Annual Report (10-k)

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

[ ] 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.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation)	87-0620425 (I.R.S. Employer Identification No.)

12184 South Business Park Drive, Suite C, Draper, Utah (Address of principal executive offices)	84020 (Zip Code)

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None

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]

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]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark 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 [ ]

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 accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Non-accelerated filer [X]

Accelerated filer [ ]

Smaller reporting company [X]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[ ]

Indicate by checkmark whether the registrant has filed a report on and attestation to its management’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 90,307,668 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), as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2020) was approximately $6,917,567.

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

Documents incorporated by reference: None

TABLE OF CONTENTS

PART I


Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosure	12

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 8.	Financial Statements and Supplementary Data	17
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	35

PART III


Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
Item 13.	Certain Relationships and Related Transactions, and Director Independence	40
Item 14.	Principal Accounting Fees and Services	41

PART IV


Item 15.	Exhibits, Financial Statement Schedules	42
Signatures		43

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

FORWARD LOOKING STATEMENTS

The U.S. Securities and Exchange Commission (“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,” “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.

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”, or “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.

During 2020 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; 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 addition to the sale of our products and engineering and design services, we also may consider generating revenues through

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 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 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.

On July 25, 2019 the Company announced that they had filed a provisional patent for the new “Swell Sensor” or Battery Expansion Sensor, (“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’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’s possible for the inner cells of the battery to outgas a flammable electrolyte mixture, causing the battery to swell. The Flexpoint BXS 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

discharging, the Flexpoint battery expansion sensor was created to prevent thermal runaway—(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.

In October, 2018, the Company announced it had signed a five 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 is currently raising capital to complete the development and testing necessary to bring the product to market.

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 to market” commercialization plans of these companies are driving this increased order volume. Flexpoint is aggressively pursuing this evolving market, and expects this pattern to continue and dramatically increase throughout 2021. The wearables market segment is clearly one where our technology is easily adapted and truly illustrates our technological differentiation. Flexpoint’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.

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, orders of increasing size and frequency were received during 2020 and in the first quarter of 2021 from Manus VR as they strive to fulfill production orders. Flexpoint also received orders from other global VR/AR customers during the quarter.

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

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 industry for the following products:

Seat Belt Reminder

While working with various Tier 1 automotive suppliers we developed and tested a seat belt reminder (SBR) sensor that alerts the occupant 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 existing technology in use. Additionally, because the Bend Sensor^® has few moving parts, it can withstand a higher number of actuations without replacement.

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, we announced the completion of this hands-on vehicle testing and the system functioned properly and there were no issues.

The Company executed an advanced stage turnkey design and development agreement with a Tier 1 automotive manufacturer in 2016. The project was completed prior to yearend. The system has now reached “production readiness” status with the Tier 1 automotive manufacturer featuring the patented Flexpoint Horn Actuation system.

The Company anticipates that once the manufacturer implements the initial horn switch and the first units are integrated into existing production the project will be expanded to incorporate additional switches on the horn pad of multiple vehicle platforms. The automobile manufacturer is also evaluating the use of the Bend Sensor^® as a switch to open rear doors of SUV's and as a seat belt reminder (SBR).

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

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 and 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. 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

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”), 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’s and manufactures. As we gain success in branding our name and product recognition, we believe the successful use of our products by OEM’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’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’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’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’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.

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” 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’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.

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 2020 three customers represented approximately 62% of the Company’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 12,548 square feet of office and manufacturing space from Stockyard, LLC. The building is located in a business park in Draper, Utah which consists primarily of high-tech manufacturing firms and it is located adjacent to Utah’s main interstate highway. The lease is a month-to-month lease with a 90-day termination clause and includes a basic lease payment as well as an 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.

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’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.” 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” 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’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, we had approximately 474 stockholders of record of our common stock, which does not include “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. Capital Communications LLC elected to convert notes with principal amounts of $300,000 and $240,000, and $293,356 in accrued and unpaid interest. 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 result in the issuance of 14,682,778 shares of restricted common stock. All shares were privately issued with a restrictive legend in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.

ISSUER PURCHASE OF SECURITIES

None.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable to smaller reporting companies.

ITEM 7. MANAGEMENT’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 2020 and 2019, 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 and $890,000 as of December 31, 2020 and 2019, respectively, net of $540,000 and $300,000 in notes converted to shares of restricted common stock in 2020 and 2019, 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’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 2020 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.

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.

COMMITMENTS AND CONTINGENCIES

Our principal commitments at December 31, 2020 consist of total current liabilities of $2,887,818, which includes $728,513 in convertible notes.

We currently occupy approximately 12,548 square feet of office and manufacturing space owned by Stockyard. LLC. The building is located in a business park in Draper, Utah which consists primarily of high-tech manufacturing firms and it is located adjacent to Utah’s main interstate highway. The lease is a month-to-month lease with a 90 day termination clause and includes a basic lease payment as well as an 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.

Our total current liabilities include accounts payable of $233,073 related to normal operating expenses, including health insurance, utilities, production supplies, legal expenses and travel expense. Accrued liabilities at December 31, 2020, were $1,846,382 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, 2020 and 2019. These financial statements are included in this report at Part II, Item 8, below.


SUMMARY OF OPERATING RESULTS
	For the year ended	For the year ended
	December 31, 2020	December 31, 2019
Engineering, contract, licensing and testing revenue	$ 99,438	$ 833,036
Total operating costs and expenses	(895,239)	(890,108)
Net other income (expense)	188,735	(517,986)
Net loss	(607,066)	(575,058)
Basic and diluted loss per common share	$ (0.01)	$ (0.01)

Our revenue for 2020 decreased $733,598 as compared to 2019. The decrease resulted from reduced product sales and development fees and license fees of $550,000 received in 2019. No license fees were received in 2020. The remainder 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

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 $895,239 in 2020 compared to $890,108 in 2019. Administrative and marketing expenses increased by $37,431 for 2020 compared to 2019. 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, 2020 net other income was $188,735. This compares to other expense of $517,986 in 2019. Other expense is comprised primarily of interest expense of $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.

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, 2020 and 2019.


SUMMARY OF BALANCE SHEET INFORMATION
	Year ended December 31, 2020	Year ended December 31, 2019
Cash and cash equivalents	$ -	$ 170,004
Total current assets	22,807	222,992
Total assets	4,921,225	5,130,149
Total liabilities	2,947,318	2,945,308
Accumulated deficit	(29,394,671)	(28,787,605)
Total stockholder’s equity	$ 1,973,907	$ 2,184,841

Cash and cash equivalents decreased by $170,004 in 2020 compared to 2019. The cash decrease in 2020 is attributable to the lack of raising funds for 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. 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.

Our current assets decreased to $22,807 during the year ending December 31, 2020 compared to $222,992 during the same period in 2019. This increase is primarily due to decreases in cash. The decrease in our non-current assets at December 31, 2020 compared to 2019 is due to depreciation of our fixed assets and a reduction in the building rent deposit. The patents and proprietary technology were fully amortized in 2018.

Accrued liabilities increased at December 31, 2020 by $229,431 when compared to December 31, 2019. The increase is primarily due to the accrual of interest expense related to notes payable, payroll taxes payable and accrued consulting fees. Total liabilities decreased by $2,010 at December 31, 2020 as the result of the conversion of convertible notes and accrued interest to common stock subscriptions.

TRANSACTIONS WITH RELATED PARTIES

At December 31, 2020 and 2019, the Company had accounts payable of $5,200 and $2,197 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’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, 2020 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 a 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 note payable related parties have a maturity date of March 31, 2021.

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, 2020 or the twelve months ended December 31, 2019. 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, 2020 and 2019 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


	Page

Report of Independent Registered Public Accounting Firm	18

Consolidated Balance Sheets – December 31, 2020 and 2019	20

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019	21

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019	22

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019	23

Notes to Consolidated Financial Statements	24 - 34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Flexpoint Sensor Systems, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Flexpoint Sensor Systems, Inc. (“the Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate audit opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment

As described in note 1 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently, if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Reporting units are tested for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and carrying amount, not to exceed the associated carrying amount of goodwill. The Company’s annual impairment test occurred on December 31, 2020. The Company considers the entity as a whole to be its single reporting unit.

We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management used in the determination of the reporting unit and the market capitalization valuation analysis performed by management to determine fair value of the reporting unit. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

Our audit procedures related to the following:

Testing management’s process for determining its reporting units and developing the fair value estimate of the fair value of the reporting unit.

Evaluating the appropriateness of the market capitalization model used by management including considering its suitability and compliance with the applicable accounting standards.

Testing the completeness and accuracy of underlying data used in the determining of the fair value estimate.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2012.

Salt Lake City, UT

March 31, 2021

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	December 31,
	2020	2019
ASSETS
Current Assets
Cash and cash equivalents	$ -	$ 170,004
Accounts receivable, net of allowance of $105,790 and $114,991	8,173	26,471
Deposits and prepaid expenses	14,634	26,517
Total Current Assets	22,807	222,992
Long-Term Deposits	50	6,550
Property and Equipment, net of accumulated depreciation
of $595,723 and $591,246	1,451	3,690
Patents and Proprietary Technology, net of accumulated
amortization of $974,045 and $974,045	-	-
Goodwill	4,896,917	4,896,917
Total Assets	$ 4,921,225	$ 5,130,149

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft	$ 19,650	$ -
Accounts payable	233,073	177,647
Accounts payable - related party	5,200	2,197
Accrued liabilities	1,846,382	1,616,951
Note payable	55,000	-
Convertible notes payable	510,000	930,000
Convertible notes payable – Related party	218,513	-
Total Current Liabilities	2,887,818	2,726,795
Long-term Liabilities
Notes payable, net of current portion	59,500	-
Convertible notes payable to related party, net of current portion	-	218,513
Total Liabilities	2,947,318	2,945,308
Commitments and contingencies
Stockholders' Equity
Preferred stock – $0.001 par value; 1,000,000 shares authorized;
no shares issued or outstanding	-	-
Common stock – $0.001 par value; 200,000,000 shares authorized;
99,713,464 shares and 99,713,464 shares issued and outstanding, respectively	99,713	99,713
Common stock to be issued	385,929	-
Additional paid-in capital	30,882,936	30,872,733
Accumulated deficit	(29,394,671)	(28,787,605)
Total Stockholders' Equity	1,973,907	2,184,841
Total Liabilities and Stockholders' Equity	$ 4,921,225	$ 5,130,149

The accompanying notes are an integral part of these consolidated financial statements

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS






	For the Years
	Ended December 31,
	2020	2019

Engineering, Contract and Testing Revenue	$ 99,438		$ 283,036
Licensing Fees Revenue	-		550,000
Total Revenue	99,438		833,036

Operating Costs and Expenses
Amortization of patents and proprietary technology	-		16,285
Cost of revenue	35,468		63,484
Administrative and marketing expense	576,300		538,959
Research and development expense	283,471		271,380
Total Operating Costs and Expenses	895,239		890,108

Loss from operations	(795,801)		(57,072)
Other Income (Expense)
Interest expense	(255,185)		(283,975)
Interest income	284		2,087
Gain on extinguishment of debt	443,636		147,645
Gain (Loss) on change in fair value of derivative liabilities	-		(383,743)
Net Other Income (Expense)	188,735		(517,986)
Net Loss	$ (607,066)		$ (575,058)

Basic and Diluted Loss Per Common Share	$ (0.01)		$ (0.01)

Basic and Diluted Weighted-Average
Common Shares Outstanding	99,713,464		96,954,697

The accompanying notes are an integral part of these consolidated financial statements

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2019 and 2020



	Common	Stock	Additional	Common		Total
			Paid-in	Stock to	Accumulated	Stockholder
	Shares	Amount	Capital	be Issued	Deficit	Equity
Balance - December 31, 2018	92,863,464	$ 92,863	$ 29,785,568	-	$ (28,212,547)	$ 1,665,884

Conversion of notes payable to common stock	6,850,000	6,850	332,237		-	339,087

Declassification of derivative liabilities	-	-	754,928		-	754,928
Net loss	-	-	-		(575,058)	(575,058)


Balance – December 31, 2019	99,713,464	99,713	30,872,733	-	(28,787,605)	2,184,841

Beneficial conversion feature	-	-	2,000		-	2,000

Stock-based compensation on options	-	-	8,203	-	-	8,203

Stock subscriptions payable	-	-	-	385,929	-	385,929

Net loss	-	-	-		(607,066)	(607,066)

Balance - December 31, 2020	99,713,464	$ 99,713	$ 30,882,936	$ 385,929	$ (29,394,671)	$ 1,973,907

The accompanying notes are an integral part of these consolidated financial statements

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS





		For the Years
		Ended December 31,
		2020		2019
Cash Flows from Operating Activities:
Net loss	$ (607,066)		$ (575,058)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,239		2,239
Amortization of patents and proprietary technology	-		16,285
Amortization of discount on note payable	2,000		118,452
Gain on extinguishment of debt	(443,636)		(147,645)
Modification of options	8,203		-
Allowance for doubtful accounts	(9,201)		-
Change in fair value of derivative liabilities	-		383,743
Changes in operating assets and liabilities:
Accounts receivable	27,499		(10,318)
Deposits and prepaid expense	18,383		(14,066)
Accounts payable	55,426		(116,060)
Accounts payable – related party	3,003		19,000
Accrued liabilities	518,995		375,634
Net Cash Provided by (Used in) Operating Activities	(424,154)		52,206
Cash Flows from Financing Activities:
Proceeds from bank overdraft	19,650		-
Proceeds from note payable	114,500
Proceeds from borrowings under convertible note payable	120,000		100,000
Net Cash Provided by Financing Activities	254,150		100,000
Net Change in Cash and Cash Equivalents	(170,004)		152,206
Cash and Cash Equivalents at Beginning of Period	170,004		17,798
Cash and Cash Equivalents at End of Period	$ -		$ 170,004
Supplemental Cash Flow Information:
Cash paid for income taxes	$ -		$ -
Cash paid for interest	$ -		$ -
Supplemental Disclosure on Noncash Investing and Financing Activities
Convertible notes payable forgiven	$ -		$ -
Recognition of discounts on convertible notes payable	$ 2,000		$ 86,327
Conversion of note payable and accrued interest to common stock to be issued	$ 385,929		$ 410,574
Declassification of derivative liability	$ -		$ 754,928
Conversion of due to related party to convertible note	$ -		$ 39,000

The accompanying notes are an integral part of these consolidated financial statements.

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – Flexpoint Sensor Systems, Inc. (the Company) is located in Draper, Utah. The Company’s activities to date have included acquiring equipment and enhancing technology, obtaining financing, entering into licensing agreements, production and seeking long-term manufacturing contracts. The Company’s operations are in designing, engineering, manufacturing, licensing and selling sensor technology and equipment using flexible potentiometer technology. Through December 31, 2020 the Company continued to manufacture products and sensors to fill customer orders and provide engineering and design work.

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Flexpoint Sensor Systems, Inc. and its wholly owned subsidiary, Flexpoint International, LLC. Intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents are considered to be cash and a highly liquid security with original maturities of three months or less.

Fair Value Measurements - The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including the party’s own credit risk.

Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

The carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

The Company has classified the inputs used in valuing its derivative liabilities as level 3 inputs. The Company valued its derivatives using the binomial lattice model. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary

assumptions that would significantly affect the fair values using the methods discussed below are that of volatility and market price of the underlying common stock of the Company.

Accounts Receivable – Trade accounts receivable are generally recorded at the time product is shipped or services are provided including any shipping and handling fees. Contracts associated with design and development engineering generally require a deposit of 50% of the quoted price prior to the commencement of work. The deposit is considered deferred income until the entire project is completed and accepted by the customer, at which time the entire contract price is billed to the customer and the deposit applied. The Company has established an allowance for bad debts based on a historical experience and an analysis of risk associated with the account balances. The balance in the allowance account was $105,790 and $114,991 in the years ended December 31, 2020 and 2019, respectively.

Inventories – The Company does not currently have inventory. However, as production levels increase inventories will be carried on the balance sheet. Inventories will be stated at the lower of cost or market or net realizable value. Cost is determined by using the first in, first out (FIFO) method.

Going Concern– The Company suffered losses of $607,006 and $575,058 during the years ended December 31, 2020 and 2019, respectively. At December 31, 2020, the Company had an accumulated deficit of $29,394,671. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

From 2008 through 2020 the Company raised $6,068,778, which includes $234,500 raised in 2020, in additional capital, including accrued interest, through the issuance of long and short-term notes to related and other parties and the receipt of a PPP loan through the SBA. All of the notes had an annual interest rate of 10% or 15% and were secured by the Company’s business equipment. The notes also had a conversion feature for restricted common shares ranging from $0.05 to $0.20 per share with maturity dates of December 31, 2018 through March 31, 2021.

In December 2020, the holder of $540,000 in convertible notes and $89,564 in accrued interest notified the Company of their intent to convert into shares of common stock. The note holder agreed to waive default interest in exchange for a reduced conversion price of $0.05 per share. The note principal and accrued interest are shown as a common stock subscription payable at December 31, 2020. The conversion will result in the issuance of 14,682,778 shares of restricted common stock.

In May 2019, $300,000 in convertible notes and $129,412 in accrued interest were converted into 6,850,000 shares of restricted common stock at an average conversion price of approximately $0.06 per share. The conversion resulted in a $90,792 gain recognized on the extinguishment of the debt.

Property and Equipment – Property and equipment are stated at cost. Additions and major improvements are capitalized while maintenance and repairs are charged to operations. Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Depreciation is computed using the straight-line method and is recognized over the estimated useful lives of the property and equipment, which range from three to ten years.

Valuation of Long-lived Assets – The carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the projected discounted cash flows. Under similar analysis no impairment charge was taken during the year ended December 31, 2020. Impairment tests will be conducted on an annual basis and, should they indicate a carrying value in excess of fair value, additional impairment charges may be required.

Intangible Assets – Costs to obtain or develop patents are capitalized and amortized over the remaining life of the patents, and technology rights are amortized over their estimated useful lives. The Company currently has the right to several patents and proprietary technology. Patents and technology are amortized from the date the Company acquires or is awarded the patent or technology right, over their estimated useful lives, which range from 5 to 15 years. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. Under similar analysis there was no impairment charge taken during the year ended December 31, 2020.

Research and Development – Research and development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design, and testing of a process is completed and the process has been determined to be commercially viable.

Goodwill – Goodwill represents the excess of the Company’s reorganization value over the fair value of net assets of the Company upon emergence from bankruptcy. Goodwill is not amortized, but is tested for impairment annually on December 31, or at interim periods when a triggering event occurs using a fair value approach. According to Accounting Standards Codification (or “ASC”) 350-20 Intangibles – Goodwill and Other, a fair-value-based test is applied at the overall Company level. The test compares the fair value of the Company to the carrying value of its net assets. This test requires various judgments and estimates. The fair value of the Company is allocated to the Company’s assets and liabilities based upon their fair values with the excess fair value allocated to goodwill. An impairment of goodwill is measured as the excess of the carrying amount of goodwill over the determined fair value.

As the Company consists of only one reporting unit, and is publicly traded, management estimates the fair value of its reporting unit utilizing the Company’s market capitalization, multiplying the number of actual shares outstanding by the market price on December 31, as reflected on NASDAQ National Market.

Revenue Recognition – On January 1, 2018 the Company adopted ASC 606, Revenue from Contracts with Customers, and all of the related amendments (“new revenue standard”). We have applied the new revenue standard to all contracts as of the date of the initial adoption. The new revenue standard establishes five steps whereby a transaction is analyzed to determine if revenue has been earned and can be recognized. The adoption of the new revenue standard did not have any effect on our financial statements. The vast majority of our sales are made to order, for which orders we require a deposit of 50% of the value of the order. That amount is put in a customer deposit account until the entire order has been manufactured and shipped. At the ship date the Company has no further obligations under the contract and the revenue from the sale is recognized.

Following are the five steps of revenue recognition to be considered in determining the recognition of revenue:

Identify the contract with the customer. A contract with a customer exists when: i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the good to be transferred or the services to be provided and identifies the payment terms related to these goods or services; (ii) the contract has commercial substance and (iii) we determine that collection of substantially all consideration for goods transferred or services rendered is probable based on the customer’s intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers.

Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed or a period of time. Our performance obligations generally relate to delivering specialized sensors to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement sensors or refunds. We do not have significant returns. We do not offer extended warranty or service plans.

Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. Our contracts do not typically contain a financing component, except possibly in a licensing agreement. Revenue is recorded at the contract sales price. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer’s control at contractually stated pricing.

Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods or upon completion of all services detailed in the contract, in accordance with the terms of each contract with the customer. We do not have significant service revenue.

A part of our customer base is made up of international customers. The table below allocates revenue between domestic and international customers. The following table presents Flexpoint Sensor Systems revenues disaggregatred by region and product type:


			December 31,								December 31,
					2020									2019
			Consumer		Long-term						Consumer			Long-term
Segments			Products		Contract			Total			Products			Contract		Total
Domestic	$		15,415		-			15,415		$	674,911			-		674,911
International			84,023		-			84,023			158,125			-		158,125
	$		99,438		-			99,438		$	833,036			-		833,036


Components		$		61,098		-	61,098		$			135,262	-		135,262
Engineering Services				38,340		-	38,340					147,774	-		147,774
Licensing fees				-		-	-					550,000	-		550,000
		$		99,438		-	99,438		$			833,036	-		833,036

Stock-Based Compensation – The Company, in accordance with ASC 718, Compensation – Stock Compensation, records all share-based payments to employees at the grant-date fair value of the equity instruments issued. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company uses the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this pricing method provides the best estimate of the fair value of the consideration given. Compensation cost is recognized over the requisite service period.

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 December 31, 2020 and 2019, there were outstanding common share equivalents (options and convertible notes payable) which amounted to 16,705,330 and 24,031,902, respectively, of common stock. These common share equivalents were not included in the computation of diluted loss per share 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 represents a significant portion of revenue, accounts receivable and notes receivable. During the year ended December 31, 2020, three customers represented 62% of sales and two other customers represented 96% of accounts receivable. A customer who is utilizing our technology for commercialization in shoes represented 91% of accounts receivable at December 31, 2020. The Company has a strong relationship with these customers 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

Recent Accounting Pronouncements – In December 2019, the Financial Standards Accounting Board (“FASB”) issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted. Adoption is not expected to have a material effect on the Company’s condensed financial statements and statements of operations.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity of financial reporting for non-employee share-based payments. Currently, the accounting requirements for non-employee and employee share-based payments are significantly different. ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based payments to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, “Equity — Equity-Based Payments to Nonemployees”. The amendments to ASU 2018 - 07 are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier

than a company’s adoption date of ASU No. 2014-09, (Topic 606), “Revenue from Contracts with Customers”. The Company adopted ASU 2018-07 effective January 1, 2020. The adoption of this standard had no impact on our condensed consolidated financial statements or disclosures.

The Company has reviewed all other FASB-issued ASU accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter previous GAAP and does not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management and certain standards are under consideration.

NOTE 2 – DERIVATIVE INSTRUMENTS

The derivative liability as of December 31, 2020 and 2019, in the amount of $0 has a level 3 classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2020 and 2019:


	Total
Balance, December 31, 2018		284,857
Recognition of derivative liabilities upon initial valuation		86,328
Change in fair value of derivative liabilities		383,743
Declassification of derivative liability		(754,928)
Balance, December 31, 2019		$ -

During the year ended 2019, 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 the fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.

In accordance ASC 815-40, the Company has implemented a sequencing policy with respect to all outstanding convertible instruments. The Company evaluates its contracts based upon earliest issuance date.

The Company filed an amendment to its Articles of Incorporation during the fourth quarter of 2019, increasing the number of shares authorized, which authorization was approved by a vote of its shareholders. The increased number of authorized shares would enable all convertible notes and stock options to be converted. Therefore, the treatment of these financial instruments as derivatives is no longer required.

Liabilities measured at fair value on a recurring basis are summarized for the year ended December 31, 2019 as follows:

2019:

Level 1

Level 2

Level 3

Total

Derivative Liabilities

Total – December 31, 2018

NOTE 3 – PROPERTY AND EQUIPMENT

Depreciation is computed using the straight-line method and is recognized over the estimated useful lives of the property and equipment, which range from three to ten years. Depreciation expense was $2,239 and $2,239 for the years ended December 31, 2020 and 2019, respectively, and is included in the administrative and marketing expense on the statement of operations.

No impairment was recognized during the twelve months ended December 31, 2020. Property and equipment at December 31, 2020 and 2019 consisted of the following:


Property and Equipment
December 31,	2020	2019

Machinery and equipment	$ 543,249	$ 543,249
Office equipment	40,455	40,455
Furniture and fixtures	13,470	13,470

Total Property and Equipment	597,174	597,174

Less: Accumulated depreciation	(595,723)	(593,484)

Net Property and Equipment	$ 1,451	$ 3,690

Depreciation expense of $2,239 was recorded in the years ended December 31, 2020 and 2019.

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

Intangible Assets – The components of intangible assets at December 31, 2020 and 2019 were as follows:


December 31, 2020	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount

Patents	$ 174,963	$ 174,963	$ -
Proprietary Technology	799,082	799,082	-
Total Amortizing Asset	$ 974,045	$ 974,045	$ -

December 31, 2019	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount

Patents	$ 174,963	$ 174,963	$ -
Proprietary Technology	799,082	799,082	-
Total Amortizing Asset	$ 974,045	$ 974,045	$ -

Patent amortization was $-0- and $5,679 for the year ended December 31, 2020 and 2019, respectively. Amortization related to proprietary technology was $-0- and $10,606 for the years ended December 31, 2020 and 2019. Patent and proprietary technology amortization is charged to operations.

There will be no amortization expense for each of the next three years, as the patents became fully amortized in 2019.

NOTE 5 – INCOME TAXES

There was no provision for, or benefit from, income tax during the years ended December 31, 2020 and 2019 respectively. The components of the net deferred tax asset as of December 31, 2020 and 2019, including temporary differences and operating loss carry forwards that arose prior to reorganization from bankruptcy, are as follows:


December 31,	2020	2019
Operating loss carry forwards	$ 8,228,320	$ 8,324,819
Origination and amortization of interest on convertible notes	932,622	743,183
Allowance for doubtful accounts	158,389	123,845
Change in derivative liabilities	107,270	107,270
Options issued for services	653,545	653,545
Total Deferred Tax Assets	$ 10,080,146	$ 9,952,662
Valuation allowance	(10,080,146)	(9,952,662)
Net Deferred Tax Asset	$ --	$ --

Federal and state net operating loss carry forwards at December 31, 2020 and 2019 were $21,398,893 and $21,858,412, respectively. A portion of the net operating loss carry forwards includes losses incurred prior to February 24, 2004, when a change of greater than 50% in ownership of the Company occurred. As a result of the change of ownership, only a portion of the net operating loss carry forwards incurred prior to the change becomes available each year. The net operating loss carry forwards began to expire in 2020.

The Company has evaluated Staff Accounting Bulletin No. 118 regarding the impact of the decreased tax rates of the Tax Cuts & Jobs Act. The schedules below reflect the Federal tax provision, deferred tax asset and valuation allowance using the new rates adjusted in the period of enactment.

The following is a reconciliation of the amount of benefit that would result from applying the federal statutory rate to pretax loss with the provision for income taxes for the years ended December 31, 2020 and 2019, respectively:


For the Years Ended December 31,	2020	2019
Tax at statutory rate (21%)	$ (127,484)	$ (120,762)
Options issued for services	-	-
Origination and amortization of interest on convertible notes	189,439	315,383
Allowance for doubtful accounts	34,544	24,148
Change in derivative liabilities	-	59,820
Change in valuation allowance	(96,499)	(278,589)
Provision for Income Taxes	$ --	$ --

Under FASB ASC 740-10-05-6, tax benefits are recognized only for the tax positions that are more likely than not be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition and measurement standards.

The Company's policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits with the income tax expense. For the years ended December 31, 2020, and 2019, the Company did not recognize any interest or penalties in its Statement of Operations, nor did it have any interest or penalties accrued in its Balance sheet at December 31, 2020 and 2019 relating to unrecognized benefits.

The tax years 2020, 2019, 2087 and 2017 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as amended (the “Code”). The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. ASC 470 requires the Company to re-measure the existing net deferred tax asset in the period of enactment. The Act also provides for immediate expensing of 100% or the costs of qualified property that is incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act imposes possible limitations on the deductibility of interest expense. As a result of the provisions of the Act, the Company’s deduction for interest expense could be limited in future

years. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial statements.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC 720. However, in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

The Company does not reflect a deferred tax asset in its financial statements, but includes that calculation and valuation in its footnotes. We are still analyzing the impact of certain provisions of the Act and refining our calculations. The Company will disclose any change in the estimates as it refines the accounting for the impact of the Act.

NOTE 6 – NOTES PAYABLE

Convertible Notes Payable – Third Parties

At December 31, 2020 there are convertible notes outstanding with principal balances which total $510,000. Of the notes, $100,000 are convertible notes bearing a 10% annual rate of interest (with a 15% default rate) and are convertible into shares of common stock at the rate of $0.07 per share, $150,000 are convertible notes bearing 10% annual interest (with a 15% default rate) and are convertible into shares of common stock at the rate of $0.06 per share, and $220,000 are convertible notes bearing 10% annual interest (with a 15% default rate) and are convertible into shares of common stock at the rate of $0.05 per share. At December 31, 2020, the Company is in default on all of these convertible notes.

The remaining $40,000 is a convertible note entered into on August 8, 2011 with a former Company Director. That note was due on December 31, 2015, and bears a default interest rate of 10% and is convertible at $0.20 per share.

The Company recorded interest expense of $141,227 related to these notes during the year ended December 31, 2020.

On December 31, 2019 there are notes outstanding with principal balances of $890,000. Of the notes, $640,000 are convertible notes bearing a 10% annual rate of interest (with a 15% default rate) and are convertible into shares of common stock at the rate of $0.07 per share, $150,000 are convertible notes bearing 10% annual interest (with a 15% default rate) and are convertible into shares of common stock at the rate of $0.06 per share, and 100,000 bear 10% annual interest and are convertible into shares of common stock at the rate of $0.05 per share.

The Company recorded interest expense of $148,171 related to these notes during the year ended December 31, 2019.

On Demand Notes – Third Parties

On December 31, 2020 there is a $55,000 on demand note the Company entered into with john Kelly for which formalized terms have not been agreed upon and reduced to writing.

Paycheck Protection Program

The Company made application through First Utah Bank for a Paycheck Protection Program loan, administered by the Small Business Administration. A loan in the amount of $59,500 was granted to the Company. The Company has applied for forgiveness of this loan, as provided for under the program. While it has not received notice of forgiveness as of the date of this filing it fully expects the loan to be 100% forgiven.

Convertible Note Payable Related Parties

Between July 1, 2016 and August 28, 2018, the Company issued promissory notes totaling $125,000 to officers of the Company. Additionally, on July 12, 2017 two officers assumed responsibility for $54,513 of debt owed by the Company. The

officers are making payments against those debts until such time that the obligation is paid in full, or until the Company is able to make the payments on its own behalf.

At December 31, 2020 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 a 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 note payable related parties have a maturity date of March 31, 2021.

NOTE 7 – CAPITAL STOCK

Preferred Stock – There are 1,000,000 shares of preferred stock with a par value of $0.001 per share authorized. At December 31, 2020 and 2019, there were no shares of preferred stock issued or outstanding.

Common Stock – There are 200,000,000 shares of common stock with a par value of $0.001 per share authorized. During the year ended December 31, 2020, there were no shares of common stock issued. During the year ended December 31, 2019, there were 6,850,000 shares of common stock issued.

On December 30, 2020, the Board of Directors approved the conversion of $540,000 of convertible notes. The $540,000 is comprised of two notes, one in the amount of $300,000 and the other in the amount of $240,000. At December 30, 2020 there was $89,564 of interest accrued but unpaid on this note. The Company agreed to reduce the conversion rate from $0.07 per share to $0.05 per share. In return, Capital Communications agreed to waive interest calculated at the default rate. The principal and accrued interest are recorded as stock to be issued at December 31, 2020. The Company recorded a gain of $443,636 related to the extinguishment of this debt.

On May 27, 2019, the Board of Directors approved the conversion of two convertible notes. Note 1 was a note to Empire Fund Managers for $150,000 plus $68,300 in accrued interest. This note was converted for a total of 3,650,000 shares of restricted stock. Note 2 was a note to Compass Equity Partners for $150,000 and $42,274 in accrued interest. This note was converted for a total of 3,200,000 shares of restricted stock. The Company recorded a gain on extinguishment of $90,352 on this transaction.

NOTE 8 – 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 continued in effect for ten years, 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 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 period in equal installments on the last day of 2015, 2016 and 2017, respectively.

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 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 $0.15 to $2.07 per share. The options all 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 recorded a charge of $8,203 as the result of this change.

As of the years ended December 31, 2005 through 2020, the Company recognized a total of $2,451,971 of stock-based compensation expense, which includes charges of $8,203 in 2020 and $-0- in 2019, leaving $0 in unrecognized expense as of December 31, 2020. There were 1,900,000 and 2,185,000 employee stock options outstanding at December 31, 2020 and 2019, respectively.

A summary of all employee options outstanding and exercisable under the plan as of December 31, 2019, and changes during the year then ended is set forth below:


Options	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value

Outstanding at the beginning of period	2,185,000	$ 0.17	5.65	$ --
Granted	--	--	--	--
Expired	--	--	--	--
Forfeited	(285,000)	--	--	--
Outstanding at the end of Period	1,900,000	$ 0.05	4.65	$ --
Exercisable at the end of Period	1,900,000	$ 0.05	4.65	$ --

A summary of all employee options outstanding and exercisable under the plan as of December 31, 2019, and changes during the year then ended is set forth below:


Options	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value

Outstanding at the beginning of period	2,185,000	$ 0.17	6.65	$ --
Granted	--	--	--	--
Expired	--	--	--	--
Forfeited	--	--	--	--
Outstanding at the end of Period	2,185,000	$ 0.17	5.65	$ --
Exercisable at the end of Period	2,185,000	$ 0.17	5.65	$ --

NOTE 10 –COMMITMENTS AND CONTINGENCIES

The Company currently occupies approximately 12,548 square feet of office and manufacturing space from Stockyard. LLC. The building is located in a business park in Draper, Utah which consists primarily of high tech manufacturing firms and it is located adjacent to Utah’s main interstate highway. The lease is a month-to-month lease with a 90 day termination clause and includes a basic lease payment as well as an 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.

The Company evaluated the lease under the new lease accounting standard and determined that it was a short-term lease due to the month to month provision and the 90 day notice of termination clause.

NOTE 11 – RELATED PARTY TRANSACTIONS

Between July 1, 2016 and August 28, 2018, the Company issued promissory notes totaling $125,000 to officers of the Company. Additionally, On July 12, 2017 two officers assumed responsibility for $54,513 of debt owed by the Company. The officers subsequently made the required payments against those debts and paid the obligation in full.

During 2019, the Company and the Company’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, 2019 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 a 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 note payable related parties has a maturity date of March 31, 2021.

The Company filed an amendment to their 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 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.

NOTE 12 - SUBSEQUENT EVENTS

The Company applied for, and was granted, a second loan under the Paycheck Protection Program administered by the Small Business Administration. The loan was in the amount of $59,500.

On January 21, 2021, the Company issued 14,682,778 shares of its restricted commn stock in full settlement of the stock conversion approved by the Board of Directors on December 30, 2020. (See Note 7)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

We have not had a change in or disagreement with accountants on accounting financial disclosure during the past two fiscal years.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, who also acts as our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures. 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 has concluded that our disclosure controls and procedures were not effective at that reasonable assurance level as of the end of the period December 31, 2020 for the reasons discussed below.

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. The policies and procedures include:

maintenance of records are in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets,

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our Chief Executive Officer evaluated the effectiveness of our internal control over financial reporting as of the end of the period December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework - 2013. Based on this evaluation, our Chief Executive Officer concluded that as of the end of the fiscal year December 31, 2020, our internal control over financial reporting was not effective at that reasonable assurance level.

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

Changes in Internal Control over Financial Reporting. There have been no changes in internal control over financial reporting during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers are listed below, with their respective ages, positions and biographical information. Our bylaws provide that the directors shall be divided into three classes. A class of directors shall be elected for a one-year term, a class of directors for a two-year term and a class of directors for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires at that meeting shall be elected for a three-year term. On December 28, 2018 our shareholders elected John A. Sindt for a three-year term and Clark M. Mower for a two-year term. We currently have a vacancy in the one-year term. Our executive officers are chosen by our board of directors and serve at its discretion. There are no family relationships between or among any of our directors and executive officers.


Name	Age	Position Held	Director Term of Office
Clark M. Mower	74	President, CEO and Director	From December 2018 to December 2020
John A. Sindt	76	Chairman of the Board	From December 2018 to December 2021

Clark M. Mower -- Mr. Mower was appointed President and CEO in January 2005. He was appointed as Director, President and CEO of Sensitron in February 2005. In December 2018 he was elected to serve a two year term as a director. He formerly served as Senior Vice President - Mergers and Acquisitions - Merchant Energy Group for El Paso Energy Corporation (NYSE: EP). From August 2002 through 2004 he was the managing member of Polaris Energy, LLC, a non-affiliated consulting company to energy related mergers and acquisition. From August 2002 to July 2004 he was a management committee member for Saguaro Power Company, a non-affiliated company operating a 100 megawatts power plant in Henderson, Nevada. Prior to that he served as President and Chief Executive Officer of Bonneville Pacific Corporation (a public company) for eight years until El Paso Corporation acquired Bonneville Pacific Corporation in October 1999.

John A. Sindt -- Mr. Sindt has served as a director of the Company since 1999 and in December 2018 he was elected to serve a three year term. He served as President and Chief Executive and Financial Officer from 2001 to 2004. He served as Secretary/Treasurer from January 2005 through July 2005. Mr. Sindt also served as the Chairman of the Board of Sensitron, one of our former subsidiaries. He was employed from 1965 to late 2019 as a Salt Lake County, Utah Constable. He has also served as President, Corporate Secretary and Director for the National Constables Association.

During the past ten years none of our executive officers have been involved in any legal proceedings that are material to an evaluation of their ability or integrity; namely: (1) filed a petition under federal bankruptcy laws or any state insolvency laws, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2) been convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his/her involvement in any type of business, securities or banking activities; or (4) been found by a court of competent jurisdiction in a civil action, by the SEC or the Commodity Futures Trading Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated.

AUDIT COMMITTEE

Our audit committee consists of our Board of Directors. Our audit committee has a charter and management believes Mr. Mower qualifies as an audit committee financial expert because of his extensive experience in finance. Based upon the definition of independent director under NASDAQ Stock Market Rule 5605(a) (2), Mr. Mower is not independent of management.

OTHER COMMITTEES

We do not have a standing nominating committee for directors or a compensation committee. Our entire board of directors, including Messrs. Mower and Sindt, act as our nominating and compensation committee.

CODE OF ETHICS

We adopted a Business Ethics and Code of Conduct in November 2000. Upon written request we will provide a copy of the Business Ethics and Code of Conduct to any person without charge. Address your request to:

Shareholder Communications

Flexpoint Sensor Systems, Inc.

12184 S. Business Park Drive, Suite C

Draper, Utah 84020

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Objectives -- Our compensation philosophy is to align executive compensation with the interests of stockholders, attract, retain and motivate a highly competent team of executives, and link pay to performance.

Base Salary -- Base salaries for our executives depend on the scope of their responsibilities and their performance. Base salary is designed to compensate the executives for services rendered during the year. These salaries are compared to amounts paid to the executive’s peers outside our Company. As we have not yet established a Compensation Committee, salary levels are typically reviewed annually by the Board of Directors performance review process, with increases based on the assessment of the performance of the executive.

Long-term Compensation -- The Board of Directors determined that long-term incentive compensation would be in the form of stock options granted. We have a stock option plan and implemented which has been approved by the shareholders to provide long-term compensation to directors and employees of the company.

Perquisites - The only material perquisite provided to our executive officers is reimbursement for use of a personal automobile while engaged on company business.

Retirement Benefits - We have no retirement benefits currently in place. It is the intent of the company to add such benefits at a future date.

Employee agreements - We have not entered into employment contracts with our executive officers and their compensation is determined at the discretion of our board of directors.

Termination and Change of Control Payments -- The Company does not currently have employment agreements with its executive officers and there are no agreements providing for severance should a change of control take place

SUMMARY COMPENSATION TABLE

The following table shows the compensation paid to our Chief Executive Officer, Principal Financial Officer, and our most highly compensated executive officer for the last two fiscal years:

Name and Principal Position

Year

Salary

($)

Option Awards (1) ($)

All Other Compensation ($)

Total

($)

Clark M. Mower, President, CEO, PFO and Director

2020

2019

$ 72,000

$ 0

$ 72,000

(1)

Represents value of options granted computed in accordance with FASB ASC Topic 718.

Because the Company did not meet its projected revenues during the year ending December 31, 2014, Mr. Mower continued to voluntarily take a reduced salary through the end of 2020.

OUTSTANDING EQUITY AWARDS

The following table shows outstanding equity awards granted to our named executive officers as of December 31, 2020.

Option Awards

Name

(a)

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

(b)

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

(c)

Equity

Incentive Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

(d)

Option

Exercise

Price

($)

(e)

Option

Expiration

Date

(f)

Clark M. Mower, CEO, President and Director

500,000

600,000

$0.05

8/25/25

DIRECTOR COMPENSATION

We do not have any standard arrangement for compensation of our directors for any services provided as a director, including services for committee participation or for special assignments.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

SECURITIES UNDER EQUITY COMPENSATION PLANS

The following table lists the securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders as of December 31, 2020. This chart also includes individual compensation arrangements described below.


EQUITY COMPENSATION PLAN INFORMATION
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	2,185,000	$ 0.05	0
Equity compensation plans not approved by security holders	0	$ 0.00	0
Total	2,185,000	$ 0.05	0

2005 Stock Incentive Plan

On August 25, 2005, our Board adopted the Flexpoint Sensor Systems, Inc. 2005 Stock Incentive Plan (the “Plan”). The purposes of the Plan was to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of our business.

The Plan became effective upon its adoption by the Board and continued in effect for a term of ten (10) years. The Plan expired August 25, 2015. The maximum aggregate number of shares of common stock that could be sold under the Plan was 2,500,000 shares. The term of each option and its exercise price was stated in an option agreement; provided that the term does not exceed ten (10) years from the date of grant. The plan provided that a grant of a stock option to an employee shall have an exercise price of no less than 110% of the fair market value per share on the date of grant. As a condition of the grant, vesting or exercise of an option granted under the Plan, the participant shall be required to satisfy any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the grant, vesting or exercise of the option or the issuance of shares.

Pursuant to the Plan, on August 24, 2015, the Board approved the surrender and cancellation of 1,540,000 options granted to five officers and employees and in exchange granted options to purchase 1,960,000 to those individuals. In addition, the Board granted options to purchase 225,000 shares to two employees.

In December 2020, the Board of Directors approved the revaluing of all outstanding stock options to $0.05 per share.

BENEFICIAL OWNERSHIP

The following table lists the beneficial ownership of our outstanding common stock by our management and each person or group known to us to own beneficially more than 5% of our voting common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Based on these rules, two or more persons may be deemed to be the beneficial owners of the same securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to the shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 114,396,242 shares of common stock outstanding as of March 31, 2021, plus an aggregate of 1,300,000 shares which the following persons may acquire within 60 days by the exercise of rights, warrants and/or options.


CERTAIN BENEFICIAL OWNERS
Name and address of beneficial owner	Amount and nature of beneficial ownership	Percent of class
First Equity Holdings Corp. First Equity Corp. 2157 S. Lincoln Street Salt Lake City, Utah 84106	5,985,858 (1)	5.2

(1)

Includes 743,000 shares held by an officer of First Equity Holdings Corp.


MANAGEMENT
Name of beneficial owner	Amount and nature of beneficial ownership	Percent of class
Clark M. Mower	1,989,100 (1)	1.7
John A. Sindt	1,430,838 (2)	1.3

Directors and officers as a group	3,419,938	3.00

(1)

Represents 889,100 shares held and vested options to purchase 1,100,000 shares.

(2)

Represents 1,230,838 shares held and vested options to purchase 200,000 shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

TRANSACTIONS WITH RELATED PARTIES

The following information summarizes transactions we have either engaged in since the beginning of the last two completed

fiscal years, or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. These transactions were negotiated between related parties without “arm’s length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.

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

Between July 1, 2016 and August 28, 2018, the Company issued promissory notes totaling $125,000 to Mr. Mower and John Sindt, our director. Additionally, on July 12, 2017 Messrs. Mower and Sindt assumed responsibility for $54,513 of debt owed by the Company. The officers subsequently made the required payments against those debts and paid the obligations in full.

At December 31, 2020 there are related party convertible notes outstanding with principal balances of $164,257 and $54,257 which are due to the Mr. Mower and Mr. Sindt, respectively. Of the total balance, $114,514 are convertible notes bearing a 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 note payable related parties has a maturity date of March 31, 2021.

Due to the Company’s lack of authorized shares necessary to settle these 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 these 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 the Notes and to fair value as of each subsequent reporting date. At December 31, 2018 the Company determined the fair value of the derivatives to be $284,857.

During 2019, the Company and Mr. Mower and Mr. Sindt 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, 2019 there are related party convertible notes outstanding with principal balances of $164,257 and $54,257 which are due to Mr. Mower and Mr. Sindt, respectively. Of the total balance, $114,514 are convertible notes bearing a 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 note payable related parties have a maturity date of March 31, 2021.

DIRECTOR INDEPENDENCE

An independent director is defined under NASDAQ Stock Market Rule 5605(a) (2). This rule defines persons as "independent" who are neither officers nor employees of the company and have no relationships that, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors. We do not currently have a director who qualifies as independent.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ACCOUNTANT FEES

The following table presents the aggregate fees billed for each of the last two fiscal years by our independent registered public accounting firm, Sadler, Gibb & Associates, LLC, Certified Public Accountants, in connection with the audit of our financial statements and other professional services rendered by those accounting firm.


	2020	2019
Audit fees	$ 30,500	$ 27,116
Audit-related fees	0	0
Tax rel Tax fees	0	0
All otheAll other fees	0	0

Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.

Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other categories.

PRE-APPROVAL POLICIES

Our audit committee makes recommendations to our board of directors regarding the engagement of an auditor. Our board of directors approves the engagement of the auditor before the firm renders audit and non-audit services. Our audit committee does not rely on pre-approval policies and procedures.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The audited financial statements of Flexpoint Sensor Systems, Inc. are included in this report under Item 8 on pages 17 to 33.

(a)(2) Financial Statement Schedules

All financial statement schedules are included in the footnotes to the financial statements or are inapplicable or not required.

(a)(3) Exhibits

The following documents have been filed as part of this report


No.	Description
3(i).1	Certificate of Incorporation of Flexpoint Sensor, as amended (Incorporated by reference to exhibit 3.1 for Form 10-QSB, filed August 4, 2006)
3(i).2	Certificate of Amendment to Flexpoint Certificate of Incorporation, dated October 11, 2019 (Incorporated by reference to exhibit 3(i).2 of Form 8-K, filed October 15, 2019)
3(ii)	Bylaws of Flexpoint Sensor, as amended (Incorporated by reference to exhibit 3.4 of Form 10-QSB, filed May 3, 2004)
4.6	Description of Securities (Incorporated by reference to exhibit 4.6 of Form 10-K, filed March 30, 2020)
10.1	Office Building Lease between Flexpoint Sensor Systems and FGBP, LLC, dated December 9, 2019 (Incorporated by reference to exhibit 10.1 of Form 10-K, filed March 30, 2020)
10.2	Exclusive License Agreement between Flexpoint Sensor Systems and subVo, LLC, dated June 19, 2019 (Incorporated by reference to exhibit 10.2 of Form 10-Q, filed August 14, 2019)
10.3	Form of Notice of Stock Option Grant, dated August 24, 2015 (Incorporated by reference to exhibit 10.4 of Form 10-K, filed April 14, 2016)
20.2	Audit Committee Charter (Incorporated by reference to Schedule 14A, filed October 27, 2005)
31.1	Certification of Clark M. Mower pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Clark M. Mower pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FLEXPOINT SENSOR SYSTEMS, INC.

Date: March 31, 2021

By: /s/ Clark M. Mower

Clark M. Mower, President

In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: March 31, 2021

/s/ Clark M. Mower

Clark M. Mower

President

Chief Executive Officer

Principal Financial Officer

Director

Date: March 31, 2021

/s/ John A. Sindt

John A. Sindt

Chairman of the Board

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