are met and then recognized as licensing royalty revenue over the remaining term of the contracts.  The Company does not provide extended warranties or guarantees on its products.

Stock-Based Compensation – The Company recognizes the cost of employee services received in exchange for stock options and awards of equity instruments based on the grant-date fair value of such options and awards, over the period they vest.   All share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period. For the periods ended September 30, 2017 and 2016, the Company recognized expense for stock-based compensation of $14,916 and $25,295, respectively.

Basic and Diluted Loss Per Share – Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.  Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. At September 30, 20172023 and September 30, 2016,2022 there were outstanding common share equivalents (options and convertible notes payable) which amounted to 30,903,56711,973,112 and 24,459,697, respectively,11,043,870 of common stock.stock, respectively. These common share equivalents were not included in the computation of diluted lossearnings per share for the nine-month periods ended September 30, 2023 and 2022 as their effect would have been anti-dilutive, thereby decreasing loss per common share.

Concentrations and Credit Risk - The Company has a few major customers who represent a significant portion of revenue, accounts receivable and notes receivable. During the nine-month period ended September 30, 2017, a customer who manufacturers gloves containing our sensors2023, three customers represented 18%88% of sales and two customers represented 16% of accounts receivable. The Company has a strong ongoing relationship with this customerthese customers with scheduled delivery extending through the year and does not believe this concentration poses a significant risk, as their products are based entirely on the Company’s technologies.

Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards Board Accounting Codification (ASC) 740: Income Taxes. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.realized

Recent Accounting Pronouncements– InOn August 2017,20, 2020 the Financial Accounting Standards Board ("FASB") issuedFASB released ASU No. 2017-12, “Derivatives and Hedging (Topic 815)2020-06 “Simplified Convertible Instrument Framework”.” This pronouncement simplifies the convertible debt accounting framework, eliminating, among other things, the beneficial conversion feature model. The new standard amends the hedge accounting recognition and presentation requirements in ASC 815.  This ASUadoption date of this pronouncement is effective for fiscal years beginning after December 15, 2018, including interim periods within those2023, but allows for earlier adoption for fiscal years.  Early adoption is permitted.years beginning after December 31, 2020. The Company is currently evaluating the timing of adopting the new guidance as well as the impact it mayhas elected to adopt this accounting treatment effective January 1, 2021. Its adoption will have a beneficial effect on its consolidated financial statements.statements in those instances when the conversion rate set by convertible notes is below the market price on the date the convertible note is issued, as no beneficial conversion expense will be recorded.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.

NOTE 2 –2– GOING CONCERN

The Company continues to accumulate significant operating losses and has an accumulated deficit of $26,935,740$31,511,174 at September 30, 2017.2023.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.  The Company has relied on raising

Management is seeking additional funding to provide operating capital through the issuancefor its operations until such time as revenues are sufficient to sustain our level of convertible notes payable; however,operations.  However, there is no assurance that additional funding will be available on acceptable terms, if at all.

NOTE 3 – DERIVATIVE INSTRUMENTS

The derivative liability as of September 30, 2017, in the amount of $126,630 has a Level 3 fair value classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2017 and December 31, 2016:NOTES PAYABLE

During the year ended 2016 and the period ended September 30, 2017, the Company issued convertible promissory notes which are convertible into common stock. Due to the Company’s lack of authorized shares necessary to settle all convertible instruments, in accordance with ASC 815-40-25, the Company determined that the conversion features related to these notes are derivative instruments since we do not have control to increase the number of authorized shares to settle all convertible instruments.  The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.

At September 30, 2017, the Company marked to market the fair value of the derivatives and determined a fair value of $126,630. The Company recorded a gain from change in fair value of derivatives of $112,185 for the nine month period ended September 30, 2017. During the nine months ended September 30, 2017,2023, the Company recorded additional interest expense of $63,298 and debt discounts of $99,221 in connection with the recognition of derivative liabilities. The fair value of the embedded derivatives was determined using binomial lattice model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 81.33% to 118.34%, (3) weighted average risk-free interest rate of 1.06% to 1.31% (4) expected life of 0.25 to 1.25 years, and (5) the quoted market price of the Company’s common stock at each valuation date.

In accordance ASC 840-15-25, the Company has implemented a sequencing policy with respect to all outstanding convertible instruments. The Company evaluates its contracts based upon earliest issuance date.

As of September 30, 2017, liabilities measured at fair value on a recurring basis are summarized as follows:

Convertible Notes Payable

During 2015 the Company secured additional financing to cover its ongoing operations in the amount of $590,000 by issuing various convertible notes bearing 10% annual interest (15% default interest), secured by business assets and carrying exercise prices ranging between $0.025 and $0.07 per share. Additionally, during 2015 the Company issued $51,000received sixteen payments for a non-convertible note payable bearing 10% annual interest (15% default interest) and secured by the $51,157 note receivable held by the Company (see Note 2). During 2015, alltotal of these notes (both convertible and non-convertible issued in 2014 and 2015) and accrued interest were either converted into common stock or extinguished and consolidated into$335,509, from two remaining convertible notes payable to two investors in principal amounts of $684,660 and $123,797 (with respective maturity dates of December 31, 2016 and November 30, 2016). Both notes are convertible at $0.05 per share, bear 10% annual interest rates (15% default interest) and are secured by business assets. During 2016 the Company approved the conversion of the convertible note payable in the amount of $123,797 into 2.7 million shares of common stock. As of September 30, 2017, the principle balance of the convertible note payable in the amount of $684,660 remains outstanding.

The Company entered into a new promissory note for upholders as working capital loans to $300,000 from a third party on May 25, 2017.  The note has an annual interest rate of 10% and is secured by the Company’s equipment.  The note has a conversion feature for restricted common shares at $0.07 per share and a maturity date of July 31, 2018.  The Company drew $40,000 against that note on June 2, 2017, $40,000 on July 13, 2017, $40,000 on August 14, 2017 and $40,000 on September 22, 2017.   

The Company entered into a convertible promissory note for up to $300,000 from a third party on July 1, 2016.  The note has an annual interest rate of 10% and is secured by the Company’s equipment.  The note has a conversion feature for restricted common shares at $0.07 per share and a maturity date of December 31, 2016.  The Company drew $160,000 against that note during 2016 and $40,000 on January 6, 2017; $40,000 on January 31, 2017 $40,000 on March 7, 2017 and the balance of $20,000 on April 28, 2017.

On August 8, 2011,enable the Company entered into a convertible note payable with a former Company Directorto meet its obligations for $40,000. This note was due on December 31, 2015, bears an annual interest rate of 10% annual interest and is secured by business equipment.

Convertible Note Payable Related Party

On September 1, 2017 the Company issued a note for $10,000 to an officer of the Company.operating expenses. The note bears interest at the rate of 8%, has a conversion feature for restricted common shares at $0.07 per share and a maturity date of December 31, 2018.  The note is secured by all of the Company’s business equipment.

On August 2, 2017 the Company issued a note for $10,000 to an officer of the Company.  The note bears interest at the rate of 8%, has a conversion feature for restricted common shares at $0.07 per share and a maturity date of December 31, 2017.  The note is secured by all of the Company’s business equipment.

On July 12, 2017, an officer of the Company provided $7,000 to the Company under a line of credit.  On September 23, 2017 the Company paid $7,000 to fully retire that obligation.

On April 17, 2017 the Company issued a note for $20,000 to an officer of the Company.  The note bears interest at the rate of 8%, has a conversion feature for restricted common shares at $0.07 per share and a maturity date of December 31, 2018.  The note is secured by all of the Company’s business equipment.

On July 1, 2016 and September 22, 2016, the Company issued two promissory notes for $10,000 each to an officer of the Company.  The notesadvances bear interest at the rate of 10%, but there are no other terms established. While the intent is to memorialize these advances through the issuance of a convertible note, as of the date of this filing that has not been done. Therefore these advances are treated as on demand notes and are included in our current liabilities. Until such agreement is reached, the balance of $1,086,910 as of September 30, 2023 is unsecured and due on demand. At September 30, 2023 there is $79,823 in accrued unpaid interest relating to these notes.

In August 2020 the Company received $50,000 from a large shareholder to meet operating expenses. The shareholder indicated that he would want the $50,000 loan repaid when the Company was in a position to do so. The shareholder subsequently provided an additional $5,000, for a total loan of $55,000. The balance is non-interest

bearing and due on demand. Periodic payments have been made to reduce the outstanding balance. During the nine months ended September 30, 2023 payments totaling $22,500 were made, leaving a remaining balance of $2,500 which is non-interest bearing and due on demand.

NOTE 4 – CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable

At September 30, 2023, there are notes outstanding with principal balances which total $180,000. Of the notes, $140,000 are convertible notes bearing a 10% annual rate of interest (with a 15% default rate). Of these notes, $100,000 is convertible into shares of common stock at the rate of $0.05 per share and $40,000 is convertible at $0.07 per share. The remaining $40,000 is a convertible note entered into on August 8, 2011 with a former Company Director, at a conversion feature forrate of $0.20 per share. That note was due on December 31, 2015 and bears a default interest rate of 10%. The notes are all in default. At September 30, 2023 there is $165,088 in accrued unpaid interest relating to these convertible notes.

Convertible Note Payable - Related Party

At September 30, 2023, there are notes outstanding with two directors of the Company with balances of $164,257 and $54,257, respectively. The notes bear an 8% annual rate of interest with a 12% default rate and are convertible into shares of restricted common stock. Of the notes, $114,513 is convertible into shares of restricted common stock at $0.07 per share and $104,000 of the notes are convertible at $0.06 per share. All of these notes have a maturity date of December 31, 2016.  Since the fair value of the common stock at the date of the July 1, 2016 advance was $0.07, no BCF was recorded.June 30, 2023. At September 30, 2023 there is $99,417 in accrued unpaid interest relating to these related party convertible notes.

NOTE 4 5– STOCK OPTION PLANS

On August 25, 2005, the Board of Directors of the Company approved and adopted the 2005 Stock Incentive Plan (the Plan). The Plan became effective upon its adoption by the Board and will continuecontinued in effect for ten years, unless terminated.terminating on August 25, 2015.  This plan was approved by the stockholders of the Company at their annual meeting of shareholders on November 22, 2005. Under the Plan, the exercise price for all options issued will not be less than the average quoted closing market price of the Company’s trading common stock for the thirty daythirty-day period immediately preceding the grant date plus a premium of ten percent.  The maximum aggregate number of shares that may be awarded under the plan is 2,500,000 shares. The Company continues to utilize the Black-Scholes option-pricing model for calculating the fair value of the options granted as defined by ASC Topic 718, which is an acceptable valuation approach under ASC 718. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock.

On August 24, 2015, the Board of Directors approved the issuance of options to purchase 2,185,000 shares of the Company’s common stock. Of the total issued, 1,960,000 options were issued to replace options held by directors and employees which were to expire and 225,000 options were issued to new employees. Of the options issued, 640,000 have an option price of $0.14 per share, 500,000 have an option price of $0.15 per share, 995,000 have an option price of $0.20 per share, and 50,000 have an option price of $0.25 per share. Options issued as replacement shall have immediate vesting terms. Options which are not replacements shall vest over a two year four month

-year, four-month period in equal installments on the last day of 2015, 2016 and 2017, respectively.  We relied on an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.

Projected data related to the expected volatility and expected life of stock options is based upon historical and other information, and notably, the Company's common stock has limited trading history. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore, the existing valuation models do not provide a precise measure of the fair value of the Company's employee stock options.

Between August 25, 2005 and December 31, 2015,August 25, 2019, the Company granted options to employees to purchase an aggregate 3,096,000 shares of common stock at exercise prices ranging from $0.14$0.15 to $2.07 per share. The options vest over three yearsall vested by December 31, 2017 and expire 10 years from the date of grant.

On December 30, 2020 the Board of Directors approved the revaluation of all outstanding stock options, reducing the option price to $0.05 per share. The Company usedrecorded a charge of $8,203 as the following assumptions in estimating the fair valueresult of this change.

As of the options granted:

·

Market value at the time of issuance – Range of $0.14 to 2.07

·

Expected term – Range of 3.7 years to 10.0 years

·

Risk-free interest rate – Range of 1.60% to 4.93%

·

Dividend yield – 0%

·

Expected volatility – 200% to 424%

·

Weighted-average fair value - $0.16 to $2.07

During the nine months ended September 30, 2017,December 31, 2005 through 2020, the Company recognized a total of $14,916$2,451,971 of stock-based compensation expense, which includes charges of $8,203 in 2020, leaving $3,153$0 in unrecognized expense as of September 30, 2017. During the nine months ended September 30, 2016, the Company recognized $25,295 in stock-based compensation expense.December 31, 2021. There were 2,185,000 and 2,185,0001,900,000 employee stock options outstanding at September 30, 2017 and December 31, 2016, respectively.2023.  

A summary of all employee options outstanding and exercisable under the plan as of September 30, 2017, and changes during the three months then ended2023 is set forth below:

NOTE 56 – CAPITAL STOCK

Preferred Stock – There are 1,000,000 shares of preferred stock with a par value of $0.001 per share authorized. At September 30, 20172023 and December 31, 2016,2022, there were no shares of preferred stock issued or outstanding.

Common Stock – There are 100,000,000200,000,000 shares of common stock with a par value of $0.001 per share authorized. NoAt September 30, 2023 and December 31, 2022, there were 125,557,174 and 125,557,174 shares of common stock were issued and outstanding, respectively. The Company issued 11,160,932 shares of restricted common stock during the nine monthsyear ended September 30, 2017.  December 31, 2022 for the retirement of $445,000 of notes payable and convertible notes, and $103,047 of accrued interest.

NOTE 6 -7– COMMITMENTS AND CONTINGENCIES

The Company currently occupies approximately 8,029 square feet of office and manufacturing space leased from D&M Management, Inc. The building is located in a commercial business district in West Jordan, Utah which consists primarily of high-tech manufacturing facility in Draper, Utah.firms and it is located adjacent to a major intersection, allowing easy access to Utah’s main interstate highway. The original lease was for $6,787 per month and was for a period of twelve months, with a termination date of August 31, 2022. A new lease for a period of twelve months to commence September 1, 2022 at a monthly rate of $6,657 was entered into on June 20, 2022. The lease on the facility expired on Decemberhas an expiration date of August 31, 2014, at which time the Company entered into2023 and contains a three year extension which will expire on December 31, 2017.  Either party may90-day notice clause if our intent is to either terminate the lease upon 90 day written notice.  Underor renew the termslease for one additional three-year term. We recognize lease expense on a straight-line basis over the term of the lease the Company paid $8,950 per month in 2015 (the same rate as in 2014), $9,300 per month in 2016 and $9,600 per month in 2017.lease.

NOTE 78 – RELATED PARTY TRANSACTIONS

At September 30, 2017 and2023, there was $61,960 payable to the Chief Executive Officer. During the nine-months ended September 30, 2023 the Chief Executive Officer provided $15,748 to be used for operating expenses. At December 31, 2016,2022, the Company had accountsamounts of $44,713 payable of $-0- and $1,420 to its Chief Executive OfficeOfficer for reimbursement of variousfunds provided to meet the operating expenses paid by him in the course of business.

During the period an Officerexpense obligations of the Company and Director of the Company assumed a total of $54,513 in accrued liabilities owed by the Company.  The Company recorded the amount assumed as a due to related party on the balance sheet in the amount of $54,513 as of September 30, 2017.  The amounts due to both the Officer and Director accrue interest at 8%, have a conversion feature for restricted common shares at $0.07 per share and must be repaid by December 31, 2018.

NOTE 8 -9 – SUBSEQUENT EVENTS

OnIn October and November 1, 20172023, the Company received $52,006 in additional funding from holders of convertible notes. There has not been a short-term loan in the amount of $20,000 from an officer of the Company.  The Company intends to repay the loan whennote written on these funds, are available.  Noand no terms have been established for this loanagreed to. The funding is to bear interest at the daterate of this filing.  10% per annum. The Company is recording the receipt of the funding as on demand notes until such time as terms are agreed upon by the parties.

On November 9, 2017 theThe Company authorized the conversion of promissory notes totaling $160,000 and accrued interest in the amount of $40,000 through the issuance of 4,000,000 shares of its restricted common stock.  The conversion rate was $0.05 per share,has evaluated all other subsequent events pursuant to the terms of the convertible note agreements. The stockASC Topic 855 and has not been issueddetermined that there are no events that require disclosure as of the date of this filing.  issuance.

In this quarterly report references to “Flexpoint", "the Company," “we,” “us,” and “our” refer to Flexpoint Sensor Systems, Inc. and its subsidiaries.

FORWARD LOOKING STATEMENTS

The U.S. Securities and Exchange Commission (“SEC”) encourages reporting 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,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “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.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Flexpoint Sensor Systems, Inc. is a company engaged principally engaged 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 manufacturing bendselling sensor technology and products usingfeaturing our 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 and contracts that have provided some limited revenues and have proven that our sensors are more durable, adaptable and cost effective than any other product currently on the market.  We own five patents, including patents on specific devices that use the Bend Sensor^® and have exclusive rights through licensing agreements to other patents and devices.equipment.

We are continuing to develop and enhance our intellectual properties that will result in additional patents being filed. The Company currently manufactures, and has jointly developed, eighteen 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.  During 2017 we have 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.

At September 30, 2017 the Company had at least sixteen global commercial partners covering a variety of different products.  In coordination with its partners, the Company introduced at least eight new products during 2017 and expects to have two to three more commercialized prior to the end of the year; including the product launch of a wearable shoe application expected to take place in Europe and the product launch in North America of a medical orthotics shoe product.  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 industry.  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.  In July we announced a strategic relationship with HTK Safety to begin offering an integrated safety system utilizing the Bend Sensor^® technology.  In March 2017 we announced a collaborative working arrangement with 11 Health and Technologies Inc. to develop next generation products in the medical industry.  Flexpoint has also established relationships with several other medical IoT vendors.  These include companies like 11Health, Neofect, Gloreha and YouReHab; 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.  Medical IoT sensor volume is expected to be more than 50,000 sensors in 2017.

In March 2017 we announced a collaborative relationship with CaptoGlove, a company which manufactures a wearable virtual reality gaming motion controller.  Our companies will work together to deliver innovative, integrated virtual reality/augmented reality (“VR/AR”) systems to mass markets.  We completed and shipped the initial portion of the order before the end of the second quarter and expect to complete and ship the entire order early next year. Their ground-breaking glove systems, combined with unique, leading edge software applications, also adapt to a wide range or other applications, including health rehabilitation, unmanned systems control, smartphone interaction and professional training across multiple industries.  

ManusVR, CaptoGlove and Virtual Motion Labs have products that are currently commercially available and feature the Flexpoint Bend Sensor®.   A few other companies in this market are expected to release Bend Sensor® products in 2017. Flexpoint expects the purchase orders that are currently being fulfilled for ManusVR and CaptoGlove to significantly ramp up in volume and frequency throughout 2017 and early 2018.  Flexpoint has received orders for more than 150,000 sensors and related assemblies from multiple development partners around the globe. The Company began to fulfill the orders in the second quarter of 2017 and complete fulfillment is expected by early next year.  Based upon the increased orders, management expects significant revenue growth within the next six to twelve months. Demand continues to grow and the Company expects to receive increasingly larger volume orders before year end and continuing into 2018.

The Company began selling and distributing sensors through two resellers in 2016.  Flexpoint has since greatly increased its relationships with resellers and is currently working with seven resellers across diverse industries. Some of these companies include Amazon, NoDNA, RobotShop, Karlsson Robotics, SPI and Infusion Systems.  We are receiving recurring sales from these resellers with most experiencing a growing number of sensors ordered each time.   We anticipate that sensor volume sold in 2017 through these channels should approach 25,000.

The biggest revenue contributors during the 2017 nine month period were for glove based products and the toy relationship.  Flexpoint, year-to-date, has delivered on approximately 200,000 sensors for its partnership with the toy manufacturer.  The Company expects annualized volumes for 2017 to be approximately a half a million sensors. Sensor volume from glove based applications is expected to exceed 175,000 in 2017.  

In October the Company made announcements relating to two of its partners.  The first announced the receipt of additional production orders from global market virtual reality leader Manus VR, which brought to market the industry’s first fully functional virtual reality glove.  The possibilities and applications for these gloves extend far beyond the virtual reality market, which Goldman Sachs estimates will be an $80 billion market by 2025.

The second October announcement relates to the commercialization by Focal Wellness of wearable devices developed through a collaborative design relationship with the Company.  The initial product offering will be a wearable glove/sleeve targeted to people suffering from carpal tunnel syndrome.  The wearable device measures and monitors the individual’s wrist position using our Bend Sensor®.    

Our patented technology continues to gain recognition in various markets and industries as evidenced by orders from a Fortune 100 automotive maker for our horn system.  Although, so far the volumes for our applications and devises have been relatively small we continue to receive follow up orders for the universal sensor that we jointly developed. We expect to receive additional orders from other customers for this sensor as it becomes more recognizable in the market. Currently our customers for this type of sensor include companies in the following industries: automobiles, trucking, emergency vehicles, public transportation, military and other governmental entities. As anticipated, the Company is beginning to see the potential for more significant volumes and revenues from the sale of this sensing devise over the next year and beyond.

Finalizing additional 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. In the short term, weWe 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 become cash flow positive by or before 2018 first quarter; however,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 likelycurrently being used in various safety devices the Bend Sensor^® is positioned well to meet the challenges that significant progress may be delayed for the next six to nine months, primarily due to the time it takes for negotiating such contracts.  Accordingly, we cannot guarantee that we will realize significant revenues or that we will become profitable over the next six to nine months.automobile industry is facing.

LIQUIDITY AND CAPITAL RESOURCES

The challenges posed by the Pandemic in the United States and global economies has had a significant effect on our business. During this difficult time, we have worked to ensure that our customers continue to receive quality, personalized service.

The lingering effect of the Pandemic continues to negatively impact our revenue. At this time, it is impossible to accurately predict when this will end. Many of our clients, to protect their employees, have sharply curtailed operations and have most employees working from home. The long-term impact of the Pandemic is difficult to assess at this point, as it will be dependent on how rapidly our clients can resume their business operations and place orders with us for the needed sensors incorporated into their products.

Currently our revenue is primarily from product development, manufacturing and recurring sales with additional contributions to income from design contract, testing and limited production services for prototypes and samples, and limited production and is currently not toat a level to support our operations.  ForDepending upon the past twelve months we have relied onworld returning to some form of normalcy following the proceedsend of convertible loans from existing shareholders and private placements of our common stock.  However,the Pandemic, we believe, based upon current orders and projected orders over the

next twelve months, that we could be producing sensors under long-term contracts in the future 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.

In the first nine months of 2023, we have relied on the proceeds of advances in the form of on-demand loans from existing shareholders, which funds are accounted for as demand notes. The balances of the non-related party convertible notes have a combined total of $180,000 as of September 30, 2023. The notes have an annual interest rate of 8% to 10% and default rates of 10% to 15%, have various maturity dates, and are secured by the Company’s business assets. The on-demand notes have a principal balance of $1,086,910 at September 30, 2023 and no terms have yet been established for these funds.

Management believes that our current cash burn rate is approximately $75,000$60,000 per month and expectations are that it will continue at this rate for the foreseeable future. If the business returns to pre-Pandemic levels, with proceeds from theadditional convertible notes and estimated revenues for manufacturing, production, engineering design and prototype products should be sufficient to fund the next twelve months of operations. Our auditors have expressed doubt about our manufacturing, engineeringability to continue as a going concern and design feesthat 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 anticipated purchase orders over the next twelve months the revenue generated will not totally fundbe sufficient to cover our anticipated growth in operations. We will therefore need to raise additional financing. We believe that this additional financing will provide the needed capital to extend operations to the development and production ofoperating expenses, based on our growing product offerings and growing manufacturing opportunities.current burn rate. However, we may notcannot assure that we will be able to obtain short-term financing, or thethat sources of such financing, if any, may notwill continue to be available, and if available, that they maywill be on terms unfavorablefavorable to us. Nor is there any guarantee that the projected volume of purchase orders will meet the volumes that we anticipate.

We also expect 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 production and developmentnew agreements, we must ensure that those agreements provide adequate funding for any pre-production research and development and manufacturing costs. AsIf 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.

FINANCIAL OBLIGATIONS AND CONTINGENT LIABILITIES

Our principal commitments at September 30, 20172023 consisted of our operating lease of $9,600$6,657 per month, and total liabilities of $2,870,563,$4,734,751, which includes $1,467,488$180,000 of convertible notes payable, net of debt discounts.payable. Accrued liabilities at September 30, 2017,2023, were $1,008,986$2,673,138 and were related to payroll, payroll tax liabilities, accrued professional expenses, accrued insurance expense, accrued interest expense on notes and accrued paid time off.

During the nine months ending September 30, 2017, the Company has raised an additional $340,000 in operating capital through the issuance of short-term notes.  The notes have an annual interest rate of 8% to 10% and a default rate of 12% to 15% annually. The notes, which total $1,544,660 (excluding debt discounts), are secured by the Company’s business equipment and have a conversion feature for restricted common shares at $0.05 to $0.07 per share.

On November 1, 2017In August 2020 the Company received $50,000 from John Kelly, a short-termlarge shareholder, to meet operating expenses. Mr. Kelly indicated that he would want the $50,000 repaid when the Company was in a position to do so. Mr. Kelly subsequently provided an additional $5,000, for a total loan inof $55,000. This funding has not formally been documented by a note at the amounttime of $20,000 from an officerthis filing, and there is no term or interest on the note. In 2022 and 2021 payment of $30,000 was made to reduce the Company.  balance. During the nine-month period ended September 30, 2023, additional payments of $22,500 were made, leaving a remaining balance of $2,500.

The Company intendshas received in funding from holders of our convertible notes. These fundings have not yet been memorialized into convertible notes. The only term agreed upon to repaydate is that all funds advanced will bear interest at the loan when funds are available.  No terms have been established for this loan atrate of 10% per annum from the date of this filing.deposit.

On November 9, 2017 the Company authorized yet to be issued shares of common stock to Empire Fund Managers. The Company will issue 4,000,000 shares of restricted common stock at an average price of $0.05 per share in full settlement of promissory notes and accrued interest totaling $200,000.  

MAJOR CUSTOMER

The Company has a few major customer which is an American-based, Fortune 500, global toy manufacturing company which it supplies through its global assembly partnercustomers who representsrepresent a significant portion of revenue and accounts receivable. During the nine months ended September 30, 2017, the customer2023, three customers represented 18%88% of sales and representstwo customers represented 16% of accounts receivable at September 30, 2017.receivable. The Company has a strong ongoing relationship with

this customer these customers with scheduled product deliveries extending through the year from one of the customers with an account receivable and does not believe this concentration poses a significant risk, as apportion of the control for their products isare based entirely on the Company’s technologies.

OFF-BALANCE SHEET ARRANGEMENTS

Other than our current operating lease, weWe 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.

CRITICAL ACCOUNTING ESTIMATES

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)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 long-lived assets and valuing stock option compensation.

ASC 350-20 “Intangibles – Goodwill and Other: The Company follows the guidance provided by ASC 350-20. The Company's goodwill represents the excess of its reorganization value over the fair value of the net assets upon emergence from bankruptcy. Goodwill is not amortized,amortized; therefore, we test our goodwill for impairment annually or when a triggering event occur using a fair value approach. A fair value basedvalue-based test is applied at the overall Company level. The test compares the fair value of the Company to the carrying value of its netsnet assets. The test requires various judgments and estimates. During 20162022 and for the nine months endingended September 30, 2017,2023, the Company recorded no impairment charge to reduce the carrying value of the goodwill to its estimated fair value. As part of the impairment testing performed at December 31, 2016,2022, the Company considered factors such as the global market volatility, variables in the economy, and the overall uncertainty in the markets whichthat has resulted in a decline in the market price of the Company's stock price and market capitalization for a sustained period, as indicators for potential goodwill impairment.

ASC 820 Fair Value Measurement: We test long-lived assets for impairment annually or when a triggering event occurs. Impairment is indicated if undiscounted cash flows are less than the carrying value of the assets. The amount of impairment is measured using a discounted-cash-flows model considering future revenues, operating costs and risk-adjusted discount rate and other factors. The analysis compares 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. If the carrying values of the long-lived assets exceed the present value of the discounted projected revenues an impairment expense would be recognized in the period and the carrying value of the assets would be adjusted accordingly. Impairment tests are conducted on an annual basis and, should they indicate a carrying value in excess of fair value, a charge may be required.

ASC 718 “Compensation – Stock Compensation: Financial accounting standards require 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,In addition, 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 nine monthnine-month periods ended September 30, 20172023 and 20162022, we recognized $14,916$0 and $25,295,$0, respectively, of stock-based compensation expense for our stock options and there is no additional unrecognized compensation cost related to employee stock options at the current time.

RESULTS OF OPERATIONS

The following discussions are based on the consolidated operations of Flexpoint Sensor Systems, Inc. and should be read in conjunction with our unaudited financial statements for the three and nine months ended September 30, 2017 and 2016, included in Part I, Item 1, above, and the audited financial statements included in the Company’s annual report on Form 10-K for the years ended December 31, 2016 and 2015.

THREE MONTH PERIOD ENDED SEPTEMBER 30, 2017:

For the three months ending September 30, 2017 revenue was $40,622, a $63,742 decrease when compared to the same period in 2016. The majority of the revenue for this period came from production of products. The Company continues to concentrate its marketing resources on a limited number of customers that have the greatest potential to generate the most short-term revenue while still building relationships with our larger customers. Management believes this approach has the highest potential to bring long-term commercially viable products to market and will provide sustainable cash flow to fund the Company's operations in the future. Currently, overall revenues are not sufficient to sustain our operations.  Managementoperations. 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. Following a return to normal business operations in the world, management anticipates

that revenues will increase as we continue to execute our long-term business plan and cultivate larger customer bases with our existing product offering. However, until the Pandemic ends and a long-term production contract is in place there is no guarantee that our current customer base will order in sufficient volumes to sustain our operations. Therefore, management continues to work with larger companies and industries and is hopeful that in the near future we will sign a long-term licensing or manufacturing contract.

We receivedrecognized revenue from repeat orders from our existing customers, design contract, and development engineering. Revenue is recognized using the ASC 606 five step detailed in Note 1 to the financial statements. Revenue from the sale of a product is recorded at the time of shipment to the customer.  Revenue from the license agreements was recognized in the period the agreement was concluded, as it is a right of use license and the Company has no further obligations to perform under the terms of the agreement. Revenue from research and development engineering contracts is 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.

The following discussions are based on the consolidated operations of Flexpoint Sensor Systems, Inc. and should be read in conjunction with our unaudited financial statements for the three and nine months ended September 30, 2023 and 2022, included in Part I, Item 1, above, and the audited financial statements included in the Company’s annual report on Form 10-K for the years ended December 31, 2022 and 2021.

THREE MONTH PERIODS ENDED SEPTEMBER 30, 2023 AND 2022

For the three months ending September 30, 2023, revenue was $21,594, a decrease of $2,363 when compared to the revenue of $23,957 for the same period in 2022.

Of the $258,401$195,610 and $285,885$210,522 total operating costs and expense for the three months ending September 30, 20172023 and 2016,2022, respectively, $79,975$55,049 and $81,715$55,665 were for direct research and development cost, respectively. For the three months ended September 30, 2017,2023, total operating expenses decreased by $27,484$14,912 when compared to the same period in 2016, due primarily to2022, decreases in insurance, payroll and professional fees comprising the largest part of the decreased cost of revenues related to lower revenue and a reduction of amortization expense due to the fully amortized status of some intellectual property.  level in 2023.

Other expense for the three monththree-month period ended September 30, 20172023 was $10,179,$31,010, a $254,085 decrease compared to$13,362 increase resulting from the same period$13,362 increase in 2016.  The decrease is attributable primarily to the difference in beneficial conversion charges on the convertible notes in 2017 versus 2016, in addition to a gain on derivative recorded in 2017.   interest expense.

A net loss of $227,958$205,026 was realized for the three months ended September 30, 2017.2023. A net loss of $445,785$204,213 was realized for the three monththree-month period ended September 30, 2016.2022.

NINE MONTH PERIODPERIODS ENDED SEPTEMBER 30, 2017:2023 AND 2022

For the nine months ending September 30, 20172023, revenue was $256,323,$71,358, a $23,754 increasedecrease of $49,538 when compared to the revenue of $120,896 for the same period in 2016. The majority of the revenue for this period came from production products.  Management anticipates that revenues will increase as we continue to execute our long-term business plan and cultivate larger customer bases with our existing product offering.2022.

Of the $842,935$618,570 and $847,179$674,176 total operating costs and expense for the nine months ending September 30, 20172023 and 2016,2022, respectively, $244,484$164,299 and $241,055$171,877 were for direct research and development cost, respectively. For the nine months ended September 30, 2017,2023, total operating expenses decreased by $4,244$55,606 when compared to the same period in 2016, due primarily to2022, decreases in amortization charges on intellectual property.  insurance and payroll comprising the largest part of the decreased expense level.

Other expense for the nine monthnine-month period ended September 30, 20172023 was $126,317,$76,754, a $588,714$24,084 decrease compared toresulting primarily from the same period$46,194 loss on conversion of debt in 2016.  The decrease is attributable primarily to the difference in beneficial conversion charges on the convertible notes in 2017 versus 2016, offset in part by the gain on derivative valuation.   2022.

A net loss of $712,929$623,966 was realized for the nine months ended September 30, 2017.2023. A net loss of $1,329,641$654,118 was realized for the nine monthnine-month period ended September 30, 2016.2022.

The chart below represents a summary of our condensed consolidated balance sheets at September 30, 20172023 and December 31, 2016.2022.

Cash and cash equivalents increased by $11,061 at September 30, 2017 compared to2023 was overdrawn by $20,559, which amount is shown as a liability. At December 31, 2016.2022 there was an overdraft of $7,506. The increase innegative cash is due to the timingissuance of paymentchecks for operating expenses and the delayed receipt of expenses, collection of accounts receivable and proceeds from borrowings.funds to deposit. Our non-current assets decreased at September 30, 2017 due to the amortization of long-lived assets.are unchanged, as all property and equipment and patents have been fully depreciated.

Total liabilities increased by $673,808$580,027 at September 30, 2017.  The increase was2023 due primarily to the fundingincrease of operations through the issuance of convertibleon-demand notes, payable, theprofessional fees and accrued interest related to those notes, accruals for investor relations and insurance expenses and an increase in the derivative liabilities.interest.

INFLATION

We do not expect the impact of inflation to have a negative impact on our product sales or our operations to be significant for the next twelve months.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our Chief Executive Officer, andwho also serves as our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures.Officer. Our controls and procedures are designed to allow information required to be disclosed in our reports to be recorded, processed, summarized and reported within the specified periods, and

accumulated and communicated to management to allow for timely decisions regarding required disclosure of material information. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon the evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective at that reasonable assurance level as of the end of the nine-month period ended September 30, 2017.  2023.

The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.  weaknesses

(b)

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended September 30, 2017

nine months of 2023 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

We have a history of losses and may never become profitable.

We are unable to fund our day-to-day operations from revenuesa smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, the lack of revenues for continued growth may cause us to delay our business development.  For the nine months ending September 30, 2017, we had negative cash flows from operating activities of $312,668. We will require additional financing to fund our short-term cash needs and we may beas such, are not required to rely on debt financing, loans from related parties, and private placements of our common stock for that additional funding. Such funding sources may not be available orprovide the terms of such funding sources may not be acceptable to the company. If the Company is unable to find such funding it could have a material adverse effect on our ability to continue as a going concern.

We may not have adequate resources to successfully manage anticipated growth.

We may not be equipped to successfully manage any possible future periods of rapid growth or expansion, which could be expected to place a significant strain on our managerial, operating, financial and other resources.  Our future performance will depend, in part, on our ability to manage growth effectively, which will require us to:

·

improve existing, and implement new, financial controls and systems, management information systems, operating, administrative, financial and accounting systems and controls,

·

maintain close coordination between engineering, programming, accounting, finance, marketing, sales and operations, and

·

attract and retain additional qualified technical and marketing personnel.

There is intense competition for management, technical and marketing personnel in our business.  The loss of the services of any of our key employees or our failure to attract and retain additional key employees could have a material adverse effect on our ability to continue as a going concern.

Our success is dependent on our intellectual property rights which are difficult to protect.

Our future success depends on our ability to protect our intellectual property. We use a combination of patents and other intellectual property arrangements to protect our intellectual property. There can be no assurance that the

protection provided by our patents will be broad enough to prevent competitors from introducing similar products or that our patents, if challenged, will be upheld by courts of any jurisdiction. Patent infringement litigation, either to enforce patents or defend ourselves from infringement suits, will be expensive and could divert our resources from other planned uses. Patent applications filed in foreign countries and patents in these countries are subject to laws and procedures that differ from those in the U.S. and may not be as favorable to us. We also attempt to protect our confidential 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 confidential information and intellectual properties from our competitors.

Research and development may result in problems which may become insurmountable to full implementation of production.

Customers request that we create prototypes and perform pre-production research and development. As a result, we are exposed to the risk that we may find problems in our designs that are insurmountable to fulfill production.  In that event, we would be unable to recover the costs of the pre-production research and development. However, we are currently unaware of any insurmountable problems with ongoing research and development that may prevent further development of an application.

Because we are significantly smaller than the majority of our competitors, we may lack the financial resources needed to capture increased market share.

The market for sensor devices is extremely competitive, and we expect that competition will intensify in the future. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures we face will not materially adversely affect our business, operating results or financial condition. Our primary competitors in the VR/AR market are Interlink Electronics and manufacturers of accelerometers and IMU’s, (Inertial Measurement Units).  Our Primary competitors in the air bag market are International Electronics and Engineering, Siemens, Robert Bosch GmbH, Denso, Inc., Breed Technologies, TRW Automotive, Delphi Corporation, Autoliv Inc., Takata and Temic. We believe that none of our competitors have a product that is superior to our Bend Sensor^® technology atunder this time. However, many of our competitors and potential competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to developing new products and markets than we can.Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On November 9, 2017 the Board of Directors authorized the issuance of 4,000,000 shares of restricted common stock to be issued to Empire Fund Managers in consideration for promissory notes with interest totaling $200,000.  The shares will be issued in reliance on an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, who is duly authorized.

FLEXPOINT SENSOR SYSTEMS, INC.

Date: November 14, 20172023

/s/ Clark M. Mower

Clark M. Mower

President, Chief Executive Officer and Director,

Principal Financial Officer