SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000 Commission File No. 1-9399
RESEARCH FRONTIERS INCORPORATED
(Exact name of registrant as specified in charter)
Delaware 11-2103466
(State of incorporation or organization) (IRS Employer
Identification No.)
240 Crossways Park Drive, Woodbury, N.Y. 11797
(Address of principal executive offices) (Zip Code)
(516) 364-1902
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
As of November 10, 2000, there were outstanding 12,168,783 shares
of Common Stock, par value $0.0001 per share.
RESEARCH FRONTIERS INCORPORATED
Balance Sheets
September 30,2000
Assets (Unaudited) Dec.31,1999
Current assets:
Cash and cash equivalents $ 9,326,949 8,142,569
Marketable investment securities-held-to-maturity 7,272,100 1,246,083
Marketable investment securities-available for sale 7,812 --
Royalty receivable 65,000 --
Receivable from warrant exercise pending settlement -- 222,549
Salary advance to officer -- 66,445
Prepaid expenses and other current assets 114,300 17,491
Total current assets 16,785,461 9,695,137
Fixed assets, net 343,950 319,321
Deposits and other assets 22,605 22,605
Total assets $ 17,152,016 10,037,063
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 178,453 158,702
Deferred revenue 137,461 46,154
Accrued expenses 89,775 324,471
Total liabilities 405,689 529,327
Shareholders' equity:
Capital stock, par value $0.0001 per share;
authorized 100,000,000 shares, issued and
outstanding 12,159,583 shares and 11,523,900 shares 1,216 1,152
Additional paid-in capital 52,901,877 39,750,276
Other comprehensive loss (42,188) --
Accumulated deficit (35,961,617) (30,090,731)
16,899,288 9,660,697
Notes receivable from officers (152,961) (152,961)
Total shareholders' equity 16,746,327 9,507,736
Total liabilities and shareholders' equity $ 17,152,016 10,037,063
See accompanying notes to financial statements.
RESEARCH FRONTIERS INCORPORATED
Statements of Operations
(Unaudited)
Nine months ended Three months ended
Sept. 30,2000 Sept. 30,1999 Sept. 30,2000 Sept. 30,1999
Fee income $ 298,693 103,750 $ 99,959 12,500
Operating expenses 1,973,679 1,168,659 439,139 366,686
Purchase of patents -- 289,177 -- --
Research and development 1,706,344 1,203,722 427,966 391,084
Non-recurring non-cash
compensation expense 3,133,748 -- -- --
6,813,771 2,661,558 867,105 757,770
Operating loss (6,515,078) (2,557,808) (767,146) (745,270)
Net investment income 644,191 199,515 227,204 73,417
Interest income on note
receivable from officer -- 95,001 -- 95,001
Net loss $ (5,870,887) (2,263,292) $(539,942) (576,852)
Basic and diluted net
loss per common share $ (.49) (.21) $ (.04) (.05)
Weighted average number of
common shares outstanding 12,073,688 11,018,830 12,175,039 11,156,023
See accompanying notes to financial statements.
RESEARCH FRONTIERS INCORPORATED
Statements of Cash Flows
(Unaudited)
Nine months ended
Sept. 30,2000 Sept. 30, 1999
Cash flows from operating activities:
Net loss $ (5,870,887) (2,263,292)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 79,740 60,850
Interest income on officer notes receivable -- (95,001)
Expense relating to issuance of
contingent performance options 3,133,748 --
Expense relating to issuance of stock and
warrants for services performed 77,165 12,168
Revenue relating to marketable securities
received as license fee (50,000) --
Cashless exercise of warrants -- 21,820
Changes in assets and liabilities:
Salary advance to officer 66,445 --
Royalty receivable (65,000) (50,000)
Prepaid expenses and other current assets (96,809) 5,412
Deferred revenue 91,307 (43,750)
Accounts payable and accrued expenses (214,945) (34,619)
Net cash used in operating activities (2,849,236) (2,336,412)
Cash flows from investing activities:
Proceeds from maturity of held-to-maturity
treasury securities 1,246,083 1,189,386
Purchases of held-to-maturity treasury securities (7,272,100) (1,215,795)
Purchases of fixed assets (104,369) (20,085)
Net cash used in investing activities (6,130,386) (46,494)
Cash flows from financing activities:
Net proceeds from issuances of common stock 11,464,577 3,479,840
Repayment of loans to officers -- 345,000
Purchase of treasury stock (1,301,275) (165,475)
Net cash provided by financing activities 10,163,302 3,659,365
Net increase in cash and cash equivalents 1,183,680 1,276,459
Cash and cash equivalents at beginning of year 8,142,569 5,403,283
Cash and cash equivalents at end of period $ 9,326,249 6,679,742
Non-cash financing activities:
Principal payment on officer's notes receivable
by surrendering of common stock $ -- 387,000
See accompanying notes to financial statements.
RESEARCH FRONTIERS INCORPORATED
Notes to Financial Statements
September 30, 2000
(Unaudited)
Basis of Presentation
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the
financial position, results of operations, and cash flows for the
interim periods to which the report relates. The results of
operations for the nine-month period ended September 30, 2000
are not necessarily indicative of the results to be expected for
the full year. The notes included herein should be read in
conjunction with the notes to the financial statements of the
Company as of December 31, 1999 and for the three years then
ended, included in the Company's Annual Report on Form 10-K.
Business
Research Frontiers Incorporated (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.
Patent Costs
The Company expenses costs relating to the development or
acquisition of patents due to the uncertainty of the recoverability
of these items.
Deferred Revenue
The Company has entered into a number of license agreements
covering potential products. The Company receives minimum
annual royalties under certain license agreements and records
fee income for the amounts earned by the Company. Certain of
the fees are paid to the Company in advance of the period in
which they are earned resulting in deferred revenue.
Shareholder's Equity
Issuance of Common Stock
For the nine months ended September 30, 2000, the Company
received $11,464,577 of net cash proceeds from (i) the issuance
of 95,962 shares of common stock issued upon the exercise of
options resulting in net proceeds of $706,299 and (ii) 602,983
shares of common stock issued upon the exercise of warrants
resulting in net proceeds of $10,758,278. In addition, 3,438
shares were issued to a director in payment of $68,000 in
directors fees.
For the nine months ended September 30, 1999, the Company
received $3,479,840 of net cash proceeds from (i) the issuance
of 51,025 shares of common stock issued upon the exercise of
options resulting in net proceeds of $305,557 and (ii) 373,789
shares of common stock issued upon the exercise of warrants
resulting in net proceeds of $3,174,283. In addition, 2,850
shares were issued through the cancellation of 33,250 warrants,
resulting in public relations expense of $21,820, and 414 shares
were issued to a director in payment of $3,000 in directors fees.
Treasury Stock
For the nine months ended September 30, 2000, the Company
purchased in the open market and subsequently retired 66,700
shares of treasury stock with an aggregate cost of $1,301,275.
For the nine months ended September 30, 1999, the Company
purchased in the open market and subsequently retired 21,500
shares of treasury stock with an aggregate cost of $165,475. For
the three months ended September 30, 1999, the Company
received 38,467 shares of common stock as partial payment of
notes receivable from an officer pursuant to a settlement
agreement under which, among other things, the parties agreed
that Jean Thompson and the estate of Robert I. Thompson
would pay the $732,000 in loans made by the Company from
1993 to 1997 by paying the Company $345,000 in cash, and
delivering to the Company for cancellation 38,467 shares of
common stock and options to purchase 181,447 shares of common stock.
Issuance of Warrants
During 1999, the Company issued warrants to purchase 50,000
shares at prices ranging from $9.00 to $21.00 per share in
payment for investor relations services provided to the
Company, which vested 10,000 shares per quarter commencing
on April 1, 1999. The Company recorded $0 and $9,168 of
expense in connection with the issuance of these warrants
during the three and nine months ended September 30, 2000,
respectively. No new warrants were issued by the Company during 2000.
Contingent Performance Options
During 1999, the Company granted 237,800 contingent
performance options to employees, which vested only, if a
certain performance milestone in the price of the Company's
common stock was achieved during the second quarter of 2000.
The Company is required to account for these options as a
variable plan under APB Opinion No. 25. Accordingly, from the
point in time that it appears probable that such milestone will be
achieved, the Company is required to recognize non-cash
compensation expense each period from the date of grant
through the vesting date based on the quoted market price of the
stock at the end of each period. Non-cash compensation
expense recognized during the three and nine months ended
September 30, 2000 in connection with these options was $0
and $3,133,748, respectively, as the applicable milestones for
the vesting of these options were achieved during the second
quarter of 2000. The charges recorded as a result of the
issuance of these performance options were calculated based
upon changes in the Company's stock price as of the end of each
quarter until the vesting date, and are non-cash accounting charges.
Comprehensive Income
The Company accounts for its comprehensive income under the
provisions of Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." (Statement 130).
Statement 130 requires that companies disclose comprehensive
income, which includes net income, foreign currency translation
adjustments, minimum pension liability adjustments, and
unrealized gains and losses on marketable securities classified
as available-for-sale. The Company did not have any foreign
currency translation adjustments, or minimum pension liability
adjustments during 2000 or 1999. The Company did not have
unrealized gains or losses on marketable securities classified as
available-for-sale during 1999 or the first quarter of 2000, but
did have an unrealized loss on marketable securities classified
as available-for-sale during the second and third quarters of
2000. Consequently, comprehensive loss equaled the net loss
of $576,852 and $2,263,292 for the three and nine months
ended September 30, 1999, respectively, and was $548,536 and
$5,913,075 for the three and nine months ended September 30,
2000, respectively.
Performance Bonus Plan
In December 1999, the Company's Board of Directors approved
a performance bonus plan which provides for a bonus to be paid
on July 1, 2000 and January 1, 2001 equal to approximately 1%
of the increase, if any, in the Company's market value during the
first and second halves of 2000. Bonuses are capped at a
recipient's salary in the case of employees of the Company, and
are currently capped at $55,000 in the case of non-employee
directors of the Company. Based on the increase in the
Company's market capitalization for the first half of 2000, the
Company accrued during the first half of 2000 $755,000 in
accordance with the bonus plan of which $277,500 was
included in research and development expense and $477,500
was included in operating expenses. No bonuses under this
plan were accrued for during the quarter ended September 30,
2000. The bonus was computed based on the caps specified in
the plan.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations for the Nine Month Periods
Ended September 30, 2000 and 1999
The Company's fee income from licensing activities for the first
nine months of 2000 was $298,693 as compared to $103,750
for the first nine months of 1999.
Operating expenses increased by $805,020 for the first nine
months of 2000 to $1,973,679 from $1,168,659 for the first nine
months of 1999. This increase was primarily the result of
increased payroll (primarily as a result of the addition of two
new employees during the first quarter of 2000 and the accrual
for certain performance bonuses), marketing, insurance, stock
listing fees, depreciation, general expenses, and travel expenses,
offset by lower investor and public relations expenses, legal and
accounting fees.
Research and development expenditures increased by $502,622
to $1,706,344 for the first nine months of 2000 from
$1,203,722 for the first nine months of 1999. This increase was
primarily the result of higher research-related salaries and
performance bonuses, materials costs, patent and depreciation
expenses.
During the first nine months of 1999, the Company purchased
74 patents and patent applications from Glaverbel S.A. covering
various inventions relating to SPD technology for which a
lump-sum payment of $289,177 was made. In accordance with
the Company's accounting policy, such amount was expensed.
Operating expenses and research and development expenses
listed above included amounts accrued under a performance
bonus plan of $477,500 and $277,500, respectively. These
performance bonuses in the amount accrued for were paid by
the Company during the third quarter of 2000 because the
applicable performance milestones were achieved. In addition
to these performance bonus accruals, the Company also
recorded a non-cash compensation charge of $3,133,748 which
is related to the non-recurring grant of certain contingent
performance options issued to employees and directors during
1999. Because of the performance milestones which must be
achieved in order for these options to vest (and which in fact
were achieved during the second quarter of 2000), the Company
was required to account for these options as variable plan under
APB Opinion No. 25. Without taking into account the non-cash
accounting charge associated with the contingent performance
options described above, the Company's net loss would have
been $2,737,139 ($0.23 per share) for the first nine months of
2000 as compared to $2,263,292 ($0.21 per share) for the first
nine months of 1999.
The Company's net gain from its investing activities for the first
nine months of 2000 was $644,191, as compared to a net gain
from its investing activities of $294,516 for the third quarter of
1999 ($199,515 of which was net investment income and
$95,001 was interest income recorded by the Company during
the first nine months of 1999 from the repayment of notes
receivable from one of its officers). The higher level of net
investment income was primarily due to higher level average
investment balances in the first nine months of 2000 compared
to the first nine months of 1999.
As a consequence of the factors discussed above, the
Company's net loss was $5,870,887 ($0.49 per share) for the
first nine months of 2000 as compared to $2,263,292 ($0.21 per
share) for the first nine months of 1999. Without taking into
account the non-cash accounting charge associated with the
contingent performance options described above, the
Company's net loss would have been $2,737,139 ($0.23 per
share) for the first nine months of 2000 as compared to
$2,263,292 ($0.21 per share) for the first nine months of 1999.
Results of Operations for the Three Month Periods Ended
September 30, 2000 and 1999
The Company's fee income from licensing activities for the
third quarter of 2000 was $99,959 as compared to $12,500 for
the third quarter of 1999.
Operating expenses increased by $72,453 for the third quarter
of 2000 to $439,139 from $366,686 for the third quarter of
1999. This increase was primarily the result of increased payroll
(primarily as a result of the addition of two new employees
during the first quarter of 2000), marketing, insurance,
depreciation, and travel expenses, offset by lower investor and
public relations expenses, legal and accounting fees.
Research and development expenditures increased by $36,882
to $427,966 for the third quarter of 2000 from $391,084 for the
third quarter of 1999. This increase was primarily the result of
higher research-related salaries, patent, insurance, and
depreciation expenses, offset by lower materials costs.
The Company's net gain from its investing activities for the
third quarter of 2000 was $227,204, as compared to a net gain
from its investing activities of $168,418 for the third quarter of
1999 ($73,417 of which was net investment income and
$95,001 was interest income recorded by the Company during
the third quarter of 1999 from the repayment of notes receivable
from one of its officers). The higher level of net investment
income was primarily due to higher level average investment
balances in the third quarter of 2000 compared to the third
quarter of 1999.
As a consequence of the factors discussed above, the
Company's net loss was $539,942 ($0.04 per share) for the third
quarter of 2000 as compared to $576,852 ($0.05 per share) for
the third quarter of 1999.
Financial Condition, Liquidity and Capital Resources
During the first nine months of 2000, the Company's cash and
cash equivalent balance increased by $1,183,680 principally as
a result of the $11,464,577 of proceeds received, net of
expenses, from the issuance of common stock upon the
exercise of options and warrants, offset partially by cash used to
fund the Company's operating activities of $2,849,236, its
investing activities of $6,130,386, and the repurchase and
subsequent retirement of $1,301,275 worth of the Company's
common stock in the open market. At September 30, 2000, the
Company had working capital of $16,379,762 and its
shareholders' equity was $16,746,327.
In December 1999, the Company's Board of Directors approved
a performance bonus plan which provides for a bonus to be paid
on July 1, 2000 and January 1, 2001 equal to 1% of the
increase, if any, in the Company's market value during the first
and second halves of 2000. Bonuses are capped at a recipient's
salary in the case of employees of the Company, and are
currently capped at $55,000 in the case of non-employee
directors of the Company. As noted above, the Company had
accrued $755,000 as of June 30, 2000 towards the payment of these
bonuses. Performance bonuses in the amount accrued for were
paid by the Company during the third quarter of 2000 because
the applicable performance milestones were achieved. No
further bonuses were accrued during the third quarter of 2000.
The Company expects to use its cash and the proceeds from
maturities of its investments to fund its research and
development of SPD light valves 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, 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. Based upon existing levels of
expenditures, assumed ten percent annual increases therein,
existing cash reserves and budgeted revenues, the Company
believes that it would not require additional funding for at least
the next four to five years (without giving effect to any new
financing raised). There can be no assurance 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
commercialization of products using the Company's technology
by the Company's licensees and payments of continuing
royalties on account thereof.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued
Statement No. 133 related to "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133).
Statement 133 established accounting and reporting standards
for derivative instruments embedded in other contracts, and for
hedging activities. This statement (as amended by Statement
137) is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management of the Company
does not believe that the implementation of Statement 133 (as
amended by Statement 137) will have a significant impact on its
financial position or results of operations. The Company has no
derivative instruments or hedging activities as defined by
Statement 133.
On December 3, 1999, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin No. 101 -
"Revenue Recognition in Financial Statements" (SAB No. 101).
SAB No. 101 provides the SEC staff's views on the recognition
of revenue including nonrefundable technology access fees
received by companies in connection with research
collaborations with third parties. SAB No. 101 states that in
certain circumstances the SEC staff believes that up-front fees,
even if nonrefundable, should be deferred and recognized
systematically over the term of the research arrangement. SAB
No. 101B delayed the implementation date for registrants to
adopt the accounting guidance contained in SAB No. 101 by no
later than the fourth fiscal quarter of the fiscal year beginning
after December 15, 1999 (quarter ending December 31, 2000
for the Company). Management of the Company does not
believe that applying the accounting guidance of SAB No. 101
will have a material effect on its financial position or results of
operations.
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. None.
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/ Robert L. Saxe
Robert L. Saxe, President and Treasurer
(Principal Executive, Financial, and
Accounting Officer)
Date: November 13, 2000