UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| [ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For quarterly period ended
For the transition period from _____ to _____
Commission file number: No.
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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).
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 [ ]
| Accelerated filer [ ] Smaller reporting company [ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
1
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes [ ] No [
The number of shares outstanding of the registrant’s common
stock was
2
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
| Item 1. | Condensed Financial Statements | 4 | |
| Condensed Balance Sheets at September 30, 2024 (Unaudited) and December 31, 2023 | 5 | ||
| Condensed Statements of Operations for the Three and Nine Months Ended | 6 | ||
| September 30, 2024 and 2023 (Unaudited) | |||
| Condensed Statement of Stockholders’ Equity for the Nine Months Ended | 7 | ||
| September 30, 2024 and 2023 (Unaudited) | |||
| Condensed Statements of Cash Flows for the Nine Months Ended | 8 | ||
| September 30, 2024 and 2023 (Unaudited) | |||
| Notes to Condensed Financial Statements (Unaudited) | 9 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | |
| Item 3. | Quantitative and Qualitative Disclosure about Market Risk | 19 | |
| Item 4. | Controls and Procedures | 19 | |
PART II: OTHER INFORMATION
| Item 1. | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults upon Senior Securities | 20 |
| Item 4 | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 21 |
| Signatures | 22 | |
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
The financial information set forth below with respect to our condensed financial position as of September 30, 2024, the condensed statements of operations for the three and nine months ended September 30, 2024 and 2023, the condensed statement of stockholders’ equity for the nine months ended September 30, 2024 and 2023 and the condensed statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The information presented below for the condensed financial position as of December 31, 2023 was audited and reported as part of our annual filing of our Form 10-K, filed with Securities and Exchange Commission on April 8, 2024. The results of operations for the nine months ended September 30, 2024 and 2023, respectively, are not necessarily indicative of results to be expected for any subsequent periods.
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FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
September 30, 2024 (Unaudited) |
December 31, 2023 | ||
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | |||
| Accounts receivable, net of allowance for bad debts of $ |
|||
| Deposits and prepaid expenses | |||
| Total Current Assets | |||
| Long-Term Deposits | |||
| Operating lease – Right-of-use asset | |||
| Goodwill | | ||
| Total Assets | $ |
$ | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current Liabilities | |||
| Bank overdraft | $ |
$ | |
| Accounts payable | |
| |
| Accounts payable – related party | |||
| Accrued liabilities | |||
| Notes payable – due on demand | |||
| Convertible notes payable | |||
| Convertible notes payable - related party | | ||
| Lease liability – current portion | |||
| Total Current Liabilities | |||
| Lease liability – long-term | |||
| Total Liabilities | |||
|
Commitments and contingencies
|
|||
| Stockholders' Equity | |||
| Preferred stock – $ |
|||
| shares issued or outstanding | |||
| Common stock – $ |
|||
| respectively |
|||
| Additional paid-in capital | | ||
| Accumulated deficit | ( |
( | |
| Total Stockholders' Equity | ( |
||
| Total Liabilities and Stockholders' Equity | $ |
$ |
The accompanying notes are an integral part of these
condensed financial statements
5
FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months | For the Nine Months | ||||||||||||
| Ended September 30, | Ended September 30, | ||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||
| Design, Contract and Testing Revenue | $ |
$ |
$ |
$ | |||||||||
| Operating Costs and Expenses | |||||||||||||
| Cost of revenue | |
|
|||||||||||
| Administrative and marketing expense | |
|
|
| |||||||||
| Research and development expense | |
|
|
| |||||||||
| Total Operating Costs and Expenses | |
|
|
| |||||||||
| Net Operating Income (Loss) | ( |
( |
( |
( | |||||||||
| Other Income and Expenses | |||||||||||||
| Interest expense | ( |
( |
( |
( | |||||||||
| Other income | |||||||||||||
| Total Other Income (Expense) | ( |
( |
( |
( | |||||||||
| Net Income (Loss) | $( |
$( |
$( |
$( | |||||||||
| Basic and Diluted Loss per Common Share | $ ( |
$ ( |
$ ( |
$ ( | |||||||||
| Basic and Diluted Weighted-Average Common Shares | |||||||||||||
| Outstanding | |||||||||||||
The accompanying notes are an integral part of these condensed financial statements
6
FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2024 and 2023
(UNAUDITED)
| Common Stock | Additional Paid-in Capital | Total Stockholder Equity | |||
|
Shares |
Amount |
Accumulated Deficit | |||
|
Balance – December 31, 2023 |
$ |
$ |
$ ( |
$ | |
| Net loss – three months ended March 31, 2024 | - | ( |
( | ||
| Balance -- March 31, 2024 | $ |
$ |
$ ( |
$ | |
| Net loss – three months ended June 30, 2024 | - | ( |
( | ||
| Balance -- June 30, 2024 | $ |
$ |
$ ( |
$( | |
|
Net loss – three months ended September 30, 2024 |
- | ( |
( | ||
|
Balance – September 30, 2024 |
$ |
$ |
$ ( |
$ ( | |
| Common Stock | Additional Paid-in Capital | Total Stockholder Equity | |||
|
Shares |
Amount |
Accumulated Deficit | |||
|
Balance – December 31, 2022 |
$ |
$ |
$ ( |
$ | |
| Net loss – three months ended March 31, 2023 | - | ( |
( | ||
| Balance -- March 31, 2023 | $ |
$ |
$ ( |
$ | |
| Net loss – three months ended June 30, 2023 | - | ( |
( | ||
| Balance -- June 30, 2023 | $ |
$ |
$ ( |
$ | |
|
Net loss – nine months ended September 30, 2023 |
- | ( |
( | ||
|
Balance – September 30, 2023 |
$ |
$ |
$ ( |
$ | |
The accompanying notes are an integral part of these condensed financial statements
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FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months | |||
| Ended September 30, | |||
| 2024 | 2023 | ||
| Cash Flows from Operating Activities: | |||
| Net loss | $ ( |
$ ( | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||
| Changes in operating assets and liabilities: | |||
| Accounts receivable | |||
| Prepaid expenses and other assets | ( |
( | |
| Right-of-use asset | |||
| Accounts payable | |||
| Accounts payable – related parties | |||
| Accrued liabilities | |||
| Lease liability – long-term | ( |
( | |
| Net Cash Provided by (Used) in Operating Activities | ( |
( | |
| Cash Flows from Financing Activities: | |||
| Proceeds from borrowings under notes payable | |||
| Proceeds from (payment of) bank overdrafts | |||
| Advances from related party | |||
| Payment on loans payable | ( |
( | |
| Net Cash Provided by Financing Activities | |||
| Net Change in Cash and Cash Equivalents | |||
| Cash and Cash Equivalents at Beginning of Period | |||
| Cash and Cash Equivalents at End of Period | |||
| Supplemental Cash Flow Information: | |||
| Cash paid for income taxes | |||
| Cash paid for interest | |||
| Non-cash Investing and Financing Activity | |||
| Common stock issued in conversion of notes payable | |||
The accompanying notes are an integral part of these condensed financial statements
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FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2024
(UNAUDITED)
NOTE 1– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Interim Financial Statements – The accompanying unaudited condensed financial statements include the accounts of Flexpoint Sensor Systems, Inc. (the “Company”). These financial statements are condensed and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America. Therefore, these statements should be read in conjunction with the most recent annual financial statements of Flexpoint Sensor Systems, Inc. for the year ended December 31, 2023 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on April 8, 2024. In particular, the Company’s significant accounting principles were presented as Note 1 to the Financial Statements in that report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed financial statements are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.
Nature of Operations – Flexpoint Sensor Systems, Inc. (the Company) is located in West Jordan, Utah. The Company’s activities to date have included acquiring equipment and enhancing technology, obtaining financing, limited production and seeking long-term manufacturing contracts. The Company’s operations are in designing, engineering, manufacturing and selling sensor technology and equipment using flexible potentiometer technology. Through September 30, 2024, the Company continued to manufacture products and sensors to fill customer orders and provide engineering and design work.
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 highly liquid securities 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
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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.
Accounts Receivable – Trade accounts receivable
are recorded at the time product is shipped or services are provided including any shipping and handling fees. Contracts associated with
design, development engineering and manufacturing generally require a deposit of
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.
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
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 nine-month period ended September 30, 2024 and during the year ended December 31, 2023. 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
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.
Lease Obligations – The Company accounts for leases in accordance with ASC 842, Leases. The Company recognizes ROU assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. Operating lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed to each period during the term of the lease. This generally results in rent expense in excess of cash payments during the early years of the lease and rent expenses less than cash payments in later years. The difference between rent expense recognized and actual cash payments is typically represented as the spread between the ROU asset and lease liability.
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, 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
10
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.
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
A part of our customer base is made up of international customers.
| Three months ended: | September 30, | September 30, | ||||||||||
| 2024 | 2023 | |||||||||||
| Consumer | Long-term | Consumer | Long-term | |||||||||
| Segments | Products | Contract | Total | Products | Contract | Total | ||||||
| Domestic | $ | $ |
|
|||||||||
| International | ||||||||||||
| $ | $ | |||||||||||
| Components | $ | $ | ||||||||||
| Engineering Services | ||||||||||||
| $ | $ | |||||||||||
| Nine months ended: | September 30, | September 30, | ||||||||||
| 2024 | 2023 | |||||||||||
| Consumer | Long-term | Consumer | Long-term | |||||||||
| Segments | Products | Contract | Total | Products | Contract | Total | ||||||
| Domestic | $ | $ |
|
|||||||||
| International | ||||||||||||
| $ | $ | |||||||||||
| Components | $ | $ | ||||||||||
| Engineering Services | ||||||||||||
| $ | $ | |||||||||||
Basic and Diluted Loss Per Share – Basic loss per
share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted
loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares
outstanding during the period. At September 30, 2024 and 2023 there were outstanding common share equivalents (options and
convertible notes payable) which amounted to
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September 30, 2024 and 2023 as their effect would have been anti-dilutive, thereby decreasing loss per common share.
Concentrations and Credit Risk - The Company has a few major
customers who represent a significant portion of revenue, accounts receivable and notes receivable. During the nine-month period ended
September 30, 2024, two customers represented
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–On August 20, 2020 the FASB released ASU 2020-06 “Simplified Convertible Instrument Framework”. This pronouncement simplifies the convertible debt accounting framework, eliminating, among other things, the beneficial conversion feature model. The adoption date of this pronouncement is for fiscal years beginning after December 15, 2023, but allows for earlier adoption for fiscal years beginning after December 31, 2020. The Company has elected to adopt this accounting treatment effective January 1, 2021. Its adoption will have a beneficial effect on its financial statements in those instances when the conversion rate set by convertible notes is below the market price on the date the convertible note is issued, as no beneficial conversion expense will be recorded.
In June 2016, FASB released ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This model requires companies to estimate credit losses over the lifetime of financial assets, even if no loss has occurred, and applies to debt securities, trade receivables and other receivables. For smaller reporting companies the effective date of adoption was January 2023. The Company adopted this accounting treatment effective January 1, 2023. Its adoption will have no effect on its financial statements. The Company believes that its adoption will have no significant effect on its current or future earnings or operations.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.
NOTE 2– GOING CONCERN
The Company continues to accumulate significant operating losses and
has an accumulated deficit of $
Management is seeking additional funding to provide operating capital for its operations until such time as revenues are sufficient to sustain our level of operations. However, there is no assurance that additional funding will be available on acceptable terms, if at all.
NOTE 3 – NOTES PAYABLE
During the nine months ended September 30, 2024, the Company
received payments of $
12
In August 2020 the Company
received $
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable
At September 30, 2024, there are notes outstanding with principal
balances which total $
Convertible Note Payable - Related Party
At September 30, 2024, there are notes outstanding with two directors of
the Company with balances of $
NOTE 5– STOCK OPTION PLANS
On August 25, 2005, the Board of Directors of the Company approved
and adopted the 2005 Stock Incentive Plan (the Plan). The Plan became effective upon its adoption by the Board and continued in effect
for
On August 24, 2015, the Board of Directors approved the issuance
of options to purchase
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
On December 30, 2020 the Board of Directors approved the revaluation
of all outstanding stock options, reducing the option price to $
13
As of the years ended December 31, 2005 through 2020, the Company
recognized a total of $
| Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value |
| Outstanding at the beginning of period | $ | |||
| Granted | -- | |||
| Expired | -- | |||
| Forfeited | -- | |||
| Outstanding at the end of Period | | $ | ||
| Exercisable at the end of Period | $ |
NOTE 6 – CAPITAL STOCK
Preferred Stock – There are
Common Stock – There are
NOTE 7– COMMITMENTS AND CONTINGENCIES
The Company currently occupies approximately
NOTE 8 – RELATED PARTY TRANSACTIONS
At September 30, 2024, there was $
NOTE 9 – SUBSEQUENT EVENTS
In October and November, 2024, the Company received
$
The Company has evaluated all other subsequent events pursuant to ASC Topic 855 and has determined that there are no events that require disclosure as of the date of issuance.
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In this quarterly report references to “Flexpoint", "the Company," “we,” “us,” and “our” refer to Flexpoint Sensor Systems, Inc.
FORWARD LOOKING STATEMENTS
The U.S. Securities and Exchange Commission (“SEC”) encourages reporting companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Flexpoint Sensor Systems, Inc. is a company engaged principally 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
The challenges posed by the Pandemic in the United States and global economies has had a significant effect on our business. During this difficult time, we have worked to ensure that our customers continue to receive quality, personalized service.
Currently our revenue is primarily from product development, manufacturing and recurring sales with additional contributions to income from design contract, testing and limited production services for prototypes and samples, and is currently not at a level to support our operations. Depending upon the world returning to some form of normalcy following the end of the Pandemic, we believe, based upon current orders and projected orders over the next twelve months, that we could be producing sensors under long-term contracts in the future that will help support our existing operations and potential future growth. Management recognizes such contracts usually go
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through a long negotiation process and there can be no guarantee that we will be successful in our negotiations or that such contracts will be sufficient to support our current operations in the near future.
In the first nine months of 2024, we have relied on the proceeds of advances in the form of on-demand loans from existing shareholders, which funds are accounted for as demand notes. The balances of the non-related party convertible notes have a combined total of $180,000 as of September 30, 2024. The notes have an annual interest rate of 8% to 10% and default rates of 10% to 15%, have various maturity dates, and are secured by the Company’s business assets. The on-demand notes have a principal balance of $1,472,427 at September 30, 2024 and no terms have yet been established for these funds.
Management believes that our current cash burn rate is approximately $60,000 per month and expectations are that it will continue at this rate for the foreseeable future. If the business returns to pre-Pandemic levels, with proceeds from additional convertible notes and estimated revenues for manufacturing, production, engineering design and prototype products should be sufficient to fund the next twelve months of operations. Our auditors have expressed doubt about our 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 anticipated purchase orders over the next twelve months the revenue generated will not be sufficient to cover our operating expenses, based on our current burn rate. However, we cannot assure 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.
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.
FINANCIAL OBLIGATIONS AND CONTINGENT LIABILITIES
Our principal commitments at September 30, 2024 consisted of our operating lease of $6,657 per month, and total liabilities of $5,335,648, which includes $398,513 of convertible notes payable. Accrued liabilities at September 30, 2024, were $2,889,710 and were related to payroll, payroll tax liabilities, accrued professional expenses, accrued insurance expense, accrued interest expense on notes and accrued paid time off.
In August 2020 the Company received $50,000 from John Kelly, a large shareholder, to meet operating expenses. Mr. Kelly indicated that he would want the $50,000 repaid when the Company was in a position to do so. Mr. Kelly subsequently provided an additional $5,000, for a total loan of $55,000. This funding has not formally been documented by a note at the time of this filing, and there is no term or interest on the note. In 2023, 2022 and 2021 payment of $40,000 was made to reduce the balance. During the nine-month period ended September 30, 2024, an additional payment of $2,500 was made, leaving a remaining balance of $15,000.
The Company has received $1,472,427 in funding from holders of our convertible notes. These fundings have not yet been memorialized into convertible notes. The only term agreed upon to date is that all funds advanced will bear interest at the rate of 10% per annum from the date of deposit.
The Company has a few major customers who represent a significant portion of revenue and accounts receivable. During the nine months ended September 30, 2024, two customers represented 87% of sales and one customer represented 96% of accounts receivable. The Company has a strong ongoing relationship with these customers with scheduled product deliveries extending through the year from one of the customers with an account receivable and does not believe this concentration poses a significant risk, as their products are based entirely on the Company’s technologies.
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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.
CRITICAL ACCOUNTING ESTIMATES
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates of particular significance in our financial statements include goodwill and the annual tests for impairment of goodwill and long-lived assets and valuing stock option compensation.
ASC 350-20 “Intangibles – Goodwill and Other: The Company follows the guidance provided by ASC 350-20. The Company's goodwill represents the excess of its reorganization value over the fair value of the net assets upon emergence from bankruptcy. Goodwill is not amortized; therefore, we test our goodwill for impairment annually or when a triggering event occur using a fair value approach. 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. The test requires various judgments and estimates. During 2023 and for the nine months ended September 30, 2024, the Company recorded no impairment charge to reduce the carrying value of the goodwill to its estimated fair value. As part of the impairment testing performed at December 31, 2023, the Company considered factors such as the global market volatility, variables in the economy, and the overall uncertainty in the markets that has resulted in a decline in the market price of the Company's stock price and market capitalization for a sustained period, as indicators for potential goodwill impairment.
ASC 820 Fair Value Measurement: We test long-lived assets for impairment annually or when a triggering event occurs. Impairment is indicated if undiscounted cash flows are less than the carrying value of the assets. The amount of impairment is measured using a discounted-cash-flows model considering future revenues, operating costs and risk-adjusted discount rate and other factors. The analysis compares the present value of projected net cash flows for the remaining current year and next two years against the carrying value of the long-lived assets. If the carrying values of the long-lived assets exceed the present value of the discounted projected revenues an impairment expense would be recognized in the period and the carrying value of the assets would be adjusted accordingly. Impairment tests are conducted on an annual basis and, should they indicate a carrying value in excess of fair value, a charge may be required.
ASC 718 “Compensation – Stock Compensation: Financial accounting standards require that recognition of the cost of employee services received in exchange for stock options and awards of equity instruments be based on the grant-date fair value of such options and awards and is recognized as an expense in operations over the period they vest. The fair value of the options we have granted is estimated at the date of grant using the Black-Scholes American option-pricing model. Option pricing models require the input of highly sensitive assumptions, including expected stock volatility. In addition, our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable. For the nine-month periods ended September 30, 2024 and 2023, 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 at the current time.
RESULTS OF OPERATIONS
The Company continues to concentrate its marketing resources on a limited number of customers that have the greatest potential to generate the most short-term revenue while still building relationships with our larger customers. Management believes this approach has the highest potential to bring long-term commercially viable products to market and will provide sustainable cash flow to fund the Company's operations in the future. Currently, overall revenues are not sufficient to sustain our operations. The Pandemic has had a dramatic effect on our business as well as the business of our customers. The wide-ranging effects on the world-wide business market has led to a general reluctance for businesses to move forward with entering into major commitments until their future markets have been clarified. Following a return to normal business operations in the world, management anticipates
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that revenues will increase as we continue to execute our long-term business plan and cultivate larger customer bases with our existing product offering. However, until the Pandemic ends and a long-term production contract is in place there is no guarantee that our current customer base will order in sufficient volumes to sustain our operations. Therefore, management continues to work with larger companies and industries and is hopeful that in the near future we will sign a long-term licensing or manufacturing contract.
We recognized revenue from repeat orders from our existing customers, design contract, and development engineering. Revenue is recognized using the ASC 606 five step detailed in Note 1 to the financial statements. Revenue from the sale of a product is recorded at the time of shipment to the customer. Revenue from the license agreements was recognized in the period the agreement was concluded, as it is a right of use license and the Company has no further obligations to perform under the terms of the agreement. Revenue from research and development engineering contracts is recognized as the services are provided and accepted by the customer. Revenue from contracts to license technology to others is deferred until all conditions under the contract are met and then the sale is recognized as licensing royalty revenue over the remaining term of the contract.
The following discussions are based on the consolidated operations of Flexpoint Sensor Systems, Inc. and should be read in conjunction with our unaudited financial statements for the three and nine months ended September 30, 2024 and 2023, included in Part I, Item 1, above, and the audited financial statements included in the Company’s annual report on Form 10-K for the years ended December 31, 2023 and 2022.
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2024 AND 2023
| SUMMARY OF OPERATING RESULTS | |||
|
Three-month period ended | |||
| September 30, 2024 | September 30, 2023 | ||
| Manufacturing, design, licensing and contract revenue |
$ 51,871 |
$ 21,594 | |
| Total operating costs and expenses | 135,607 | 195,610 | |
| Net other income (expense) | (42,476) | (31,010) | |
| Net loss | (126,212) | (205,026) | |
| Basic and diluted loss per common share | $ (0.00) | $ (0.00) | |
For the three months ending September 30, 2024, revenue was $51,871, an increase of $30,277 when compared to the revenue of $21,594 for the same period in 2023.
Of the $135,607 and $195,610 total operating costs and expense for the three months ending September 30, 2024 and 2023, respectively, $61,736 and $55,049 were for direct research and development cost, respectively. For the three months ended September 30, 2024, total operating expenses decreased by $60,004 when compared to the same period in 2023, with $60,000 of the decrease related to professional marketing fees.
Other expense for the three-month period ended September 30, 2024 was $42,476 compared to other expense of $31,010 for the same period in 2023. A net loss of $126,212 was realized for the three months ended September 30, 2024. A net loss of $205,026 was realized for the three-month period ended September 30, 2023.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2024 AND 2023
| SUMMARY OF OPERATING RESULTS | |||
|
Nine-month period ended | |||
| September 30, 2024 | September 30, 2023 | ||
| Manufacturing, design, licensing and contract revenue |
$ 123,125 |
$ 71,358 | |
| Total operating costs and expenses | 417,876 | 618,570 | |
| Net other income (expense) | (123,963) | (76,754) | |
| Net loss | (418,714) | (623,966) | |
| Basic and diluted loss per common share | $ (0.00) | $ (0.00) | |
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For the nine months ending September 30, 2024, revenue was $123,125, an increase of $51,767 when compared to the revenue of $71,358 for the same period in 2023.
Of the $417,876 and $618,570 total operating costs and expense for the nine months ending September 30, 2024 and 2023, respectively, $175,447 and $164,299 were for direct research and development cost, respectively. For the nine months ended September 30, 2024, total operating expenses decreased by $200,695 when compared to the same period in 2023, decreases in professional marketing fees of $182,383 comprising the largest part of the decreased expense level.
Other expense for the nine-month period ended September 30, 2024 was $123,963 compared to $76,754 for the same period in 2023, a $47,209 increase resulting primarily from interest on demand notes.
A net loss of $418,714 was realized for the nine months ended September 30, 2024. A net loss of $623,966 was realized for the nine-month period ended September 30, 2023.
The chart below represents a summary of our condensed consolidated balance sheets at September 30, 2024 and December 31, 2023.
| SUMMARY OF BALANCE SHEET INFORMATION | |||
| September 30, 2024 | December 31, 2023 | ||
| Cash and cash equivalents | $ - | $ - | |
| Total current assets | 44,480 | 51,039 | |
| Total assets | 5,171,416 | 5,223,784 | |
| Total liabilities | 5,335,648 | 4,969,302 | |
| Accumulated deficit | (32,090,858) | (31,672,144) | |
| Total stockholder’s equity (deficit) | $ (164,232) | $ 254,482 | |
Cash at September 30, 2024 was overdrawn by $13,459, which amount is shown as a liability. At December 31, 2023 there was an overdraft of $11,315. The negative cash is due to the issuance of checks for operating expenses and the delayed receipt of funds to deposit. Our non-current assets are unchanged, as all property and equipment and patents have been fully depreciated.
Total liabilities increased by $366,346 at September 30, 2024 due to the increase of on-demand notes and accrued interest.
INFLATION
We do not expect the impact of inflation to have a negative impact on our product sales or our operations for the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
| (a) | Disclosure Controls and Procedures |
As of the end of the period covered by this quarterly report, we carried out an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our Chief Executive Officer, who also serves as our Principal Financial Officer. Our controls and procedures are designed to allow information required to be disclosed in our reports to be recorded, processed, summarized and reported within the specified periods, and accumulated and communicated to management to allow for timely decisions regarding required disclosure of material information. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon the evaluation, our Chief Executive Officer concluded that our
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disclosure controls and procedures were not effective at that reasonable assurance level as of the end of the nine-month period ended September 30, 2024.
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
| (b) | Changes in Internal Control over Financial Reporting |
There have been no changes in internal control over financial reporting during the nine months of 2024 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
Part I Exhibits
| No. | Description |
| 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 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley |
Part II Exhibits
| 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)
|
| 3.2 |
Bylaws of Flexpoint Sensor, as amended (Incorporated by reference to exhibit 3.4 of Form 10-QSB, filed May 3, 2004)
|
| 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)
|
| 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 |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, who is duly authorized.
FLEXPOINT SENSOR SYSTEMS, INC.
Date: November 14, 2024
/s/ Clark M. Mower
Clark M. Mower
President, Chief Executive Officer and Director,
Principal Financial Officer
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