UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008 Commission File Number 1-9399
RESEARCH FRONTIERS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-2103466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
As of March 10, 2009 there were 15,742,784 shares of Research Frontiers
Incorporated common stock outstanding. The aggregate market value of
the voting and non-voting common equity held by non-affiliates was
$91,960,369 computed in accordance with the rules of the SEC by
reference to the closing price of the Company's common stock as of June
30, 2008 which was $6.31. In making this computation, all shares known
to be owned by directors and executive officers of the Company and all
shares known to be owned by other persons holding in excess of 5% of the
Company's common stock have been deemed held by "affiliates" of the
Company, and awards of restricted stock subject to vesting are assumed
to have been fully issued and outstanding. Nothing herein shall prejudice
the right of the Company or any such person to deny that any such
director, executive officer, or stockholder is an "affiliate."
PART I
ITEM 1. BUSINESS
General
Research Frontiers Incorporated ("Research Frontiers" or
the "Company") develops and licenses its patented suspended
particle device ("SPD-Smart") light-control technology to other
companies that manufacture and market either the SPD-Smart
chemical emulsion, light-control film made from the chemical
emulsion, lamination services, electronics to power end-
products incorporating the film, or the end-products themselves
such as "smart" windows, skylights and sunroofs. Research
Frontiers currently has 35 companies that, in the aggregate, are
licensed to serve four major SPD-Smart application areas
(aerospace, architectural, automotive and marine products) in
every country of the world.
Research Frontiers was incorporated in New York in 1965
to continue early work that Dr. Edwin Land, founder of Polaroid
Corporation, and others had done in the area of light-control
beginning in the 1930s. Research Frontiers was reincorporated
in Delaware in 1989. Since 1965, Research Frontiers has
actively worked to develop and license its own SPD technology,
which it protects using patents, trade secrets and know-how.
Although patent and trade secret protection is not a guarantee of
commercial success, Research Frontiers currently has over 500
patents and pending patent applications throughout the world
protecting its technology, positioning it as a leader of advanced
light, glare and heat control for windows and other glazing
products.
SPD-Smart products use microscopic light-absorbing
particles that are typically suspended in a film. These particles
align when an electrical voltage is applied, thus permitting light
to pass through the film. Adjustment of the voltage to the SPD
film gives users the ability to instantly, precisely and
consistently regulate the amount of light, glare and heat passing
through the window, skylight, sunroof, window shade or other
SPD-Smart end-product.
SPD technology is an "enabling" or "transforming"
technology that may have wide commercial applicability in
many types of products and industries where variable light
transmission is desired, such as:
- "smart" windows, skylights, partitions, doors, and
sunshades for the architectural, aircraft, marine,
automotive and appliance industries;
- variable light transmission sunglasses, goggles, visors
and other eyewear;
- self-dimmable automotive sunroofs, sunvisors and
rear-view mirrors; and
- flat panel information displays for use in billboards,
scoreboards, point-of-purchase advertising displays,
traffic signs, computers, telephones, PDAs and other
electronic instruments.
Research Frontiers considers the SPD industry to be in the
initial phase of growth and sales of SPD-Smart products for
aircraft windows, smart windows and skylights for homes and
offices, sunroofs and side-and rear-windows for cars, boats,
busses and other transportation vehicles. Some of these early
sales and uses have been commercial installations and some
have involved concept and test installations by licensees and
their customers (see "Trends and Recent Developments"
below). Some of our licensees consider the stage of
development, product introduction strategies and timetables,
and other plans to be proprietary or secret, and as such cannot
be disclosed by Research Frontiers until such licensees, or their
customers, make their own public announcements or product
launches.
In addition to the near-term product applications listed
above, prototypes of SPD-Smart flat panel displays, eyewear,
and self-dimming automotive rear-view mirrors have been
developed. These prototypes demonstrate the feasibility and
operation of the products they relate to, but in some cases may
need additional product design, engineering or testing before
commercial products can be introduced.
Recent progress with regard to market development and
commercialization activity has been the result of focused and
active efforts by Research Frontiers and its key production and
end-product licensees who have invested in product
development and improvements, production facilities, increased
production capacity, durability, performance testing, quality
control and assurance, and marketing programs. Licensees
supplying chemical emulsion or film to end-product licensees
now are increasing production capacity to prepare for
potentially large and developing markets for SPD-Smart
products. Research Frontiers believes that with the normal
progression of product and manufacturing improvements, and
as licensees become more experienced at the lamination,
fabrication and installation of SPD-Smart products for various
applications, the adoption rates for SPD-Smart products will
grow and accelerate, resulting in a growing stream of royalty
income for the Company.
As part of their marketing and branding programs, many of
our licensees have developed their own trademarks for SPD-
Smart emulsion, film, and end-products and these are listed in
their respective press releases, product brochures, advertising
and other promotional materials. Research Frontiers uses the
following trademarks: SPD-Smart(tm), SPD-SmartGlass(tm),
VaryFast(tm), SPD-CleanTech(tm), SPD Clean Technology(tm),
SmartGlass(tm), The View of the Future - Everywhere you
Look(tm), Powered by SPD(tm), Powered by SPD-CleanTech(tm),
Powered by SPD Clean Technology(tm), SPD Green and
Clean(tm), SPD On-Board(tm), Speed Matters(tm), and Visit
SmartGlass.com - to change your view of the world(tm).
In each of the last three fiscal years the Company has
devoted substantially all of its time to the development of one
class of products, namely SPD-Smart light-control technology,
and therefore revenue analysis by class is not provided herein.
The Company does not believe that future sales will be
seasonal in any material respect. Due to the nature of the
Company's business operations and the fact that the Company
is not presently a manufacturer, there is no backlog of orders for
the Company's products.
The Company believes that compliance with federal, state
and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, will not
have a material effect upon the capital expenditures, earnings
and competitive position of the Company. The Company has no
material capital expenditures for environmental control
facilities planned for the remainder of its current fiscal year or
its next succeeding fiscal year.
Industry Trends
While economic activity around the world is currently in a
severe downturn, there are also favorable converging trends in
the major near-term markets for SPD-Smart products. These
trends are gaining momentum and strength. In both public and
private sectors across the world, there are substantial efforts
targeted toward the promotion and use of energy efficient
materials, including those used in windows and other glazings
for homes, buildings, automobiles, aircraft and boats. For
example, as part of its sustainable design strategies, the
architectural community is actively using "daylight harvesting"
systems to more effectively capture and control natural light as
part of energy reduction strategies to offset electricity used by
artificial lighting. There also is a growing trend toward the use
of more glass in all of the near-term SPD markets. In addition to
design, aesthetic and other benefits, this expanded use of glass
also supports a growing body of research which finds that the
presence of natural light improves the well-being and
productivity of individuals. Products using SPD-Smart light-
control technology can play an important role in supporting
these converging global trends.
For architectural applications, a number of market forces
are having an upward influence on demand for SPD-Smart
glass. Many architects are specifying more glass in their designs
to support building occupants' sense of connectedness to the
outside environment. Also significant is the heightened
attention to energy efficiency in both commercial and
residential buildings. With buildings in the United States and
Europe now accounting for an estimated 39-40% of total energy
use and upwards of 70% of electricity consumption, many
architects and building owners are striving for sustainable,
"green" buildings that are highly energy-efficient, reduce
environmental impact, and improve occupant health and well-
being. In addition, the design community is increasingly
interested in advanced daylighting systems in buildings that
lower electrical lighting usage and reduce heating and cooling
loads. Because of this, the ability to control light, glare and heat
in these building applications is very important and advanced
solutions often are needed to optimize operating efficiencies.
SPD-Smart technology, especially when integrated with
intelligent building systems, provides effective shading, glare
control and heat management solutions for offices and homes.
As a result, architects and developers are now specifying SPD-
Smart products in their projects, and both the number and size
of these projects are increasing. An example of a recently
completed project is the substantial installation of SPD-
SmartGlass at Indiana University's Health Information and
Translational Sciences Building.
In the automotive industry, global trends include the
introduction of larger sunroofs and panoramic roof panels in
transportation vehicles, and a higher percentage of these
vehicles having a sunroof or using more glass in the roof. In
addition, automobile manufacturers are beginning to introduce
"cielo" glass systems where the windshield of the vehicle joins
with the glass in the roof of the vehicle to form one continuous
piece of curved glass. The SPD-Smart component of these cielo
systems can start with the blue band on the top of the
windshield (the rest of the windshield would not use any kind of
dark tint because regulations require that the main part of the
windshield not have less than 70% light transmission at all
times) and extend back to encompass the entire glass roof.
Some automakers have recently begun to incorporate SPD-
SmartGlass in concept vehicles, with some of these concept
vehicles being exhibited at major auto shows and are
developing SPD-Smart glass products for production vehicles as
well. SPD-SmartGlass has also been shown in armored
automotive glass applications.
In the aerospace industry there is also a trend towards
larger windows, most notably in the "transport category"
(commercial passenger aircraft) segment. The world's two
largest aircraft manufacturers have announced their interest to
include electronic smart window shades in their aircraft, and
strong interest exists at other OEMs as well. Electronic aircraft
window shades may use SPD technology, or may use other
smart window technologies such as liquid crystal or
electrochromic technology. For use in aircraft, SPD-Smart
window shades are made of plastic instead of glass to save
weight for a given window thickness, and to avoid breakage
risks. The Company believes its SPD technology offers
important performance advantages over other technologies
including weight-savings and faster, more uniform response
time. To date, SPD technology is also the only commercially
available light-control smart window technology known to have
passed the stringent safety and durability tests required by the
aviation industry. Today SPD-Smart window shades are flying
in various aircraft including those used in general aviation
(private and business aircraft) and military aviation. SPD-Smart
window shades are also beginning to be used in commercial
passenger aircraft.
In the marine application for SPD-Smart technology, to
satisfy various objectives, many yacht manufacturers currently
employ less than ideal glazing solutions. For example, some
report having to use as many as five different types of glass in a
typical yacht to satisfy diverse glazing needs. SPD-Smart
window technology can reduce the number of different types of
glass used in these yachts because of its increased functionality
and superior performance and versatility. SPD-SmartGlass has
appeared in glass designed for yachts and other marine vessels.
Because boat operators experience substantial exposure to
direct sunlight, SPD-Smart products provide an innovation that
allows these operators to manage incoming light, glare and heat
while achieving privacy or maintaining one's view as needed or
desired.
Products using SPD-Smart technology continue to be
exhibited at trade shows, conferences, and industry events, with
such products not only being exhibited by our licensees but also
by their customers and by original equipment manufacturers.
While there can be no assurance that these trends will continue,
to the extent that they do continue, each should have a
beneficial effect on future fee income for the Company.
In June 2008, The Freedonia Group, a highly regarded
independent market research firm serving the glass industry and
others, announced the release of its 2008 Advanced Glass
Study. In that study, Freedonia projected a compound annual
growth rate in United States smart glass demand through 2017
of 10.2%, a level more than twenty times the rate for flat glass
demand overall in the U.S. Further, in the narrative
accompanying the release of this study, Freedonia shared these
very positive comments about SPD technology:
"[D]emand for smart glass is expected to finally have a
significant impact outside of the electrochromic mirrors and
liquid crystal display privacy glass that have been available for
some years. The much-awaited commercial roll-out of
suspended particle device (SPD) smart glass technologies is
now expected to occur, sparking well above average growth for
the category through 2012."
Historical Background and Recent Developments
In April 2004, SPD Inc., which at that time was the sole
manufacturer of SPD-Smart light control film and a subsidiary
of Hankuk Glass Industries, a former licensee of the Company,
announced that it was ceasing its business activities. As a result,
sales of SPD-Smart products by licensees of the Company
during most of 2004, 2005 and 2006 were curtailed as these
licensees filled certain customer orders out of limited existing
inventory of SPD-Smart light control film made by SPD Inc.
while awaiting production of the next-generation, emulsion-
based SPD-Smart light control film with its improved
performance characteristics.
After this hiatus in SPD film availability, a number of
significant events began in 2007 and continue through 2009 that
have helped the development of the Company's business
worldwide.
On February 1, 2007, Hitachi Chemical Company jointly
announced with Innovative Glass Corp. that Hitachi Chemical
was shipping rolls of wide-width SPD-Smart film from its high-
capacity coating lines in Ibaraki, Japan. This film involves
next-generation SPD light-control film which has better optical
properties, lower haze levels, and a wider range of light
transmission than the film previously produced by SPD Inc. The
new emulsion-based film uses extraordinarily low amounts of
power to operate, further adding to its appeal. This next-
generation film is expected to help penetrate markets for SPD-
Smart light-control technology.
Research Frontiers licensee InspecTech Aero Service Inc.
reported that it received FAA certification for, and has installed
SPD-Smart windows on, various aircraft. Initially, these
installations involved aftermarket upgrades by select customers
to existing aircraft. On February 9, 2007, Raytheon Aircraft
Company (now known as the Hawker Beechcraft Corporation)
announced that it is offering to its aftermarket customers SPD-
Smart electronic window shades, manufactured by InspecTech
Aero Service, on Raytheon's Beechcraft(r) King Air aircraft. A
Supplemental Type Certificate (STC) was issued by the FAA in
January 2007 to InspecTech for all models of King Air aircraft,
and additional aircraft manufacturers and their airline
customers are currently evaluating SPD-Smart window shades
for their aircraft. InspecTech reports having engineered SPD-
Smart windows for other aircraft in response to their work with
various aircraft manufacturers.
On October 1, 2007, Isoclima S.p.A. launched its
marketing program for its CromaLite(tm) brand of SPD-Smart
glass. Isoclima featured CromaLite at Vitrum 2007 from
October 3-6 in Milan, Italy and at the 47th International Boat
Show in Genoa, Italy from October 6-14. Vitrum 2007 is the
international trade fair for machinery, equipment and systems
for the processing of flat and hollow glass. Isoclima also
exhibited SPD-Smart glass to the marine market at the 48th
Genoa International Boat Show in Genoa, Italy in October
2008. These boat shows are some of the world's leading marine
shows.
Research Frontiers and its licensees are currently working
with multiple automotive manufacturers to introduce SPD-
Smart windows, sunroofs and roof systems on both concept and
production vehicles.
In September 2008, the automotive glass business of PPG
Industries (now known as Pittsburgh Glass Works, LLC), was
licensed to make SPD-Smart automotive glass products,
including windows, sunroofs and roof glass systems. Pittsburg
Glass Works is North America's largest automotive glass
producer. With the addition of Pittsburgh Glass Works, the
Company's large automotive glass licensees account for the
vast majority of all glass produced for the automotive market
throughout the world.
At the 40th Tokyo Motor Show 2007, Hino Motors, Ltd., a
subsidiary of Toyota Motor Corporation, featured a new
concept S'elega Premium motorcoach with variable tint side
windows using Research Frontiers' patented SPD-Smart light-
control technology. The S'elega Premium on display at the
Tokyo Motor Show had five large SPD-Smart side window
panels with over 11 square meters of curved glass (more than
120 square feet).
On October 30, 2007, Research Frontiers licensee
American Glass Products (AGP) introduced its new SPD-Smart
products at the SEMA show in Las Vegas. These new SPD-
Smart products, introduced initially for the automotive
aftermarket and offered under the brand name AGP Vario Plus-
Sky, use Research Frontiers' patented SPD-Smart technology
that enables users to instantly, precisely and consistently control
the amount of light, glare and heat passing through glass or
plastic. At the SEMA show, AGP announced that its Vario Plus
side- and rear-windows were available for 22 vehicle models in
the United States market, with an additional 4 models under
development. For the smart sunroof application, AGP
announced that its Vario Plus products are under development
for over 50 vehicle models in the US market. Additionally,
AGP indicated that its Vario Plus windows and sunroofs are
also under development for many more vehicle models
worldwide, and that AGP can custom manufacture these
products for virtually any vehicle. At the SEMA show, AGP
also announced the launch of a global marketing campaign for
its Vario Plus products. In October 2008, AGP announced a
strategic technology partnership with DiMora Motorcar, and its
plans to provide its Vario Plus-Sky brand of SPD-SmartGlass(tm)
for DiMora Motorcar's Natalia SLS 2 sport luxury sedan.
Within the automotive market, a potentially significant
submarket is the armored glass market. Armored glass
(sometimes referred to as "transparent armor" and "bullet
resistant glass") encompasses the military, non-military
government, and civilian markets. While each of these
submarkets have their own unique characteristics, some
common characteristics include high price points, reduced price
sensitivity, fast development cycles to incorporate new glass
into vehicles, and the ability to incorporate SPD-Smart glass as
an aftermarket upgrade. In addition, SPD-Smart technology in
this market not only provides the usual benefits of light-control
and UV blockage, but also adds enhanced security by
introducing darker tints and privacy. A number of the
Company's licensees such as American Glass Products, GKN
Aerospace, Isoclima and Pittsburgh Glass Works are
recognized industry leaders in the armored glass market and
have developed and/or exhibited publicly armored SPD-Smart
glass.
Our market research suggests that about 20,000 to 25,000
non-military vehicles (utilizing between approximately 215,000
to 800, 000 square feet of glass) are built annually, either as
specialty models by the automobile OEMs or by aftermarket
converters, who account for the majority of sales of such
vehicles. Given the relatively short development cycles
(especially in the aftermarket segment), good price points, and
in light of the ongoing work being done by our licensees in this
field for specific government and civilian customers, armored
vehicles have the potential to become an important source of
near-term royalty revenue to Research Frontiers.
In February 2008, GKN Aerospace Transparency Systems
acquired a license covering SPD-Smart armored glass for
vehicles. GKN is a world leader in armored transportation
vehicles for both military and civilian vehicles.
In October 2008, licensee Isoclima S.p.A. debuted at
Security Essen 2008 and at Glasstec 2008 a Fiat Croma
automobile outfitted by Isoclima with SPD-SmartGlass(tm). The
Fiat Chroma featured five panels of Isoclima S.p.A.'s
Cromalite(r) SPD-SmartGlass including two rear sidelites, two
rear quarterlites and one backlite. The SPD-Smart glass for this
vehicle uses remote control operation to instantly adjust light
and glare coming through the windows. Isoclima also had a
broader exhibit at these shows demonstrating a BMW Series 7
armored glass rear side window and other automotive products
using its Cromalite(r) brand of SPD-Smart glass.
There have been several recent milestones in the
architectural application for SPD-Smart technology as well.
In December 2007 AGC Flat Glass Europe (a wholly-
owned subsidiary of Asahi Glass, the world's largest glass
company) acquired a new license covering SPD-Smart
architectural window applications.
In September 2008, Research Frontiers licensee
SmartGlass International launched its line of SPD-SmartGlass
architectural window products at the 100% Detail show in
London, England. The show focuses on the latest developments
in sustainability, innovation and design for the building
environment, and SmartGlass International exhibited four large
SPD-SmartGlass panels that were used in the walls of a circular
meeting room at their stand at the show. These panels used
second-generation SPD-Smart film supplied by Hitachi
Chemical Co., Ltd. with lamination done by SGI at their new
and expanded manufacturing facility in Dublin, Ireland which
houses the company's design, tempering, laminating and
quality control operations, as well as its product showroom.
SmartGlass International also announced the recent completion
of a multi-panel SPD-Smart roof-lite project in London. At the
100% Details show, SmartGlass International's SPD-Smart
products won the show's Most Innovative Building Product
Award.
In November 2008, SPD Control Systems Corporation, a
licensee of Research Frontiers, was an exhibitor at the 2008
Advanced Energy Conference in Hauppauge, New York, and
demonstrated its 8-window Roadrunner controller at the
conference. This controller, which was specifically designed for
SPD-Smart windows and initially designed for the automotive
market, is also being adapted for use in the architectural,
marine and aerospace industries. The Roadrunner controller
allows for the control of single or multiple SPD-Smart windows
by several methods including manual dimmer or slider controls,
automatic control from on-board systems, and self-regulated
control via sensors. Earlier in the year in February, SPD Control
Systems announced that it was awarded a $580,000 matching
funds contract from the New York State Energy Research and
Development Authority (NYSERDA) for the development and
demonstration of a control system for architectural SPD-Smart
window products. SPD Control Systems' Wireless Building
Control System include 8-window controllers (leveraging the
company's controller designs for the automotive industry),
advanced sensors, dynamic tinting algorithms and other
distinctive operating features including an interface with other
building services such as heating, ventilation and air
conditioning (HVAC) and lighting.
Activity in the SPD industry continued in 2009. In January
2009, Research Frontiers and its licensee SmartGlass
International announced that they will feature SPD-SmartGlass
at the Chameleon Materials exhibition hosted by the
Technological Institute FCBA of Paris, France. The Chameleon
Materials exhibition is open to the public from February
through September 2009 and is arranged particularly for
architects, designers, interior decorators and others serving the
architectural market.
In February 2009, Research Frontiers' licensee Innovative
Glass Corp. announced the completion of the world's largest
SPD-Smart glass project at Indiana University using next-
generation SPD-Smart light control film. The project used
almost 800 square feet of SPD-Smart glass in 59 interior and
nine large exterior smart glass panels.
In addition to supporting the efforts of its licensees,
Research Frontiers also recognizes the need to develop the SPD
industry as a whole. As such, the Company continues to plan
and execute complementary programs that build awareness and
interest in smart glass generally and demand for SPD-Smart
technology specifically. These programs include presentations
at various general industry conferences, participation in panel
presentations and discussions hosted by academia, development
of trade association educational materials, and presentations to
architects, designers, and other influential specifiers.
The Company's market development department has a
number of other initiatives in place. To help guide and
prioritize its technical and marketing investments, the Company
has also retained outside strategic marketing and other
consultants to help generate increased short and medium term
market penetrations for each of the major markets for the
Company's light-control technology, and to provide support and
guidance to the Company's licensees worldwide.
The Company also has emerged as the world's leading
resource for market research information on the subject of
smart glass. Summary results of several first-of-their-kind
research studies have been shared with industry, posted to the
Company's website for global dissemination and reference, and
used as the basis for media coverage and bylined articles.
Examples of the aforementioned activities over the past year
include:
(1) In April, the results of a first-of-its-kind market research
study was presented at the 2008 Society of Vacuum Coaters
Symposium on Cleantech Energy Conversion and Storage. In
addition to summarizing trends in clean technology, Research
Frontiers' presentation highlighted the expansion of smart glass
into large-format applications, discussed daylighting
applications for smart glass, and featured the results of a United
States survey of architecture professionals on the subject of
smart glass, daylighting and clean technology.
(2) In June, Research Frontiers presented the results of a market
research study at the Clean Technology 2008 conference in
Boston, Massachusetts. The presentation discussed smart glass
and its applicability as a clean technology for architectural
daylighting. It further summarized the results of a first-of-its-
kind nationwide study of architecture professionals on the
subject of smart glass, daylighting and sustainability. At this
conference, Research Frontiers also served as an industry
panelist for a workshop on clean technologies for green
buildings.
(3) In October, Research Frontiers was invited to speak at the
Fall Conference of the Fenestration Manufacturers Association
in Marco Island, Florida. A presentation entitled "Smart Glass
and Sustainable Buildings" was given.
Research Frontiers also maintains an active role with
various standards-setting organizations. These organizations
include ASTM International and the National Fenestration
Rating Council (NFRC), both of which have had or continue to
have active committees developing standards for smart glass.
As part of the mission to develop the industry and to
support our licensees' acquiring specific SPD projects, in March
of 2009 Research Frontiers announced the completion of the
SPD-SmartGlass Design Center. Research Frontiers and its
licensees have begun to host a series of events at this new
facility. This center, which is also configured as an interactive
and energy-efficient "smart" executive office and conference
room, is located at the Company's corporate headquarters in
Woodbury, New York. The SPD-SmartGlass Design Center
features leading-edge SPD-Smart windows of different sizes
(some floor-to-ceiling) and framing materials. It has a multi-
functional electronic controller system for manual, remote, and
automatic smart glass switching, and includes a large enclosed
area where private meetings and video presentations can be
held. Adjacent to the Design Center, an interactive exhibit is
being designed to provide guests with a history of smart glass,
and also to showcase early generations and state-of-the-art
examples of SPD-Smart products. This interactive area will also
contain other types of smart glass, such as those using liquid
crystal and electrochromic technologies, allowing users to
operate and experience first-hand the differences in
performance characteristics of different types of smart glass.
Licensees of Research Frontiers
Currently, the Company's 35 licensees are categorized into
four main areas: materials for making films (emulsions); film;
lamination of film to glass or plastic, and end-products.
Emulsion makers produce and combine the necessary materials
(i.e. SPD particles and various liquids and special polymers)
from which SPD-Smart films are made. The film makers coat a
thin layer of emulsion between two sheets of plastic film, each
of which has a transparent conductive coating. This emulsion is
then partly solidified to form an SPD film that allows users to
control the amount of light, glare and heat passing through this
film. The end-product licensees then integrate this film into a
variety of SPD-Smart products, or make electronic systems to
control such SPD-Smart products. Some of these end-product
licensees do their own lamination of the SPD light-control film
to glass or plastic, and some outsource this lamination to other
companies.
The following table summarizes Research Frontiers' existing
license agreements and lists the year into which these agreements
were entered:
Licensee Products Covered Territory
American Glass Products Architectural and automotive windows (2002) Worldwide
(except Korea)
Asahi Glass Company SPD-Smart automotive windows and sunroofs(2006) Worldwide
AGC Automotive Americas Sunroof glass for other licensees (2001) Worldwide
(f/k/a AP Technoglass Co.)
AGC Flat Glass Europe SA Architectural windows (2007) Worldwide
(f/k/a Glaverbel SA)
Avery Dennison Corp. SPD displays (2001) Worldwide
BOS GmbH Variable light transmission SPD sunshades Worldwide
and sunvisors. (2002)
BRG Group, Ltd. Architectural and automotive windows (2002) Worldwide
(except Korea)
Craftsman Fabricated SPD film lamination for other licensees(2007) Worldwide
Glass
Cricursa Cristales Curvados Architectural and automotive windows(2002) Worldwide
(except Korea)
Custom Glass Corporation Windows and sunroofs for mass Worldwide
transit trains/busses; SPD film (except Korea)
lamination for other licensees (2003)
Dainippon Ink and SPD emulsions (1999) and films (2006) Worldwide
Chemicals Incorporated for other licensees
E.I. DuPont de Nemours Architectural and automotive windows;SPD Worldwide
emulsions and films for other licensees (2004)
Film Technologies SPD film for other licensees and Worldwide
International prospective licensees (2001)
GKN Aerospace Transpar- Armored vehicle windows (2008) Worldwide
ency Systems Inc.
Global Mirror GmbH Rear-view mirrors and sunvisors (1999) Worldwide
Hotel Technologies LLC SPD-Smart architectural window products Worldwide
for the hotel industry (2004)
Hitachi Chemical Co.,Ltd SPD emulsions and films for other Worldwide
licensees (1999)
Innovative Glass Corp. Architectural windows (2003) US,Canada,
and Mexico
InspecTech Aero Service Aircraft and marine windows and cabin Worldwide
dividers (2001) (except Korea)
Isoclima S.p.A. Architectural and automotive windows; SPD Worldwide
emulsion and film for other (except Korea)
licensees (2002)
Kerros Limited Automotive windows and sunroofs (2003) Worldwide
(except Korea)
for aftermarket
and UK only
for OEMs
Laminated Technologies Inc. SPD film lamination for
other licensees (2002) Worldwide
Leminur Limited Architectural windows (2003) Russia and
countries of
former Soviet
Union
Nippon Sheet Glass Co., Ltd SPD film for other licensee (2004) Worldwide
Pilkington plc SPD film lamination for other licensee (2004) Worldwide
Pittsburgh Glass Works,LLC SPD-Smart automotive windows Worldwide
(f/k/a automotive glass business and sunroofs(2008)
of PPG Industries, Inc.)
Polaroid Corporation SPD emulsions and films for other Worldwide
licensees (2000)
Prelco Inc. Architectural windows,train and bus US,Canada,
windows (2004) and Mexico
Saint-Gobain Glass France Architectural windows, automotive and other Worldwide
transportation vehicle windows (other than (except
aircraft and spacecraft), kitchen and laundry Korea)
home appliance windows, and automotive sunvisors
and rear-view mirrors for cars, SUVs, light
trucks and other transportation vehicles (other
than as original equipment mirrors on heavy trucks,
busses, construction vehicles, firetrucks and other
vehicles in Class 5-8 or weighing over 16,000
pounds) (2003)
SmartGlass International Ltd Architectural windows(2007) Ireland,United Kingdom
SPD Control Systems Corp Electronics and building control systems(2005)Worldwide
SPD Technologies, Inc. Architectural windows (2002) Worldwide
(f/k/a Razor's Edge (except Korea)
Technologies, Inc.)
SPD Systems, Inc. Architectural, appliance and marine windows (2002)Worldwide
(except Korea)
ThermoView Industries, Inc. Architectural windows (2000) Worldwide
(except Korea)
Traco, Inc. Architectural windows (2003) Worldwide
(except Korea)
Licensees of Research Frontiers who incorporate SPD
technology into end-products will pay Research Frontiers a
royalty of 5-15% of net sales of licensed products under license
agreements currently in effect, and may also be required to pay
Research Frontiers fees and minimum annual royalties.
Licensees who sell components (such as SPD emulsion or film)
or lamination services to other licensees of Research Frontiers
do not pay a royalty on such sale or service, and Research
Frontiers will collect a royalty from the licensee incorporating
these components into their own SPD-Smart end-products.
Research Frontiers' license agreements typically allow the
licensee to terminate the license after some period of time, and
give Research Frontiers only limited rights to terminate before
the license expires. The licenses granted by the Company are
non-exclusive and generally last as long as our patents remain
in effect. Due to their bankruptcy filings or other termination of
their general business activities or for other reasons, the
Company does not believe that Polaroid Corporation, Kerros
Limited, ThermoView Industries, BRG Group, SPD
Technologies and Film Technologies International are pursuing
business activities with respect to SPD technology. Also the
Company and licensee N.V. Bekaert, S.A mutually agreed to
terminate their license agreement during 2008 for reasons
unrelated to SPD technology. Some of the Company's other
licensees are currently inactive with respect to SPD technology,
but may hereafter become active again. To date, the Company
has not generated sufficient revenue from its licensees to
profitably fund its operations.
Although the Company believes based upon the status of
current negotiations that additional license agreements with
third parties will be entered into, there can be no assurance that
any such additional license agreements will be consummated,
or of the extent to which any current or future licensee of the
Company will produce or sell commercial products using the
Company's technology or generate meaningful revenue from
sales of such licensed products.
The Company plans to continue to exploit its SPD-Smart
light-control technology by entering into additional license and
other agreements with end-product manufacturers such as
manufacturers of flat glass, flat panel displays and automotive
products, and with other interested companies who may wish to
acquire rights to manufacture and sell the Company's
proprietary emulsions and films.
The Company's plans also call for further development of
its technology and the provision of additional technological and
marketing assistance to its licensees to develop commercially
viable SPD-Smart products, and expand the markets for such
products. The Company cannot predict when or if new license
agreements will be entered into or the extent to which
commercial products will result from its existing or future
licensees because of general economic conditions and the risks
inherent in the developmental process and because
commercialization is dependent upon the efforts of its licensees
as well as on the continuing research and development efforts
of the Company.
On March 10, 2009 the Company had twelve full-time
employees, five of whom are technical personnel, and the rest
of whom perform legal, marketing, investor relations, and
administrative functions. Of these employees, two have
obtained doctorates in chemistry, one has a masters degree in
chemistry, one has extensive industrial experience in
electronics and electrical engineering, and one has majored in
physics. Three employees also have additional postgraduate
degrees in business administration, including one doctorate in
organization and management. Also the Company's suppliers
and licensees have people on their teams with advanced degrees
in a number of areas relevant to the commercial development of
products using the Company's technology. The success of the
Company is dependent upon, among other things, the services
of its senior management, the loss of which could have a
material adverse effect upon the prospects of the Company.
Competitive Technologies
The Company believes that its SPD light-control
technology has certain performance advantages over other
"smart glass" technologies which electrically vary the amount
of light passing through windows and other smart products.
Since the non-SPD technologies listed below do not have
published consistent pricing or cost data that can be relied upon,
the Company does not describe any relative cost advantages
that SPD technology might have over these other technologies.
Variable light transmission technologies can be classified
into two basic types: "active" technologies that can be
controlled electrically by the user either automatically or
manually, and "passive" technologies that can only react to
ambient environmental conditions such as changes in lighting
or temperature. One type of passive variable light transmission
technology is photochromic technology; such devices change
their level of transparency in reaction to external ultra-violet
radiation. As compared to photochromic technology, the
Company's SPD technology permits the user to adjust the
amount of light passing through the viewing area of the device,
rather than the viewing area of the photochromic device merely
reacting to external radiation. In addition, the reaction time
necessary to change from light to dark with SPD-Smart
technology can be almost instantaneous, as compared to the
much slower reaction time for photochromic devices. Also,
unlike SPD technology, photochromic technology does not
function well at the high and low ends of the temperature range
in which smart windows and other devices are normally
expected to operate, nor does photochromic technology perform
well in vehicles or other enclosed settings where existing glass
are blocking incoming ultra-violet light which is required for
photochromic devices to operate..
Active, user-controllable technologies, sometimes referred
to as "smart" technologies, are generally more useful than
passive technologies because they allow the user to actually
control the state of the window. This control is achieved with a
manual adjustment, or automatically when coupled with a timer
or sensing device such as a photocell, motion detector,
thermostat or other intelligent building system. There are three
main types of active devices which are compared below:
- Electrochromic devices (EC)
- Liquid crystal devices (LC)
- Suspended-particle devices (SPD)
Electrochromic Technology: Electrochromic windows and rear-
view mirrors use a direct current voltage to alter the molecular
structure of electrochromic materials (which can be in the form
of either a liquid, gel or solid film) causing the material to
darken. When compared to electrochromic devices, SPD
technology is expected to have numerous potential performance
and manufacturing advantages, including some or all of the
following:
- faster response time
- ability to precisely "tune" intermediate light-transmission states
- consistent switching speed regardless of size of glazing area
- more reliable performance over a wider temperature range
- higher contrast ratios and the capability of achieving
darker shaded states for large area product applications
- default state (state requiring no power) is dark,
maximizing solar heat gain benefits
- lower electrical current drain
- higher estimated battery life in applications where
batteries are used
- no "iris effect" (where light transmission changes first
occur at the outer edges of a window or mirror and then
work their way toward the center) when changing from
clear to dark and back again
- SPD technology is a film-based technology that can be
applied to plastic as well as glass, and which can be
applied to curved as well as flat surfaces.
Many companies with substantially greater resources than
Research Frontiers such as 3M, Gentex Corp., Pilkington, PPG
Industries, Saint-Gobain Glass and other large corporations
have pursued or are pursuing projects in the electrochromic
area. While some of these companies have reportedly
discontinued or substantially curtailed their work on
electrochromics due to technical problems and issues relating to
the expense of these technologies, at least four companies,
Saint-Gobain Glass, Sage Electrochromics, Inc., Gentex Corp.
and PPG Industries are currently actively working to
commercialize electrochromic window products.
Liquid Crystal Technology: To date, the main types of liquid
crystal smart windows have been produced by Taliq Corp. (a
subsidiary of Raychem Corp. which has since discontinued its
liquid crystal operations and licensed its technology to others),
Asahi Glass Co., Nippon Sheet Glass, Saint-Gobain Glass,
Polytronix, Inc., DMDisplays, iGlass Projects Pty Limited, and
3M (which has also reportedly discontinued its liquid crystal
film making operations). The first three companies listed above
are also licensees of Research Frontiers Inc. for SPD-Smart
technology. Liquid crystal windows only change from a cloudy,
opaque milky-white to a clear state, are hazy when viewed at an
angle and have no useful intermediate states. As compared to
liquid crystal windows, SPD smart windows are expected to
have some or all of the following advantages:
- have less haze
- operate over a wider temperature range
- use less power
- have higher contrast ratios
- absorb and shade light, rather than simply scattering it
- permit an infinite number of intermediate states between a
transparent state and a dark blue state, rather than being
just two states.
- offer superior solar heat gain control
In the flat panel display market, further development (such
as the achievement of faster switching speeds sufficient for full-
motion video applications) is required if the Company expects
to compete against various display technologies that are
currently being used commercially such as liquid crystal
displays ("LCDs") and organic light-emitting diodes
("OLEDs"). Some of the advantages that SPD displays might
have include the ability to make displays without using sheet
polarizers or alignment layers, and lower light loss and a
corresponding reduction in backlighting requirements. Because
of further development work to be done in this area, the
Company cannot estimate when, or if, its licensees may begin
to penetrate the flat panel display market.
LCDs and other types of displays, liquid crystal windows,
as well as electrochromic self-dimmable rear-view mirrors, are
already on the market, whereas products incorporating SPD
technology (as well as electrochromic windows) have only
begun to appear in the marketplace. Therefore, the long-term
durability and performance of SPD-Smart displays have not yet
been fully ascertained. The companies manufacturing LCD and
other display devices, liquid crystal windows, and
electrochromic self-dimmable rear-view mirrors and windows,
have substantially greater financial resources and
manufacturing experience than the Company. There is no
assurance that comparable systems having the same advantages
of the Company's SPD technology could not be developed by
competitors at a lower cost or that other products could not be
developed which would render the Company's products
difficult to market or technologically or otherwise obsolete.
Research and Development
As a result of the Company's research and development
efforts, the Company believes that its SPD technology is now,
or with additional development will become, usable in a
number of commercial products. Such products may include
one or more of the following fields: "smart" windows, variable
light transmission eyewear such as sunglasses and goggles, self-
dimmable automotive sunroofs, sunvisors and mirrors, and
instruments and other information displays that use digits,
letters, graphic images, or other symbols to supply information,
including scientific instruments, aviation instruments,
automobile dashboard displays and, if certain improvements
can be made in various features of the Company's SPD
technology, portable computer displays and flat panel television
displays. The Company believes that most of its research and
development efforts have applicability to products that may
incorporate the Company's technology. At its current state of
development, the Company's technology has been judged
sufficiently advanced by various of its licensees and their
customers for them to proceed with the development,
introduction and sale of SPD-Smart products. However, the
Company is continuously investing in research and
development because it believes that further improvements will
result in accelerated and increased market penetration. The
Company intends to continue its research and development
efforts for the foreseeable future to improve its SPD light-
control technology and thereby assist our licensees in the
product development, sales and marketing of various existing
and new SPD-Smart products.
During the past year, the Company and/or its licensees
have made significant advances relating to materials to enable
(1) improved stability of SPD emulsions, (2) a wider range of
light transmission, and (3) improved film adhesion and
cohesion.
The Company has devoted most of the resources it has
heretofore expended to research and development activities
with the goal of producing commercially viable SPD products
and has developed working prototypes of SPD-Smart products
for several different applications, with primary emphasis on
smart windows for various industries.
Research Frontiers' main goals in its research and development are:
- developing wider ranges of light transmission and quicker switching speeds
- developing different colored particles
- reducing the voltage required to operate SPDs
- obtaining data and developing improved materials regarding
environmental stability and longevity
- quantifying the degree of energy savings expected by users
of the Company's technology including the degree that SPD
technology can control heat and its contribution to energy
savings directly and through daylight harvesting strategies in
sustainable building designs.
Excluding non-cash expenses associated with the grant of
stock options to the Company's technical personnel, Research
Frontiers incurred approximately $1,470,000, $1,293,000, and
$1,171,000 during the years ended December 31, 2008, 2007,
and 2006, respectively, for research and development. Research
Frontiers plans to engage in substantial continuing research and
development activities to invest in future improvements in SPD
light-control technology and to expand for its licensees the
capabilities of SPD-Smart technology and the markets for SPD-
Smart products.
Patents and Proprietary Information
Research Frontiers continues to make substantial
investments in improving SPD-Smart light-control technology
and to expanding its intellectual property portfolio. The
Company has 32 United States patents in force, and four United
States patent applications are pending. The Company's United
States patents expire at various dates from 2009 through 2025.
The Company has approximately 235 issued foreign patents and
249 foreign and international patent applications pending. The
Company's foreign patents expire at various dates from 2009
through 2022. The Company believes that its SPD light-control
technology is adequately protected by its patent position and by
its proprietary technological know-how. However, the validity
of the Company's patents has never been contested in any
litigation. The Company also possesses know-how and relies on
trade secrets and nondisclosure agreements to protect its
technology. The Company generally requires any employee,
consultant, or licensee having access to its confidential
information to execute an agreement whereby such person
agrees to keep such information confidential.
Research Frontiers' licensees have also directed the
Company not to reveal aspects of their activities or those of
their customers, which limits the Company's ability to disclose
certain information.
Rights Plan
In February 2003, the Company's Board of Directors
adopted a Stockholders' Rights Plan and declared a dividend
distribution of one Right for each outstanding share of
Company common stock to stockholders of record at the close
of business on March 3, 2003. Subject to certain exceptions
listed in the Rights Plan, if a person or group has acquired
beneficial ownership of, or commences a tender or exchange
offer for, 15% or more of the Company's common stock, unless
redeemed by the Company's Board of Directors, each Right
entitles the holder (other than the acquiring person) to purchase
from the Company $120 worth of common stock for $60. If the
Company is merged into, or 50% or more of its assets or
earning power is sold to, the acquiring company, the Rights will
also enable the holder (other than the acquiring person) to
purchase $120 worth of common stock of the acquiring
company for $60. The Rights will expire at the close of business
on February 18, 2013, unless the Rights Plan is extended by the
Company's Board of Directors or unless the Rights are earlier
redeemed by the Company at a price of $.0001 per Right. The
Rights are not exercisable during the time when they are
redeemable by the Company. The above description highlights
some of the features of the Company's Rights Plan and is not a
complete description of the Rights Plan. A more detailed
description and a copy of the Rights Plan is available from the
Company upon request.
ITEM 1A. RISK FACTORS
In addition to the other information in this Annual Report
on Form 10-K, you should carefully consider the following
factors in evaluating us and our business. This Annual Report
contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed below, as well as those discussed elsewhere in
this Annual Report, including the documents incorporated by
reference.
There are risks associated with investing in companies
such as ours who are engaged in research and development. In
addition to risks which could apply to any company or business,
you should also consider the business we are in and the
following:
Research Frontiers has a history of operating losses,
expects to incur additional losses in the future, and
consequently will need additional funds in the future to
continue its operations. Because we expect that our future
revenues will consist primarily of license fees (which have not
been significant to date), unless our licensees produce and sell
products using our technology, Research Frontiers will not be
profitable. There is no guarantee that we will ever be profitable.
Since Research Frontiers was started in 1965 through December
31, 2008, its total net loss was $72,396,592. Our net loss was
$2,594,843 in 2008, $7,565,218 in 2007 (which includes a non-
cash accounting charge of $4,026,855 resulting from the
expensing of stock options), and $3,303,633 in 2006.
We have funded our operations by selling our common
stock to investors. If we need additional money, there is no
guarantee that it will be available when we need it, or on
favorable terms. The Company would have to raise additional
capital no later than the first quarter of 2010 if operations,
including research and development and marketing, are to be
maintained at current levels if its revenues do not increase
before then. 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.
Research Frontiers depends upon the activities of its
licensees in order to be profitable. We do not directly
manufacture or market products using SPD technology.
Although a variety of products have been sold by our licensees,
and because it is up to our licensees to decide when and if they
will introduce products using SPD technology, we cannot
predict when and if our licensees will generate substantial sales
of such products. Research Frontiers' SPD technology is
currently licensed to 35 companies. Other companies are also
evaluating SPD technology for use in various products. In the
past, some companies have evaluated our technology without
proceeding further. Also, we do not intend to manufacture
products using SPD technology. Instead we intend to continue
to license our SPD technology to manufacturers of end
products, films and emulsion. We expect that our licensees
would be primarily responsible for manufacturing and
marketing SPD-Smart products and components, but we are
also engaging in market development activities to support our
licensees and build the smart glass industry.
Products using SPD technology have only recently begun
to be introduced into the marketplace. Developing products
using new technologies can be risky because problems,
expenses and delays frequently occur. Research Frontiers
cannot control whether or not its licensees will develop SPD
products. Some of our licensees appear to be more active than
others, some appear to be better capitalized than others, and
some licensees appear to be inactive. There is no guarantee
when or if our licensees will successfully produce any
commercial product using SPD technology in sufficient
quantities to make the Company profitable.
Because SPD technology is the only technology Research
Frontiers works with, our success depends upon the viability of
SPD technology which has yet to be fully proven. We have not
fully ascertained the performance and long-term reliability of
our technology, and therefore there is no guarantee that our
technology will successfully be incorporated into all of the
products which we are targeting for use of SPD technology. We
expect that different product applications for SPD technology
will have different performance and reliability specifications.
We expect that our licensees will primarily be responsible for
reliability testing, but that we may also continue to do
reliability testing so that we can more effectively focus our
research and development efforts towards constantly improving
the performance characteristics and reliability of products using
SPD technology.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company currently occupies approximately 9,500
square feet of space at an annual rental which in 2008 was
approximately $191,000 for its executive office, research
facility and SPD-Smart Glass Design Center at 240 Crossways
Park Drive, Woodbury, New York 11797 under a lease expiring
January 31, 2014. The Company believes that its space,
including its laboratory facilities, is adequate for its present
needs.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending by or against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCK HOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
(a) Market Information
(1) The Company's common stock is traded on the
NASDAQ Capital Market. As of March 10, 2009, there were
15,742,784 shares of common stock outstanding.
(2) The following table sets forth the range of the high and
low selling prices (as provided by the National
Association of Securities Dealers) of the Company's
common stock for each quarterly period within the past
two fiscal years:
Quarter Ended Low High
March 31, 2007 4.93 12.33
June 30, 2007 9.55 14.29
September 30, 2007 10.00 15.64
December 31, 2007 7.90 17.40
March 31, 2008 4.75 10.32
June 30, 2008 4.76 7.99
September 30, 2008 3.90 6.21
December 31, 2008 1.55 4.48
These quotations may reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily
represent actual transactions.
(b) Approximate Number of Security Holders
As of March 10, 2009, there were 505 holders of record of
the Company's common stock. The Company estimates that
there are approximately 7,700 beneficial holders of the
Company's common stock.
(c) Dividends
The Company did not pay dividends on its common stock
in 2008 and does not expect to pay any cash dividends in the
foreseeable future. There are no restrictions on the payment of
dividends.
(d) Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected data regarding the
Company's operating results and financial position. The data
should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and notes thereto, all
of which are contained in this Annual Report on Form 10-K.
Year ended December 31,
2008 2007 2006 2005 2004
Statement of Operations Data:
Fee income $1,679,919 $ 402,359 $ 162,639 $ 138,742 $ 201,321
Operating
expenses (1) 2,959,576 5,774,027 2,383,856 2,624,379 2,633,534
Research
and develop-
pment (1) 1,469,760 2,529,576 1,170,503 1,391,657 1,682,624
Charge for reduction
in value of investment
in SPD Inc.(2) -- -- -- -- 165,501
4,429,336 8,303,603 3,554,359 4,016,036 4,481,659
Operating loss (2,749,417) (7,901,244) (3,391,720) (3,877,294) (4,280,338)
Net invest-
ment income 154,574 336,026 88,087 129,762 17,597
Net loss $(2,594,843) $(7,565,218) $(3,303,633) $(3,747,532) $(4,262,741)
Basic and diluted
net loss per
common share $ (.17) $ (.50) $ (.24) $ (.27) $ (.33)
Dividends
per share -- -- -- -- --
Weighted
average
number of
commonshares
outstanding 15,441,789 5,278,796 14,028,509 13,692,011 12,792,091
As of December 31,
2008 2007 2006 2005 2004
Balance Sheet Data:
Total current assets $4,937,531 $7,469,456 $3,126,381 $3,823,093 $2,716,964
Total assets 5,283,880 7,659,405 3,251,637 3,957,205 2,860,673
Long-term debt, including
accrued interest -- -- -- -- --
Total shareholders'equity 4,872,185 7,330,808 2,992,621 3,646,254 2,392,303
----------------------------------------
(1) Reflects a non-cash charge of $2,790,656 to operating expenses,
and a non-cash charge of $1,236,199 to research and development
expenses relating to the issuance of stock options in 2007, which
increased the Company's net loss for 2007 by $4,026,855.
(2) Reflects a non-cash charge against income of $209,704 recorded
by the Company in the first quarter of 2004 to reflect a reduction
in the value of its investment in SPD Inc. During the fourth
quarter of 2004, the Company received a payment of $44,203 as
part of a liquidation distribution made by SPD Inc. to its
shareholders, resulting in a total net non-cash charge against
income of $165,501 in 2004.
ITEM 7. 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
consolidated financial statements, "Summary of Significant
Accounting Policies."
The Company has entered into a number of license
agreements covering potential products using the Company's
SPD technology. The Company receives fees and minimum
annual royalties under certain license agreements and records
fee income on a ratable basis each quarter. In instances when
sales of licensed products by its licensees exceed minimum
annual royalties, the Company recognizes fee income as the
amounts have been 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.
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 accordance with Emerging
Issues Task Force 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.
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
Year ended December 31, 2008 Compared to the Year ended December 31, 2007
The Company's fee income from licensing activities for
2008 was $1,679,919, as compared to $402,359 for 2007. This
difference in fee income was primarily the result of the receipt
of a one-time payment from a former licensee in full settlement
of past due minimum annual royalties for several years and the
Company entering into a new agreement with Hitachi Chemical
regarding payments made by Hitachi Chemical to the Company
for guaranteed access to future improvements in the Company's
technology, the timing and amount of minimum annual
royalties paid, and the date of receipt of such payment on
certain license agreements, by end-product licensees. Certain
license fees, which are paid to the Company in advance of the
accounting period in which they are earned can result in the
recognition of deferred revenue for the current accounting
period, which will be recognized as fee income in future
periods. Also, licensees may 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. 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.
Operating expenses decreased by $2,814,451 for 2008 to
$2,959,576 from $5,774,027 for 2007. This decrease was
principally the result of non-cash charges of $2,790,656 in 2007
relating to primarily fully vested stock options granted by the
Company. Additional factors causing this decrease were lower
payroll costs ($41,000), marketing costs ($81,000), and patent
costs ($13,000) partially offset by increased reserves for
uncollectable accounts ($40,000) and higher insurance costs
($29,000).
Research and development expenditures decreased by
$1,059,816 to $1,469,760 for 2008 from $2,529,576 for 2007.
This decrease was principally the result of non-cash charges of
$1,236,199 in 2007 relating to fully vested stock options
granted by the Company. Offsetting this decrease were higher
payroll costs ($132,000), and insurance costs ($29,000).
Investment income for 2008 was $154,574 as compared to
$336,026 for 2007. The difference was primarily due to lower
cash balances available to invest, as well as lower interest rates
during 2008.
As a consequence of the factors discussed above, the
Company's net loss was $2,594,843 ($0.17 per share) for 2008
as compared to $7,565,218 ($0.50 per share) for 2007. The
difference is primarily due to non-cash accounting charges of
$4,026,855 ($0.26 per share) in 2007 relating to the issuance of
common stock options as well as $1,277,560 ($0.08 per share)
in higher fee income in 2008.
Year ended December 31, 2007 Compared to the Year ended December 31, 2006
The Company's fee income from licensing activities for
2007 was $402,359, as compared to $162,639 for 2006. This
difference in fee income was primarily the result of the
Company entering into a new agreement with Hitachi Chemical
regarding payments made by Hitachi Chemical to the Company
for guaranteed access to future improvements in the Company's
technology, the timing and amount of minimum annual
royalties paid, and the date of receipt of such payment on
certain license agreements, by end-product licensees, and an
amendment to an existing license agreement with American
Glass Products ("AGP"), which, among other things, increased
the percentage royalty due from AGP from 5% to 15%. 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 may 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.
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.
Operating expenses increased by $3,390,171 for 2007 to
$5,774,027 from $2,383,856 for 2006. This increase was
primarily the result of non-cash charges of $2,790,656 relating
to primarily fully vested stock options granted by the Company
during the year. Additional factors causing this increase were
higher payroll costs ($151,000), and marketing costs
($158,000), patent costs ($113,000) and insurance costs
($59,000).
Research and development expenditures increased by
$1,359,073 to $2,529,576 for 2007 from $1,170,503 for 2006.
This increase was primarily the result of non-cash charges of
$1,236,199 relating to fully vested stock options granted by the
Company during the year. Additional factors causing this
increase were higher payroll costs ($52,000), insurance
($55,000) and consulting costs ($25,000).
Investment income for 2007 was $336,026 as compared to
$88,087 for 2006. The difference was primarily due to higher
cash balances available to invest, partially offset by lower
interest rates during 2007.
As a consequence of the factors discussed above, the
Company's net loss was $7,565,218 ($0.50 per share) for 2007
as compared to $3,303,633 ($0.24 per share) for 2006. The
difference is primarily due to non-cash accounting charges of
$4,026,855 ($0.26 per common share) resulting from the
issuance of stock options during 2007.
Financial Condition, Liquidity and Capital Resources
During 2008, the Company's cash and cash equivalents
balance decreased $4,892,680 principally as a result of cash
used to fund operations of $2,414,276 as well as net purchases
of US Treasury Securities ($2,259,496), fixed assets ($76,220)
and $112,500 invested in SPD Control Systems. At December
31, 2008, the Company had working capital of $4,525,836 and
shareholders' equity of $4,872,185.
During 2007, the Company's cash and cash equivalent
balance increased by $4,259,671 principally as a result of net
proceeds received from the issuance of common stock and on
the exercise of options and warrants of $7,876,550 partially
offset by cash used to fund operations of $3,517,185.
During 2006, the Company's cash and cash equivalent
balance decreased by $644,164 principally as a result of cash
used to fund the Company's operating activities of $3,265,358
partially offset by $2,650,000 of net proceeds received from the
issuance of common stock.
The Company occupies premises under an operating lease
agreement which expires on January 31, 2014 and requires
minimum annual rent which rises over the term of the lease to
approximately $176,669, plus tenant's share of applicable taxes.
These lease obligations are summarized over time as of
December 31, 2008:
Payments due by period
<1 year 1-3 years 4-5 years >5 years Total
Operating lease obligations $167,000 $513,000 $192,000 $ -- $872,000
The Company expects to use its cash 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
cash expenditures, existing cash reserves and budgeted
revenues, the Company believes that it would not require
additional funding until the first quarter of 2010. 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 extent of commercialization of products
using the Company's technology by the Company's licensees
and payments of continuing royalties on account thereof.
Inflation
The Company does not believe that inflation has a
significant impact on its business.
Related Party Transactions
None.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At times, the Company invests available cash and cash
equivalents in money market funds or in short-term U.S.
treasury securities with maturities that are generally one year or
less. Although the rate of interest paid on such investments in
money market funds may fluctuate over time, each of the
Company's investments in U.S. treasury securities is made at a
fixed interest rate over the duration of the investment.
Accordingly, the Company does not believe it is materially
exposed to changes in interest rates as it generally holds these
treasury securities until maturity.
The Company has an agreement with a licensee that calls
for monthly payments in Japanese yen. As a result, amounts
realized under this agreement may fluctuate due to changes in
exchange rates. Other than this, the Company does not have any
sales, purchases, assets or liabilities determined in currencies
other than the U.S. dollar, and as such, is not subject to foreign
currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed in Item 15(a)(1) and
(2) are included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report
on Form 10-K, the Company carried out an evaluation, under the
supervision and with the participation of the Company's
management, including the CEO and CFO, of the effectiveness
of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, the Company's Chairman, and its CEO and
CFO concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiary) required to be included in the Company's periodic
SEC filings. There were no changes in the Company's internal
control over financial reporting during the quarterly period
ended December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Our
internal control system is designed to provide reasonable
assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial
statements. Under the supervision and with the participation of
our management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control-Integrated
Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or the COSO
Framework. Based on our evaluation under the COSO
Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2008.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been independently
audited by BDO Seidman, LLP, an independent registered
public accounting firm, and their attestation is included herein.
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors
Research Frontiers Incorporated
Woodbury, New York
We have audited Research Frontiers Incorporated's internal
control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Research Frontiers
Incorporated's management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Item 9A,
"Management's Report on Internal Control Over Financial
Reporting." Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company's assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Research Frontiers Incorporated
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the
COSO criteria.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Research Frontiers
Incorporated as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended
December 31, 2008 and our report dated March 5, 2009
expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Melville, New York
March 5, 2009
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company has adopted a code of ethics applicable to its
Chief Executive Officer, Chief Operating Officer, Treasurer and
Chief Financial Officer, any Vice President and other employees
of the Company with important roles in the financial reporting
process. This Code of Ethics was adopted by the entire Board of
Directors of the Company, including all of its Audit Committee
members, in March 2004 in accordance with the requirements of
the Sarbanes Oxley Act. The code of ethics is available on the
Company's website at www.SmartGlass.com and was also filed
as an exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 2003. The Company intends to
satisfy the disclosure requirement under Item 10 of Form 8-K
regarding any amendment to, or waiver from, a provision of this
code of ethics by posting such information on the website
specified above.
The other information required by this Item 10 is
incorporated by reference to the Company's definitive Proxy
Statement to be filed with the Commission on or before April
30, 2009, in connection with the Company's Annual Meeting of
Stockholders scheduled to be held on June 11, 2009.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference to the Company's definitive Proxy Statement to be
filed with the Commission on or before April 30, 2009, in
connection with the Company's Annual Meeting of
Stockholders scheduled to be held on June 11, 2009.
Notwithstanding anything to the contrary set forth herein or in
any of the Company's past or future filings with the Securities
and Exchange Commission that might incorporate by reference
the Company's definitive Proxy Statement, in whole or in part,
the report of the compensation committee and the stock price
performance graph contained in such definitive Proxy Statement
shall not be incorporated by reference into this Annual Report
on Form 10-K or in any other such filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated by
reference to the Company's definitive Proxy Statement to be
filed with the Commission on or before April 30, 2009, in
connection with the Company's Annual Meeting of
Stockholders scheduled to be held on June 11, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 is incorporated by
reference to the Company's definitive Proxy Statement to be
filed with the Commission on or before April 30, 2009, in
connection with the Company's Annual Meeting of
Stockholders scheduled to be held on June 11, 2009.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated by
reference to the Company's definitive Proxy Statement to be
filed with the Commission on or before April 30, 2009, in
connection with the Company's Annual Meeting of
Stockholders scheduled to be held on June 11, 2009.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial
Statement Schedules
The following consolidated financial statements of
Research Frontiers Incorporated are filed under Item 8 of this
Report. Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated Financial Statements:
Consolidated Balance Sheets,
December 31, 2008 and 2007 F-2
Consolidated Statements of Operations,
Years ended December 31, 2008, 2007 and 2006 F-3
Consolidated Statements of Shareholders' Equity,
Years ended December 31, 2008, 2007 and 2006 F-4
Consolidated Statements of Cash Flows,
Years ended December 31, 2008, 2007 and 2006 F-5
Notes to Consolidated Financial Statements F-6
Schedule II - Valuation and Qualifying Accounts ............ F-20
All other schedules have been omitted because they are not
applicable, or not required, or the required information is
disclosed elsewhere in this Annual Report.
(a)(3) Exhibits
3.1 Restated Certificate of Incorporation of the Company.
Previously filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994, and incorporated herein by
reference.
3.2 Amended and Restated Bylaws of the Company. Filed
herewith and incorporated herein by reference.
4.1 Form of Common Stock Certificate. Previously filed as
an Exhibit to the Company's Registration Statement on
Form S-18 (Reg. No. 33-5573NY), declared effective by
the Commission on July 8, 1986, and incorporated herein
by reference.
4.2.1 Rights Agreement dated as of February 16, 1993
between Research Frontiers Incorporated and
Continental Stock Transfer & Trust Company, as Rights
Agent, which includes as Exhibit A thereto the Form of
Rights Certificate. Previously filed as an Exhibit to the
Company's Registration Statement on Form 8-A dated
February 16, 1993, and incorporated herein by reference.
4.2.2 Rights Agreement dated as of February 18, 2003
between Research Frontiers Incorporated and
Continental Stock Transfer & Trust Company, as Rights
Agent, which includes as Exhibit A thereto the Form of
Rights Certificate. Previously filed as an Exhibit to the
Company's Registration Statement on Form 8-A dated
February 24, 2003, and incorporated herein by reference.
4.3 Subscription Agreement between Research Frontiers and
Ailouros Ltd. dated as of October 1, 1998, and related
Class A Warrant and Class B Warrant between Research
Frontiers and Ailouros Ltd. dated as of October 1, 1998.
Previously filed as an Exhibit to the Company's
Registration Statement on Form S-3 (No. 333-65219)
dated October 1, 1998, and incorporated herein by
reference.
10.1* Amended and Restated Employment Contract effective
January 1, 1989 between the Company and Robert L.
Saxe. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by
reference.
10.2* Amended and Restated 1992 Stock Option Plan.
Previously filed as Exhibit 4 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-86910)
filed with the Commission on November 30, 1994, and
incorporated herein by reference.
10.3* 1998 Stock Option Plan, as amended. Previously filed as
an Exhibit to the Company's Definitive Proxy Statement
dated April 30, 1998 filed with the Commission on April
29, 1998, 1994, and incorporated herein by reference.
10.4* Form of Stock Option Agreement between the Company
and recipients of stock options issued pursuant to the
Company's Stock Option Plans. Previously filed as part
of Exhibits 4.1, 4.2, and 4.3 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-53030)
filed with the Commission on October 6, 1992, and
incorporated herein by reference.
10.5 Lease Agreement dated November 7, 1986, between the
Company and Industrial & Research Associates Co.
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1986 and incorporated herein by reference.
10.5.1 First Amendment to Lease dated November 26, 1991
between the Company and Industrial and Research
Associates Co. Previously filed as an Exhibit to
Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-43768) declared
effective by the Commission on December 17, 1991, and
incorporated herein by reference.
10.5.2 Second Amendment to Lease dated March 11, 1994
between the Company and Industrial and Research
Associates Co. Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein
by reference.
10.5.3 Third Amendment to Lease dated July 14, 1998 between
the Company and Industrial and Research Associates Co.
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1998 and incorporated herein by reference.
10.5.4 Fourth Amendment to Lease dated January 13, 2004
between the Company and Industrial and Research
Associates Co. Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 and incorporated herein
by reference.
10.6 License Agreement effective as of August 2, 1995
between the Company and General Electric Company.
Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated August 2, 1995 with portions
omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.7 License Agreement effective as of April 29, 1996
between the Company and Glaverbel, S.A. Previously
filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.8 License Agreement effective as of January 18, 1997
between the Company and Material Sciences
Corporation. Previously filed as an Exhibit to the
Company's Current Report on Form 8-K dated March 3,
1997 with portions omitted pursuant to the Registrant's
request for confidential treatment and filed separately
with the Securities and Exchange Commission, and
incorporated herein by reference.
10.9 License Agreement effective as of March 31, 1997
between the Company and Hankuk Glass Industries, Inc.
Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997 with portions omitted
pursuant to the Registrant's request for confidential
treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by
reference.
10.10 License Agreement effective as of August 8, 1997
between the Company and Orcolite, a Unit of Monsanto
Company. Previously filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997 with portions omitted
pursuant to the Registrant's request for confidential
treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by
reference.
10.11 License Agreement effective as of June 25, 1999
between the Company and Dainippon Ink and
Chemicals, Incorporated. Previously filed as an Exhibit
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1999 with portions
omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.12 License Agreement effective as of August 9, 1999
between the Company and Hitachi Chemical Co., Ltd.
Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1999 with portions omitted
pursuant to the Registrant's request for confidential
treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by
reference.
10.13 License Agreement effective as of December 3, 1999
between the Company and Global Mirror GmbH & Co.
KG. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.14 License Agreement effective as of December 13, 1999
between the Company and Global Mirror GmbH & Co.
KG. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.15 License Agreement effective as of March 21, 2000
between the Company and ThermoView Industries, Inc.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1999 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.16 License Agreement effective as of May 23, 2000
between the Company and Polaroid Corporation.
Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000 with portions omitted pursuant to
the Registrant's request for confidential treatment and
filed separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.17 License Agreement effective as of February
16, 2001 between the Company and AP Technoglass
Co. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 with portions omitted pursuant to
the Registrant's request for confidential treatment and
filed separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.18 License Agreement effective as of March 21, 2001
between the Company and InspecTech Aero Service, Inc.
Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 with
portions omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by reference.
10.19 License Agreement effective as of March 28, 2001
between the Company and Film Technologies
International, Inc. Previously filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001 with portions omitted
pursuant to the Registrant's request for confidential
treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by
reference.
10.20 License Agreement effective as of November 29, 2001
between the Company and Avery Dennison Corporation.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2001 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.21 License Agreement effective as of February 4, 2002
between the Company and BOS GmbH & Co. KG.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2001 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.22 License Agreement effective as of March 11, 2002
between the Company and Isoclima S.p.A. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.23 License Agreement effective as of July 2, 2002 between
the Company and Isoclima S.p.A. Previously filed as an
Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2002 with
portions omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.24 License Agreement effective as of August 19, 2002
between the Company and Razor's Edge Technologies,
Inc. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.25 License Agreement effective as of October 7, 2002
between the Company and American Glass Products
(Glass Technology Investment Ltd.). Previously filed as
an Exhibit to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 2002 with
portions omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.26 License Agreement effective as of October 7, 2002
between the Company and SPD Systems, Inc. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.27 License Agreement effective as of October 24, 2002
between the Company and Cricursa Cristales Curvados
S.A. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.28 License Agreement effective as of December 9, 2002
between the Company and BRG Group, Ltd. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.29 License Agreement effective as of December 13, 2002
between the Company and Laminated Technologies Inc.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2002 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.30 License Agreement effective as of April 17, 2003
between the Company and Custom Glass Corporation.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K/A for the fiscal year ended
December 31, 2003 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.31 License Agreement effective as of May 2, 2003 between
the Company and Air Products and Chemicals, Inc.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K/A for the fiscal year ended
December 31, 2003 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.32 License Agreement effective as of May 30, 2003
between the Company and Kerros Limited. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31,
2003 with portions omitted pursuant to the Registrant's
request for confidential treatment and filed separately
with the Securities and Exchange Commission, and
incorporated herein by reference.
10.33 License Agreement effective as of June 6, 2003 between
the Company and Traco, Inc. Previously filed as an
Exhibit to the Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 2003 with
portions omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.34 License Agreement effective as of June 16, 2003
between the Company and Saint-Gobain Glass France
S.A. Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2003 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.35 License Agreement effective as of August 1, 2003
between the Company and Vision (Environmental
Innovation) Limited. Previously filed as an Exhibit to the
Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2003 with portions
omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.36 License Agreement effective as of November 13, 2003
between the Company and Innovative Glass Corporation.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K/A for the fiscal year ended
December 31, 2003 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.37 License Agreement effective as of December 11, 2003
between the Company and Leminur Limited. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31,
2003 with portions omitted pursuant to the Registrant's
request for confidential treatment and filed separately
with the Securities and Exchange Commission, and
incorporated herein by reference.
10.38 License Agreement effective as of March 25, 2004
between the Company and Pilkington plc. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2004
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.39 License Agreement effective as of April 5, 2004 between
the Company and SmartGlass Ireland Ltd. Previously
filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2004
with portions omitted pursuant to the Registrant's request
for confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.40 License Agreement effective as of April 8, 2004 between
the Company and Prelco Inc. Previously filed as an
Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2004 with
portions omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.41 License Agreement effective as of April 13, 2004
between the Company and E. I. Dupont De Nemours and
Company. Previously filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 with portions omitted
pursuant to the Registrant's request for confidential
treatment and filed separately with the Securities and
Exchange Commission, and incorporated herein by
reference.
10.42 License Agreement effective as of September 3, 2004
between the Company and Nippon Sheet Glass Co., Ltd.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2004 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.43 License Agreement effective as of October 25, 2005
between the Company and SPD Control Systems
Corporation. Previously filed as an Exhibit to the
Company's Current Report on Form 8-K dated October
31, 2005 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.44 License Agreement effective as of March 30, 2006
between the Company and Dainippon Ink and
Chemicals. Previously filed as an Exhibit to the
Company's Current Report on Form 8-K dated April 4,
2006 with portions omitted pursuant to the Registrant's
request for confidential treatment and filed separately
with the Securities and Exchange Commission, and
incorporated herein by reference.
10.45 License Agreement effective as of May 11, 2006
between the Company and Asahi Glass Company.
Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated May 15, 2006 with portions
omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.46 License Agreement effective as of May 19, 2007
between the Company and SmartGlass International Ltd.
Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated March 19, 2007 with portions
omitted pursuant to the Registrant's request for
confidential treatment and filed separately with the
Securities and Exchange Commission, and incorporated
herein by reference.
10.47 License Agreement effective as of October 16, 2007
between Research Frontiers Incorporated and Glass
Wholesalers, Ltd. d/b/a Craftsman Fabricated Glass, Ltd.
Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated October 18, 2007, and
incorporated herein by reference.
10.48 License Agreement effective as of December 14, 2007
between Research Frontiers Incorporated and AGC Flat
Glass Europe SA. Previously filed as an Exhibit to the
Company's Current Report on Form 8-K dated
December 17, 2007 with portions omitted pursuant to the
Registrant's request for confidential treatment and filed
separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.49 License Agreement effective as of February 21, 2008
between Research Frontiers Incorporated and GKN
Aerospace Transparency Systems Inc. Previously filed
as an Exhibit to the Company's Current Report on Form
8-K dated March 5, 2008 with portions omitted pursuant
to the Registrant's request for confidential treatment and
filed separately with the Securities and Exchange
Commission, and incorporated herein by reference.
10.50 License Agreement effective as of September 29, 2008
between Research Frontiers Incorporated and PPG
Industries, Inc. (now known as Pittsburgh Glass Works,
LLC). Previously filed as an Exhibit to the Company's
Current Report on Form 8-K dated October 6, 2008
with portions omitted pursuant to the Registrant's
request for confidential treatment and filed separately
with the Securities and Exchange Commission, and
incorporated herein by reference.
14 Code of Ethics of Research Frontiers Incorporated.
Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2003, and incorporated herein by reference.
21 Subsidiaries of the Registrant - SPD Enterprises, Inc.
23 Consent of BDO Seidman, LLP - Filed herewith.
31.1 Rule 13a-14(a)/15d-14(a) Certification of Robert L. Saxe-Filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Joseph M. Harary-Filed herewith.
32.1 Section 1350 Certification of Robert L. Saxe-Filed herewith.
32.2 Section 1350 Certification of Joseph M. Harary-Filed herewith.
--------------------------------------------------------------------
* Executive Compensation Plan or Arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RESEARCH FRONTIERS INCORPORATED
(Registrant)
/s/ Robert L. Saxe
Robert L. Saxe, Chairman of the Board
/s/ Joseph M. Harary
Joseph M. Harary, President and Treasurer
(Principal Executive, Financial, and Accounting Officer)
Dated: March 10, 2009
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Position Date
/s/Robert M. Budin Director March 10, 2009
Robert M. Budin
/s/M. Philip Guthrie Director March 10, 2009
M. Philip Guthrie
/s/Joseph M. Harary Director, President, Treasurer March 10, 2009
Joseph M. Harary
/s/Richard Hermon-Taylor Director March 10, 2009
Richard Hermon-Taylor
/s/Victor F. Keen Director March 10, 2009
Victor F. Keen
/s/Robert L. Saxe Director, Chairman March 10, 2009
Robert L. Saxe
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors
Research Frontiers Incorporated
Woodbury, New York
We have audited the accompanying consolidated balance sheets
of Research Frontiers Incorporated as of December 31, 2008 and
2007 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2008. In connection with our
audits of the consolidated financial statements, we have also
audited the schedule as listed in the accompanying index. These
consolidated financial statements and schedule are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and
schedule, assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall presentation of the financial statements
and schedule. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Research Frontiers Incorporated at December 31,
2008 and 2007, and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 2008, in conformity with accounting principles generally
accepted in the United States of America.
Also, in our opinion, the financial statement schedule when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Research Frontiers Incorporated's internal control over financial
reporting as of December 31, 2008, based on criteria established
in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 5, 2009
expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Melville, New York
March 5, 2009
RESEARCH FRONTIERS INCORPORATED
Consolidated Balance Sheets
December 31, 2008 and 2007
Assets 2008 2007
Current assets:
Cash and cash equivalents $ 2,367,512 $ 7,260,192
Investments (US Treasury Securities) 2,299,496 --
Royalty receivables, net of reserves
of $203,674 in 2008 and $163,674 in 2007 128,787 101,028
Prepaid expenses and other current assets 141,736 108,236
Total current assets 4,937,531 7,469,456
Fixed assets, net 159,900 127,419
Note receivable from SPD Control Systems 150,000 37,500
Deposits and other assets 36,449 25,030
Total assets $ 5,283,880 $ 7,659,405
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 104,680 $ 144,441
Accrued expenses and other 307,015 184,156
Total current liabilities 411,695 328,597
Commitments (note 9)
Shareholders' equity:
Common stock, par value $0.0001 per share;
authorized 100,000,000 shares, issued and
outstanding 15,442,834 and 15,440,434
shares for 2008 and 2007 1,544 1,544
Additional paid-in capital 77,267,233 77,131,013
Accumulated deficit (72,396,592) (69,801,749)
Total shareholders' equity 4,872,185 7,330,808
Total liabilities and shareholders' equity $ 5,283,880 $ 7,659,405
See accompanying notes to consolidated financial statements.
RESEARCH FRONTIERS INCORPORATED
Consolidated Statements of Operations
Years ended December 31, 2008, 2007 and 2006
2008 2007 2006
Fee income $ 1,679,919 $ 402,359 $ 162,639
Operating expenses 2,959,576 5,774,027 2,383,856
Research and development 1,469,760 2,529,576 1,170,503
4,429,336 8,303,603 3,554,359
Operating loss (2,749,417) (7,901,244) (3,391,720)
Net investment income 154,574 336,026 88,087
Net loss $ (2,594,843) $ (7,565,218) $ (3,303,633)
Basic and diluted net loss
per common share $ (0.17) $ (0.50) $ (0.24)
Weighted average number of
common shares outstanding 15,441,789 15,278,796 14,028,509
See accompanying notes to consolidated financial statements.
RESEARCH FRONTIERS INCORPORATED
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2008, 2007 and 2006
Additional
Common Stock Paid Accumulated
Shares Amount in Capital Deficit Total
Balance,Dec.31,2005 13,812,559 $1,381$62,577,771$(58,932,898)$3,646,254
Issuance of
common stock 694,948 70 2,649,930 -- 2,650,000
Net loss -- -- -- (3,303,633)(3,303,633)
Balance,Dec.31,2006 14,507,507 1,451 65,227,701 (62,236,531) 2,992,621
Issuance of
common stock 932,927 93 7,876,457 -- 7,876,550
Issuance of options
for services performed -- -- 4,026,855 -- 4,026,855
Net loss -- -- -- (7,565,218)(7,565,218)
Balance,Dec.31,2007 15,440,434 1,544 77,131,013 (69,801,749) 7,330,808
Issuance of
common stock 2,400 -- 17,175 -- 17,175
Issuance of options
for services performed -- -- 126,408 -- 126,408
Class B Warrant exercise fee-- -- ( 7,363) -- ( 7,363)
Net loss -- -- -- (2,594,843)(2,594,843)
Balance,Dec.31,2008 15,442,834 $1,544$77,267,233$(72,396,592)$4,872,185
See accompanying notes to consolidated financial statements.
RSEARCH FRONTIERS INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, 2008, 2007 and 2006
2008 2007 2006
Cash flows from operating activities:
Net Loss $(2,594,843)$(7,565,218)$(3,303,633)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 43,739 37,426 37,662
Stock based compensation 126,408 4,026,855 --
Provision for uncollectible
royalty receivables 40,000 90,000 25,000
Change in assets and liabilities:
Royalty receivables (67,759) (131,028) (50,000)
Prepaid expenses and other current assets (33,500) (49,801) 77,548
Accounts payable and accrued expenses 83,098 74,581 (51,935)
Deposits and other assets (11,419) -- --
Net cash used in operating activities (2,414,276( (3,517,185) (3,265,358)
Cash flows from investing activities:
Purchases of fixed assets (76,220) (62,194) (28,806)
Note receivable from SPD Control Systems (112,500) (37,500) --
Purchase of investments
(US Treasury Securities) (6,784,496) -- --
Proceeds from investments
(US Treasury Securities) 4,485,000 -- --
Net cash used in investing activities (2,488,216) (99,694) (28,806)
Cash flows from financing activities:
Net proceeds from issuances of common stock
and exercise of options and warrants 9,812 7,876,550 2,650,000
Net cash provided by financing activities 9,812 7,876,550 2,650,000
Net increase (decrease) in cash
and cash equivalents (4,892,680) 4,259,671 (644,164)
Cash and cash equivalents at beginning of year 7,260,192 3,000,521 3,644,685
Cash and cash equivalents at end of year $2,367,512 $7,260,192 $3,000,521
See accompanying notes to consolidated financial statements.
RESEARCH FRONTIERS INCORPORATED
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
(1)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(tm) 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; 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 historically utilized its cash and the proceeds
from 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, 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. 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. To date, the Company has not generated
sufficient revenue from its licensees to fund its operations.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
The Company considers securities purchased with original
maturities of three months or less to be cash equivalents. Cash
equivalents consist of short-term investments in money market
accounts at December 31, 2008 and 2007.
The Company maintains balances at financial institutions which
may exceed Federal Deposit Insurance Corporation ("FDIC")
insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant
risks on its cash in bank accounts
(b) Investments
The Company classifies investments in marketable securities as
trading, available-for-sale or held-to-maturity at the time of
purchase and periodically re-evaluates such classifications.
Trading securities are carried at fair value, with unrealized
holding gains and losses included in earnings. Held-to-maturity
securities are recorded at cost and are adjusted for the
amortization or accretion of premiums or discounts over the life of
the related security. Unrealized holding gains and losses on
available-for-sale securities are excluded from earnings and are
reported as a separate component of accumulated other
comprehensive income (loss) until realized. In determining
realized gains and losses, the cost of securities sold is based on the
specific identification method. Interest and dividends on the
investments are accrued at the balance sheet date. At December
31, 2008, Investments consisted of $2.3 million in short term US
Treasury Securities which are stated at cost, which approximates
market value.
(c) Royalties Receivable
Royalties receivable are recorded at the amounts specified within
the license agreements when the collectability of the receivable is
reasonably assured. The receivables do not bear interest. The
allowance for doubtful accounts is the Company's best estimate of
the amount of probable credit losses in the Company's existing
royalties receivable. The Company determines the allowance
based on historical write off experience. The Company reviews its
allowance for doubtful accounts periodically. Past due accounts
are reviewed individually for collectability. Account balances are
charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote.
(d) Fixed Assets
Fixed assets are carried at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful
lives of the assets.
(e) Revenue Recognition/Fee Income
The Company has entered into a number of license agreements
covering its light control technology. The Company receives
minimum annual royalties under certain license agreements and
records fee income on a ratable basis each quarter. In instances
when sales of licensed products by its licensees exceed minimum
annual royalties, the Company recognizes fee income as the
amounts have been 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. Such excess amounts are
recorded as deferred revenue and recognized into income in future
periods as earned.
Fee income represents amounts earned by the Company under
various license and other agreements (note 8) relating to
technology developed by the Company. During fiscal 2008, one
licensee accounted for 60% (based upon a one-time payment), and
another licensee accounted for 29% of fee income recognized
during the year. During fiscal 2007, one licensee of the Company
accounted for 61% of fee income recognized during the year.
During fiscal 2006, four licensees of the Company accounted for
34%, 31%, 12% and 12%, respectively of fee income recognized
during the year.
(f) Basic and Diluted Loss Per Common Share
Basic earnings (loss) per share excludes any dilution. It is based
upon the weighted average number of common shares outstanding
during the period. Dilutive earnings (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 earnings (loss) per share equals
basic earnings (loss) per share for each of the years in the three-
year period ended December 31, 2008 because all common stock
equivalents (i.e., options and warrants) were antidilutive in those
periods. The number of options and warrants that were not
included because their effect is antidilutive was 2,627,480,
2,992,630, and 2,785,093 for 2008, 2007, and 2006, respectively.
(g) Research and Development Costs
Research and development costs are charged to expense as
incurred.
(h) Patent Costs
The Company expenses costs relating to the development or
acquisition of patents due to the uncertainty of the recoverability
of these items.
(i) Use of Estimates
The preparation of the Company's consolidated financial
statements requires management of the Company to make a
number of estimates and assumptions relating to the reported
amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during this period. Actual results could differ from those estimates.
(j) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
In July 2006, FASB issued FAS Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes an interpretation of FAS No.
109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance
with FAS No. 109, "Accounting for Income Taxes." FIN 48
prescribes a recognition threshold and measurement attribute for a
tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on future changes, classification, interest
and penalties, accounting in interim periods, disclosures and
transition. We adopted FIN 48 as of January 1, 2007. Under FIN
48, tax benefits are recognized only for tax positions that are more
likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of
benefit that is greater than 50 percent likely to be realized upon
ultimate settlement. Unrecognized tax benefits are tax benefits
claimed in tax returns that do not meet these recognition and
measurement standards. The adoption had no effect on the
Company's financial statements. As permitted by FIN 48, we also
adopted an accounting policy to prospectively classify accrued
interest and penalties related to any unrecognized tax benefits in
our income tax provision. Previously, our policy was to classify
interest and penalties as an operating expense in arriving at pre-tax
income. At December 31, 2008 and 2007, we do not have accrued
interest and penalties related to any unrecognized tax benefits. We
do not believe we have any uncertain tax positions as of December
31, 2008.
The tax years subject to examination by major tax jurisdictions
include the years 2005 and forward by the U.S. Internal Revenue
Service and certain states. The Company is not currently being
audited by any tax jurisdiction.
(k) Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between
willing parties. The carrying amounts of all financial instruments
classified as a current asset or current liability are deemed to
approximate fair value because of the short maturity of those
instruments.
(l) Stock-Based Compensation
Effective January 1, 2006, the Company adopted SFAS No.
123(R), "Share-based Payment." SFAS No. 123(R) replaces SFAS
No. 123 and supersedes APB Opinion No. 25, SFAS 123(R)
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. This statement was
adopted using the modified prospective method, which required
the Company to recognize compensation expense on a prospective
basis. Therefore, prior period financial statements have not been
restated. Under this method, in addition to reflecting
compensation expense for new share-based payment awards,
expense is also recognized to reflect the remaining vesting period
of awards that had been included in pro-forma disclosures in prior
periods. All options outstanding as of December 31, 2005 were
fully vested, and no new options were granted during 2006 or
2008. During 2007, the Company granted fully vested options to
purchase 624,537 shares of common stock as well as options to
purchase 30,000 shares of common stock that vest over the next
two years. These grants resulted in an aggregate non cash
compensation charge of $126,408 and $4,026,855 during 2008 and
2007, respectively. SFAS 123(R) also requires that tax benefits
related to stock option exercises be reflected as financing cash
inflows instead of operating cash inflows.
The exercise price for stock options granted are generally set at the
average for the high and low trading prices of the Company's
common stock on the trading date immediately prior to the date of
grant, and the related number of shares granted are fixed at the
date of grant. SFAS No. 123 requires the use of option valuation
models to determine the fair value of options granted after 1995.
In order to determine the fair value of stock options on the date of
grant, the Company uses the Black-Scholes option-pricing model.
Inherent in this model are assumptions related to expected stock-
price volatility, option term, risk-free interest rate and dividend
yield. While the risk-free interest rate and dividend yield are less
subjective assumptions that are based on factual data derived from
public sources, the expected stock-price volatility and option term
assumptions require a greater level of judgment.
(m) Impairment of Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the Company
reviews long-lived assets to determine whether an event or change
in circumstances indicates the carrying value of the asset may not
be recoverable. The Company bases its evaluation on such
impairment indicators as the nature of the assets, the future
economic benefit of the assets and any historical or future
profitability measurements, as well as other external market
conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the
carrying amount of the asset may not be recoverable, the Company
determines whether an impairment has occurred through the use of
an undiscounted cash flows analysis at the lowest level for which
identifiable cash flows exist. If impairment has occurred, the
Company recognizes a loss for the difference between the carrying
amount and the fair value of the asset. Fair value is the amount at
which the asset could be bought or sold in a current transaction
between a willing buyer and seller other than in a forced or
liquidation sale and can be measured as the asset's quoted market
price in an active market or, where an active market for the asset
does not exist, the Company's best estimate of fair value based on
discounted cash flow analysis. Assets to be disposed of by sale are
measured at the lower of carrying amount or fair value less
estimated costs to sell. The implementation of SFAS No. 144 had
no impact on the Company's financial position or results of
operations.
(n) Recent Accounting Pronouncements
FAS 160 requires that a noncontrolling interest in a subsidiary be
reported as equity in the consolidated financial statements.
Consolidated net income should include the net income for both
the parent and the noncontrolling interest with disclosure of both
amounts on the consolidated statement of income. The calculation
of earnings per share will continue to be based on income amounts
attributable to the parent. The presentation provisions of FAS 160
are to be applied retrospectively, and FAS 160 is effective for
fiscal years beginning on or after December 15, 2008. The
adoption of SFAS No. 160 is not expected to have a material
impact on our consolidated financial statements.
In February 2008, the FASB issued FSP 157-2, Partial Deferral of
the Effective Date of Statement 157" (FSP 157-2"). FSP 157-2
delays the effective date of SFAS 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis (at least annually) to fiscal years beginning after November
15, 2008. We are currently evaluating the impact of FSP 157-2 on
nonfinancial assets and nonfinancial liabilities, but do not expect
the adoption to have a material impact on our consolidated
financial statements.
In March 2008, the FASB issued FAS 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133" (FAS 161"). FAS 161 requires
disclosures of the fair values of derivative instruments and their
gains and losses in a tabular format. FAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and
losses on derivative instruments and disclosures about credit-risk-
related contingent features in derivative agreements. FAS 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption
of FAS 161 is not expected to have a material impact on our
consolidated financial statements.
In October 2008, the FASB issued FASB Staff Position No. FAS
157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active." This FSP applies to financial
assets within the scope of accounting pronouncements that require
or permit fair value measurements in accordance with SFAS 157.
This FSP clarifies the application of SFAS 157 in determining the
fair values of assets or liabilities in a market that is not active. This
FSP is effective upon issuance, including prior periods for which
financial statements have not been issued. The adoption of this
FSP did not have a material impact on our consolidated financial
statements.
(o) Fair Value Measurements
We adopted FAS 157 as of January 1, 2008, with the exception of
the application of the statement to nonfinancial assets and
nonfinancial liabilities.
FAS 157 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as quoted
prices in active markets for identical assets or liabilities; Level 2,
defined as inputs other than quoted prices for similar assets or
liabilities in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to
develop its own assumptions.
Financial assets accounted for at fair value on a recurring basis at
December 31, 2008 include cash equivalents of approximately
$2.4 million and US Treasury Securities of $2.3 million. These
assets are carried at fair value based on quoted market prices for
identical securities (Level 1 inputs).
(3) Note Receivable from SPD Control Systems
On May 9, 2007, the Company began participating in the funding
of the ongoing development of automotive controllers by SPD
Control Systems Corp., a licensee of the Company. This
development work is to produce the electronic controllers to
operate SPD-Smart automotive windows and glass roof systems for
one or more of the top five automotive makers in the world. The
Company's funding of this project is reflected in the form of a
senior secured convertible promissory note (the "Note") of SPD
Control Systems Corp. held by Research Frontiers' wholly-owned
subsidiary, SPD Enterprises Inc. The Note, which is scheduled to
mature on May 10, 2010, bears interest at 10% per annum, is
secured by all of the assets (including intellectual property) of SPD
Control Systems, and is convertible at the option of SPD
Enterprises into common stock of SPD Control Systems at an
initial conversion price of $0.50 per share. This conversion price
is adjustable downward to result in the issuance of SPD Enterprises
of additional shares of SPD Control Systems common stock under
certain conditions. The Note provides for funding of up to
$150,000 by SPD Enterprises based upon the achievement of
certain development milestones by SPD Control Systems. As of
December 31, 2008 and 2007, the principal amount outstanding
under this Note was $150,000 and $37,500, respectively. Included
in deposits and other assets is $13,844 and $2,425 of interest
receivable on this note as of December 31, 2008 and 2007,
respectively.
(4) Fixed Assets
Fixed assets and their estimated useful lives, are as follows:
2008 2007 Estimated useful life
Equipment and furniture $1,265,911 $1,255,164 5 years
Leasehold improvements 414,822 349,349 Life of lease or estimated life
of asset if shorter
1,680,733 1,604,513
Less accumulated depre-
cition and amortization 1,520,833 1,477,094
$ 159,900 $ 127,419
(5) Accrued Expenses and Other
Accrued expenses consist of the following at December 31, 2008 and 2007:
2008 2007
Payroll, bonuses and related benefits $188,538 $104,292
Professional services 47,887 42,759
Deferred rent 29,697 28,509
Other 40,893 8,596
$307,015 $184,156
(6) Income Taxes
There was no income tax expense in 2008, 2007 and 2006 due to
losses incurred by the Company.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at December 31,
2008 and 2007 are presented below.
2008 2007
Deferred tax assets:
Depreciation $ 75,000 $ 70,000
Capital loss carryforward 312,000 312,000
Allowance for bad debts 82,000 68,000
Net operating loss carryforwards 20,625,000 20,356,000
Stock option expense 1,449,000 1,399,000
Research and other credits 1,004,000 972,000
Other temporary differences 15,000 15,000
Total gross deferred tax assets 23,562,000 23,192,000
Less valuation allowance 23,562,000 23,192,000
$ -- $ --
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon future taxable
income during the period in which those temporary differences
become deductible. The Company considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon its
historical operating losses, utilization of deferred tax assets cannot
currently be determined. Accordingly, the Company has recorded a
full valuation allowance against the deferred tax assets, as they
will not be realized until the Company achieves profitable
operations in the future.
At December 31, 2008, the Company had a net operating loss
carryforward for federal income tax purposes of $52,000,000,
varying amounts of which will expire in each year from 2009
through 2028. Research and other credit carryforwards of
$1,004,000 are available to the Company to reduce income taxes
payable in future years principally through 2027. Net operating
loss carryforwards of $1,600,000 and research and other credit
carryforwards of $91,000 are scheduled to expire during fiscal
2009, if not utilized.
(7) Shareholders' Equity
During 2006, the Company received $2,650,000 of net cash
proceeds from the issuance of two accredited investors of 694,948
shares of common stock.
During 2007, the Company received $6,640,000 (net of expenses)
in proceeds from the sale of 682,102 shares of its common stock.
In addition, during 2007, the Company received $1,236,525 in
proceeds from the exercise of 164,900 options and warrants. In
addition, 85,925 shares were issued through the cashless exercise
of certain options and warrants under which the number of shares
issuable upon exercise of such options and warrants was reduced
by 126,175 shares in payment of the exercise price of options and
warrants to purchase 212,100 shares, plus the receipt of $25 in cash
for fractional shares.
During 2008, the Company received $17,175 in proceeds from the
exercise of options. In addition, during 2008, the Company paid
$7,363 of fees in connection with the exercise of Class B Warrants
in 2007.
(b) Options and Warrants
(i) Options
In 1992, the shareholders approved a stock option plan (1992 Stock
Option Plan) which provides for the granting of both incentive
stock options at the fair market value at the date of grant and
nonqualified stock options at or below the fair market value at the
date of grant to employees or non-employees who, in the
determination of the Board of Directors, have made or may make
significant contributions to the Company in the future. The
Company initially reserved 468,750 shares of its common stock for
issuance under this plan. In 1994 and 1996, the Company's
shareholders approved an additional 300,000 shares and 450,000
shares, respectively, for issuance under this plan. As of December
31, 2001, no options were available for issuance under this Plan
and this Plan expired during 2002.
In 1998, the shareholders approved a stock option plan (1998 Stock
Option Plan) which provides for the granting of both incentive
stock options at the fair market value at the date of grant and
nonqualified stock options at or below the fair market value at the
date of grant to employees or non-employees who, in the
determination of the Board of Directors, have made or may make
significant contributions to the Company in the future. The
Company may also award stock appreciation rights or restricted
stock under this plan. The Company initially reserved 540,000
shares of its common stock for issuance under this plan. In 1999,
the Company's shareholders approved an additional 545,000 shares
for issuance under this Plan, and in each of 2000 and 2002, the
Company's shareholders approved an additional 600,000 shares for
issuance under this Plan. As of December 31, 2008, no options
were available for issuance under this Plan and this Plan expired in
December 2007.
In 2008, the shareholders approved the Company's 2008 Equity
Incentive Plan which provides for the granting of both incentive
stock options at the fair market value at the date of grant and
nonqualified stock options at the fair market value at the date of
grant to employees or non-employees who, in the determination of
the Board of Directors, have made or may make significant
contributions to the Company in the future. The Company may
also award stock appreciation rights, restricted stock, or restricted
stock units under this plan. The Company initially reserved
750,000 shares of its common stock for issuance under this plan.
As of December 31, 2008, no awards were issued under this plan
and awards for 750,000 shares were available for issuance under
this Plan.
At the discretion of the Board of Directors, options expire in ten
years or less from the date of grant and are generally fully
exercisable upon grant but in some cases may be subject to vesting
in the future. Full payment of the exercise price may be made in
cash or in shares of common stock valued at the fair market value
thereof on the date of exercise, or by agreeing with the Company
to cancel a portion of the exercised options.
The Company granted no options during 2006 or 2008. The
Company granted options three times during 2007. The weighted
average information about these grants is:
Fair value on grant date $ 6.44
Expected dividend yield --
Expected volatility 63.99%
Risk free interest rate 4.16%
Expected term of the option 4.77 years
Activity in stock options is summarized below:
Weighted
Average
Number Weighted Remaining
Of Shares Average Contractual Aggregate
Subject Exercise Term Intrinsic
to Option Price (Years) Value
Balance at December 31, 2005 2,690,993 $ 11.45
Granted -- --
Cancelled (254,900) $ 8.80
Balance at December 31, 2006 2,436,093 $ 11.73
Granted 654,537 $ 11.85
Cancelled (70,000) $ 6.00
Exercised (248,250) $ 7.50
Balance at December 31, 2007 2,772,380 $ 12.28
Granted -- --
Cancelled (310,000) $ 7.27
Exercised ( 2,400) $ 7.16
Balance at December 31, 2008 2,459,980 $ 12.92 4.1 $ --
Exercisable at December 31, 2008 2,447,480 $ 12.92 4.1 $ --
Options covering 12,500 shares were not vested at December 31,
2008. The total unrecognized compensation cost related to non
vested options as of December 31, 2008 was $63,204. This cost is
expected to be recognized over a weighted average period of 0.5
years. The total intrinsic value of options exercised during the
year ended December 31, 2007 was $1,155,568. No options were
exercised during the year ended December 31, 2006.
During 2007 the Company issued options to consultants to
purchase 31,500 shares of common stock at a weighted average
exercise price of $14.79 per share. The Company recorded
$126,408 and $70,143 (included with expense of options granted
to employees and directors) of non-cash expense in connection
with the issuance of these options during 2008 and 2007,
respectively.
(ii) Warrants
Activity in warrants is summarized below, including the effect
of the warrants discussed in note 7(c)):
Number of Shares Exercise
Underlying Warrants Granted
Price
Balance at December 31, 2005 384,600 5.88-9.63
Exercised -- --
Terminated (35,600) 7.73
Issued -- --
Balance at December 31, 2006 349,000 $ 6.00-8.98
Exercised (128,750) $ 6.00-8.25
Terminated -- --
Issued -- --
Balance at December 31, 2007 220,250 $ 7.50-9.00
Exercised -- --
Terminated (52,750) $ 8.25
Issued -- --
Balance at December 31, 2008 167,500 $ 7.50-9.00
Warrants generally expire from five to ten years from the date of
issuance. At December 31, 2008, the number of warrants
exercisable was 162,500 at a weighted average exercise price of
$7.75 per share.
(c) Class A and Class B Warrants
n connection with a financing in 1998, the Company issued
Ailouros Ltd. a Class A Warrant (which was exercised in full as of
February 2004), as well as a Class B Warrant which expired on
September 30, 2008. The Class B Warrant was exercisable into
65,500 shares at an exercise price of $8.25 per share which
represents 120% of average of the closing bid and ask price of the
Company's common stock on the date of the Class B Warrant's
issuance. During 2007, 12,750 of the Class B Warrants were
exercised.
(d) Restricted Stock Grant
Effective January 1, 2009, the Company's Board of Directors
approved the issuance of 299,950 shares of its common stock to
directors, employees and a consultant of the Company. Of this
grant, 100,000 shares were issued to the Company's outside
directors and were fully vested on the date of grant. In addition,
198,500 shares were issued to employees and will vest ratably each
month through December 31, 2011. The remaining 1,450 shares
were issued to employees and a consultant and were fully vested at
the date of grant. Total compensation expense associated with this
stock grant is estimated to be approximately $642,000, of which
approximately $425,000 will vest over 36 months.
(8) License and Other Agreements
The Company has entered into a number of license agreements
covering various products using the Company's SPD technology.
Licensees of Research Frontiers who incorporate SPD technology into
end products pay Research Frontiers an earned royalty of 5-15% of net
sales of licensed products under license agreements currently in effect,
and may also be required to pay Research Frontiers fees and minimum
annual royalties. To the extent that products have been sold resulting in
earned royalties under these license agreements in excess of these
minimum advance royalty payments, the Company has recorded
additional royalty income. Licensees who sell products or components
to other licensees of Research Frontiers do not pay a royalty on such
sale and Research Frontiers will collect such royalty from the licensee
incorporating such products or components into their own end-products.
Research Frontiers' license agreements typically allow the licensee to
terminate the license after some period of time, and give Research
Frontiers only limited rights to terminate before the license expires.
Most licenses are non-exclusive and generally last as long as our
patents remain in effect. To date, revenues from license agreements
have not been sufficient to fund the Company's costs of operation.
(9) Commitments
The Company has an employment agreement with one of its officers
which provides for an annual base salary of $402,132 through
December 31, 2009.
The Company has a defined contribution profit sharing (401K) plan
covering employees who have completed one year of service.
Contributions are made at the discretion of the Company. The
Company did not make any contributions to this plan for 2008, 2007 or
2006.
The Company occupies premises under an operating lease agreement
which expires on January 31, 2014. At December 31, 2008, the
approximate minimum annual future rental commitment under this
lease for the next five years are as follows:
2009: $167,000
2010: $169,000
2011: $171,000
2012: $173,000
2013: $192,000
Rent expense, including other occupancy related expenses, amounted to
approximately $191,000, $177,000, and $169,000 for 2008, 2007, and
2006, respectively.
(10) Rights Plan
In February 2003, the Company's Board of Directors adopted a
Stockholders' Rights Plan and declared a dividend distribution of one
Right for each outstanding share of Company common stock to
stockholders of record at the close of business on March 3, 2003.
Subject to certain exceptions listed in the Rights Plan, if a person or
group has acquired beneficial ownership of, or commences a tender or
exchange offer for, 15% or more of the Company's common stock,
unless redeemed by the Company's Board of Directors, each Right
entitles the holder (other than the acquiring person) to purchase from
the Company $120 worth of common stock for $60. If the Company is
merged into, or 50% or more of its assets or earning power is sold to,
the acquiring company, the Rights will also enable the holder (other
than the acquiring person) to purchase $120 worth of common stock of
the acquiring company for $60. The Rights will expire at the close of
business on February 18, 2013, unless the Rights Plan is extended by
the Company's Board of Directors or unless the Rights are earlier
redeemed by the Company at a price of $.0001 per Right. The Rights
are not exercisable during the time when they are redeemable by the
Company.
(11) Selected Quarterly Financial Data (Unaudited)
Quarter
2008 First Second Third Fourth
Fee income $ 170,193 $ 134,751 $1,171,187 $ 203,788
Operating loss (1,051,900) (896,584) 121,883 (922,816)
Net income (loss) (984,494) (863,494) 156,655 (903,510)
Basic and diluted net loss
per common share (1) (.06) (.06) .01 (.06)
2007 First Second Third Fourth
Fee income $ 9,792 $ 57,209 $ 150,809 $ 164,549
Operating loss (1,985,982) (829,061) (2,565,839) (2,520,362)
Net loss (1,929,148) (734,971) (2,470,281) (2,430,818)
Basic and diluted net loss
per common share (1) (.13) (.05) (.16) (.16)
------------------------------------------
(1) Since per share information is computed independently for each
quarter and the full year, based on the respective average number of
common shares outstanding, the sum of the quarterly per share
amounts does not necessarily equal the per share amounts for the
year.
2) Fee income in the third quarter of 2008 was primarily due to the
receipt of a one-time payment from a former licensee in full settlement
of past due minimum annual royalties for several years.
SCHEDULE II
RESEARCH FRONTIERS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2008, 2007, and 2006
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions* of period
Allowance for uncollectible
royalty receivables:
December 31, 2008 $ 163,674 $ 40,000 $ 0 $ 203,674
December 31, 2007 $ 103,674 $ 90,000 $30,000 $ 163,674
December 31, 2006 $ 78,764 $ 25,000 $ 0 $ 103,674
*Previously reserved receivables written off to the reserve.