Research Frontiers Inc 10-Q for FY2020 Q3
Research Frontiers Inc (REFR)
About this 10-Q
Research Frontiers Inc filed this 10-Q on November 5, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $165.63K
- down 64.2% from $462.87K a year earlier
- Net loss
- $434.22K
- compared with a net loss of $397.71K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES AND EXCHANGE ACT OF 1934
| For the quarter ended September 30, 2020 | Commission File Number 000-14893 |
RESEARCH FRONTIERS INCORPORATED
(Exact name of registrant as specified in its charter)
| DELAWARE | 11-2103466 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 240 CROSSWAYS PARK DRIVE | ||
| WOODBURY, NEW YORK | 11797-2033 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (516) 364-1902
| 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 [X]
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 [X]
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. Yes [X] No [ ]
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). Yes [X] No [ ]
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 [ ] | Non-accelerated filer [ ] |
| Smaller reporting company [X] | 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 [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.0001 per share | REFR | The NASDAQ Stock Market |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 5, 2020, there were outstanding 31,575,786 shares of Common Stock, par value $0.0001 per share.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Balance Sheets
| September 30, 2020 (Unaudited) | December
31, 2019 (See Note 1) |
|||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 5,440,208 | $ | 6,591,960 | ||||
| Royalties receivable,
net of reserves of $944,052 as of September 30, 2020 and $1,135,598 as of December 31, 2019 |
554,609 | 656,062 | ||||||
| Prepaid expenses and other current assets | 107,041 | 58,835 | ||||||
| Total current assets | 6,101,858 | 7,306,857 | ||||||
| Fixed assets, net | 72,715 | 141,720 | ||||||
| Operating lease ROU assets | 653,097 | 773,989 | ||||||
| Deposits and other assets | 33,567 | 33,567 | ||||||
| Total assets | $ | 6,861,237 | $ | 8,256,133 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of operating lease liabilities | $ | 162,615 | $ | 163,236 | ||||
| Accounts payable | 47,324 | 169,750 | ||||||
| Accrued expenses and other | 58,213 | 46,709 | ||||||
| Deferred revenue | 21,511 | 7,734 | ||||||
| Total current liabilities | 289,663 | 387,429 | ||||||
| Operating lease liabilities, net of current portion | 689,057 | 812,596 | ||||||
| Total liabilities | 978,720 | 1,200,025 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 31,575,786 in 2020 and 31,254,262 in 2019 | 3,158 | 3,125 | ||||||
| Additional paid-in capital | 122,837,069 | 122,552,895 | ||||||
| Accumulated deficit | (116,957,710 | ) | (115,499,912 | ) | ||||
| Total shareholders’ equity | 5,882,517 | 7,056,108 | ||||||
| Total liabilities and shareholders’ equity | $ | 6,861,237 | $ | 8,256,133 | ||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Operations
(Unaudited)
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Fee income | $ | 697,914 | $ | 1,182,560 | $ | 165,628 | $ | 462,869 | ||||||||
| Operating expenses | 1,924,828 | 2,356,875 | 472,424 | 666,356 | ||||||||||||
| Research and development | 466,698 | 751,312 | 136,649 | 207,368 | ||||||||||||
| Total expenses | 2,391,526 | 3,108,187 | 609,073 | 873,724 | ||||||||||||
| Operating loss | (1,693,612 | ) | (1,925,627 | ) | (443,445 | ) | (410,855 | ) | ||||||||
| Warrant market adjustment | - | (652,025 | ) | - | - | |||||||||||
| Other income -PPP loan forgiveness | 202,052 | - | 7,912 | - | ||||||||||||
| Net investment income | 33,762 | 25,565 | 1,310 | 13,143 | ||||||||||||
| Net loss | $ | (1,457,798 | ) | $ | (2,552,087 | ) | $ | (434,223 | ) | $ | (397,712 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Basic and diluted weighted average number of common shares outstanding | 31,458,238 | 29,636,013 | 31,575,786 | 31,065,730 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
For the Nine Months Ended September 30, 2020 and 2019
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2018 | 27,665,211 | $ | 2,767 | $ | 114,787,657 | $ | (111,690,934 | ) | $ | 3,099,490 | ||||||||||
| Exercise of options and warrants | 1,423,843 | 142 | 1,170,404 | - | 1,170,546 | |||||||||||||||
| Issuance of common stock | 2,001,237 | 200 | 4,599,799 | - | 4,599,999 | |||||||||||||||
| Warrants converted to equity | - | - | 1,153,439 | - | 1,153,439 | |||||||||||||||
| Stock-based compensation | - | - | 356,228 | - | 356,228 | |||||||||||||||
| Net loss | - | - | - | (2,552,087 | ) | (2,552,087 | ) | |||||||||||||
| Balance, September 30, 2019 | 31,090,291 | $ | 3,109 | $ | 122,067,527 | $ | (114,243,021 | ) | $ | 7,827,615 | ||||||||||
| Balance, December 31, 2019 | 31,254,262 | $ | 3,125 | $ | 122,552,895 | $ | (115,499,912 | ) | $ | 7,056,108 | ||||||||||
| Exercise of options and warrants | 321,524 | 33 | 284,174 | - | 284,207 | |||||||||||||||
| Net loss | - | - | - | (1,457,798 | ) | (1,457,798 | ) | |||||||||||||
| Balance, September 30, 2020 | 31,575,786 | $ | 3,158 | $ | 122,837,069 | $ | (116,957,710 | ) | $ | 5,882,517 | ||||||||||
For the Three Months Ended September 30, 2020 and 2019
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, June 30, 2019 | 31,033,443 | $ | 3,103 | $ | 122,002,886 | $ | (113,845,309 | ) | $ | 8,160,680 | ||||||||||
| Exercise of options and warrants | 56,848 | 6 | 64,641 | - | 64,647 | |||||||||||||||
| Net loss | - | - | - | (397,712 | ) | (397,712 | ) | |||||||||||||
| Balance, September 30, 2019 | 31,090,291 | $ | 3,109 | $ | 122,067,527 | $ | (114,243,021 | ) | $ | 7,827,615 | ||||||||||
| Balance, June 30, 2020 | 31,575,786 | $ | 3,158 | $ | 122,837,069 | $ | (116,523,487 | ) | $ | 6,316,740 | ||||||||||
| Net loss | - | - | - | (434,223 | ) | (439,423 | ) | |||||||||||||
| Balance, September 30, 2020 | 31,575,786 | $ | 3,158 | $ | 122,837,069 | $ | (116,957,710 | ) | $ | 5,882,517 | ||||||||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,457,798 | ) | $ | (2,552,087 | ) | ||
Adjustments
to reconcile net loss to net cash used | ||||||||
| Depreciation and amortization | 64,193 | 146,496 | ||||||
| Stock-based compensation | - | 356,228 | ||||||
| Bad debt expense | 53,217 | 22,667 | ||||||
| Warrant market adjustment | - | 652,025 | ||||||
| Other income -PPP loan forgiveness | (202,052 | ) | - | |||||
| Change in assets and liabilities: | ||||||||
| Royalty receivables | 48,234 | (108,750 | ) | |||||
| Prepaid expenses and other current assets | (48,206 | ) | (53,155 | ) | ||||
| Accounts payable and accrued expenses | (110,921 | ) | (142,477 | ) | ||||
| Deferred revenue | 13,777 | 21,095 | ||||||
| Net cash used in operating activities | (1,639,556 | ) | (1,657,958 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of fixed assets | (2,168 | ) | (65,081 | ) | ||||
| Proceeds from the sale of fixed assets | 3,713 | - | ||||||
| Net cash provided by (used in) investing activities | 1,545 | (65,081 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Net
proceeds from issuances of common stock and warrants and exercise of options and warrants | 284,207 | 5,770,545 | ||||||
| Proceeds from PPP Program Funding | 202,052 | - | ||||||
| Net cash provided by financing activities | 486,259 | 5,770,545 | ||||||
| Net (decrease)/increase in cash and cash equivalents | (1,151,752 | ) | 4,047,506 | |||||
| Cash and cash equivalents at beginning of period | 6,591,960 | 2,969,416 | ||||||
| Cash and cash equivalents at end of period | $ | 5,440,208 | $ | 7,016,922 | ||||
See accompanying notes to condensed consolidated financial statements.
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RESEARCH FRONTIERS INCORPORATED
Notes to Condensed Consolidated Financial Statements
September 30, 2020
(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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements. 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 for the fiscal year ended December 31, 2019.
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 resources 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, 2020, we had working capital of approximately $5.8 million, cash and cash equivalents of approximately $5.4 million, shareholders’ equity of approximately $5.9 million and an accumulated deficit of approximately $117.0 million. 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 $500,000-$600,000 per quarter. Based on our current expectation of our cash flow shortfall for the next 12 months, our working capital would support our activities for the next 27- 29 months.
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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 delay, reduce or curtail our operations or otherwise impede our ongoing 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. 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 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 in our second and third quarters 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. The Company increased its allowance for uncollectible royalty receivables in the second and third quarters of 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 estimated that the $194,140 of the PPP Loan principal will be forgiven based on payroll and other expenses incurred through June 30, 2020. The Company estimated that all of the loan will be forgiven when the additional payroll and other expenses incurred from July 1, 2020 to September 30, 2020 are included. Consequently, the Company recorded $7,912 and $202,052 as other income for the three and nine months ended September 30, 2020 representing the PPP loan estimated to be forgiven through September 30, 2020.
Note 3. Recently Adopted Accounting Pronouncement
Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board’s Standard, Leases (Topic 842), as amended. The standard requires all leases to be recorded on the balance sheet as a right of use asset and a lease liability. The standard provides practical expedients in order to simplify adoption, including the following:
| ● | An entity need not reassess whether any expired or existing contracts are or contain leases. | |
| ● | An entity need not reassess the lease classification for any expired or existing leases. Instead, any leases previously classified as operating leases will continue to be classified as operating leases, while any leases previously classified as capital leases will be classified as finance leases. | |
| ● | An entity need not reassess initial direct costs for any leases. |
The Company used the above practical expedients as the transition method in the application of the new lease standard at January 1, 2019. The Company applied a policy election to exclude short-term leases from balance sheet recognition and elected certain practical expedients at adoption. As permitted, the Company did not reassess whether existing contracts are or contain leases, the lease classification for any existing leases or the initial direct costs for any existing leases which were not previously accounted for as leases, are or contain a lease. At adoption on January 1, 2019, an operating lease liability of $1,134,000 and an operating lease right of use asset of $941,000 were recorded. The operating lease liability was $193,000 more than the operating lease right of use asset due to unamortized lease incentive from periods prior to the adoption of the new lease standard. There was no cumulative earnings effect adjustment.
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Note 4. 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 5. Revenue Recognition
The 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.
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 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. 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.
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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 the 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 MAR 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 10-15% of the selling price. While this is variable consideration, it is subject to the sales/usage royalty exception to recognition of variable consideration in ASC 606 10-55-65 and therefore is not recognized until the subsequent sales or usage occurs or the MAR period commences.
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.
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The Company does not have any contract assets under ASC 606 as of September 30, 2020.
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. Such excess amounts are recorded as deferred revenue and are recognized into income in future periods as earned.
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, 2020, the Company has four 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, two will end as of December 31, 2022, and one will end December 31, 2024. The Company currently expects that all four of these agreements will renew annually at the end of the Initial Term. As of September 30, 2020, the aggregate amount of the revenue to be recognized upon the satisfaction of the remaining performance obligations for the four license agreements is $464,265. The revenue for these remaining performance obligations for each of the four license agreements is expected to be recognized evenly throughout their remaining period of the Initial Term.
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Note 6. Fee Income
Fee income represents amounts earned by the Company under various license and other agreements relating to technology developed by the Company.
During the first nine months of 2020, five licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 18%, 17%, 13%, 12% and 12% of fee income recognized during such period. During the first nine months of 2019, three licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 43%, 15% and 10% of fee income recognized during such period.
During the three-month period ended September 30, 2020, six licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 18%, 15%, 12%, 12%, 11% and 11% of fee income recognized during such period. During the three-month period ended September 30, 2019, two licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 53% and 15% of fee income recognized during such period.
Note 7. 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 12 to 60 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 three and nine months ended September 30, 2020 and 2019, there were no charges related to options granted to consultants.
During the nine-month period ended September 30, 2020, the Company did not grant options to employees or directors. During the nine-month period ended September 30, 2019, the Company granted 233,500 fully vested options to employees and directors and recorded stock-based compensation of $356,228. All of the options granted to employees during the nine-month period ended September 30, 2019 occurred during the second quarter of 2019. The Company valued these grants using the Black-Scholes option pricing model with the following assumptions:
| Fair value on grant date | $ | 1.5256 | ||
| Expected dividend yield | - | |||
| Expected volatility | 61 | % | ||
| Risk free interest rate | 1.84 | % | ||
| Expected term of the option | 5 years |
There was no compensation expense recorded relating to restricted stock grants to employees and directors during the three and nine months ended September 30, 2020 and 2019.
As of September 30, 2020, there were 882,500 shares available for future grant under our 2019 Equity Incentive Plan, which was approved by the Company’s shareholders in June 2019.
Note 8. 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 not more likely than not that the Company would achieve profitable operations and be able to utilize the benefit of the net operating loss carryforwards.
| 12 |
Note 9. Basic and Diluted Loss Per Common Share
Basic loss per share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive 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 periods ended September 30, 2020 and 2019, because all potentially dilutive securities (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 2,498,251 and 3,381,061 for the three and nine months ended September 30, 2020 and 2019, respectively.
Note 10. Equity
During the nine months ended September 30, 2020, the Company received $284,207 in proceeds from the exercise of outstanding options and warrants and issued 83,152 shares of its capital stock in connection with these exercises. In addition, during the nine months ended September 30, 2020, the Company issued 238,372 shares of its capital stock in connection with the cashless exercise of 450,091 of its outstanding options.
During the nine months ended September 30, 2019, the Company received $1,170,547 in proceeds from the exercise of outstanding options and warrants and issued 1,060,718 shares of its capital stock in connection with these exercises. In addition, during the nine months ended September 30, 2019, the Company issued 363,125 shares of its capital stock in connection with the cashless exercise of 603,569 of its outstanding options and warrants.
During the three-month period ended September 30, 2020, there were no exercise of outstanding options. During the three-month period ended September 30, 2019, the Company received $64,647 in proceeds from the exercise of outstanding options and issued 56,848 shares of its capital stock in connection with these exercises.
The Company did not sell any equity securities during the three or nine months ended September 30, 2020.
On or around May 30, 2019, the Company sold to accredited investors a total of 1,276,599 shares of common stock and warrants expiring May 31, 2024 to purchase 638,295 shares of common stock at an exercise price of $3.384, $3.666 or $4.23 per share depending on the exercise date. Research Frontiers also sold units to Gauzy, at a price of $1.38 per unit, with each unit comprised of one share of unregistered common stock and one-half of one warrant. The warrant can be converted into one share of unregistered common stock at an exercise price of $1.656, $1.794 or $2.07 per share depending on the exercise date. Gauzy received a total of 724,638 shares of unregistered common stock and warrants expiring May 31, 2024 to purchase 362,319 shares of common stock. The aggregate proceeds from these stock offerings was approximately $4.6 million.
Investors that participated in the May 30, 2019 offering agreed to amending/clarifying language to the terms of the warrants that they received in the September 7, 2018 offering. Those investors that received warrants in the September 7, 2018 offering that did not participate in the May 30, 2019 offering, separately agreed as of June 27, 2019 to the same amending/clarifying language used in the May 30, 2019 offering. The amending/clarifying language relating to the September 7, 2018 warrants does not allow for a net cash settlement option for the warrants even if no registered shares of common stock are available upon the exercise of the warrant. The Company recorded a non-cash expense of $0 and $652,025, respectively, for the three- and nine-month periods ended September 30, 2019 to mark these warrants to their estimated market value as of their respective amendment/clarification date. The warrant liability was valued at $1,153,439 (including all valuation adjustments since their issuance) through the date of these new agreements and amendments and based on the amended warrant terms, the warrant liability was reclassified to equity as of these dates.
As of September 30, 2020, there were 1,399,991 warrants outstanding.
| 13 |
Note 11. 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, vehicles and equipment with a weighted average remaining lease term of 4.5 years as of September 30, 2020. Operating leases are included in right of use lease assets, other current liabilities and long-term lease liabilities on the condensed consolidated balance sheet. Right of use lease assets and liabilities are recognized at each lease’s commencement date based on the present value of its lease payments over its respective lease term. The Company does not have an established incremental borrowing rate as it does not have any debt. The Company uses the stated borrowing rate for a lease when readily determinable. When the interest rate implicit in its lease agreements is not readily determinable, the Company used an interest rate based on the marketplace for public debt. The weighted-average discount rate associated with operating leases as of September 30, 2020 is 5.5%.
Operating lease expense for the three months ended September 30, 2020 was approximately $55,000 and approximately $162,000 for the nine months ended September 30, 2020. The Company has no material variable lease costs or sublease income for the nine months ended September 30, 2020. Subsequent to the Company’s adoption of the new lease accounting guidance on January 1, 2019, the Company recorded new right of use lease assets of approximately $900,000 and associated lease liabilities of approximately $1.1 million.
Maturities of operating lease liabilities as of September 30, 2020 were as follows:
| September 30, 2020 | ||||
| For the remainder of 2020 | $ | 50,690 | ||
| For the year ended December 31, 2021 | 207,229 | |||
| For the year ended December 31, 2022 | 213,320 | |||
| For the year ended December 31, 2023 | 217,151 | |||
| For the year ended December 31, 2024 | 221,869 | |||
| For the year ended December 31, 2025 and beyond | 55,874 | |||
| Total lease payments | 966,133 | |||
| Less: imputed lease interest | (114,461 | ) | ||
| Present value of lease liabilities | $ | 851,672 | ||
| 14 |
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, 2019 consolidated financial statements, “Summary of Significant Accounting Policies.”
The Company adopted ASC 606, the new revenue recognition standard, beginning January 1, 2018. 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 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 expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items. All of our research and development costs are charged to operations as incurred. Our research and development expenses consist of costs incurred for internal and external research and development. These costs include direct and indirect overhead expenses.
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.
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Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board’s Standard, Leases (Topic 842), as amended. The standard requires all leases to be recorded on the balance sheet as a right of use asset and a lease liability. The Company used a transition method that applies the new lease standard at January 1, 2019. The Company applied a policy election to exclude short-term leases from balance sheet recognition and also elected certain practical expedients at adoption. As permitted, the Company did not reassess whether existing contracts are or contain leases, the lease classification for any existing leases, initial direct costs for any existing lease, which were not previously accounted for as leases, are or contain a lease. At adoption on January 1, 2019, an operating lease liability of $1,133,821 and an operating lease right of use asset of $941,284 was recorded. The operating lease liability was $192,537 more than the operating lease right of use asset due to unamortized lease incentive from periods prior to the adoption of the new lease standard. There was no cumulative earnings effect adjustment.
The preparation of 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 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.
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 in excess of the minimum annual royalty levels for its licensees supplying products using the Company’s technology to Daimler (as well as sales of SPD-SmartGlass products to McLaren Automotive) 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 OEM’s (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.
As discussed in Note 2, the Company’s financial results has been impacted by the COVID-19 pandemic. 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.
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Three months ended September 30, 2020 compared to the three months ended September 30, 2019
The Company’s fee income from licensing activities for the three months ended September 30, 2020 was $165,628 as compared to $462,869 for the three months ended September 30, 2019, representing a $297,241 decrease between these two periods. Lower fees in the aircraft market and automotive market as production of certain Daimler vehicles was curtailed due to the COVID-19 pandemic and as these vehicles approached the end of their model lifetimes, were partially offset by higher fee income from licensees in the architect and display markets.
Operating expenses decreased by $193,932 for the three months ended September 30, 2020 to $472,424 from $666,356 for the three months ended September 30, 2019. This decrease was the result of lower depreciation and amortization ($70,000), lower patent costs ($55,000) as well as lower professional fees ($31,000) and lower payroll costs ($24,000).
Research and development expenditures decreased by $70,719 to $136,649 for the three months ended September 30, 2020 from $207,368 for the three months ended September 30, 2019. This decrease was the result of lower payroll and related costs ($53,000) as well as lower materials costs ($11,000) and lower allocated insurance costs ($6,000).
The Company’s net investment income for the three months ended September 30, 2020 was $1,310 as compared to $13,143 for the three months ended September 30, 2019. The difference was primarily due to lower interest rates.
The Company recorded $7,912 of other income for the three months ended September 30, 2020 representing the remaining portion of the PPP loan estimated to be forgiven through such date.
As a consequence of the factors discussed above, the Company’s net loss was $434,223 ($0.01 per common share) for the three months ended September 30, 2020 as compared to $397,712 ($0.01 per common share) for the three months ended September 30, 2019.
Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
The Company’s fee income from licensing activities for the nine months ended September 30, 2020 was $697,914 as compared to $1,182,560 for the nine months ended September 30, 2019, representing a $484,646 decrease between these two periods. Lower fees in the aircraft market and automotive market as production of certain Daimler vehicles was curtailed due to the COVID-19 pandemic and as these vehicles approached the end of their model lifetimes, were partially offset by higher fee income from licensees in the architect and display markets.
Operating expenses decreased by $432,047 for the nine months ended September 30, 2020 to $1,924,828 from $2,356,875 for the nine months ended September 30, 2019. This decrease was the result of lower non-cash charges related to options granted to employees and directors in the prior year ($291,000), as well as lower depreciation ($70,000), patent ($70,000) and professional fees ($60,000), partially offset by higher payroll and related costs ($41,000) and investor relations and marketing costs ($29,000).
Research and development expenditures decreased by $284,614 to $466,698 for the nine months ended September 30, 2020 from $751,312 for the nine months ended September 30, 2019. This decrease was the result of lower payroll and related costs ($157,000) as well as lower non-cash charges related to options granted to employees in the prior year ($65,000), lower material costs ($33,000) and lower allocated insurance ($10,000) and facility ($10,000) costs.
In connection with the issuance of certain warrants during the third quarter of 2018, the Company recorded a non-cash expense of $652,025 for the nine months ended September 30, 2019 to mark these warrants to their market value through the date that they were reclassified to equity in 2019.
The Company’s net investment income for the nine months ended September 30, 2020 was $33,762 as compared to $25,565 for the nine months ended September 30, 2019. The difference was primarily due to higher cash balances available for investment.
The Company recorded $202,052 of other income for the nine months ended September 30, 2020 representing the the entire PPP loan estimated to be forgiven through such date.
As a consequence of the factors discussed above, the Company’s net loss was $1,457,798 ($0.05 per common share) for the nine months ended September 30, 2020 as compared to $2,552,087 ($0.09 per common share) for the nine months ended September 30, 2019.
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, 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, 2020, the Company’s cash and cash equivalents balance decreased by $1,151,752 principally as a result of cash used for operations of $1,639,556 partially offset by cash proceeds from the exercise of options and warrants of $284,207 and cash received from the PPP loan of $202,052 and $1,545 from cash received from investing activities. As of September 30, 2020, the Company had cash and cash equivalents of $5,440,208, working capital of $5,812,195 and total shareholders’ equity of $5,882,517.
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 $500,000-$600,000 per quarter. Based on our current expectation of our cash flow shortfall for the next 12 months, our working capital would support our activities for the next 27 - 29 months.
| 17 |
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 early 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. 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. 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, 2019. There has been no material change in the disclosure regarding market risk.
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 chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2020, and, based on their evaluation, have concluded that our disclosure controls and procedures were effective.
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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
| 18 |
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 and Treasurer | |
| (Principal Executive) | |
| /s/ Seth L. Van Voorhees | |
| Seth L. Van Voorhees, Vice President, CFO and Treasurer | |
| (Principal Financial and Accounting Officer) |
Date: November 5, 2020
| 19 |
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 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: November 5, 2020 | /s/ Joseph M. Harary |
| Joseph M. Harary | |
| President, Chief Executive Officer |
EXHIBIT 31.2 CERTIFICATION
I, Seth L. Van Voorhees, 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 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: November 5, 2020 | /s/ Seth L. Van Voorhees |
| Seth L. Van Voorhees | |
| Vice President, Chief Financial Officer, | |
| Treasurer and Principal Accounting 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, 2020 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 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 | |
| November 5, 2020 |
EXHIBIT 32.2
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, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Seth L. Van Voorhees, Vice President, Chief Financial Officer, Treasurer and Principal Accounting 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/ Seth L. Van Voorhees | |
| Seth L. Van Voorhees | |
| Vice President, Chief Financial Officer, | |
| Treasurer and Principal Accounting Officer | |
| November 5, 2020 |