-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ThmdxQczN5iPgp0JoRoB5hK07JBy2eJq3lWx3433q8px7HfPKyPhvL99b3saw6iM 3Op1uG+mVcwfCbW6EbrG3Q== 0000793524-02-000003.txt : 20020514 0000793524-02-000003.hdr.sgml : 20020514 ACCESSION NUMBER: 0000793524-02-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESEARCH FRONTIERS INC CENTRAL INDEX KEY: 0000793524 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 112103466 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09399 FILM NUMBER: 02646815 BUSINESS ADDRESS: STREET 1: 240 CROSSWAYS PARK DR CITY: WOODBURY STATE: NY ZIP: 11797-2033 BUSINESS PHONE: 5163641902 MAIL ADDRESS: STREET 1: 240 CROSSWAYS PARK DR CITY: WOODBURY STATE: NY ZIP: 11797-2033 10-Q 1 rfi10q02.txt RESEARCH FRONTIERS MARCH 31, 2002 QUARTERLY REPORT ON FORM 10-Q 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 March 31, 2002 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 May 13, 2002, there were outstanding 12,138,445 shares of Common Stock, par value $0.0001 per share. RESEARCH FRONTIERS INCORPORATED Consolidated Balance Sheets March 31,2002 Assets (Unaudited) Dec.31,2001 Current assets: Cash and cash equivalents $ 1,010,922 853,210 Marketable investment securities-available for sale 7,026,735 7,083,606 Receivable from warrant exercise pending settlement -- 164,311 Royalty receivable 112,500 37,500 Prepaid expenses and other current assets 112,399 134,050 Total current assets 8,262,556 8,272,677 Investment in SPD Inc., at cost 750,002 750,002 Fixed assets, net 256,985 279,618 Deposits and other assets 22,605 22,605 Total assets $ 9,292,148 9,324,902 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 124,737 79,197 Deferred revenue 84,375 37,500 Accrued expenses and other 152,437 158,285 Total liabilities 361,549 274,982 Shareholders' equity: Capital stock, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 12,167,395 shares and 12,108,195 shares 1,217 1,211 Additional paid-in capital 52,217,447 51,359,036 Accumulated other comprehensive income (loss) (15,036) 41,835 Accumulated deficit (43,120,068) (42,199,201) 9,083,560 9,202,881 Notes receivable from officers (152,961) (152,961) Total shareholders' equity 8,930,599 9,049,920 Total liabilities and shareholders' equity $ 9,292,148 9,324,902 See accompanying notes to consolidated financial statements. RESEARCH FRONTIERS INCORPORATED Consolidated Statements of Operations (Unaudited) Three months ended March 31,2002 March 31,2001 Fee income $ 53,125 68,752 Operating expenses 599,227 529,765 Research and development 483,587 726,721 1,082,814 1,256,486 Operating loss (1,029,689) (1,187,734) Net investment income 108,822 193,912 Net loss $ (920,867) (993,822) Basic and diluted net loss per common share $ (.08) (.08) Weighted average number of common shares outstanding 12,128,159 12,091,669 See accompanying notes to consolidated financial statements. RESEARCH FRONTIERS INCORPORATED Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31,2002 March 31, 2001 Cash flows from operating activities: Net loss $ ( 920,867) (993,822) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 27,584 28,473 Expense relating to issuance of stock and warrants for services performed -- 43,596 Changes in assets and liabilities: Royalty receivable (75,000) (125,000) Prepaid expenses and other current assets 21,651 117,339 Deferred revenue 46,875 56,248 Accounts payable & accrued expenses 39,692 (40,967) Net cash used in operating activities (860,065) (914,133) Cash flows from investing activities: Proceeds from maturity of held-to-maturity securities -- 1,319,572 Purchase of fixed assets (4,951) (7,705) Net cash used in investing activities (4,951) 1,311,867 Cash flows from financing activities: Proceeds from issuances of common stock 1,291,249 1,235,972 Purchase of treasury stock (268,521) (2,948,487) Net cash provided by (used in) financing activities 1,022,728 (1,712,515) Net increase (decrease) in cash and cash equivalents 157,712 (1,314,781) Cash and cash equivalents at beginning of year 853,210 3,806,172 Cash and cash equivalents at end of period $ 1,010,922 2,491,391 See accompanying notes to consolidated financial statements. RESEARCH FRONTIERS INCORPORATED Notes to Consolidated Financial Statements March 31, 2002 (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 three-month period ended March 31, 2002 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 consolidated the financial statements of the Company as of December 31, 2001 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 microscopic particles that are either incorporated within a liquid suspension or a film, which is usually enclosed between two glass or plastic plates, having transparent, electrically conductive coatings on the facing surfaces thereof. At least one of the two plates is transparent. During the second quarter of 2001, the Company, through its wholly-owned subsidiary, SPD Enterprises, Inc., invested approximately $750,000 for a minority equity interest in SPD Inc., a subsidiary of Hankuk Glass Industries Inc., Korea's largest glass manufacturer, which is dedicated exclusively to the production of suspended particle device (SPD) light-control film and a wide variety of end-products using SPD film. Patent Costs The Company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items. Adoption of New Accounting Pronouncements The Company adopted on January 1, 2002 Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment of Long-Lived Assets ,which addresses financial accounting and reporting for the impairment or disposal of long- lived assets. This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, while retaining the fundamental recognition and measurement provisions of that statement. SFAS No. 144 requires that a long-lived asset to be abandoned, exchanged for a similar productive asset or distributed to owners in a spinoff to be considered held and used until it is disposed of. However, SFAS No. 144 requires that management consider revising the depreciable life of such long-lived asset. With respect to long- lived assets to be disposed of by sale, SFAS No. 144 retains the provisions of SFAS No. 121, and therefore, requires that discontinued operations no longer be measured on a net realizable value basis and that future operating losses associated with such discontinued operations no longer be recognized before they occur. The implementation of SFAS 144 had no impact on the Company's financial position or results of operations. 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. Marketable Investment Securities During the second quarter of 2001, the Company determined that it may sell its marketable investment securities prior to their maturity dates in order to invest in other marketable securities, repurchase and retire its common stock, and for general working capital purposes. Accordingly, as of June 30, 2001, the Company transferred its classification of marketable securities from held-to- maturity to available-for-sale. As a result, the Company records the securities at fair value with the unrealized holding gain of $21,964 at March 31, 2002 recorded as a component of shareholders' equity. Shareholders' Equity Issuance of Common Stock For the three months ended March 31, 2002, the Company received $1,291,249 of net cash proceeds from (i) the issuance of 7,000 shares of common stock issued upon the exercise of options resulting in net proceeds of $68,015; (ii) 68,000 shares of common stock issued upon the exercise of warrants resulting in net proceeds of $1,058,923; and (iii) $164,311 of cash received in early January for the settlement of a warrant exercised in late December 2001. For the three months ended March 31, 2001, the Company received $1,235,972 of net cash proceeds from (i) the issuance of 7,100 shares of common stock issued upon the exercise of options resulting in net proceeds of $64,525 and (ii) 84,000 shares of common stock issued upon the exercise of warrants resulting in net proceeds of $1,171,447. Treasury Stock For the three months ended March 31, 2002, the Company purchased in the open market and subsequently retired 15,800 shares of treasury stock with an aggregate cost of $268,521. For the three months ended March 31, 2001, the Company purchased in the open market and subsequently retired 177,700 shares of treasury stock with an aggregate cost of $2,948,487. 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 components of comprehensive loss for the three months ended March 31, 2002 and 2001 are as follows: Three months ended Mar. 31,2002 Mar. 31,2001 Net loss $ (920,867) (993,822) Unrealized gain (loss) on securities: Unrealized holding gain (loss) arising during period $ (56,871) 2,594 Total comprehensive loss $ (977,738) (991,228) Performance Bonus Plan In December 2000, the Company's Board of Directors approved a performance bonus plan which provides for a bonus to be paid on or after July 2, 2001 and on or after January 2, 2002 equal to 1% of the increase, if any, in the Company's market value during the first and second halves of 2001. Bonuses are capped at a recipient's salary in the case of employees of the Company, and are currently capped at $57,222 in the case of non-employee directors of the Company. The Company's Board of Directors approved a similar bonus plan for 2002 but with higher thresholds to be met before a bonus is payable under such plan. In addition to the payment caps described above, under the current plan, in order to insure that bonuses are not paid based upon temporary fluctuations in the market value of the Company, bonuses under this plan will only be paid to the various participants under this plan if and when the market value of the Company exceeds $280,489,009 (and in the case of any bonus paid to Robert L. Saxe, if and when the market value of the Company exceeds $304,207,362). The Company recorded $0 and $37,487 of expenses in connection with these plans for the for the three months ended March 31, 2002 and 2001, respectively. Vesting of Performance Warrants During the first quarter of 2001, certain warrants granted to consultants in 1995 to purchase 7,000 shares of common stock became vested due to services performed and performance criteria being met. In accordance with EITF Issue 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," the Company recorded consulting expense of $43,596 during the first quarter of 2001, based upon the fair value of such warrants on the date the warrants vested as determined using a Black-Scholes option pricing model. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 consolidated financial statements, "Summary of Significant Accounting Policies"contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. We have entered into a number of license agreements covering potential products using the Company's SPD technology. Under these agreements, we generally recognize income from royalties when earned in accordance with the terms of the agreements. 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 research-related overhead expenses. 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 accordance with EITF Issue 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," the Company would be required to record consulting expenses based upon the fair value of such options or warrants on the date that such options or warrants vest as determined using a Black-Scholes option pricing model. Depending upon the difference between the exercise price and the market price of the Company's common stock on the date that such options or warrants vest, the amount of non-cash expenses that could be recorded as a result of the vesting of such options or warrants can be material. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and 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 for the Three Month Periods Ended March 31, 2002 and 2001 The Company's fee income from licensing activities for the first three months of 2002 was $53,125 as compared to $68,752 for the first three months of 2001. Operating expenses increased by $69,462 for the first three months of 2002 to $599,227 from $529,765 for the first three months of 2001. This increase was primarily the result of increased legal, marketing, public relations, travel and trade show expenses and stock listing fees, offset somewhat by lower payroll and office expenses, lower taxes and professional fees. Research and development expenditures decreased by $243,134 to $483,587 for the first three months of 2002 from $726,721 for the first three months of 2001. This decrease was primarily the result of lower patent, payroll and consulting expenses, and lower costs of materials. Operating expenses and research and development expenses listed above included amounts accrued under a performance bonus plan of $25,772 and $11,715, respectively during the first quarter of 2001. No amounts were accrued under the bonus plan with respect to the first quarter of 2002, and whether any bonuses will be paid by the Company will be determined based upon performance milestones achieved during the remainder of the Company's current fiscal year. The Company's net gain from its investing activities for the first quarter of 2002 was $108,822, as compared to a net gain from its investing activities of $193,912 for the first quarter of 2001. This difference was primarily due to a lower level of average investment balances in 2002 compared to 2001, and lower prevailing interest rates in the U.S. Treasury Markets. As a consequence of the factors discussed above, the Company's net loss was $920,867 ($0.08 per share) for the first three months of 2002 as compared to $993,822 ($0.08 per share) for the first three months of 2001. Financial Condition, Liquidity and Capital Resources During the first three months of 2002, the Company's cash and cash equivalent balance increased by $157,712 principally as a result of $1,291,249 of proceeds received, net of expenses, from the issuance of common stock upon the exercise of options and warrants, offset by cash used to fund the Company's operating activities of $860,065, and the repurchase and subsequent retirement of $268,521 worth of the Company's common stock in the open market. At March 31, 2002, the Company had working capital of $7,901,007 and its shareholders' equity was $8,930,599. In December 2000, the Company's Board of Directors approved a performance bonus plan which provides for a bonus to be paid on or after July 2, 2001 and on or after January 2, 2002 equal to 1% of the increase, if any, in the Company's market value during the first and second halves of 2001. Bonuses are capped at a recipient's salary in the case of employees of the Company, and are currently capped at $57,222 in the case of non-employee directors of the Company. The Company's Board of Directors approved a similar bonus plan for 2002 but with higher thresholds to be met before a bonus is payable under such plan. In addition to the payment caps described above, under the current plan, in order to insure that bonuses are not paid based upon temporary fluctuations in the market value of the Company, bonuses under this plan will only be paid to the various participants under this plan if and when the market value of the Company exceeds $280,489,009 (and in the case of any bonus paid to Robert L. Saxe, if and when the market value of the Company exceeds $304,207,362). As noted above, no bonuses are currently payable in connection with these plans so no amount has been accrued. On October 1, 1998, the Company announced that Ailouros Ltd., a London-based institutional money management fund, has committed to purchase up to $15 million worth of common stock of the Company through December 31, 2001. This commitment is in the form of a Class A Warrant issued to Ailouros Ltd. which gives the Company the option in any three-month period to deliver a put notice to Ailouros requiring them to purchase an amount of common stock specified by the Company at a price equal to the greater of (A) 92% of the seven-day average trading price per share of common stock, or (B) a minimum or "floor" price per share set by the Company from time to time. The pricing was initially subject to an overall cap of $15 per share, which cap has now been eliminated by mutual agreement so that the Company may put stock to Ailouros at selling prices in excess of $15 per share. However, the Company is not required to sell any shares under the agreement. Before the beginning of each of a series of three-month periods specified by the Company, the Company determines the amount of common stock that the Company wishes to issue during such three-month period. The Company also sets the minimum selling or "floor" price, which can be reset by the Company in its sole discretion prior to the beginning of any subsequent three-month period. Therefore, at the beginning of each three-month period, the Company will determine how much common stock, if any, is to be sold (the amount of which can range from $0 to $1.5 million during such three-month period), and the minimum selling price per share. In March 2000, Ailouros agreed to expand its commitment beyond the original $15 million, thereby giving the Company the right to raise additional funds from Ailouros so long as the Company does not have to issue more shares than were originally registered with the Securities and Exchange Commission, and in December 2001 the expiration date of the Class A Warrant was extended to December 31, 2003. 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 the next two 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. Related Party Transactions Statement of Financial Accounting Standards No. 57, "Related Party Disclosures" requires the Company to identify and describe material transactions involving related persons or entities and to disclose information necessary to understand the effects of such transactions on our consolidated financial statements. The Company has loaned two officers an aggregate of $152,961. Each of the aforementioned loans were made in April 1997 or prior thereto; are due in January 2003; relate to the purchase of common stock of the Company; are collateralized by the pledge of shares of common stock of the Company; may be prepaid in part or in full without notice or penalty; are represented by a promissory note which bears interest at a rate per annum equal to the broker call rate in effect on the first day of each calendar quarter; and permit repayment of the loan by delivery of securities of the Company having a fair market value equal to the balance of the loan outstanding. 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, 2001. There has been no material change in the disclosure regarding market risk. Forward Looking Statements The information set forth in this Report and in all publicly disseminated information about the Company, including the narrative contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" above, includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that section. Readers are cautioned not to place undue reliance on these forward-looking statements as they speak only as of the date hereof and are not guaranteed. PART II. OTHER INFORMATION 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, Chairman and Treasurer (Principal Executive, Financial, and Accounting Officer) Date: May 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----