b) of the Act: | Name of Exchange | |
| Title of Class | on Which Registered | |
| Common Stock, $0.0001 Par Value | The NASDAQ Stock Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company |
Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 24, 2022, there were outstanding shares of Common Stock, par value $0.0001 per share.
EXPLANATORY
NOTE
The Company identified this error during the performance of certain specific internal controls performed during our year end reporting process. Management has reassessed its evaluation of the effectiveness of its Disclosure Controls and Procedures as of September 30, 2021 and has concluded that there was a material weakness in the Company’s management quarterly review control related to the assessment of the classification of cash equivalents and marketable securities. For a description of the material weakness in our internal controls over financial reporting and our plan to remediate the material weakness, see Part II – Item 4. Controls and Procedures of this Amendment No. 1 on Form 10-Q/A.
In addition, pursuant to the rules of the Securities and Exchange Commission, Item 6 of Part II of the Original Form 10-Q has been amended to contain currently-dated certifications from our Chief Executive Officer and Acting Interim Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. This Amendment No. 1 on Form 10-Q/A has not been updated for events occurring after the filing of the Original Form 10-Q, except to reflect the foregoing.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Balance Sheets
| Assets | September 30, 2021 (Unaudited) (Restated) | December 31, 2020 (See Note 1) | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | - | |||||||
| Royalty
receivables, net of reserves of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Operating lease ROU assets | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of operating lease liability | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other | ||||||||
| Deferred revenue | - | |||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, par value $ per share; authorized shares, issued and outstanding in 2021 and in 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Operations
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Fee income | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income - PPP loan forgiveness | - | - | ||||||||||||||
| Net investment income | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic and diluted net income (loss) per common share | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
For the nine months ended September 30, 2020 and 2021
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise of options and warrants | - | |||||||||||||||||||
| Exercise of options | ||||||||||||||||||||
| Exercise of options, shares | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance, September 30, 2020 | 31,575,786 | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise of options | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
For the three months ended September 30, 2020 and 2021
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, July 1, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, July 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise of options | - | |||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Net income (loss) | - | - | - | |||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| 2021 | 2020 | |||||||
| For the nine months ended September 30, | ||||||||
| 2021 | ||||||||
| (Restated) | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Unrealized loss on marketable securities | - | |||||||
| Other income - PPP loan forgiveness | - | ( | ) | |||||
| Bad debts expense | - | |||||||
| Change in assets and liabilities: | ||||||||
| Royalty receivables | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of fixed assets | ( | ) | ( | ) | ||||
| Proceeds from sale of fixed asset | - | |||||||
| Purchases of marketable securities | ( | ) | - | |||||
| Sales of marketable securities | - | |||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of options | ||||||||
| Proceeds from PPP Program Funding | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K relating to Research Frontiers Incorporated (the “Company”) for the fiscal year ended December 31, 2020.
Restatement
These condensed consolidated interim financial statements for the three and nine months ended September 30, 2021, including certain notes thereto have been restated. The restatement relates to a change in presentation of certain investments of the Company which were classified as cash equivalents on the balance sheet which the Company has determined do not qualify as cash equivalents. Such investments have been reclassified and are now presented as marketable securities. This restatement did not impact the results of operations, profit or loss per share or shareholders’ equity for the three and nine months ended September 30, 2021. The effects of the reclassification of these investments on the condensed consolidated balance sheet and condensed consolidated statement of cash flows as of and for the nine months ended September 30, 2021 are as follows:
Schedule of Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Cash Flows
| As reported | Adjustment | As restated | ||||||||||
| September 30, 2021 | ||||||||||||
| As reported | Adjustment | As restated | ||||||||||
| Balance sheet: | ||||||||||||
| Cash and cash equivalents | $ | $ | ( | ) | $ | |||||||
| Marketable securities | ||||||||||||
| Statement of cash flows: | ||||||||||||
| Unrealized loss on marketable securities | - | |||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| Purchases of marketable securities | - | ( | ) | ( | ) | |||||||
| Sales of marketable securities | - | |||||||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ( | ) | ||||||
Note 2. Business
Research Frontiers Incorporated (“Research Frontiers” or the “Company”) operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Such devices, often referred to as “light valves” or suspended particle devices (“SPDs”), use colloidal particles that are either incorporated within a liquid suspension or a film, which is usually enclosed between two sheets of glass or plastic having transparent, electrically conductive coatings on the facing surfaces thereof. At least one of the two sheets is transparent. SPD technology, made possible by a flexible light-control film invented by Research Frontiers, allows the user to instantly and precisely control the shading of glass/plastic manually or automatically. SPD technology has numerous product applications, including SPD-Smart™ windows, sunshades, skylights and interior partitions for homes and buildings; automotive windows, sunroofs, sun visors, sunshades, rear-view mirrors, instrument panels and navigation systems; aircraft windows; museum display panels; eyewear products; and flat panel displays for electronic products. SPD-Smart light control film is now being developed for, or used in, architectural, automotive, marine, aerospace and appliance applications.
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 the results of research and development activities, competitive and technological developments, the timing and cost
of patent filings, and the development of new licensees and changes in the Company’s relationships with its 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. We have incurred recurring losses since inception and expect to continue to incur losses
as a result of costs and expenses related to our research and continued development of our SPD technology and our corporate general and
administrative expenses. Our capital requirements and operations to date have been substantially funded through sales of our common stock,
exercise of options and warrants and royalty fees collected. As of September 30, 2021, we had working capital of approximately $
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In the event that we are unable to generate sufficient cash from our operating activities or raise additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our business, operating results, financial condition and long-term prospects. The Company may seek to obtain additional funding through future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The eventual success of the Company and generation of positive cash flow will be dependent upon the commercialization of products using the Company’s technology by the Company’s licensees and payments of continuing royalties on account thereof. To date, the Company has not generated sufficient revenue from its licensees to fund its operations.
Recent Global Events:
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As a result, the Company expects operations at its facility to continue to be affected in some capacity, as the COVID-19 virus continues to proliferate and the federal, state and local governments under which we operate continue to adopt new rules. The Company has put in place enhanced procedures, such as restricting international and domestic travel, adopting a variety of steps designed to ensure social distancing in our facilities, including working remotely where available, and increasing our cleaning and sanitizing procedures in our facilities, in an effort to protect its employees and communities.
Revenues were negatively impacted since the onset of the pandemic due to delays in manufacture of products using our technology. Most of the products using our technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by public health crises, such as COVID-19, could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time, but could materially adversely affect our business, financial condition, results of operations, and cash flows. Net of amounts previously reserved which were fully written off in 2020, the Company increased its allowance for uncollectible royalty receivables in 2020 until the collectability from certain licensees can be better ascertained in the regions affected by COVID-19.
In
connection with the COVID-19 crisis, Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”) which, among other things, provides relief for businesses impacted by the pandemic. The Company applied for
and received $
Note 3. Patent Costs
The Company expenses costs relating to the development, acquisition or enforcement of patents due to the uncertainty of the recoverability of these items.
Note 4. Revenue Recognition
Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606). The standard provides a single comprehensive revenue recognition model for all contracts with customers and supersedes existing revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.
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ASC 606 follows a five-step approach to determining revenue recognition including: 1) Identification of the contract; 2) Identification of the performance obligations; 3) Determination of the transaction price; 4) Allocation of the transaction price; and 5) Recognition of revenue.
The Company determined that its license agreements provide for three performance obligations which include: (i) the Grant of Use to its Patent Portfolio (“Grant of Use”), (ii) Stand-Ready Technical Support (“Technical Support”) including the transfer of trade secrets and other know-how, production of materials, scale-up support, analytical testing, etc., and (iii) access to new Intellectual Property (“IP”) that may be developed sometime during the course of the contract period (“New Improvements”). Given the nature of IP development, such New Improvements are on an unspecified basis and can occur and be made available to licensees at any time during the contract period.
When a contract includes more than one performance obligation, the Company needs to allocate the total consideration to each performance obligation based on its relative standalone selling price or estimate the standalone selling price if it is not observable. A standalone selling price is not available for our performance obligations since we do not sell any of the services separately and there is no competitor pricing that is available. As a consequence, the best method for determining 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. Comparable license agreements must consider several factors including: (i) the materials that are being licensed, (ii) the market application for the licensed materials, and (iii) the financial terms in the license agreements that can increase or decrease the risk/reward nature of the agreement.
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. The Company focuses a significant portion of its time and resources to provide the Technical Support and New Improvements services to its licensees which further supports the conclusions reached using the royalty rate analysis.
The Technical Support and New Improvements performance obligations are co-terminus over the term of the license agreement. For purposes of determining the transaction price, and recognizing revenue, the Company combined the Technical Support and New Improvements performance obligations because they have the same pattern of transfer and the same term. We maintain a staff of scientists and other professionals whose primary job responsibilities throughout the year are: (i) being available to respond to Technical Support needs of our licensees, and (ii) developing improvements to our technology which are offered to our licensees as New Improvements. 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 initial contract period as these performance obligations are satisfied. If the agreement is not terminated at the end of the initial contract period, it will renew on the same terms as the initial contract for a one-year period. Consequently, any fees or minimum annual royalty obligations relating to this renewal contract will be allocated similarly to the initial contract over the additional one-year period.
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. The value of the Technical Support and New Improvements obligations is allocated throughout the contract period based on the satisfaction of its performance obligations. If the agreement is not terminated at the end of the contract period, it will renew on the same terms as the original agreement for a one-year period. Consequently, any fees or minimum annual royalties (“MAR”) relating to this renewal contract will be allocated similarly over that additional year.
The
Company’s license agreements have a variable royalty fee structure (meaning that royalties are a fixed percentage of sales that
vary from period to period) and frequently include a minimum annual royalty commitment. In instances when sales of licensed products
by its licensees exceed the MAR, the Company recognizes fee income as the amounts have been earned. Typically, the royalty rate for such
sales is
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Because of the immediate recognition of the Grant of Use performance obligation: (i) the first period of the contract term will generally have a higher percent allocation of the transaction price under ASC 606 than under the accounting guidance used prior to the adoption of ASC 606, and (ii) the remaining periods in the year will have less of the transaction price recognized under ASC 606 than under the accounting guidance used prior to the adoption of ASC 606. After the initial period in the contract term, the revenue for the remaining periods will be based on the satisfaction of the Technical Support and New Improvements obligations. Since most of our license agreements start as of January 1st, the revenue recognized for the contract under ASC 606 in our first quarter will tend to be higher than the accounting guidance used prior to the adoption of ASC 606.
The Company does not have any contract assets under ASC 606 as of September 30, 2021.
Certain of the contract fees are accrued by, or paid to, the Company in advance of the period in which they are earned resulting in deferred revenue (contract liabilities). Such excess amounts are recorded as deferred revenue and are recognized as revenue in future periods as earned. Contract assets represent unbilled receivables and are presented within accounts receivable, net on the condensed consolidated balance sheets.
The Company operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Our revenue source comes from the licensing of this technology and all of these license agreements have similar terms and provisions. The majority of the Company’s licensing 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. 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 each model produced with SPD-SmartGlass, and changes in pricing or exchange rates.
As
of September 30, 2021, the Company has six license agreements that are in their initial multiyear term (“Initial Term”) with
continuing performance obligations going forward. The Initial Term of one of these agreements will end as of December 31, 2021, four
will end as of December 31, 2022, and one will end December 31, 2024. The Company currently expects that all of these agreements will
renew annually at the end of the Initial Term. As of September 30, 2021, the aggregate amount of the revenue to be recognized upon the
satisfaction of the remaining performance obligations for the six license agreements is $
Note 5. Fee Income
Fee income represents amounts earned by the Company under various license and other agreements relating to technology developed by the Company. Higher fee income in the architectural and automotive markets was predominantly from one-time settlements of lawsuits brought by Research Frontiers in 2018 against two licensees for royalty payments due, as well as for a current special government contract in the automotive area.
During
the first nine months of 2021, four licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately
During
the three months ended September 30, 2021, three licensees accounted for 10% or more of fee income of the Company; these licensees accounted
for approximately
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Note 6. Stock-Based Compensation
The Company has granted options/warrants to consultants. GAAP requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs be measured at the fair value of the award at the date of grant. These awards generally vest ratably over to months from the date of grant and the Company charges to operations quarterly the current market value of the options using the Black-Scholes method. During the nine months ended September 30, 2021 and 2020 there were no charges related to options or warrants granted to consultants.
During the nine months ended September 30, 2021 and 2020, the Company did t grant options to employees or directors.
There was compensation expense recorded relating to restricted stock grants to employees and directors during the nine months ended September 30, 2021 and 2020.
As of September 30, 2021, there were shares available for future grant under our 2019 Equity Incentive Plan, which was approved by the Company’s shareholders in June 2019.
Note 7. Income Taxes
Since inception, the Company has incurred losses from operations and as a result has not recorded income tax expense. Benefits related to net operating loss carryforwards and other deferred tax items have been fully reserved since it was more likely than not that the Company would not achieve profitable operations and be able to utilize the benefit of the net operating loss carryforwards.
Basic net income (loss) per share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company’s dilutive loss per share equals basic loss per share for the nine months ended September 30, 2021 and 2020, respectively, and the three months ended September 30, 2020 because all common stock equivalents (i.e., options and warrants) were antidilutive in those periods. The number of options and warrants that were not included (because their effect is antidilutive) was and for the three and nine months ended September 30, 2021 and 2020, respectively.
Note 9. Equity
During
the nine months ended September 30, 2021, the Company received $
During
the nine months ended September 30, 2020, the Company received $
The Company did not sell any equity securities during the nine months ended September 30, 2021 and 2020.
As
of September 30, 2021, there were
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Note 10. Leases
The Company determines if an arrangement is a lease at its inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if the Company obtains the rights to direct the use of, and to obtain substantially all of the economic benefits from the use of, the underlying asset. Lease expense for variable leases and short-term leases is recognized when the obligation is incurred.
The
Company has operating leases for certain facilities and equipment with a weighted average remaining lease term of
Operating
lease expense for the three and nine months ended September 30, 2021 was approximately $
Maturities of operating lease liabilities as of September 30, 2021 were as follows:
Schedule of Maturities of Opearing Lease
| September 30, 2021 | ||||
| For the remainder of the year ending December 31, 2021 | $ | |||
| For the year ending December 31, 2022 | ||||
| For the year ending December 31, 2023 | ||||
| For the year ending December 31, 2024 | ||||
| For the year ending December 31, 2025 and beyond | ||||
| Total lease payments | ||||
| Less: imputed lease interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Note 11. Marketable Securities
The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Held-to-maturity securities are recorded at cost and are adjusted for the amortization or accretion of premiums or discounts over the life of the related security. Unrealized holding gains and losses of available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized. In determining realized gains and losses, the cost of the securities sold is based on the specific identification method. Interest and dividends on the investments are accrued at the balance sheet date.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Fair value measurements are broken down into three levels based on the reliability of inputs as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
At September 30, 2021 all investments were classified as Level 1 trading securities, and consisted of the following:
Schedule of Investments Were Classified as Level 1 Trading Securities
| September 30, 2021 | ||||
| Value of Trading Securities | ||||
| Investment | Investments | |||
| Mutual Funds | ||||
| Putnam Short Duration Bond | $ | |||
| Putnam Ultra Short Duration Income | ||||
| $ | ||||
| Unrealized loss | $ | |||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
The following accounting policies 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. For additional accounting policies, see Note 2 to our December 31, 2020 consolidated financial statements, “Summary of Significant Accounting Policies.”
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 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 operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Our revenue source comes from the licensing of this technology and all of these license agreements have similar terms and provisions.
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 doubtful accounts. 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 uncollectible accounts when necessary.
The Company has historically used the Black-Scholes option-pricing model to determine the estimated fair value of each option grant. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our best estimates, but these items involve uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Furthermore, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.
On occasion, the Company may issue to consultants either options or warrants to purchase shares of common stock of the Company at specified share prices. These options or warrants may vest based upon specific services being performed or performance criteria being met. In accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services, the Company is required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a Black-Scholes option pricing model and are marked to market quarterly using the Black-Scholes option valuation model.
The preparation of condensed consolidated financial statements in conformity with GAAP 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. An example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods.
Recent Global Events:
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As a result, the Company expects operations at its facility to continue to be affected in some capacity, as the COVID-19 virus continues to proliferate and the federal, state and local governments under which we operate continue to adopt new rules. The Company has put in place enhanced procedures, such as restricting international and domestic travel, adopting a variety of steps designed to ensure social distancing in our facilities, including working remotely where available, and increasing our cleaning and sanitizing procedures in our facilities, in an effort to protect its employees and communities.
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Revenues were negatively impacted since the onset of the pandemic due to delays in manufacture of products using our technology. Most of the products using our technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by public health crises, such as COVID-19, could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time, but could materially adversely affect our business, financial condition, results of operations, and cash flows. Net of amounts previously reserved which were fully written off in 2020, the Company increased its allowance for uncollectible royalty receivables in 2020 until the collectability from certain licensees can be better ascertained in the regions affected by COVID-19.
In connection with the COVID-19 crisis, Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which, among other things, provides relief for businesses impacted by the pandemic. The Company applied for and received $202,052 in proceeds from the Paycheck Protection Program (“PPP Loan”) made available under the CARES Act. The PPP Loan is intended to offer businesses hurt by the COVID-19 pandemic economic assistance with the potential for the principal to be forgiven based on certain expenses incurred during the first 24 weeks after the issuance of the PPP Loan. The Company has received notification that this loan has been forgiven. Consequently, the Company recorded $202,052 as other income for the year ended December 31, 2020 representing the PPP Loan estimated to be forgiven. For the three and nine months ended September 30, 2020, the Company estimated that $7,912 and $202,052, respectively, of this loan had been forgiven.
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 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 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, 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 2019 and 2020, the Company received royalty revenues from sales of the Magic Sky Control option using the Company’s technology to Daimler (as well as sales of SPD-SmartGlass products to McLaren Automotive) 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.
Because the Company’s license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs (with some of the Company’s more recent license agreements providing for payments on a monthly basis), and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home, office building, automobile, aircraft, boat or any other product, there could be a delay between when economic activity between a licensee and its customer occurs and when the Company gets paid its royalty resulting from such activity.
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As discussed in Note 2, the Company currently does not have the ability to assess whether the COVID-19 pandemic is likely to have a material impact on our near-term financial results. Most of the products using the Company’s technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by COVID-19 could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time.
Three months ended September 30, 2021 compared to the three months ended September 30, 2020
The Company’s fee income from licensing activities for the three months ended September 30, 2021 was $723,465 as compared to $165,628 for the three months ended September 30, 2020, representing a $557,837 increase between these two periods. Higher fee income in the automotive, architectural and display markets were partially offset by lower fee income from the aircraft market. Higher fee income in the architectural and automotive markets was predominantly from one-time settlements of lawsuits brought by Research Frontiers in 2018 against two licensees for royalty payments due, as well as for a current special government contract in the automotive area.
Operating expenses increased by $98,600 for the three months ended September 30, 2021 to $571,024 from $472,424 for the three months ended September 30, 2020. This increase is the result of higher legal costs related to collection efforts on outstanding royalties receivable ($136,000) as well as higher allocated facilities costs ($22,000) partially offset by lower payroll and related costs ($44,000) and lower withheld foreign taxes paid ($8,000).
Research and development expenditures decreased by $1,434 to $135,215 for the three months ended September 30, 2021 from $136,649 for the three months ended September 30, 2020. This decrease was the result of allocated facilities and insurance costs.
The Company’s net investment income for the three months ended September 30, 2021 was $4,388 as compared to $1,310 for the three months ended September 30, 2020. The difference was primarily due to changes in interest rates and changes in market value of investments.
In addition, the Company recorded $7,912 of other income for the three months ended September 30, 2020 representing the portion of the PPP loan estimated to be forgiven through such date. There was no PPP loan forgiveness during the three months ended September 30, 2021.
As a consequence of the factors discussed above, the Company’s net income was $21,614 ($0.00 per common share) for the three months ended September 30, 2021 as compared to a net loss of $434,223 ($0.01 per common share) for the three months ended September 30, 2020.
Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
The Company’s fee income from licensing activities for the nine months ended September 30, 2021 was $1,050,526 as compared to $697,914 for the nine months ended September 30, 2020, representing a $352,612 increase between these two periods. Higher fee income in the automotive, architectural and display markets were partially offset by lower fee income from the aircraft market. Higher fee income in the architectural and automotive markets was predominantly from one-time settlements of lawsuits brought by Research Frontiers in 2018 against two licensees for royalty payments due, as well as for a current special government contract in the automotive area.
Operating expenses decreased by $225,130 for the nine months ended September 30, 2021 to $1,699,698 from $1,928,828 for the nine months ended September 30, 2020. This decrease was a result of lower payroll and related costs ($241,000) as well as lower bad debts expense ($53,000) and lower depreciation ($45,000) and allocated insurance costs ($15,000), partially offset by higher legal costs ($136,000).
Research and development expenditures decreased by $46,495 to $420,203 for the nine months ended September 30, 2021 from $466,698 for the nine months ended September 30, 2020. This decrease was the result of lower payroll and related costs ($31,000) as well as lower allocated insurance costs ($14,000).
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The Company’s net investment income for the nine months ended September 30, 2021 was $5,747 as compared to $33,762 for the nine months ended September 30, 2020. The difference was primarily due to lower interest rates as well as changes in market value and lower cash balances available for investment.
In addition, the Company recorded $202,052 of other income for the nine months ended September 30, 2020 representing the portion of the PPP loan estimated to be forgiven through such date. There was no PPP loan forgiveness during the nine months ended September 30, 2021.
As a consequence of the factors discussed above, the Company’s net loss was $1,063,628 ($0.03 per common share) for the nine months ended September 30, 2021 as compared to $1,457,798 ($0.05 per common share) for the nine months ended September 30, 2020.
Financial Condition, Liquidity and Capital Resources
The Company has primarily utilized its cash, cash equivalents, marketable securities, short-term investments, and the proceeds from its investments to fund its research and development, 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, 2021, the Company’s cash and cash equivalents balance decreased by $4,566,181 principally as a result of cash used for the purchase of marketable securities of $3,433,633 as well as cash used for operations of $1,867,844 partially offset by cash proceeds from the sale of marketable securities of $650,000 and cash received from the exercise of options and warrants of $86,262. As of September 30, 2021, the Company had cash and cash equivalents and marketable securities of $2,984,612, working capital of $4,220,256 and total shareholders’ equity of $4,349,639.
Our quarterly projected cash flow shortfall, based on our current operations adjusted for any non-recurring cash expenses for the next 12 months, is approximately $400,000-$450,000 per quarter. We expect to have sufficient working capital for at least the next 23 months of operations. We may seek to eliminate some operating expenses in the future to reduce our cash flow shortfall.
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 until mid-2023. 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. To date the Company has not generated sufficient revenue from its licensees to fully fund its operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 3 has been disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There has been no material change in the disclosure regarding market risk.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and acting interim Chief Financial Officer, with assistance from other members of our management, has reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2021 and, based on his evaluation, has concluded that our disclosure controls and procedures contained a material weakness in internal control over financial reporting which was identified by the Company during our year-end internal control procedures. A material weakness is a deficiency or combination of deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As of September 30, 2021, there was a material weakness in the Company’s management quarterly review control related to the assessment of the classification of cash equivalents and marketable securities. During the second quarter, the Company invested in two mutual funds that did not consist of securities with original maturities of three months or less. While the securities that were purchased were of a highly liquid nature, they did not meet the GAAP definition of a cash equivalent and should have been presented as marketable securities. The Company’s quarterly control procedures over interim reporting were not adequate to identify this change on a timely basis until the Company’s year-end financial reporting process. The Company has modified its interim control procedures to include specific procedures and controls over of the reporting of investments consistent with its year-end review procedures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See the description of the material weakness in internal controls over financial reporting outlined Evaluation of Disclosure Controls and Procedures above.
Forward-Looking Statements
The information set forth in this Report and in all publicly disseminated information about the Company, including the narrative contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above, includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that section. Readers are cautioned not to place undue reliance on these forward-looking statements as they speak only as of the date hereof and are not guaranteed.
PART II. OTHER INFORMATION
Item1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, prospects and/or the trading price of our common stock. Although the risk and uncertainty listed below is that we consider significant, material risks and uncertainties that are not presently known to us may also adversely affect our business, financial condition or results of operations. In evaluating our business and an investment in our securities, you should consider the following risk factor, in addition to the other information presented in this report, as well as the other reports we file from time to time with the SEC:
Risks Related to Our Business
We have identified a material weakness in our internal control over financial reporting. 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.
On February 18, 2022, our board of directors, following discussions with management, determined that our unaudited condensed consolidated financial statements for the quarters ended June 30, 2021 and September 30, 2021 filed with the SEC on August 5, 2021 and November 4, 2021, respectively, required restatement to correct the classification of certain cash equivalents as marketable securities. The board’s determination to restate such financial statements was identified by management during the course of preparing the Company’s financial statements for the year ended December 31, 2021.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As described elsewhere in this filing, we have identified a material weakness in our internal control over financial reporting related the classification of cash equivalents and marketable securities. As a result of this material weakness, our management has concluded that our internal control over financial reporting was not effective as of the end of the period covered by this report.
We are taking measures to remediate the material weakness described herein. However, if we are unable to remediate our material weakness in a timely manner or we identify additional material weaknesses or significant deficiencies in our internal controls or disclosure controls, we may be unable to provide required financial information in a timely and reliable manner and we may incorrectly report financial information. If our financial statements are not filed on a timely basis, we could be subject to adverse action by shareholders, Nasdaq, the SEC or other regulatory authorities. The existence of material weaknesses or significant deficiencies in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our stock. In addition, we may incur additional costs to remediate material weaknesses or significant deficiencies in our internal control over financial reporting.
We cannot assure you that the measures we are taking will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Item 6. Exhibits
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Joseph M. Harary - Filed herewith. |
| 32.1 | Section 1350 Certification of Joseph M. Harary - Filed herewith. |
| 17 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
| RESEARCH FRONTIERS INCORPORATED | |
| (Registrant) | |
| /s/ Joseph M. Harary | |
| Joseph M. Harary, President, CEO, acting interim CFO and Treasurer | |
| (Principal Executive Officer and Principal Financial Officer) |
Date: February 24, 2022
| 18 |
EXHIBIT 31.1 CERTIFICATION
I, Joseph M. Harary, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Research Frontiers Incorporated (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: February 24, 2022 | /s/ Joseph M. Harary |
| Joseph M. Harary | |
| President, Chief Executive Officer and acting interim Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Research Frontiers Incorporated (the “Company”) on Form 10-Q for the quarter ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph M. Harary, President and Chief Executive Officer and Principal Executive Officer and acting interim Chief Financial Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Joseph M. Harary | |
| Joseph M. Harary | |
| President, Chief Executive Officer and Principal Executive Officer and acting interim Chief Financial Officer and Principal Financial Officer | |
| February 24, 2022 |