UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

or

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period ___to___

Commission file number: No. 0-24368

FLEXPOINT SENSOR SYSTEMS, INC.INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 801-568-5111

Securities registered pursuant to Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act: Common Stock

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]

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes [   ]☐ No [X]

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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 [  ]

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes [X]☒ No [  ]☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated“accelerated filer,” “smaller“smaller reporting company”company” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.

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.

[   ]

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Indicate by checkmark whether the registrant has filed a report on and attestation to its management’smanagement’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.                                                                         [   ]

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]☐ No [X]

☒

The aggregate market value of 90,307,668104,990,446 shares of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold ($0.0766)0.05), as of the last business day of the registrant’sregistrant’s most recently completed second fiscal quarter (June 30, 2020)2021) was approximately $6,917,567.

$5,369,126.

The number of shares outstanding of the registrant’sregistrant’s common stock, as of March 31, 2021,2022, was 114,396,242.

125,557,174.

Documents incorporated by reference: None

TABLE OF CONTENTS

PART III

PART IV

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In this annual report references to “Company”“Company”, “Flexpoint”“Flexpoint”, “Flexpoint“Flexpoint Sensor,” “we,“we,” “us,“us,” and “our”“our” refer to Flexpoint Sensor Systems, Inc.

FORWARD LOOKING STATEMENTS

The U.S. Securities and Exchange Commission (“SEC”(“SEC”) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions.  This report contains these types of statements. Words such as “may,“may,” “expect,“expect,” “believe,“believe,” “anticipate,“anticipate,” “estimate,“estimate,” “project,“project,” or “continue”“continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

PART I

ITEM 1.  BUSINESS

HISTORICAL DEVELOPMENT

Flexpoint Sensor Systems, Inc. was incorporated in the state of Delaware in June 1992 as Nanotech Corporation.  In April 1998, Nanotech changed the company name to Micropoint, Inc. and in July 1999 Micropoint changed its name to Flexpoint Sensor Systems, Inc. Flexpoint was forced to seek bankruptcy protection on July 3, 2001, and filed a voluntary petition for reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. On February 24, 2004, the bankruptcy court confirmed Flexpoint's Plan of Reorganization.   We used fresh-start reporting and all assets of Flexpoint Sensor Systems, Inc. were restated to reflect their reorganization value, which approximated the fair value at the date of reorganization.

BUSINESS OVERVIEW

Flexpoint Sensor Systems, Inc. (“Flexpoint”(“Flexpoint”, or “Company”“Company”), is principally engaged in designing, engineering and manufacturing bend sensor technology and products using its patented Bend Sensor^® technology, a flexible potentiometer technology. We continue to make further improvements to our technologies, manufacturing and developing fully integrated devices and related products that we have been marketing and selling to a variety of companies in diverse industries. We are negotiating and signing agreements, including licensing agreements, purchase orders and contracts that have provided some revenues and have proven that our sensors are more durable, adaptable and cost effective than any other product currently on the market.

The Company owns six patents, including patents on specific devices that use the Bend Sensor^® and we have exclusive rights through licensing agreements to other patents and devices. We are continuing to develop and enhance our intellectual properties that could result in additional patents being filed. The Company currently manufactures, and has jointly developed, at least thirty products that are being sold and supplied to current customers and we continue to receive orders for custom prototype sensors as well as our standard sensors. We are continuing to develop and enhance our intellectual properties that could result in additional patents being filed.

The COVID-19 Pandemic (“the Pandemic”) has had a dramatic effect on our business as well as the business of our customers. The wide-ranging effects on the world-wide business market has led to a general reluctance for businesses to move forward with entering into major commitments until their future markets have been clarified. Because of this, we have experienced a significant slowdown in the size and number of orders received and, while we cannot predict when the influence of the Pandemic will end, we have recently experienced an upturn in orders and we expect that orders will return to their former levels and even increase following a return to normal business operations.

During 20202021 we focused our marketing efforts on a number of larger domestic and international companies that have applications which have the potential to greatly increase the volume of sensors we are currently manufacturing. As of the date of this report, the Company had a number of global commercial partners covering a variety of different products. In coordination with its partners, the Company introduced several new products during the year. Management believes this growth in sales channels will allow the Company to grow at an increasingly accelerated rate over the next several quarters.

Our sales and marketing efforts have been targeted toward the development of new relationships with clients while maintaining and strengthening relationships already developed with several Tier 1 (major) suppliers in the automotive, health and AR/VR industries. We have built and shipped orders to a number of these companies to enable them to test the utilization of our sensors into their existing and developing product lines.

The Company continues to develop relationships in a number of application fields. Flexpoint has established relationships with several medical IoT vendors. These include companies like Neofect Gloreha and YouReHab;Gloreha; all with a focus on medical rehabilitation with a different approach. Products from these companies range from gloves to prosthetics to virtual reality, all with the intention of improving medical health or medical rehab.

In July 2021 we announced the addition of key resellers and partners in the Pacific Rim. These are companies Flexpoint has done business with in the past, and these moves strengthen and expand the strategic nature of the relationships. We are realizing new orders from them and anticipate additional immediate and significant volume purchases which will propel us further into existing key markets, as well as expand the reach of the Bend Sensor® technology into new vertical markets and geographies.

We also announced that Flexpoint continues to work with Resellers/Channel partners such as RobotShop, which has been a steady contributor of purchase orders throughout the past three years. We also receive orders from others, such as Shopify, PayPal, Amazon, and from orders placed on our website. Flexpoint is currently in the process of formalizing reseller agreements with international partners that have committed to develop markets for our sensors in their countries. We are working to increase this market area as it provides effective and significant growth and scale.

In addition to the sale of our products and engineering and design services, we also may consider generating revenues through

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licensing our unique technology for field of use or territory. We will attempt to negotiate each license agreement to contain a provision for either first right of refusal to manufacture, or royalty provisions for specific products or applications, or both. We have continued to concentrate our marketing efforts on sensors and electronics which we consider to be quick-to-market production orders, and on engineering services that have generated limited, but immediate, revenues that have provided cash flow and name recognition. We have also continued our marketing efforts in the automotive industry. Due to the size and the numerous regulations inherent in the automotive industry, it requires a significantly longer time to develop and acquire approvals for new technologies. However, as there are high volumes and long termlong-term contracts associated within the automotive industry, we anticipate that this industry will potentially generate significant long-term revenue streams.

We continue to work with Tier 1 automotive suppliers on a variety of products that are in various stages of development and implementation. Both the medical and automotive industries have undergone significant changes over the past several years. This changing environment has created delays in the implementation of the automotive and medical devices and therefore, over the past several years, we have focused our limited resources and marketing efforts on sensors and products that, in the aggregate, will generate a smaller dollar volume than those anticipated from our medical or automotive devices, but have a quicker pathway to market and have generated needed limited, but immediate, cash flow while providing additional name and product recognition that we believe will provide long term benefits. Based upon the current interest in our sensors from both the automotive and medical industries, we anticipate that over the next twelve months, we will begin producing larger repeatable volumes of sensors and devices in these focus industries.

PRINCIPAL PRODUCTS

Bend Sensor ^®Technology

The Company owns the patent rights to our Bend Sensor^® technology. The Bend Sensor^® is a flexible potentiometer; the bend sensor product consists of a coated substrate, such as plastic, that changes electrical conductivity as it is bent in a consistent manner. Electronic systems connect to this sensor and measure in detail the amount of bending or movement that occurs in a predictable manner.  Certain applications of the Bend Sensor^® potentiometer have been patented (See “Patents“Patents and Intellectual Property,” below).

A typical potentiometer functions through the means of metal contacts swiping or rubbing across a resistive element. Our Bend Sensor^® potentiometer is a single layer with no mechanical assembly which makes it more reliable and significantly smaller, lighter in weight and usually less expensive than mechanical potentiometers.  Management believes many sensor applications can be improved using our technology and that the use of our technology will result in new products and new sensor applications, including the USB Bend Sensor^® kit, which has found application in a wide range of products since its introduction in 2015.

Flexpoint Sensor Systems, Inc. is a company engaged principally in improving its unique sensor technology, expanding its suite of products, developing new sensor applications, obtaining financing and seeking long-term sustainable manufacturing contracts.  Our operations have not yet commenced to a commercially sustainable level and include designing, engineering, manufacturing and selling sensor technology and products featuring our Bend Sensor^® technology and equipment.

We have developed the following applications and devices using the Bend Sensor^® technology and are currently marketing these items:

On August 20, 2019 the Company announced the development of the world’s first digital bend sensor capable of automatically compensating for changes in the environment, thus guaranteeing consistent performance across temperature and humidity variables. Easily integrated into multiple applications, the data gathered by the sensor will be digitally converted and transmitted, enhancing performance.Swell Sensor

On July 25, 2019, the Company announced that they had filed a provisional patent for the new “Swell Sensor”“Swell Sensor” or Battery Expansion Sensor, (“BXS”(“BXS”), designed to detect and stop a Lithium ion or Lithium Polymer battery from charging or discharging, preventing a thermal runway; one of the major ways battery fires occur.

Li-ion and Li-polymer batteries are used today in everything from phones to electric cars. Flexpoint’sFlexpoint’s technology included in the provisional patent provides a method to protect these batteries, their products and those who use them every day, measuring the expansion or swelling of the battery effectively stopping a potentially dangerous state.

Batteries become over heated, over charged, or simply fail due to old age. When this occurs, it’sit’s possible for the inner cells of the battery to outgas a flammable electrolyte mixture, causing the battery to swell. The Flexpoint BXSFlexpointBXS Sensor addresses the swollen battery effect, as batteries are designed to contain as a failsafe the measure of out gassing. The Flexpoint Swell Sensor detects the condition, effectively shutting down the short circuit. Without this type of detection, some batteries can eventually reach temperatures over 1000º F. Designed to detect the dangerous expansion and stop a Lithium ion or Lithium polymer battery from charging or

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discharging, the Flexpoint battery expansion sensor was created to prevent thermal runaway—(this (this is how most battery fires occur). The battery expansion sensor can detect a swollen battery and take appropriate action, effectively shutting it down and sending a notice to the user that the battery is no longer safe.

The Company is currently collaborating with three Fortune 100 companies involving the battery expansion sensor. The overall testing phases range from six to nine months. With confidentiality agreements in place, Flexpoint is now in development with these and other companies to integrate the Battery Expansion Sensor into their products.

During a conference call announcing operating results for the second quarter of 2020 representatives of the Company announced that with the agreements that had been signed and the projects they were pursuing, it was transitioning from a development company to a sales and marketing company. This represents a significant change for the Company. The Company continues to negotiate additional significant orders with major revenue potential as the bend sensor gains global awareness.

Monitoring Systems

In October, 2018, the Company announced it had signed a five yearfive-year manufacturing and supply agreement with Counted LLC. Counted LLC conceived of a medication delivery monitoring system and dispensing monitoring system. Flexpoint designed and produced the monitoring system with Flexpoint features, Flexpoint technology and Flexpoint designed electronics to track and report the dispensing of medications in real time. The information has the potential to be transmitted to physicians, pharmacists and government agencies. Prototypes have been built and successfully tested with additional production and testing continuing. Counted LLC is currently raising capital to complete the development and testing necessary software to bring the product to market.

Glove Systems

In the rapidly growing and emerging wearables space, Flexpoint has recently received additional purchase orders from multiple glove manufacturers across various market sub-segments, including medical, gaming and virtual reality. The “speed“speed to market”market” commercialization plans of these companies are driving this increased order volume. Flexpoint is aggressively pursuinggoing after this evolving market,market. The Pandemic has slowed the orders and, expectswhile we cannot predict when the influence of the Pandemic will end, we have seen a recent increase in both the size and number of orders and expect this pattern to continue and dramatically increase throughout 2021.the remainder of 2022 following a return to business. In aggregate, Bend Sensor® wearables order volumes are expected to number in the tens of thousands in 2022. The wearables market segment is clearly one where our technology is easily adapted and truly illustrates our technological differentiation. Flexpoint’sFlexpoint’s willingness and ability to customize sensors for these innovative companies and deliver them at a competitive price point allows us to deliver real value to our customers.

On June 15, 2020, Flexpoint announced its largest order from Manus VR https://manus-vr.com/, consisting of 1,000 pairs of sensors for gloves to be phased into three deliveries. All of the products ordered have been delivered. In early 2021 we received an even larger order for 3,200 sensors from Manus VR. We delivered the first 800 sensors during the second quarter of 2021 and the remaining 2,400 sensors were produced and delivered during the third quarter of 2021. The Company’s Bend Sensor® continues to be a part of the world’s most trending sectors, one being the VR/AR market. The VR/AR industry is predicted to reach more than $25 billion by 2025 and show steady growth, thereafter.

Manus VR has many clients of large industries such as Netflix, Google, and Rolls Royce. Manus VR is widely known for its role in virtual reality gaming and recently announced its newest design, Manus Polygon. Manus Polygon is a tracking system that eliminates the need for any kind of full-body suit, providing a full-body solution for enterprise VR. Manus Polygon is the latest in real-time software to enable fluid full-body motion within any virtual environment.

Other

These ground-breaking glove systems, combined with unique, leading edge software applications, also adapt to a wide range of other applications, including health rehabilitation, unmanned systems control, smartphone interaction and professional training across multiple industries. In addition to producing an array of Bend Sensors^®, the Company is under agreement to supply integrated assemblies comprised of multiple sensor types and associated electronics.

In the VR/VA marketspace,market space, orders of increasing size and frequency were received during 20202021 and additional orders are expected in the first quarter of 20212022 from Manus VR and Neofect as they strive to fulfill production orders. Flexpoint also received orders from other global VR/AR customers during the quarter.last quarter of 2021 and the first quarter of 2022. It is expected that these orders will increase as the impact of the Pandemic enables businesses to resume normal operations.

Finalizing long-term, constant revenue generating production contracts with our existing and additional customers remains our greatest challenge because our on-going business is dependent on the types of revenues and cash flows generated by such contracts. Cash flow and cash requirement risks are closely tied to and are dependent upon our ability to attract significant long-term production contracts. We must continue to obtain funding to operate and expand our operations so that we can deliver our unique Bend Sensor^® and Bend Sensor^® related technologies and products to the market.  Management believes that even though we are making positive strides forward with our business plan we will need to raise additional operating capital.

Medical Devices

Disposable Colonoscope

We have partnered with Haemoband Surgical Ltd. and have satisfactorily completed initial testing for their disposable colonoscope device, which uses our Bend Sensor^® technology to monitor the device's position while the procedure is conducted on the patient. Testing to date has demonstrated the ability of Flexpoint's sensor to graphically display the shape of the colonoscope and to accurately detect any looping of the scope. With more accurate readings on the position of the device, doctors can minimize complications that can arise from the colonoscope coiling, and can reduce the time required to perform the procedure. With the Bend Sensor^® the current

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monitoring equipment can graphically display the position and formation of the colonoscope. We are currently waiting for Haemoband to develop a market for the product.

Other Medical Devices

Haemoband, with Flexpoint as their design/development partner, has also begun development of additional technologies for other medical applications. The market size for the additional technologies may potentially be millions of units annually.

Flexpoint has also had repeat, multiple order volume from medical IoT customers such as Switzerland-based Reha Stim Medtec (formerly known as YouReHab) and South Korea-based Neofect. These customers produce award winning and commercially available Bend Sensor^®- based rehabilitation systems.

Automotive Products

For the past several years, we have been in negotiations with several Tier 1 suppliers and OEMs and have proved the benefit and capabilities of the Bend Sensor^® technology in the automotive industryindustry.

In May 2021, Flexpoint announced that this manufacturer had formalized a Joint Development and Supply Agreement between Flexpoint Sensor Systems, Inc. and De Amertek Corporation. The companies will work together and collaborate to develop electronics with integrated sensor technologies for an occupant classification system and other automotive products. We are currently collaborating on three separate projects with domestic and foreign automotive manufacturers. De Amertek is a leading designer and manufacturer of microelectronics and one of the following products:most specialized sources of custom-made electronic modules. Headquartered in Chicago, IL, its world-class manufacturing facility and supply chain network exceeds customer expectations in quality, delivery, service and time to market. De Amertek is making way for futuristic developments and setting trends in the technology world.

Seat Belt Reminder

WhileIn July 2021 we announced that we are continuing to work closely with a Fortune 50 automotive company on the integration of a system utilizing Flexpoint’s patented Bend Sensor® technology which was included in a patent issued to the major automotive manufacturer. By utilizing Flexpoint’s technology, this manufacturer, along with Flexpoint, has created an innovative application for automobiles and trucks which allows them to optimize the ride quality of the vehicle. Flexpoint is actively working with various Tier 1 automotive suppliers we developed and tested a seat belt reminder (SBR) sensor that alerts the occupantmanufacturer on implementation of an automobile to fasten his/her seatbelt.  We continue working with multiple manufacturers to potentially replace existing devices in the marketplace with a system we believe is superior in performance with the advantage of a lower price point.

Using the same concept, this product is currently being considered as a safety device, similar to the emergency vehicle application discussed below, to be used in school buses. A bus driver could immediately be alerted should any of the passengers be in an unsafe position prior to entering traffic. The Bend Sensor^® not only detects occupancy of a seat, but also has the capability of recording and logging the frequency of use over time.   This feature would enable transportation companies to use this recorded information to determine the most optimum usage of their capital equipment to maximize return on their investments. There have been some legislative debates over whether a bus, and school busses in particular, should provide seatbelts for all of the passengers. Coupled with Intertek's Protek Passenger Awareness System, our SBR could be easily implemented to fulfill requirements of such legislation.   

Horn Switch

A major automobile manufacturer has partnered with Tier 1 suppliers to test our patented horn switch to replace their existing technology. Because the Bend Sensor^® switch and the associated electronics have very few moving parts, our switch will help eliminate the squeaks, rattles and other noise associated with the existingnew technology in use. Additionally, because the Bend Sensor^® has few moving parts, it can withstand a higher number of actuations without replacement.vehicles.

Testing began in October 2013 and included installation of our horn switch into multiple cars, which were then driven by various executives, decision makers and engineers of the company.  The driving tests included a 150,000-mile driving test in which the system functioned under actual driving conditions.  

In July 2014,August 2021 we announced that the completion of this hands-on vehicle testing and the system functioned properly and there were no issues.

The Company executedhas entered into an advanced stage turnkey design and development agreement with a Tier 1leading manufacturer of autonomous vehicles for the design and production of an impact detection system utilizing Flexpoint’s patented Bend Sensor® technology. This manufacturer is a significant player in autonomous vehicle development and production. The initial order will be delivered within 45 days with the probability of larger scale production occurring during 2022.

In September 8, 2021, we announced that they have recently entered into a new agreement with a major automotive manufacturer for the design and production of parts to be utilized in 2016. The project was completed priorthe finalization of an innovative application of Flexpoint’s technology for cars and trucks to yearend. The system has now reached “production readiness” status withmaximize the Tier 1 automotive manufacturer featuringride quality of the patented Flexpoint Horn Actuation system.vehicle. We believe this application will provide significant cost savings over existing systems and lead to wide spread application of this technology.

The Company anticipates that once the manufacturer implements the initial horn switchAdditionally, we have seen significant market interest and the first unitsrecent adoption of a variety of sensor applications including the Flexpoint seat occupancy sensor and the companies’ more sophisticated, Occupant Classification System (OCS), along with integration of the Impact Detection System. We are integratedcurrently working with both North American and foreign automotive manufacturers on these systems. These companies include Fortune 500 automotive manufacturers as well as new, well financed companies in the EV and Autonomous Driving vehicle market spaces. We look forward to announcing production agreements with our partners and their anticipated production schedules as the agreements are formalized. We are also working on entering into existing production the project will be expanded to incorporate additional switches on the horn pad of multiple vehicle platforms. The automobile manufactureran arrangement with a large after-market seller for seat products.

Flexpoint is also evaluatinginvolved in the use offollowing products for the Bend Sensor^® as a switch to open rear doors of SUV's and as a seat belt reminder (SBR).automotive industry:

The Company believes that this will advance project along the path for wide-spread adoption and production deployment of the horn switch.   

Braking Systems

HTK Engineering, LLC continues to market their safety mechanism specifically designed for garbage trucks and other large commercial vehicles. Most commercial vehicles have an "air braking system" which can lose pressure and disengage the brakes while the vehicle is still running. Our Bend Sensor^® technology is the key component of the HTK system, which provides a backup braking

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system, preventing the vehicle from inadvertently rolling into people, buildings or other vehicles. Part of HTK's marketing effort has been to involve insurance companies who have paid claims related to the initial brake failure. Because the HTK system is easily installed and is adaptable to most vehicles, insurance companies have indicated they would provide a reduction in premiums should their customers install the HTK system.

The Company has developed a similar system for Vista Brakelock Systems, LLC, in Lake Mary, Florida for use on fire trucks. The first units have been delivered and installed with additional orders expected to follow.

Emergency Vehicles

Intertek Industrial Corp., located in Jacksonville, Florida, is a leading supplier of quality seatbelt systems and safety devices to the emergency vehicle market. Their Protek Passenger Awareness System uses our Bend Sensor^® technology to enhance the safety of passengers and personnel in emergency vehicles. The system is installed in the seats of the rear compartments of the emergency vehicle and provides the driver with constant feedback as to the “seated“seated and secured”secured” status of passengers and personnel in the rear of the vehicle. The system is currently installed in about 30 ambulances and is being tested for use in other types of emergency vehicles. Intertek continues to issue additional purchase orders for their existing and new customers.

Flow Control Applications

Our flexible sensor has proven to be an extremely robust and durable flow control switch. The Bend Sensor^® product allows for the measurement of liquid and air flow, and has been tested to over 35 million cycles without failure. The Company is currently working with a global leader in cleaning, sanitizing, food safety products who have been testing the Bend Sensor^® as a measuring and dispensing device for their harsh chemical products.  When the Bend Sensor^® device is placed in a flow stream, it can measure if flow is occurring, or it can measure the amount of flow that is occurring. The fact that our design incorporates a single layer flexible device allows it to effectively operate in many harsh environments. While other technologies are affected by dirt, dust, and liquids, the Bend Sensor^® product is able to reliably operate in those environments.  An international supplier of integrated tinting solutions is interested in a similar dispensing system for its paint manufacturers, retail chains and plastic producers. We continue to receive inquiries from a variety of industries for flow applications.

Shoe Application

We have continued our work with Bend Tech, LLC to develop and market a sensor system that will provide real time feedback and analysis on balance, performance and cadence to runners and other athletes. Utilizing several of our patented Bend Sensor^® technology sensors, located within the shoe, provides real-time feedback of a runner's performance that can be utilized for training and teaching proper technique that will aid in the prevention of injuries.

Because the sensor features a single layer construction, the sensors are not damaged or degraded by dust, dirt or other particulates. Moisture and immersion in mud, water, sweat and many other chemicals are not an issue.

The system will provide real time analysis showing balance, performance and other pertinent data relating to the performance of the individual. The fast response time of the sensor allows it to provide time differentials between heel and toe strike. Other metrics like cadence, ground contact time, the time the foot is not in contact with the ground; shoe loading and unloading profiles and information critical to training and injury prevention can be measured and captured for later review and analysis. Running information can be easily integrated into social media and training logs for quick feedback and analysis. The electronics include miniaturized printed circuit boards, a wireless communication system, blue tooth technologies, wireless rechargeable batteries and "smart phone" interface. 

While introduction of the electronics for the product has been delayed, we expect to have the product available for delivery in 2021.2022. Bend Tech is beginning to finalize partnerships with larger companies already involved in the athletic shoe industry for distribution.

Other Applications

Management believes the potential market for our technology includes using the technology to replace or upgrade existing devices used in industrial control systems, medical equipment and instrumentation, computer peripherals, automotive transmission equipment, commercial vending equipment and other devices.  We have developed, or are developing:

·

a ruptured disc/bursting disc utilizing the Bend Sensor^® as the detection/alarm element of a ruptured disc device;

·

video gaming devices; and

·

other sports applications

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We intend to further identify applications of our technology in numerous fields and industries.  A core marketing strategy is to seek applications of our technology for products used by customers that emphasize functionality, reliability, quality, and user convenience.

BUSINESS STRATEGY

Due to the many potential applications of our technology and our limited financial and other resources, management made the decision to focus our marketing efforts on a few products that can be brought to market quickly, will provide maximum exposure for the technology and will generate additional orders for products from a growing customer base. This has required us to coordinate our product design, manufacturing, distribution and service strategies in a long-term business model, while still generating short term revenues. Another strategic marketing strategy has been to develop a standard line of sensor products with corresponding hardware, electronics and software to facilitate ease of implementation of our technology into a customer's existing system.

Our standard product line is expected to be sold directly to the customer and through manufacturer's representatives and distributors and on-line sales channels. We have also expanded our product offering to include substantially complete value-added assemblies, which includes the electronics and software. We continue to consider the licensing of our technology and/or products or strategic partnership arrangements that will generate sufficient revenues to sustain our operations. We anticipate selling primarily to OEM or Tier 1 suppliers for worldwide distribution.  For our international customers, we anticipate selling and distributing our products through various manufacturer representatives and distributors.

Since our intended customers are typically technology companies, the design phase of the sales cycle is extremely important and considerably longer than in other industries. The original equipment manufacturers typically approach us with a conceptual product and request that we assist in the initial engineering, design, development and production of a working prototype from which we generate limited revenues. The prototype is then tested in the environment in which the ultimate product will be placed.  During this process, the customer is in frequent contact with our application and electrical engineers. Customers also meet with internal sales and support individuals to discuss marketing and distribution channels and strategies for the end consumer products.

We also have added value by expanding our sensor product lines to include circuit boards, enclosures, etc. and have moved toward a fully integrated product while validating and showing the versatility of our Bend Sensor^® technology. As mentioned above we currently have several such fully developed products that will directly compete with existing products in the automotive industry. We have also used like designs to develop similar products in other industries, thus leveraging the initial engineering and design work. We believe our products provide great reliability and functionality and can be implemented at a lower overall cost to the customer. These fully integrated products will create a much larger value-added profit margin for us. However, there is no assurance that such profit margins will be achieved or that these products will be produced in volumes sufficient to generate significant revenue in the near future.

MARKETING AND SALES

Our products are being marketed directly to manufacturers or distributors and we offer our automotive products primarily to original equipment manufacturers (“OEM’s”(“OEM’s”), either directly or through Tier 1 suppliers, or through collaborative efforts with other specialized suppliers. Our primary marketing objectives are to continue to generate demand for our products, enhance name and product recognition and support OEM’sOEM’s and manufactures. As we gain success in branding our name and product recognition, we believe the successful use of our products by OEM’sOEM’s and Tier 1 suppliers will generate additional demand for higher quantity orders of our existing products. We also anticipate that the success of our existing products will allow us to successfully introduce new products and applications to the market.

Due to limited resources our sales strategy depends on a few OEM’sOEM’s and manufacturers and, were we to lose their business, it will have a significant adverse effect on our results of operations until alternative distribution channels can be established.  We may consider contractual commitments to OEM’sOEM’s and Tier 1 suppliers in exchange for fees and/or royalties.  In addition, because we sell on a limited basis directly to end users, we are dependent, in part, on the OEM’sOEM’s for information about retail product sales and demand for sensor technology.  Accordingly, any rapid cessation of purchases or a switch to other companies' products by end users may not be immediately evident to us, and could result in increased product returns.

We have enhanced our website at www.flexpoint.com to include videos on our current projects and also intend to market our products through the use of other social media, and by developing a field sales force which includes direct marketing employees in strategic areas and potentially manufacturer’smanufacturer’s representatives nationwide to generate OEM and Tier 1 supplier customers.  As our market grows, we anticipate expanding our distribution network throughout the world.  There can be no assurance that we will be successful in developing such a sales force or in expanding our distribution network.

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MANUFACTURING AND DISTRIBUTION

Automobile manufacturers, Tier 1 suppliers and many international companies require all parts to be manufactured in ISO/TS-16949 certified facilities. IS0/TS-16949 is a Quality Management System that contains the particular requirements for the application of ISO 9001:2000 for automotive production and relevant service part organization.  TS-16949 is based on ISO requirements 9001:2000, but contains additional requirements that are specific to the automotive industry.  These additions are considered automotive “interpretations”“interpretations” by the ISO community of accreditation bodies and registrars. TS-16949 is a common supplier quality standard for Fiat Chrysler Automobiles, Ford Motor Company and General Motors Corporation. TS-16949 applies to suppliers of production materials, production and service parts, heat treating, painting and plating and other finishing services. It does not, therefore, apply to all suppliers of the major automotive companies.

When volumes dictate, our goal will be to qualify our production line and facility as an ISO/TS 16949 production line and facility as it is required for manufacturing automotive and related parts. We may qualify our production line and facilities. We have entered into an agreement with the Walker Component Group to assist in meeting these qualifications now. The Walker Component Group is a well-established manufacturing company with expertise and certifications, including ISO 9001:2008, ROHS and REACH certifications that will dramatically enhance Flexpoint’sFlexpoint’s assembly infrastructure and assist to market products such as those that have been developed with HTK Engineering and InterTek. With numerous Fortune 100 clients, the Walker Component Group will add considerable experience, prestige, and confidence to every project that it enters into with Flexpoint. This agreement will increase the marketability of our products to automotive Tier 1 and major parts suppliers.

SOURCE OF RAW MATERIALS

The Bend Sensor^® product consists of a coated substrate, such as plastic, that changes in electrical conductivity as it is bent. Electronic

systems connect to the sensor and measure with fine detail the amount of bending or movement that occurs. The single layer design of the Bend Sensor^® eliminates many of the problems associated with conventional sensors such as dust, dirt, liquids, heat or pressure. Depending on the application an over-laminate or over-molding may also be applied to the sensors for added environmental protection. Due to its unique construction and the ability to use multiple types of substrates, all raw materials needed to produce the Bend Sensor^® are readily available and therefore the Company is not reliant on a single supplier.

COMPETITION

The sensor business is highly competitive and competition is expected to continue to increase.  We will compete directly with firms that have longer operating histories, more experience, substantially greater financial resources, greater size, more substantial research and development and marketing organizations, established distribution channels and are better situated in the market.  We do not yet have an established long term customer base that orders products on a constant basis and we will encounter a high degree of competition as we develop a larger customer base.

To management's knowledge, technology similar to our technology is currently in production by other competitors. Management believes that our products will be sufficiently distinguishable from the existing products so that it will not compete directly with existing sensor products.  Certain force transducer sensors and fiber optic sensors are comparable to our Bend Sensor^® technology; however, management believes that the force transducer sensor is not as reliable as our Bend Sensor^® technology and that the fiber optic sensors are not as cost effective as our Bend Sensor^® technology.  As this new area grows, additional manufacturers may attempt to introduce similar products and competition could intensify.

In the medical electronics field, our competitors are the potentiometer manufacturers. In the auto seat field, our competitors are the numerous capacitive, piezo, infrared, force sensor resister and ultrasonic sensor manufacturers.  Such competitors may use their economic strength and relationships to influence the market to continue to buy their existing products.  One or more of these competitors could use their resources to improve their current products or develop new products that may compete more effectively with our products.  New competitors may emerge and may develop products and capabilities which compete directly with our products.  No assurance can be given that we will be successful in competing in the industries identified or in other industries that would benefit from our Bend Sensor^® technology.

We intend to compete by offering products that have enhanced value, added features, ease of use, functionality, compatibility, reliability, comparable price, quality and support.  Management also believes our intellectual property provides an advantage over current competitors. Although management believes that our products will be well received in the various sensor markets because of their innovative features, performance characteristics and cost-effective pricing, there can be no assurance that comparable or superior products incorporating more advanced technology or other features or having better price or performance characteristics will not be introduced by competitors with greater resources than ours.

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PATENTS AND INTELLECTUAL PROPERTY

We regard certain of our designs as proprietary and attempt to protect them with patents and by restricting disclosure of the designs as trade secrets.  We have six issued or pending patents for our Bend Sensor^® technology and have exclusive rights to additional patents and intellectual property, and are in the process of preparing additional patents for new types of sensors and devices using our technology. Due to the joint development of the medical bed product, we believe we also have claims and protection under the patents filed for this specific application.  Patents do expire and it will be necessary for us to file patents in the United States and in various foreign countries for each application we develop so that it is protected from competition.   We also have products that use our unique sensor technology and we are exploring the viability of filing new patents based on the enhancements and the specific applications or value-added products.  We must file patents on any technology for which we develop enhancements that contain material improvements to the original technology, thereby extending the original life of our original patents.  We are aware of three potentially conflicting patents which we believe will not affect our current or planned use of our technology.

There can be no assurance that the protection provided by patents and patent applications, if issued, will be broad enough to prevent competitors from introducing similar products or that such patents, if challenged, will be upheld by the courts of any jurisdiction.  Patent infringement litigation, either to enforce our patents or defend us from infringement suits, are expensive and could divert resources from other planned uses.  

Patent applications filed in foreign countries and patents in those countries are subject to laws and procedures that differ from those in the United States.  Patent protection in foreign countries may be different from patent protection under United States laws and may not be as favorable to us.  We also attempt to protect our proprietary information through the use of confidentiality agreements and by limiting access to our facilities. There can be no assurance that our program of patents, confidentiality agreements and restricted access to our facilities will be sufficient to protect our proprietary technology.

Management believes that because of the rapid pace of technological change in our markets, legal protection of our proprietary information is less significant to our competitive position than factors such as continuing product innovation in response to evolving industry standards, technical and cost-effective manufacturing expertise, effective product marketing strategies and customer service. Without legal protection; however, it may be possible for third parties to commercially exploit the proprietary aspects of our products.

MAJOR CUSTOMERS

Currently, we have a limited customer base and for the year ending 20202021 three customers represented approximately 62%76% of the Company’sCompany’s revenue.

EMPLOYEES

As of the date of this filing we have three full time employees, one part-time employee, and we employ three to five sub-contractors and multiple consultants. Until we are under full production with some of our products, we will continue to use sub-contractors and consultants which helps to keep our overall labor cost to a minimum. Our employees are not presently covered by any collective bargaining agreement.  We have not experienced any work stoppages and believe that our relations with our employees are good.

AVAILABLE INFORMATION

Additional information is available on our website at www.flexpoint.com

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, we are not required to provide the information for this Item.

ITEM 2.   PROPERTIES

We currently occupy approximately 12,5488,029 square feet of office and manufacturing space leased from Stockyard, LLC.D&M Management, Inc. The building is located in a commercial business parkdistrict in Draper,West Jordan, Utah, which consists primarily of high-tech manufacturing firms and it is located adjacent to Utah’sa major intersection, allowing easy access to Utah’s main interstate highway. The lease is for a month-to-month leaseperiod of twelve months with a 90-day terminationnotice clause and includes a basicif our intent is to renew the lease payment as well as anfor additional component for building costs and taxes. We have given a written 90 day notice of termination and are currently occupying the building on a month to month basis.periods.

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ITEM 3.  LEGAL PROCEEDINGS

We are not a party to any legal proceedings as of the date of this filing.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable to our operations.

PART II

ITEM 5.  MARKET FOR REGISTRANT’SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock is quoted on the OTC Bulletin Board under the symbol “FLXT.“FLXT.”   Any over-the-counter market quotations in this trading system reflect inter-dealer prices, without retail mark-up, mark-downs or commissions, and may not necessarily represent actual transactions.

Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the “penny stock”“penny stock” rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares.  Broker-dealers who sell penny stocks to persons other than established customers and accredited investors must make a special suitability determination for the purchase of the security.  Accredited investors, in general, include individuals with assets in excess of $1,000,000 (not including the value of their personal residence) or annual income exceeding $200,000 or $300,000 together with their spouse, and certain institutional investors.  The rules require the broker-dealer to receive the purchaser’spurchaser’s written consent to the transaction prior to the purchase and require the broker-dealer to deliver a risk disclosure document relating to the penny stock prior to the first transaction.  A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security.  Finally, monthly statements must be sent to customers disclosing recent price information for the penny stocks.

HOLDERS

As of March 31, 2020,25, 2022, we had approximately 474481 stockholders of record of our common stock, which does not include “street accounts”“street accounts” of securities brokers. Our transfer agent is Standard Registrar & Transfer Co., Inc., located in Salt Lake City, Utah.

INCREASE OF AUTHORIZED

On October 11, 2019 the Company filed a Certificate of Amendment to the Company’s Certificate of Incorporation to increase the authorized shares of common stock with the State of Delaware from One Hundred Million (100,000,000) to Two Hundred Million (200,000,000).

DIVIDENDS

We have not paid cash or stock dividends and have no present plan to pay any dividends.  We intend to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely.  However, our board of directors may revisit this matter from time to time and may determine our earnings, financial condition, capital requirements and other factors allow the payment of dividends.

RECENT SALES OF UNREGISTERED SECURITIES

On December 30, 2020, the Board of Directors approved the conversion of two convertible notes.March 15, 2022, Capital Communications LLC elected to convertconverted two notes withinto shares of the Company’s restricted common stock. One note was entered into on April 10, 2018 in the amount of $200,000 which had a principal amountsbalance of $300,000$210,000 and $240,000,interest accrued but unpaid of $74,775. The second note was entered into on September 10, 2020 in the amount of $245,000 and $293,356 inhad accrued and unpaid interest.interest of $28,271. Both of the notes provided for conversion rates at $0.05 per share. The conversion price set forth in the notes of $0.07 per share was higher than the market price of $0.031.  The Company agreed to reduce the exercise price to $0.05 per share in exchange for the note holder’s agreement to forfeit all default interest.  The finalized agreement will resultresulted in the issuance of 14,682,77811,160,931 shares of restricted common stock. All shares were privately issued with a restrictive legendThe conversion will be reported in reliancethe results of the three months ending March 31, 2022. We relied on thean exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933.Act.

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ISSUER PURCHASE OF SECURITIES

None.

ITEM 6. SELECTED FINANCIAL DATARESERVED

Not applicable to smaller reporting companies.

ITEM 7. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Flexpoint Sensor Systems, Inc. is a company engaged principally in improving its unique sensor technology, expanding its suite of products, developing new sensor applications, obtaining financing and seeking long-term sustainable manufacturing contracts, licensing agreements and royalty agreements.  Our operations have not yet commenced to a commercially sustainable level and include designing, engineering, manufacturing, licensing and selling sensor technology and products featuring our Bend Sensor^® technology and equipment.

Finalizing long-term, constant revenue generating production contracts with our existing and other customers remains our greatest challenge because our on-going business is dependent on the types of revenues and cash flows generated by such contracts. Cash flow and cash requirement risks are closely tied to and are dependent upon our ability to attract significant long-term production contracts. We must continue to obtain funding to operate and expand our operations so that we can deliver our unique Bend Sensor^® and Bend Sensor^® related technologies and products to the market.  Management believes that even though we are making positive strides forward with our business plan we will need to raise additional operating capital.

Worldwide automakers are faced with the challenge of providing a safer, more energy efficient, longer lasting product that consumers can afford. This has required automakers to search new and innovative ways to lower the overall weight of the vehicle and to improve its fuel efficiencies, while lowering the cost. We continue to experience an increased interest regarding automotive and other potential applications for our sensor technology because they meet this criterion. With its versatility, light weight, single layer construction and the fact that it is currently being used in various safety devices the Bend Sensor^® is positioned well to meet the challenges that the automobile industry is facing.

LIQUIDITY AND CAPITAL RESOURCES

Currently our revenue is primarily from design contract, testing and production services for prototypes and samples and recurring business, and is not to a level to support our operations.  However, we believe, based upon current orders and projected orders over the next twelve months, that we could be producing sensors under long-term contracts that will help support our existing operations and potential future growth. Management recognizes such contracts usually go through a long negotiation process and there can be no guarantee that we will be successful in our negotiations or that such contracts will be sufficient to support our current operations in the near future.

For the past twelve months we have relied on the proceeds of convertible loans from existing shareholders, funds received under the Paycheck Protection Program and proceeds from sales. During 20202021 and 2019,2020, the Company secured financing to fund its operations by issuing additional convertible notes to Capital Communications LLC, First Equity Holdings and officers, the balances of which were $510,000$930,000 and $890,000$510,000 as of December 31, 20202021 and 2019,2020, respectively, net of $540,000$-0- and $300,000$540,000 in notes converted to shares of restricted common stock in 20202021 and 2019,2020, respectively. The notes have an annual interest rate of 10% and default rate of 15%, have various maturity dates, and are secured by the Company’sCompany’s business assets.

Management believes that our current cash burn rate is approximately $60,000 per month and that proceeds from additional convertible notes and estimated revenues for engineering design and prototype products will be sufficient to fund the next twelve months of operations. Our auditors have expressed doubt about our ability to continue as a going concern and that we may not realize significant revenue or become profitable within the next twelve months. We will require additional financing to fund our short-term cash needs. We will have to rely on additional debt financing, loans from existing shareholders and private placements of common stock for additional funding. Based upon our current purchase orders and anticipated purchase orders over the next twelve months our projected revenues by the end of 20202021 are anticipated to cover our projected operating expenses, based on our current burn rate. However, we cannot assure you that we will be able to obtain short-term financing, or that sources of such financing, if any, will continue to be available, and if available, that they will be on terms favorable to us. Nor is there any guarantee that the projected volume of purchase orders will meet the volumes that we anticipate.

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It is also possible that in the short term we may have to continue to issue common stock to pay for services and agreements rather than use our limited cash resources. Any issuance of common stock will likely be pursuant to exemptions provided by federal and state securities laws. The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions. We also note that if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.

As we enter into new agreements, we must ensure that those agreements provide adequate funding for any pre-production research and development and manufacturing costs. If we are successful in establishing agreements with adequate initial funding, management believes that our operations for the long term will be funded by revenues, licensing fees and/or royalties related to these agreements. However, we have formalized only a few agreements during the past four years and there can be no assurance that the agreements will generate sufficient revenues or be profitable in the future or that a desired technological application will be successful enough to produce the volumes and profits necessary to fund our operations.

Finalizing long-term, constant revenue generating production contracts with our existing and other customers remains our greatest challenge because our on-going business is dependent on the types of revenues and cash flows generated by such contracts. Cash flow and cash requirement risks are closely tied to and are dependent upon our ability to attract significant long-term production contracts. This process has been impacted by the recent Pandemic and we are unable to determine what the long-term effect of these impacts will be at this time. We must continue to obtain funding to operate and expand our operations so that we can deliver our unique Bend Sensor® and Bend Sensor® related technologies and products to the market. Management believes that even though we are making positive strides forward with our business plan we will need to raise additional operating capital

COMMITMENTS AND CONTINGENCIES

Our principal commitments at December 31, 20202021 consist of total current liabilities of $2,887,818,$3,634,168, which includes $728,513 in convertible notes.

We currently occupy approximately 12,5488,029 square feet of office and manufacturing space owned by Stockyard. LLC.leased from D&M Management, Inc. The building is located in a commercial business parkdistrict in Draper,West Jordan, Utah which consists primarily of high-tech manufacturing firms and it is located adjacent to Utah’sa major intersection, allowing easy access to Utah’s main interstate highway. The lease is for a month-to-month leaseperiod of twelve months with a 90 day termination90-day notice clause and includes a basicif our intent is to renew the lease payment as well as anfor additional componentperiods. We pay $6,787 per month for building costs and taxes. We have given a written 90- day notice of termination and are currently occupying the building on a month-to-month basis.this lease.

Our total current liabilities include accounts payable of $233,073$226,447 related to normal operating expenses, including health insurance, utilities, production supplies, legal expenses and travel expense.  Accrued liabilities at December 31, 2020,2021, were $1,846,382$2,203,727 and were related to payroll tax liabilities, tax expenses, accrued interest, investor relations consulting, and accrued Paid Time Off, a combination vacation-sick leave policy, and amounts due to related parties.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

RESULTS OF OPERATIONS

The following discussions are based on the consolidated operations of Flexpoint Sensor Systems, Inc. and its former subsidiaries, Sensitron, Inc. and Flexpoint International, LLC, and should be read in conjunction with our audited financial statements for the years ended December 31, 20202021 and 2019.2020.  These financial statements are included in this report at Part II, Item 8, below.

SUMMARY OF OPERATING RESULTS

Our revenue for 2020 decreased $733,5982021 increased $110,811 as compared to 2019.2020. The decreaseincrease resulted from reducedincreased product sales and development fees and license fees of $550,000 received in 2019.  No license fees were received in 2020.fees. The remainderincrease of our revenue was primarily derived from the manufacturing of sensors for the wearable and toy industries, design and development engineering, prototype products and sales of our fully integrated products. Revenue from research and development engineering and prototype product contracts is generally recognized as the services are provided and accepted by the customer. Revenue from contracts to license technology to others is deferred until all conditions under the contract are met and then the sale is recognized as licensing royalty revenue over the remaining term of the contract.  Revenue from the sale of a product is recorded at the time of shipment to the

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customer. Management anticipates that revenue will increase as we continue to provide engineering services and our customers continue to order more frequently and in larger quantities.

Total operating costs and expenses were $923,523 in 2021 compared to $895,239 in 2020 compared to $890,108 in 2019.2020. Administrative and marketing expenses increased by $37,431 for 2020 compared to 2019.2021 include $34,669 in moving expenses. As we are working to commercialize products and establish distribution channels, we are also working to bring greater efficiencies and cost reductions to our operations.  Amortization of patents and proprietary technology expense decreased in 2019 as all of the intellectual property became fully amortized.  

For the year ending December 31, 20202021 net other income was $188,735.$25,572. This compares to other expenseincome of $517,986$188,735 in 2019.2020. Other expenseincome is comprised primarily of interest expense of $96,983 in 2021, offset by $119,000 in gain on forgiveness of PPP loans. Other income of $443,636 was offset in part by $255,185 in 2020, compared to interest expense of $283,975 in 2019.  We recognized a gain on extinguishment of debt of $443,636 and $147,645 in 2020 and 2019, respectively.  In 2019 we recognized a loss on derivative liabilities of $383,743.  2020.

As we continued to mature into a manufacturing company our engineering design and production revenues increased. As we expand and sell our existing suite of products, and as we grow the relationship with our customers, we expect this trend to continue in the future. We are not able to guarantee that our operating losses will be reduced in the short term. The chart below presents a summary of our consolidated balance sheets at December 31, 20202021 and 2019.  2020.

SUMMARY OF BALANCE SHEET INFORMATION

Cash and cash equivalents decreased by $170,004were $402 in 2021 compared to an overdraft of $19,650 in 2020, compared to 2019.an increase of $20,052. The cash decreaseincrease in 20202021 is attributable to the lack of raising funds forraised to cover operating expenses. Until such time as our revenue increases, cash to fund our operations will be our most critical factor. As we expand our customer base and product offerings, we will need to raise additional operating capital during 2021.2022. It is expected that this will be accomplished by securing additional loans from related parties and existing shareholders, through the private placement of stock, or through the licensing of our technology. We anticipate that we will need to raise approximately $500,000 to $800,000 in funding to support our existing operations and our anticipated growth during 2021.2022.

Our current assets decreased to $22,807$4,342 during the year ending December 31, 20202021 compared to $222,992$22,807 during the same period in 2019.2020. This increasedecrease is primarily due to decreasesa decrease of $13,574 in cash.deposits. The decreaseincrease in our non-current assets at December 31, 20202021 compared to 20192020 is due to depreciation of oura long-term rent deposit. Our fixed assets and a reduction in the building rent deposit. The patents and proprietary technology wereare all fully amortized in 2018.amortized.  

Accrued liabilities increased at December 31, 20202021 by $229,431$357,345 when compared to December 31, 2019.2020. The increase is primarily due to the accrual of interest expense related to notes payable payroll taxes payable and accrued consulting fees. Total liabilities decreasedincreased by $2,010$686,850 at December 31, 20202021 due to the aforementioned increase in accrued liabilities and the increase in convertible notes payable as notes were issued to provide funds to meet operating expenses, offset in part by the resultretirement of the conversionPPP loan through forgiveness of convertible notes and accrued interest to common stock subscriptions.debt.

TRANSACTIONS WITH RELATED PARTIES

At December 31, 20202021 and 2019,2020, the Company had accounts payable of $5,200$20,481 and $2,197$5,200 to its Chief Executive Officer for reimbursement of various operating expenses paid by him and a loan which he made the Company.

During 2019, the Company and the Company’sCompany’s CEO and the Chairman of the Board agreed to convert $17,000 and $22,000, respectively, of accounts payable into convertible debt bearing 8% annual interest (with a 12% default rate) and are convertible into shares of common stock at the rate of $0.06 per share. At December 31, 20202021 there are related party convertible notes outstanding with principal balances of $164,257 and $54,257 which are due to the CEO and the Chairman of the Board of the Company, respectively. Of the total balance, $114,514 are convertible notes bearing aan 8% annual rate of interest (with a 12% default rate) and are convertible into shares of common stock at the rate of $0.07 per share and $104,000 are convertible notes bearing 8% annual interest (with a 12% default rate) and are convertible into shares of common stock at the rate of $0.06 per share. All the convertible notenotes payable related parties have a maturity date of March 31, 2021.2022. 

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The Company filed an amendment to our Articles of Incorporation whereby the shareholders approved an increase in the number of shares of common stock authorized. With the filing of the amendment the Company now has sufficient authorized shares to issue to convert all convertible notes and stock options and therefore no longer needs to treat those financial instruments as derivatives. The notes are secured by the business equipment of the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Estimates of particular significance in our financial statements include goodwill and the annual tests for impairment of goodwill and valuing stock option compensation.

We annually test long-lived assets for impairment or when a triggering event occurs. Impairment is indicated if undiscounted cash flows are less than the carrying value of the assets.  The analysis compared the present value of projected net cash flows for the remaining current year and next two years against the carrying value of the long-lived assets. Under similar analysis no impairment charge was taken during the twelve months ended December 31, 20202021 or the twelve months ended December 31, 2019.2020. Impairment tests will be conducted on a regular basis and, should they indicate a carrying value in excess of fair value, additional charges may be required.

We account for stock options under Statement of Financial Accounting Standards, Accounting Standards Codification Topic 718, Stock Compensation. The pronouncement requires that recognition of the cost of employee services received in exchange for stock options and awards of equity instruments be based on the grant-date fair value of such options and awards and is recognized as an expense in operations over the period they vest.  The fair value of the options we have granted is estimated at the date of grant using the Black-Scholes American option-pricing model.  Option pricing models require the input of highly sensitive assumptions, including expected stock volatility.  Also, our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable.  For the years ended December 31, 20202021 and 20192020 we recognized $0 and $0, respectively, of stock-based compensation expense for our stock options and there is no additional unrecognized compensation cost related to employee stock options that will be recognized based upon the current grants issued.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS