RESEARCH FRONTIERS INC 10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A Amendment No. 1 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarter ended June 30, 2021 Commission File Number 000-14893 RESEARCH FRONTIERS INCORPORATED (Exact name of registrant as specified in its charter) delaware 11-2103466 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 240 CROSSWAYS PARK DRIVE WOODBURY , new york 11797-2033 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (516) 364-1902 Securities registered pursuant to Section 12(b) of the Act: Name of Exchange Title of Class on Which Registered Common Stock, $0.0001 Par Value The NASDAQ Stock Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 per share REFR The NASDAQ Stock Market Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of February 24, 2022, there were outstanding 31,650,396 shares of Common Stock, par value $0.0001 per share. EXPLANATORY NOTE This Amendment No. 1 on Form 10-Q/A amends our quarterly report on Form 10-Q for the quarter ended June 30, 2021, initially filed with the Securities and Exchange Commission on August 5, 2021 (the Original Form 10-Q). This Form 10-Q/A amends and restates Items 1, 2 and 4 of Part I of the Original Form 10-Q and adds Item 1A of Part II to the Original Form 10-Q and no other items in the Original Form 10-Q are amended hereby. In Item 1, this Form 10-Q/A includes our restated condensed consolidated interim financial statements for the three and six months ended June 30, 2021, including certain notes thereto. The restatement relates to certain investments of the Company which were classified as cash equivalents on the June 30, 2021 balance sheet which the Company has determined do not qualify as cash equivalents. Such investments have been reclassified and are now presented as marketable securities, the statement of cashflows also reflects the purchase and sale activity of such marketable securities for the six months ended June 30, 2021 and notes 1 and 11 to the condensed consolidated financial statements have also been amended. This restatement did not impact the results of operations, loss per share or shareholders’ equity for the three and six months ended June 30, 2021. This restatement, which only relates to the reclassification of certain investments from cash to marketable securities, does not affect the company’s net income/loss for any period nor does it have any material impact on liquidity and capital resources. The Company identified this error during the performance of certain specific internal controls performed during our year end reporting process. Management has reassessed its evaluation of the effectiveness of its Disclosure Controls and Procedures as of June 30, 2021 and has concluded that there was a material weakness in the Company’s management quarterly review control related to the assessment of the classification of cash equivalents and marketable securities. For a description of the material weakness in our internal controls over financial reporting and our plan to remediate the material weakness, see Part II – Item 4. Controls and Procedures of this Amendment No. 1 on Form 10-Q/A. In addition, pursuant to the rules of the Securities and Exchange Commission, Item 6 of Part II of the Original Form 10-Q has been amended to contain currently-dated certifications from our Chief Executive Officer and Acting Interim Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. This Amendment No. 1 on Form 10-Q/A has not been updated for events occurring after the filing of the Original Form 10-Q, except to reflect the foregoing. TABLE OF CONTENTS Page(s) Condensed Consolidated Balance Sheets – June 30, 2021 (Unaudited) and December 31, 2020 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 4 Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited) 6 Notes to the Condensed Consolidated Financial Statements (Unaudited) 7-12 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Item 4. Controls and Procedures 17 PART II - OTHER INFORMATION Item 6. Exhibits 17 SIGNATURES 18 2 RESEARCH FRONTIERS INCORPORATED Condensed Consolidated Balance Sheets Assets June 30, 2021 (Unaudited) (Restated) December 31, 2020 (See Note 1) Current assets: Cash and cash equivalents $ 339,607 $ 4,772,705 Marketable securities 3,131,983 - Royalty receivables, net of reserves of $ 972,202 in 2021 and $ 972,202 in 2020 829,865 598,292 Prepaid expenses and other current assets 199,925 56,512 Total current assets 4,501,380 5,427,509 Fixed assets, net 107,766 121,772 Operating lease ROU assets 543,133 616,442 Deposits and other assets 33,567 33,567 Total assets $ 5,185,846 $ 6,199,290 Liabilities and Shareholders’ Equity Current liabilities: Current portion of operating lease liability $ 174,103 $ 166,377 Accounts payable 41,077 33,410 Accrued expenses and other 59,435 26,279 Deferred revenue 26,002 - Total current liabilities 300,617 226,066 Operating lease liability, net of current portion 557,204 646,219 Total liabilities 857,821 872,285 Shareholders’ equity: Common stock, par value $ 0.0001 per share; authorized 100,000,000 shares, issued and outstanding 31,650,396 in 2021 and 31,575,786 in 2020 3,165 3,158 Additional paid-in capital 123,250,878 123,164,623 Accumulated deficit ( 118,926,018 ) ( 117,840,776 ) Total shareholders’ equity 4,328,025 5,327,005 Total liabilities and shareholders’ equity $ 5,185,846 $ 6,199,290 See accompanying notes to condensed consolidated financial statements. 3 RESEARCH FRONTIERS INCORPORATED Condensed Consolidated Statements of Operations (Unaudited) Six months ended June 30, Three months ended June 30, 2021 2020 2021 2020 Fee income $ 327,060 $ 532,286 $ 113,937 $ 176,113 Operating expenses 1,128,674 1,452,404 503,078 631,963 Research and development 284,988 330,049 139,810 146,731 Total expenses 1,413,662 1,782,453 642,888 778,694 Operating loss ( 1,086,602 ) ( 1,250,167 ) ( 528,951 ) ( 602,581 ) Other income - PPP loan forgiveness - 194,140 - 194,140 Net investment income 1,360 32,452 1,016 9,460 Net loss $ ( 1,085,242 ) $ ( 1,023,575 ) $ ( 527,935 ) $ ( 398,981 ) Basic and diluted net loss per common share $ ( 0.03 ) $ ( 0.03 ) $ ( 0.02 ) $ ( 0.01 ) Weighted average number of common shares outstanding 31,642,686 31,398,818 31,650,396 31,474,431 See accompanying notes to condensed consolidated financial statements. 4 RESEARCH FRONTIERS INCORPORATED Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) For the six months ended June 30, 2020 and 2021 Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance, January 1, 2020 31,254,262 $ 3,125 $ 122,552,895 $ ( 115,499,912 ) $ 7,056,108 Exercise of options and warrants 321,524 33 284,174 - 284,207 Exercise of options Exercise of options, shares Net loss - - - ( 1,023,575 ) ( 1,023,575 ) Balance, June 30, 2020 31,575,786 $ 3,158 $ 122,837,069 $ ( 116,523,487 ) $ 6,316,740 Balance, January 1, 2021 31,575,786 $ 3,158 $ 123,164,623 $ ( 117,840,776 ) $ 5,327,005 Exercise of options 74,610 7 86,255 - 86,262 Net loss - - - ( 1,085,242 ) ( 1,085,242 ) Balance, June 30, 2021 31,650,396 $ 3,165 $ 123,250,878 $ ( 118,926,018 ) $ 4,328,025 For the three months ended June 30, 2020 and 2021 Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance, March 31, 2020 31,411,107 $ 3,141 $ 122,552,879 $ ( 116,124,506 ) $ 6,431,514 Exercise of options and warrants 164,679 17 284,190 - 284,207 Net loss - - - ( 398,981 ) ( 398,981 ) Balance, June 30, 2020 31,575,786 $ 3,158 $ 122,837,069 $ ( 116,523,487 ) $ 6,316,740 Balance, March 31, 2021 31,650,396 $ 3,165 $ 123,250,878 $ ( 118,398,083 ) $ 4,855,960 Exercise of options - - Net loss ( 527,935 ) ( 527,935 ) Balance, June 30, 2021 31,650,396 $ 3,165 $ 123,250,878 $ ( 118,926,018 ) $ 4,328,025 See accompanying notes to condensed consolidated financial statements. 5 RESEARCH FRONTIERS INCORPORATED Condensed Consolidated Statements of Cash Flows (Unaudited) For the six months ended June 30, 2021 (Restated) 2020 Cash flows from operating activities: Net loss $ ( 1,085,242 ) $ ( 1,023,575 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,961 87,276 Unrealized loss on marketable securities 1,650 - Other income - PPP loan forgiveness - ( 194,140 ) Bad debts expense (recovery) - 53,217 Change in assets and liabilities: Royalty receivables ( 231,573 ) ( 49,675 ) Prepaid expenses and other current assets ( 143,413 ) ( 79,638 ) Accounts payable and accrued expenses 40,823 ( 73,679 ) Deferred revenue 26,002 40,567 Net cash used in operating activities ( 1,384,792 ) ( 1,239,647 ) Cash flows from investing activities: Purchases of fixed assets ( 935 ) ( 939 ) Proceeds from sale of fixed asset - 3,713 Purchases of marketable securities ( 3,433,633 ) - Sales of marketable securities 300,000 - Net cash (used in) provided by investing activities ( 3,134,568 ) 2,774 Cash flows from financing activities: Proceeds from exercise of options 86,262 284,207 Proceeds from PPP Program Funding - 202,052 Net cash provided by financing activities 86,262 486,259 Net decrease in cash and cash equivalents ( 4,433,098 ) ( 750,614 ) Cash and cash equivalents at beginning of period 4,772,705 6,591,960 Cash and cash equivalents at end of period $ 339,607 $ 5,841,346 See accompanying notes to condensed consolidated financial statements. 6 RESEARCH FRONTIERS INCORPORATED Notes to Condensed Consolidated Financial Statements June 30, 2021 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K relating to Research Frontiers Incorporated (the “Company”) for the fiscal year ended December 31, 2020. Restatement These condensed consolidated interim financial statements for the three and six months ended June 30, 2021, including certain notes thereto have been restated. The restatement relates to a change in presentation of certain investments of the Company which were originally classified as cash equivalents on the balance sheet as of June 30, 2021, which the Company has subsequently determined do not qualify as cash equivalents. Such investments have been reclassified and are now presented as marketable securities. This restatement did not impact the results of operations, loss per share or shareholders’ equity for the three and six months ended June 30, 2021. The effects of the reclassification of these investments on the condensed consolidated balance sheet and condensed consolidated statement of cash flows as of and for the six months ended June 30, 2021 are as follows: Schedule of Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Cash Flows As reported Adjustment As restated June 30, 2021 As reported Adjustment As restated Balance sheet: Cash and cash equivalents $ 3,471,590 $ ( 3,131,983 ) $ 339,607 Marketable securities - 3,131,983 3,131,983 Statement of cash flows: Unrealized loss on marketable securities - 1,650 1,650 Net cash used in operating activities ( 1,386,442 ) 1,650 ( 1,384,792 ) Purchases of marketable securities - ( 3,433,633 ) ( 3,433,633 ) Sales of marketable securities - 300,000 300,000 Net cash (used in) provided by investing activities ( 935 ) ( 3,133,633 ) ( 3,134,568 ) Note 2. Business Research Frontiers Incorporated (“Research Frontiers” or the “Company”) operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Such devices, often referred to as “light valves” or suspended particle devices (“SPDs”), use colloidal particles that are either incorporated within a liquid suspension or a film, which is usually enclosed between two sheets of glass or plastic having transparent, electrically conductive coatings on the facing surfaces thereof. At least one of the two sheets is transparent. SPD technology, made possible by a flexible light-control film invented by Research Frontiers, allows the user to instantly and precisely control the shading of glass/plastic manually or automatically. SPD technology has numerous product applications, including SPD-Smart™ windows, sunshades, skylights and interior partitions for homes and buildings; automotive windows, sunroofs, sun visors, sunshades, rear-view mirrors, instrument panels and navigation systems; aircraft windows; museum display panels; eyewear products; and flat panel displays for electronic products. SPD-Smart light control film is now being developed for, or used in, architectural, automotive, marine, aerospace and appliance applications. The Company has primarily utilized its cash, cash equivalents, and investments generated from sales of our common stock, proceeds from the exercise of options and warrants, and royalty fees collected to fund its research and development of SPD light valves, for marketing initiatives, and for other working capital purposes. The Company’s working capital and capital requirements depend upon numerous factors, including the results of research and development activities, competitive and technological developments, the timing and cost of patent filings, and the development of new licensees and changes in the Company’s relationships with its existing licensees. The degree of dependence of the Company’s working capital requirements on each of the foregoing factors cannot be quantified; increased research and development activities and related costs would increase such requirements; the addition of new licensees may provide additional working capital or working capital requirements; and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes. We have incurred recurring losses since inception and expect to continue to incur losses as a result of costs and expenses related to our research and continued development of our SPD technology and our corporate general and administrative expenses. Our capital requirements and operations to date have been substantially funded through sales of our common stock, exercise of options and warrants and royalty fees collected. As of June 30, 2021, we had working capital of approximately $ 4.2 million, cash and cash equivalents of approximately $ 3.5 million, shareholders’ equity of approximately $ 4.3 million and an accumulated deficit of approximately $ 118.9 million. Our projected cash flow shortfall based on our current operations adjusted for any non-recurring cash expenses for the next 12 months is approximately $ 400,000 -$ 450,000 per quarter. Based on our current expectations of our cash flow shortfall for the next 12 months, our working capital would support our activities for the next 24 months. 7 In the event that we are unable to generate sufficient cash from our operating activities or raise additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our business, operating results, financial condition and long-term prospects. The Company may seek to obtain additional funding through future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available. The eventual success of the Company and generation of positive cash flow will be dependent upon the commercialization of products using the Company’s technology by the Company’s licensees and payments of continuing royalties on account thereof. To date, the Company has not generated sufficient revenue from its licensees to fund its operations. Recent Global Events: On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As a result, the Company expects operations at its facility to continue to be affected in some capacity, as the COVID-19 virus continues to proliferate and the federal, state and local governments under which we operate continue to adopt new rules. The Company has put in place enhanced procedures, such as restricting international and domestic travel, adopting a variety of steps designed to ensure social distancing in our facilities, including working remotely where available, and increasing our cleaning and sanitizing procedures in our facilities, in an effort to protect its employees and communities. Revenues were negatively impacted since the onset of the pandemic due to delays in manufacture of products using our technology. Most of the products using our technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by public health crises, such as COVID-19, could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time, but could materially adversely affect our business, financial condition, results of operations, and cash flows. Net of amounts previously reserved which were fully written off in 2020, the Company increased its allowance for uncollectible royalty receivables in 2020 until the collectability from certain licensees can be better ascertained in the regions affected by COVID-19. In connection with the COVID-19 crisis, Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which, among other things, provides relief for businesses impacted by the pandemic. The Company applied for and received $ 202,052 in proceeds from the Paycheck Protection Program (“PPP Loan”) made available under the CARES Act. The PPP Loan is intended to offer businesses hurt by the COVID-19 pandemic economic assistance with the potential for the principal to be forgiven based on certain expenses incurred during the first 24 weeks after the issuance of the PPP Loan. The Company has received notification that this loan has been forgiven. Consequently, the Company recorded $ 202,052 as other income for the year ended December 31, 2020 representing the PPP Loan estimated to be forgiven. For the three and six months ended June 30, 2020, the Company estimated that $ 194,140 of this loan had been forgiven. Note 3. Patent Costs The Company expenses costs relating to the development, acquisition or enforcement of patents due to the uncertainty of the recoverability of these items. Note 4. Revenue Recognition Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606 ). The standard provides a single comprehensive revenue recognition model for all contracts with customers and supersedes existing revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. ASC 606 follows a five-step approach to determining revenue recognition including: 1) Identification of the contract; 2) Identification of the performance obligations; 3) Determination of the transaction price; 4) Allocation of the transaction price; and 5) Recognition of revenue. 8 The Company determined that its license agreements provide for three performance obligations which include: (i) the Grant of Use to its Patent Portfolio (“Grant of Use”), (ii) Stand-Ready Technical Support (“Technical Support”) including the transfer of trade secrets and other know-how, production of materials, scale-up support, analytical testing, etc., and (iii) access to new Intellectual Property (“IP”) that may be developed sometime during the course of the contract period (“New Improvements”). Given the nature of IP development, such New Improvements are on an unspecified basis and can occur and be made available to licensees at any time during the contract period. When a contract includes more than one performance obligation, the Company needs to allocate the total consideration to each performance obligation based on its relative standalone selling price or estimate the standalone selling price if it is not observable. A standalone selling price is not available for our performance obligations since we do not sell any of the services separately and there is no competitor pricing that is available. As a consequence, the best method for determining standalone selling price of our Grant of Use performance obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements. Comparable license agreements must consider several factors including: (i) the materials that are being licensed, (ii) the market application for the licensed materials, and (iii) the financial terms in the license agreements that can increase or decrease the risk/reward nature of the agreement. Based on the royalty rate comparison referred to above, any pricing above and beyond the average royalty rate would relate to the Technical Support and New Improvements performance obligations. The Company focuses a significant portion of its time and resources to provide the Technical Support and New Improvements services to its licensees which further supports the conclusions reached using the royalty rate analysis. The Technical Support and New Improvements performance obligations are co-terminus over the term of the license agreement. For purposes of determining the transaction price, and recognizing revenue, the Company combined the Technical Support and New Improvements performance obligations because they have the same pattern of transfer and the same term. We maintain a staff of scientists and other professionals whose primary job responsibilities throughout the year are: (i) being available to respond to Technical Support needs of our licensees, and (ii) developing improvements to our technology which are offered to our licensees as New Improvements. Since the costs incurred to satisfy the Technical Support and New Improvements performance obligations are incurred evenly throughout the year, the value of the Technical Support and New Improvements services are recognized throughout the initial contract period as these performance obligations are satisfied. If the agreement is not terminated at the end of the initial contract period, it will renew on the same terms as the initial contract for a one-year period. Consequently, any fees or minimum annual royalty obligations relating to this renewal contract will be allocated similarly to the initial contract over the additional one-year period. We recognize revenue when or as the performance obligations in the contract are satisfied. For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. Since the IP is determined to be a functional license, the value of the Grant of Use is recognized in the first period of the contract term in which the license agreement is in force. The value of the Technical Support and New Improvements obligations is allocated throughout the contract period based on the satisfaction of its performance obligations. If the agreement is not terminated at the end of the contract period, it will renew on the same terms as the original agreement for a one-year period. Consequently, any fees or minimum annual royalties (“MAR”) relating to this renewal contract will be allocated similarly over that additional year. The Company’s license agreements have a variable royalty fee structure (meaning that royalties are a fixed percentage of sales that vary from period to period) and frequently include a minimum annual royalty commitment. In instances when sales of licensed products by its licensees exceed the MAR, the Company recognizes fee income as the amounts have been earned. Typically, the royalty rate for such sales is 10 - 15 % of the selling price. While this is variable consideration, it is subject to the sales/usage royalty exception to recognition of variable consideration in ASC 606 10-55-65 and therefore is not recognized until the subsequent sales or usage occurs or the MAR period commences. Because of the immediate recognition of the Grant of Use performance obligation: (i) the first period of the contract term will generally have a higher percent allocation of the transaction price under ASC 606 than under the accounting guidance used prior to the adoption of ASC 606, and (ii) the remaining periods in the year will have less of the transaction price recognized under ASC 606 than under the accounting guidance used prior to the adoption of ASC 606. After the initial period in the contract term, the revenue for the remaining periods will be based on the satisfaction of the Technical Support and New Improvements obligations. Since most of our license agreements start as of January 1st, the revenue recognized for the contract under ASC 606 in our first quarter will tend to be higher than the accounting guidance used prior to the adoption of ASC 606. 9 The Company does not have any contract assets under ASC 606 as of June 30, 2021. Certain of the contract fees are accrued by, or paid to, the Company in advance of the period in which they are earned resulting in deferred revenue (contract liabilities). Such excess amounts are recorded as deferred revenue and are recognized as revenue in future periods as earned. Contract assets represent unbilled receivables and are presented within accounts receivable, net on the condensed consolidated balance sheets. The Company operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Our revenue source comes from the licensing of this technology and all of these license agreements have similar terms and provisions. The majority of the Company’s licensing fee income comes from the activities of several licensees participating in the automotive market. The Company currently believes that the automotive market will be the largest source of its royalty income over the next several years. The Company’s royalty income from this market may be influenced by numerous factors including various trends affecting demand in the automotive industry and the rate of introduction of new technology in OEM product lines. In addition to these macro factors, the Company’s royalty income from the automotive market could also be influenced by specific factors such as whether the Company’s SPD-SmartGlass technology appears as standard equipment or as an option on a particular vehicle, the number of additional vehicle models that SPD-SmartGlass appears on, the size of each window on a vehicle and the number of windows on a vehicle that use SPD SmartGlass, fluctuations in the total number of vehicles produced by a manufacturer, and in the percentage of cars within each model produced with SPD-SmartGlass, and changes in pricing or exchange rates. As of June 30, 2021, the Company has six license agreements that are in their initial multiyear term (“Initial Term”) with continuing performance obligations going forward. The Initial Term of one of these agreements will end as of December 31, 2021, four will end as of December 31, 2022, and one will end December 31, 2024. The Company currently expects that all of these agreements will renew annually at the end of the Initial Term. As of June 30, 2021, the aggregate amount of the revenue to be recognized upon the satisfaction of the remaining performance obligations for the six license agreements is $ 353,000 . The revenue for these remaining performance obligations is expected to be recognized evenly throughout their remaining period of the Initial Term. Note 5. Fee Income Fee income represents amounts earned by the Company under various license and other agreements relating to technology developed by the Company. During the first six months of 2021, three licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 27 %, 23 % and 11 % of fee income recognized during such period. During the first six months of 2020, five licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 22 %, 17 %, 12 %. 12 % and 12 % of fee income recognized during such period. During the three months ended June 30, 2021, three licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 27 %, 21 % and 15 % of fee income recognized during such period. During the three months ended June 30, 2020, four licensees accounted for 10% or more of fee income of the Company; these licensees accounted for approximately 17 %, 17 %, 11 %, and 10 % of fee income recognized during such period. 10 Note 6. Stock-Based Compensation The Company has granted options/warrants to consultants. GAAP requires that all stock-based compensation be recognized as an expense in the financial statements and that such costs be measured at the fair value of the award at the date of grant. These awards generally vest ratably over 12 to 60 months from the date of grant and the Company charges to operations quarterly the current market value of the options using the Black-Scholes method. During the six months ended June 30, 2021 and 2020 there were no charges related to options or warrants granted to consultants. During the six months ended June 30, 2021 and 2020, the Company did no t grant options to employees or directors. There was no compensation expense recorded relating to restricted stock grants to employees and directors during the six months ended June 30, 2021 and 2020. As of June 30, 2021, there were 683,500 shares available for future grant under our 2019 Equity Incentive Plan, which was approved by the Company’s shareholders in June 2019. Note 7. Income Taxes Since inception, the Company has incurred losses from operations and as a result has not recorded income tax expense. Benefits related to net operating loss carryforwards and other deferred tax items have been fully reserved since it was more likely than not that the Company would not achieve profitable operations and be able to utilize the benefit of the net operating loss carryforwards. Note 8. Basic and Diluted Loss Per Common Share Basic loss per share excludes any dilution. It is based upon the weighted average number of common shares outstanding during the period. Dilutive loss per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company’s dilutive loss per share equals basic loss per share for the periods ended June 30, 2021 and 2020, respectively, 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 2,406,651 and 2,498,251 for the three and six months ended June 30, 2021 and 2020, respectively. Note 9. Equity During the six months ended June 30, 2021, the Company received $ 86,262 in proceeds from the exercise of outstanding options and warrants and issued 39,500 shares of its capital stock in connection with these exercises. In addition, during the six months ended June 30, 2021, the Company issued 35,110 shares of its capital stock in connection with the cashless exercise of 101,000 of its outstanding options. No options or warrants were exercised during the three months ended June 30, 2021. During the six months ended June 30, 2020, the Company received $ 284,207 in proceeds from the exercise of outstanding options and warrants and issued 83,152 shares of its capital stock in connection with these exercises. In addition, during the six months ended June 30, 2020, the Company issued 238,372 shares of its capital stock in connection the cashless exercise of 450,091 of its outstanding options. During the three-month period ended June 30, 2020, the Company received $ 284,207 in proceeds from the exercise of outstanding options and warrants and issued 83,152 shares of its capital stock in connections with these exercises. In addition, during the three-month period ended June 30, 2020, the Company issued 81,527 shares of its capital stock in connection with the cashless exercise of 207,000 of its outstanding options. The Company did not sell any equity securities during the six months ended June 30, 2021 and 2020. As of June 30, 2021, there were 1,399,991 warrants and 1,006,660 options outstanding. 11 Note 10. Leases The Company determines if an arrangement is a lease at its inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if the Company obtains the rights to direct the use of, and to obtain substantially all of the economic benefits from the use of, the underlying asset. Lease expense for variable leases and short-term leases is recognized when the obligation is incurred. The Company has operating leases for certain facilities and equipment with a weighted average remaining lease term of 3.7 years as of June 30, 2021. Operating leases are included in right of use lease assets, other current liabilities and long-term lease liabilities on the condensed consolidated balance sheet. Right of use lease assets and liabilities are recognized at each lease’s commencement date based on the present value of its lease payments over its respective lease term. The Company does not have an established incremental borrowing rate as it does not have any debt. The Company uses the stated borrowing rate for a lease when readily determinable. When the interest rates implicit in its lease agreements is not readily determinable, the Company used an interest rate based on the marketplace for public debt. The weighted average discount rate associated with operating leases as of June 30, 2021 is 5.5 %. Operating lease expense for the three and six months ended June 30, 2021 was approximately $ 55000 and $ 110,000 , respectively. The Company has no material variable lease costs or sublease income for the three and six months ended June 30, 2021. Subsequent to the Company’s adoption of the new lease accounting guidance on January 1, 2019, the Company recorded new right of use lease assets of approximately $ 900,000 and associated lease liabilities of approximately $ 1.1 million. Maturities of operating lease liabilities as of June 30, 2021 were as follows: Schedule of Maturities of Opearing Lease June 30, 2021 For the remainder of the year ending December 31, 2021 $ 105,000 For the year ending December 31, 2022 213,000 For the year ending December 31, 2023 217,000 For the year ending December 31, 2024 222,000 For the year ending December 31, 2025 and beyond 56,000 Total lease payments 813,000 Less: imputed lease interest ( 81,693 ) Present value of lease liabilities $ 731,307 Note 11. Marketable Securities The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Held-to-maturity securities are recorded at cost and are adjusted for the amortization or accretion of premiums or discounts over the life of the related security. Unrealized holding gains and losses of available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized. In determining realized gains and losses, the cost of the securities sold is based on the specific identification method. Interest and dividends on the investments are accrued at the balance sheet date. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Fair value measurements are broken down into three levels based on the reliability of inputs as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. At June 30, 2021 all investments were classified as Level 1 trading securities, and consisted of the following: Schedule of Investments Were Classified as Level 1 Trading Securities June 30, 2021 Value of Trading Securities Investment Investments Mutual Funds Putnam Short Duration Bond $ 1,998,350 Putnam Ultra Short Duration Income 1,133,633 $ 3,131,983 Unrealized loss $ 1,650 12 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies The following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position. For additional accounting policies, see Note 2 to our December 31, 2020 consolidated financial statements, “Summary of Significant Accounting Policies.” The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers . The Company determined that its license agreements provide for three performance obligations: (i) Grant of Use, (ii) Technical Support, and (iii) New Improvements. The best method for determining standalone selling price of our Grant of Use performance obligation is through a comparison of the average royalty rate for comparable license agreements as compared to our license agreements. Based on the royalty rate comparison referred to above, any pricing above and beyond the average royalty rate would relate to the Technical Support and New Improvements performance obligations. We recognize revenue when or as the performance obligations in the contract are satisfied. For performance obligations that are fulfilled at a point in time, revenue is recognized at the fulfillment of the performance obligation. Since the IP is determined to be a functional license, the value of the Grant of Use is recognized in the first period of the contract term in which the license agreement is in force. Since the costs incurred to satisfy the Technical Support and New Improvements performance obligations are incurred evenly throughout the year, the value of the Technical Support and New Improvements services are recognized throughout the contract period as these performance obligations are satisfied. The Company operates in a single business segment which is engaged in the development and marketing of technology and devices to control the flow of light. Our revenue source comes from the licensing of this technology and all of these license agreements have similar terms and provisions. The Company has entered into license agreements covering products using the Company’s SPD technology. When royalties from the sales of licensed products by a licensee exceed its contractual minimum annual royalties, the excess amount is recognized by the Company as fee income in the period that it was earned. Certain of the fees are accrued by, or paid to, the Company in advance of the period in which they are earned resulting in deferred revenue. Royalty receivables are stated less allowance for doubtful accounts. The allowance represents estimated uncollectible receivables usually due to licensees’ potential insolvency. The allowance includes amounts for certain licensees where risk of default has been specifically identified. The Company evaluates the collectability of its receivables on at least a quarterly basis and records appropriate allowances for uncollectible accounts when necessary. The Company has historically used the Black-Scholes option-pricing model to determine the estimated fair value of each option grant. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected lives, and risk-free interest rates. These assumptions reflect our best estimates, but these items involve uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Furthermore, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years. On occasion, the Company may issue to consultants either options or warrants to purchase shares of common stock of the Company at specified share prices. These options or warrants may vest based upon specific services being performed or performance criteria being met. In accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services, the Company is required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a Black-Scholes option pricing model and are marked to market quarterly using the Black-Scholes option valuation model. 13 The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. An example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods. Recent Global Events: On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As a result, the Company expects operations at its facility to continue to be affected in some capacity, as the COVID-19 virus continues to proliferate and the federal, state and local governments under which we operate continue to adopt new rules. The Company has put in place enhanced procedures, such as restricting international and domestic travel, adopting a variety of steps designed to ensure social distancing in our facilities, including working remotely where available, and increasing our cleaning and sanitizing procedures in our facilities, in an effort to protect its employees and communities. Revenues were negatively impacted since the onset of the pandemic due to delays in manufacture of products using our technology. Most of the products using our technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by public health crises, such as COVID-19, could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time, but could materially adversely affect our business, financial condition, results of operations, and cash flows. Net of amounts previously reserved which were fully written off in 2020, the Company increased its allowance for uncollectible royalty receivables in 2020 until the collectability from certain licensees can be better ascertained in the regions affected by COVID-19. In connection with the COVID-19 crisis, Congress passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which, among other things, provides relief for businesses impacted by the pandemic. The Company applied for and received $202,052 in proceeds from the Paycheck Protection Program (“PPP Loan”) made available under the CARES Act. The PPP Loan is intended to offer businesses hurt by the COVID-19 pandemic economic assistance with the potential for the principal to be forgiven based on certain expenses incurred during the first 24 weeks after the issuance of the PPP Loan. The Company has received notification that this loan has been forgiven. Consequently, the Company recorded $202,052 as other income for the year ended December 31, 2020 representing the PPP Loan estimated to be forgiven. For the three and six months ended June 30, 2020, the Company estimated that $194,140 of this loan had been forgiven. Results of Operations Overview The majority of the Company’s fee income comes from the activities of several licensees participating in the automotive market. The Company currently believes that the automotive market will be the largest source of its royalty income over the next several years. The Company’s royalty income from this market may be influenced by numerous factors including various trends affecting demand in the automotive industry and the rate of introduction of new technology in OEM product lines. In addition to these macro factors, the Company’s royalty income from the automotive market could also be influenced by specific factors such as whether the Company’s SPD-SmartGlass technology appears as standard equipment or as an option on a particular vehicle, the number of additional vehicle models that SPD-SmartGlass appears on, the size of each window on a vehicle and the number of windows on a vehicle that use SPD-SmartGlass, fluctuations in the total number of vehicles produced by a manufacturer, and in the percentage of cars within model like produced with SPD-SmartGlass, and changes in pricing or exchange rates. Certain license fees, which are paid to the Company in advance of the accounting period in which they are earned resulting in the recognition of deferred revenue for the current accounting period, will be recognized as fee income in future periods. Also, licensees offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments. 14 In 2019 and 2020, the Company received royalty revenues from sales of the Magic Sky Control option using the Company’s technology to Daimler (as well as sales of SPD-SmartGlass products to McLaren Automotive) that were accretive to the Company’s royalty revenue. Production efficiencies are expected to continue and accelerate with the introduction of the higher vehicle production volumes for various car models going forward, and the Company expects that lower pricing per square foot of the Company’s technology could expand the market opportunities, adoption rates, and revenues for its technology in automotive and non-automotive applications. The Company expects to generate additional royalty income from the near-term introduction of additional new car and aircraft models from other OEMs (original equipment manufacturers), continued growth of sales of products using the Company’s technology for the marine industry in yachts and other watercraft, in trains, in museums, and in larger architectural projects. Because the Company’s license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs (with some of the Company’s more recent license agreements providing for payments on a monthly basis), and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home, office building, automobile, aircraft, boat or any other product, there could be a delay between when economic activity between a licensee and its customer occurs and when the Company gets paid its royalty resulting from such activity. As discussed in Note 2, the Company currently does not have the ability to assess whether the COVID-19 pandemic is likely to have a material impact on our near-term financial results. Most of the products using the Company’s technology are manufactured by licensees overseas in Europe and Asia who have been similarly affected by the pandemic. The disruption caused by COVID-19 could result in lower levels of sale activity for products using our technology resulting in lower level of royalties owed to us from the sale of these products. The duration of the potential business disruptions and related financial impact cannot be reasonably estimated at this time. Three months ended June 30, 2021 compared to the three months ended June 30, 2020 The Company’s fee income from licensing activities for the three months ended June 30, 2021 was $113,937 as compared to $176,113 for the three months ended June 30, 2020, representing a $62,176 decrease between these two periods. Lower fees in the automotive, aircraft and architectural markets were partially offset by higher fee income from licensees in the display market. Operating expenses decreased by $128,885 for the three months ended June 30, 2021 to $503,078 from $631,963 for the three months ended June 30, 2020. This decrease is the result of lower payroll and related costs ($48,000), lower depreciation ($37,000) as well as lower bad debt expense ($58,000) partially offset by higher patent costs ($9,000). Research and development expenditures decreased by $6,921 to $139,810 for the three months ended June 30, 2021 from $146,731 for the three months ended June 30, 2020. This decrease was the result of lower materials costs ($6,000). The Company’s net investment income for the three months ended June 30, 2021 was $1,016 as compared to $9,460 for the three months ended June 30, 2020. The difference was primarily due to lower interest rates as well as unrealized reductions in market value of investments and lower cash balances available for investment. In addition, the Company recorded $194,140 of other income for the three months ended June 30, 2020 representing the portion of the PPP loan estimated to be forgiven through such date. There was no PPP loan forgiveness during the three months ended June 30, 2021. As a consequence of the factors discussed above, the Company’s net loss was $527,935 ($0.02 per common share) for the three months ended June 30, 2021 as compared to $398,981 ($0.01 per common share) for the three months ended June 30, 2020. 15 Six months ended June 30, 2021 compared to the six months ended June 30, 2020 The Company’s fee income from licensing activities for the six months ended June 30, 2021 was $327,060 as compared to $532,286 for the six months ended June 30, 2020, representing a $205,226 decrease between these two periods. Lower fees in the automotive, aircraft and architectural markets were partially offset by higher fee income from licensees in the display market. Operating expenses decreased by $323,732 for the six months ended June 30, 2021 to $1,128,672 from $1,452,404 for the six months ended June 30, 2020. This decrease was the result of lower payroll and related costs ($196,000), lower depreciation ($73,000) and lower bad debts expense ($53,000). Research and development expenditures decreased by $45,060 to $284,989 for the six months ended June 30, 2021 from $330,049 for the six months ended June 30, 2020. This decrease was the result of lower payroll and related costs ($31,000) as well as lower allocated insurance costs ($12,000). The Company’s net investment income for the six months ended June 30, 2021 was $1,359 as compared to $32,452 for the six months ended June 30, 2020. The difference was primarily due to lower interest rates as well as unrealized reductions in market value of investments and lower cash balances available for investment. In addition, the Company recorded $194,140 of other income for the six months ended June 30, 2020 representing the portion of the PPP loan estimated to be forgiven through such date. There was no PPP loan forgiveness during the six months ended June 30, 2021. As a consequence of the factors discussed above, the Company’s net loss was $1,085,242 ($0.03 per common share) for the six months ended June 30, 2021 as compared to $1,023,575 ($0.03 per common share) for the six months ended June 30, 2020. Financial Condition, Liquidity and Capital Resources The Company has primarily utilized its cash, cash equivalents, short-term investments, marketable securities, and the proceeds from its investments to fund its research and development, for marketing initiatives, and for other working capital purposes. The Company’s working capital and capital requirements depend upon numerous factors, including, but not limited to, the results of research and development activities, competitive and technological developments, the timing and costs of patent filings, and the development of new licensees and changes in the Company’s relationship with existing licensees. The degree of dependence of the Company’s working capital requirements on each of the foregoing factors cannot be quantified; increased research and development activities and related costs would increase such requirements; the addition of new licensees may provide additional working capital or working capital requirements, and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes. During the six months ended June 30, 2021, the Company’s cash and cash equivalents balance decreased by $4,433,098 principally as a result of cash used for the purchase of marketable securities of $3,433,633 as well as cash used for operations of $1,386,442 partially offset by cash proceeds from the sale of marketable securities of $300,000 and cash proceeds from the exercise of options and warrants of $86,262. As of June 30, 2021, the Company had cash and cash equivalents and marketable securities of $3,471,590, working capital of $4,200,673 and total shareholders’ equity of $4,328,025. Our quarterly projected cash flow shortfall, based on our current operations adjusted for any non-recurring cash expenses for the next 12 months, is approximately $400,000-$450,000 per quarter. We expect to have sufficient working capital for at least the next 24 months of operations. We may seek to eliminate some operating expenses in the future to reduce our cash flow shortfall. The Company expects to use its cash to fund its research and development of SPD light valves, its expanded marketing initiatives, and for other working capital purposes. The Company believes that its current cash and cash equivalents would fund its operations until mid-2023. There can be no assurances that expenditures will not exceed the anticipated amounts or that additional financing, if required, will be available when needed or, if available, that its terms will be favorable or acceptable to the Company. Eventual success of the Company and generation of positive cash flow will be dependent upon the extent of commercialization of products using the Company’s technology by the Company’s licensees and payments of continuing royalties on account thereof. To date the Company has not generated sufficient revenue from its licensees to fully fund its operations. 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by Item 3 has been disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There has been no material change in the disclosure regarding market risk. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We designed our disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and acting interim Chief Financial Officer, with assistance from other members of our management, has reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2021, and, based on his evaluation, has concluded that our disclosure controls and procedures contained a material weakness in internal control over financial reporting which was identified by the Company during our year-end internal control procedures. A material weakness is a deficiency or combination of deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As of June 30, 2021, there was a material weakness in the Company’s management quarterly review control related to the assessment of the classification of cash equivalents and marketable securities. During the second quarter, the Company invested in two mutual funds that did not consist of securities with original maturities of three months or less. While the securities that were purchased were of a highly liquid nature, they did not meet the GAAP definition of a cash equivalent and should have been presented as marketable securities. The Company’s quarterly control procedures over interim reporting were not adequate to identify this change on a timely basis until the Company’s year-end financial reporting process. The Company has modified its interim control procedures to include specific procedures and controls over of the reporting of investments consistent with its year-end review procedures. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See the description of the material weakness in internal controls over financial reporting outlined Evaluation of Disclosure Controls and Procedures above. Forward-Looking Statements The information set forth in this Report and in all publicly disseminated information about the Company, including the narrative contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above, includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that section. Readers are cautioned not to place undue reliance on these forward-looking statements as they speak only as of the date hereof and are not guaranteed. PART II. OTHER INFORMATION Item1A. Risk Factors Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, prospects and/or the trading price of our common stock. Although the risk and uncertainty listed below is that we consider significant, material risks and uncertainties that are not presently known to us may also adversely affect our business, financial condition or results of operations. In evaluating our business and an investment in our securities, you should consider the following risk factor, in addition to the other information presented in this report, as well as the other reports we file from time to time with the SEC: Risks Related to Our Business We have identified a material weakness in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected. On February 18, 2022, our board of directors, following discussions with management, determined that our unaudited condensed consolidated financial statements for the quarters ended June 30, 2021 and September 30, 2021 filed with the SEC on August 5, 2021 and November 4, 2021, respectively, required restatement to correct the classification of certain cash equivalents as marketable securities. The board’s determination to restate such financial statements was identified by management during the course of preparing the Company’s financial statements for the year ended December 31, 2021. Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As described elsewhere in this filing, we have identified a material weakness in our internal control over financial reporting related the classification of cash equivalents and marketable securities. As a result of this material weakness, our management has concluded that our internal control over financial reporting was not effective as of the end of the period covered by this report. We are taking measures to remediate the material weakness described herein. However, if we are unable to remediate our material weakness in a timely manner or we identify additional material weaknesses or significant deficiencies in our internal controls or disclosure controls, we may be unable to provide required financial information in a timely and reliable manner and we may incorrectly report financial information. If our financial statements are not filed on a timely basis, we could be subject to adverse action by shareholders, Nasdaq, the SEC or other regulatory authorities. The existence of material weaknesses or significant deficiencies in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our stock. In addition, we may incur additional costs to remediate material weaknesses or significant deficiencies in our internal control over financial reporting. We cannot assure you that the measures we are taking will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements. Item 6. Exhibits 31.1 Rule 13a-14(a)/15d-14(a) Certification of Joseph M. Harary - Filed herewith. 32.1 Section 1350 Certification of Joseph M. Harary - Filed herewith. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. RESEARCH FRONTIERS INCORPORATED (Registrant) /s/ Joseph M. Harary Joseph M. Harary, President, CEO, acting interim CFO and Treasurer (Principal Executive Officer and Principal Financial Officer) Date: February 24, 2022 18