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Shareholders' Equity

12 Months Ended

Dec. 31, 2011

(7) Shareholders’ Equity

(a) Common Stock

On August 3, 2009, the Company announced that a group of accredited investors invested $2.85 million in the Company. The investors received 780,831 shares of Research Frontiers common stock at a price of $3.65 per share which was the closing market price of Research Frontiers stock on July 28, 2009, the day the transaction was priced. In addition, the investors in this stock offering received 156,161 five-year warrants to purchase Research Frontiers common stock at a price of $6.00 per share. These securities were sold pursuant to Research Frontiers’ effective shelf-registration statement filed with the SEC. Warrants issued are five year warrants at an exercise price of $5 per share for the March 3, 2010 offering, $6.25 per share for the September offerings and $6.75 for the December offering. See 7(b)(ii).

During 2010 the Company sold, pursuant to the Company’s effective registration statement filed with the SEC, equity in the Company as follows:

Date	Shares issued		Warrants issued		Unit price	Proceeds
March 3, 2010		588,602		117,719	$2.75		$	1,618,653
September 17, 2010		641,026		128,205	$3.90		$	2,490,723	*
September 27, 2010		194,118		38,824	$4.25		$	825,000
December 1, 2010		295,000		59,000	$5.00		$	1,475,000
Total		1,718,746		343,748			$	6,409,376

*Net of fees of $9,277

(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. No options are available for issuance under this Plan as 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, and 811,708 options and other awards were available for issuance under this plan as of December 31, 2011.

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 2011 and 2009. The Company granted 176,000 fully vested options during 2010 and recorded non-cash share-based compensation of $406,560. There was no share-based compensation recorded in 2011 and 2009. The Company valued these 2010 grants using the Black-Scholes option pricing model with the following assumptions:

Fair value on grant date	$	2.31
Expected dividend yield		--
Expected volatility		76%
Risk free interest rate		2.57%
Expected term of the option		5 years

Activity in stock options is summarized below:

					Weighted
					Average
	Number		Weighted		Remaining
	of Shares		Average		Contractual	Aggregate
	Subject to		Exercise		Term	Intrinsic
	Option		Price		(Years)	Value
Balance at December 31, 2008	2,459,980		$	12.92
Granted	--		$	--
Cancelled	(448,800	)	$	8.87
Exercised	--		$	--
Balance at December 31, 2009	2,011,180		$	13.82	3.9	$	--
Granted	176,000		$	3.69
Cancelled	(452,981	)	$	18.90
Exercised	--		$	--
Balance at December 31, 2010	1,734,199		$	11.64	4.3	$	281,600
Granted	--		$	--
Cancelled	(379,550	)	$	20.43
Exercised	(85,000	)	$	3.72
Balance at December 31, 2011	1,269,649		$	9.48	4.2	$	--

All options are exercisable at December 31, 2011.

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 $63,206 (included with expense of options granted to employees and directors) of non-cash expense in connection with the issuance of these options during 2009. The Company had no option related expense in 2010 and 2011.

During 2011 an employee was to make a payment of $276,750 for exercising 75,000 options but instead he forfeited 29,270 options which would have been exercisable at a fair market value of $276,896 and delivered the difference in cash.

During 2011, the Company received $65,977 in proceeds from the exercise of options.

(ii) Warrants

Activity in warrants is summarized below:

	Number of
	Shares Underlying		Weighted Average
	Warrants Granted		Exercise Price
Balance at December 31, 2008	167,500		$	7.50-9.00
Exercised	--		$	--
Terminated	(7,500	)	$	8.98
Issued	340,161		$	6.00
Balance at December 31, 2009	500,161		$	6.00-9.00
Exercised	--		$	--
Terminated	(135,000	)	$	7.50
Issued	343,748		$	5.91
Balance at December 31, 2010	708,909		$	5.00-9.00
Exercised	(4,652	)	$	5.64
Terminated	--		$	--
Issued	--		$	--
Balance at December 31, 2011	704,257		$	5.00-9.00

Warrants generally expire from five to ten years from the date of issuance. At December 31, 2011, the number of warrants exercisable was 610,924 at a weighted average exercise price of $6.07 per share.

The Company also granted 175,000 and 9,000 warrants at an exercise price of $6.00 and $5.00 respectively to consultants during 2009. These warrants vest ratably over 59 and 24 months, respectively. These warrants are valued at fair value at the time that the related services are provided using the Black-Scholes method and marked to market quarterly using the Black Scholes method. The Company incurred a (benefit) charge of ($16,974), $75,716 and $24,483 for 2011, 2010 and 2009, respectively in connection with these warrants.

During 2011, the Company granted 63,000 and 139,000 shares of common stock to directors and employees respectively. The market price of each share on the date of grant was $5.20. All of the shares granted to the directors, as well as 3,000 shares granted to certain employees, vested immediately upon grant. The remaining 136,000 shares issued vest ratably over the next 36 months. During 2010, the Company granted a total of 40,500 shares of restricted common stock to three directors. The market price of each share on the date of grant was $3.69. These shares were fully vested on the date of grant. During 2009, the Company granted 100,000, 199,700 and 250 shares of restricted common stock to its directors, employees and a consultant, respectively. All of the shares granted to the directors and the consultant, as well as 1,200 shares granted to employees vested immediately upon grant. The remaining 198,500 shares vest ratably over the 36 months subsequent to the grant date. In connection with a termination of employment, 888 shares were cancelled in 2009. The market value per share on the date of grant was $2.14. At December 31, 2011, 2010 and 2009, 90,667, 65,768 and 131,535, respectively, of these grants remain unvested. The Company recorded total non-cash share-based compensation expense of $702,837, $366,044, and $445,913 for the years ended December 31, 2011, 2010 and 2009, respectively.