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Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2017
Apr. 17, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2017    
Entity Registrant Name FLEXPOINT SENSOR SYSTEMS INC    
Entity Central Index Key 0000925660    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   92,863,464  
Entity Public Float     $ 4,777,521
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Current Assets    
Cash and cash equivalents $ 12,832
Accounts receivable, net of allowance of $145,194 and $102,140 47,254 84,499
Deposits and prepaid expenses 10,144 9,348
Total Current Assets 70,230 93,847
Long-Term Deposits 6,550 6,550
Property and Equipment, net of accumulated depreciation of $589,006 and $586,787 8,584 10,823
Patents and Proprietary Technology, net of accumulated amortization of $925,790 and $876,037 48,295 96,358
Goodwill 4,896,917 4,896,917
Total Assets 5,030,576 5,104,495
Current Liabilities    
Accounts payable 227,680 172,602
Accounts payable - related party 1,420
Accrued liabilities 958,810 741,778
Due to related parties 20,000
Convertible notes payable, net of discount of $72,986 and $0 807,014 1,184,660
Convertible notes payable to related party, net of discount of $33,099 and $0 81,414 20,000
Derivative liabilities 363,680 76,295
Total Liabilities 2,458,598 2,196,755
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; 100,000,000 shares authorized; 92,863,464 shares and 78,363,464 shares issued and outstanding, respectively 92,863 78,363
Additional paid-in capital 29,785,568 29,052,188
Accumulated deficit (27,306,453) (26,222,811)
Total Stockholders' Equity 2,571,978 2,907,740
Total Liabilities and Stockholders' Equity $ 5,030,576 $ 5,104,495
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Accounts receivable, allowance for bad debts $ 145,194 $ 102,140
Property and Equipment, accumulated depreciation 589,006 586,767
Patents and Proprietary Technology, accumulated amortization 925,790 876,037
Convertible notes payable, discount 72,986 0
Convertible notes payable to related party, discount $ 33,099 $ 0
Preferred stock, par value per share $ 0.001 $ 0.001
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value per share $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 92,863,464 78,363,464
Common stock, shares outstanding 92,863,464 78,363,464
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]    
Engineering, Contract and Testing Revenue $ 340,604 $ 314,494
Operating Costs and Expenses    
Amortization of patents and proprietary technology 49,713 82,934
Cost of revenue 41,381 23,055
Administrative and marketing expense 735,269 878,584
Research and development expense 319,763 318,445
Total Operating Costs and Expenses 1,146,126 1,303,018
Loss from operations (805,522) (988,524)
Other Income (Expense)    
Interest expense (332,616) (1,068,389)
Interest income 47 47
Gain (loss) on extinguishment of debt 115,183 (915)
Loss on change in fair value of derivative liabilities (60,734) (35,403)
Net Other Income (Expense) (278,120) (1,104,660)
Net Loss $ (1,083,642) $ (2,093,184)
Basic and Diluted Loss Per Common Share $ (0.01) $ (0.03)
Basic and Diluted Weighted-Average Common Shares Outstanding 93,503,090 72,404,678
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Subscriptions Payable [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2015 $ 71,627 $ 28,569,711 $ 9,958 $ (24,129,627) $ 4,521,669
Balance, shares at Dec. 31, 2015 71,627,114       71,627,114
Prior-period adjustment (160,000) $ (160,000)
Beneficial conversion features 118,083 118,083
Shares issued for convertible notes $ 6,650 328,368 335,018
Shares issued for convertible notes, shares 6,650,000        
Stock issued for stock subscription $ 86 9,872 (9,958)
Stock issued for stock subscription, shares 86,350       6,736,350
Stock options issued 26,154 $ 26,154
Net loss (2,093,184) (2,093,184)
Balance at Dec. 31, 2016 $ 78,363 29,052,188 (26,222,811) $ 2,907,740
Balance, shares at Dec. 31, 2016 78,363,464       78,363,464
Shares issued for convertible notes $ 14,500 713,437 $ 727,937
Shares issued for convertible notes, shares 14,500,000        
Stock issued for stock subscription, shares         14,500,000
Stock options issued 19,943 $ 19,943
Net loss (1,083,642) (1,083,642)
Balance at Dec. 31, 2017 $ 92,863 $ 29,785,568 $ (27,306,453) $ 2,571,978
Balance, shares at Dec. 31, 2017 92,863,464       92,863,464
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Cash Flows from Operating Activities:    
Net loss $ (1,083,642) $ (2,093,184)
Adjustments to reconcile net loss to net cash used in operating activities:    
Initial derivative expense 63,298
Depreciation 2,239 373
Bad debt expense 43,054 181,806
Stock-based compensation 19,943 26,154
Amortization of patents and proprietary technology 49,713 82,934
Amortization of discount on note payable 57,268 922,327
Loss (Gain) on extinguishment of debt 915
Loss (Gain) on forgiveness of convertible notes payable (115,183)
Loss (Gain) on change in fair value of derivative liabilities 60,734 35,403
Changes in operating assets and liabilities:    
Accounts receivable (5,809) (80,942)
Deposits and prepaid expense (796) 2,601
Accounts payable 55,078 12,165
Accounts payable - related party (1,420) 1,098
Accrued liabilities 444,626 402,219
Net Cash Used in Operating Activities (410,897) (506,131)
Cash Flows from Investing Activities:    
Payment for equipment (11,196)
Payments for patents (1,650)
Net Cash Used in Investing Activities (1,650) (11,196)
Cash Flows from Financing Activities:    
Proceeds from borrowings under note payable
Proceeds from borrowings under convertible note payable 380,000 460,000
Proceeds from related party advances 20,000
Proceeds from borrowings under convertible note payable - related party 40,000 20,000
Proceeds from bank overdrafts 14,621
Repayment of bank overdrafts (14,621)
Net Cash Provided by Financing Activities 425,379 494,621
Net Change in Cash and Cash Equivalents 12,832 (22,706)
Cash and Cash Equivalents at Beginning of Period 22,706
Cash and Cash Equivalents at End of Period 12,832
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 84,660
Recognition of discounts on convertible notes payable 163,353 178,318
Common shares issued in conversion of debt 727,937 335,018
Assumption of debt by related party 54,513
Stock issued for subscription payable $ 9,958
NATURE OF BUSINESS
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
NATURE OF BUSINESS

NOTE 1 NATURE OF BUSINESS


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, 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 December 31, 2017 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 $145,194 and $102,140 in the years ended December 31, 2017 and 2016, respectively.  


Inventories – Inventories are stated at the lower of cost or market. Cost is determined by using the first in, first out (FIFO) method.  


Going Concern– The Company suffered losses of $1,083,642 and $2,093,184 and used cash in operating activities of $410,897 and $506,131 during the years ended December 31, 2017 and 2016, respectively.  At December 31, 2017, the Company had an accumulated deficit of $27,306,453. 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 2017 the Company raised $5,379,278, which includes $420,000 raised in 2017, in additional capital, including accrued interest, through the issuance of long and short-term notes to related and other parties. 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, 2017 through December 31, 2018.


In June of 2016 a stock subscription in the amount of $9,958 was converted into 86,350 shares of restricted common stock.


In November of 2016, $335,018 in convertible notes and accrued interest were converted into 6,650,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.


In November 2017, $812,597 in convertible notes and accrued interest were converted into 14,500,000 shares of restricted common stock at an average conversion price of approximately $0.06 per share.  The conversion resulted in a $115,183 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, 2017.  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, 2017.


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, 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.


Revenue Recognition – Revenue is generally recognized when persuasive evidence of an arrangement exists, services have been provided or goods delivered, the price to the buyer is fixed or determinable and collectability is reasonably assured. Revenue from the sale of products is recorded at the time of shipment to the customers.  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 contracts are met and then recognized as licensing royalty revenue over the remaining term of the contracts.  The Company does not provide extended warranties or guarantees on its products.


Stock-Based Compensation – The Company recognizes the cost of employee services received in exchange for stock options and awards of equity instruments based on the grant-date fair value of such options and awards, over the period they vest.  All share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period. For the years ended December 31, 2017 and 2016, the Company recognized expense for stock-based compensation of $19,943 and $26,154, respectively.


Basic and Diluted Loss Per Share – Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.  Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. At December 31, 2017 and 2016, there were outstanding common share equivalents (options and convertible notes payable) which amounted to 16,644,625 and 23,399,094, 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, 2017, a customer who is a toy manufacturer represented 29% of sales and represented 0% of accounts receivable.  A customer who is utilizing our technology for commercialization in shoes represented 50% of accounts receivable and 100% of notes receivable at December 31, 2017. 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.  The Company has the option, under one of the notes receivable, to convert the principal and interest into equity of the customer


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 October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740); Intra-Entity Transfers of Assets Other Than Inventory.  This ASU requires entities to recognize the income tax consequences of many intercompany asset transfers at the transaction date.  The seller and buyer will immediately recognize the current and deferred income tax consequences of an intercompany transfer of an asset other than inventory.  The tax consequences were previously deferred until the asset is sold to a third part or recovered through use.  This guidance will become effective on January 1, 2018.  


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments.  This ASU addresses the following eight specific cash flow issues:  Debt costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  This guidance will become effective on January 1, 2018. We do not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements.  


In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718); Improvements to Employee Share-Based Payments Accounting.  The ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows.  This guidance will become effective January 1, 2017.  We do not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements.


In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, “Leases.”  This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment.  This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases.  For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  The Company is currently evaluating the impact of this ASU on its financial statements and disclosures.


In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606).  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAA{ and replace it with a principle based approach for determining revenue recognition.  Under ASU 2017-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20 and ASU 2017-05, all of which clarify certain implementation guidance within ASU 2014-09.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.  The standard can be adopted either retrospectively to each prior reporting period presented of retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application.  The Company will adopt the provisions of this statement in the first quarter of 2018 using the modified retrospective approach.  We have assessed the impact adoption of this standard will have on our consolidated financial statements and related disclosures. Based on our assessment, the adoption of this standard will not have a material impact on our revenue recognition policies for either our products or services.


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.

NOTES RECEIVABLE
12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
NOTES RECEIVABLE

NOTE 2 – NOTES RECEIVABLE


On June 23, 2010, the Company, along with David B. Beck, the Company's Director of Engineering, filed a complaint against R&D Products, LLC, Persimmon Investments, Inc. and Jules A. deGreef, the managing member of R&D Products, LLC. The complaint alleged that all of the intellectual properties owned by R&D Products and Mr. deGreef, specifically patented applications using Bend Sensor® technology that were filed jointly by Mr. Beck and Mr. deGreef, and later assigned solely to Mr. deGreef and R&D Products, are the property of the Company. The assignment by Mr. Beck of his rights in the patents and intellectual properties were improperly given and are the property of the Company. The Company believed that since Mr. Beck was an employee of the Company during the time that he became the primary creative force and inventor of the Bend Sensor® applications for R&D Products and Mr. deGreef, and the inventions and applications were created using Flexpoint resources, the Company claimed that such intellectual properties, patents, etc. filed by deGreef, Persimmon and R&D belong to Flexpoint and therefore has sought financial damages and ownership of all intellectual rights, patents and inventions created by Mr. Beck for deGreef, Persimmon and R&D Products.  


On April 9, 2013, the parties of the above referenced litigation reached a favorable universal settlement agreement that reinforces the Company's rights to the intellectual properties and their related products, including the medical bed. In order to secure the Company had exclusive rights to all patents and intellectual properties associated with this litigation the Company advanced to Mr. deGreef $25,000 to bring current all of the filing and maintenance fees for the patents detailed in the law suit. The advance is secured by a promissory note with an annual interest rate of 10% to be paid no later than December 31, 2015. During 2016 the Company established an allowance of $31,813 for the note receivable from Mr. deGreef.


On April 1, 2015, the Company paid $51,157 for the assumption and assignment of a convertible promissory note receivable issued by Bend Tech, LLC (“Bend Tech”; one of the Company’s customers – see also Note 1, Concentrations and Credit Risk) and held by a third-party Bend Tech investor (“the Investor”).  The note bears interest at the rate of 10% per annum and had a maturity date of April 1, 2015.  The agreement allows the holder, at its option, to convert the note to a 5% ownership of Bend Tech.  The Company elected to take assignment of those conversion rights, reaching an agreement with the Investor to pay the principle and interest to the Investor at the due date.  Bend Tech is expected to become a more significant customer of the Company as it begins its product introductions, and the Company elected to pay off the note and put itself in position to either receive the payment plus interest or   convert the note into ownership of Bend Tech rather than have an outside investor make such conversion.  As of the date of this report, the note is in default and the Company has not exercised its conversion option. The Company has recorded a bad debt expense charge for the full amount of the note.  During 2016 the Company established an allowance of $54,993 for the note receivable from Bend Tech LLC.

DERIVATIVE INSTRUMENTS
12 Months Ended
Dec. 31, 2017
Derivative Instruments  
DERIVATIVE INSTRUMENTS

NOTE 3 – DERIVATIVE INSTRUMENTS

 

 The derivative liability as of December 31, 2017, in the amount of $363,680 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, 2017 and 2016:


 

 

 

 

Total

 

Balance, December 31, 2015

 

 

 

 

-

 

Recognition of derivative liabilities upon initial valuation

 

 

 

 

40,892

 

Change in fair value of derivative liabilities

 

 

 

 

35,403

 

Conversions of derivative liabilities into equity instruments

 

 

 

 

-

 

Balance, December 31, 2016

 

 

 

 

76,295

 

Recognition of derivative liabilities upon initial valuation

 

 

 

 

226,651

 

Change in fair value of derivative liabilities

 

 

 

 

60,734

 

Conversions of derivative liabilities into equity instruments

 

 

 

 

-

 

Balance, December 31, 2017

 

 

 

 

363,680

 

 

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

 

At December 31, 2017, the Company marked to market the fair value of the derivatives and determined a fair value of $363,680. The Company recorded a loss from change in fair value of derivatives of $60,734 for the year ended December 31, 2017. The fair value of the embedded derivatives was determined using binomial lattice model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 68.68% to 141.83%, (3) weighted average risk-free interest rate of 1.53% to 1.76% (4) expected life of 0.08 to 1.00 years, and (5) the quoted market price of the Company’s common stock at each valuation 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.

  

Liabilities measured at fair value on a recurring basis are summarized as follows:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Derivative Liabilities

 

 

-

 

 

 

-

 

 

 

363,680

 

 

 

363,680

Total

 

$

-

 

 

$

-

 

 

$

363,680

 

 

$

363,680

PROPERTY AND EQUIPMENT
12 Months Ended
Dec. 31, 2017
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT

NOTE 4 – 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 $373 for the years ended December 31, 2017 and 2016, 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, 2017. Property and equipment at December 31, 2017 and 2016 consisted of the following:




Property and Equipment

 

 

 

December  31,

2017

 

2016

 

 

 

 

Machinery and equipment

$     543,249

 

$543,249 

Office equipment

40,455

 

40,455 

Furniture and fixtures

13,470 

 

13,470 

Software

416 

 

416 

 

 

 

 

Total Property and Equipment

597,590 

 

597,590 

 

 

 

 

Less: Accumulated depreciation

(589,006)

 

(586,767)

 

 

 

 

Net Property and Equipment

$        8,584 

 

$10,823 

GOODWILL AND INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND INTANGIBLE ASSETS

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS


Intangible Assets – The components of intangible assets at December 31, 2017 and 2016 were as follows:


December 31, 2017

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

 

 

 

 

 

 

Patents

$174,963

 

$162,935 

 

$12,028

Proprietary Technology

799,082

 

762,815 

 

36,267

Total Amortizing Asset

$974,045

 

$925,750 

 

$48,295

 

 

 

 

 

 

December 31, 2016

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

 

 

 

 

 

 

Patents

$173,313

 

$150,427 

 

$22,886

Proprietary Technology

799,082

 

725,610 

 

73,472

Total Amortizing Asset

$972,395

 

$876,037 

 

$96,358


Patent amortization was $12,508 and $16,274 for the year ended December 31, 2017 and 2016, respectively. Amortization related to proprietary technology was $37,205 and $66,660 for the years ended December 31, 2017 and 2016.  Patent and proprietary technology amortization is charged to operations.  


Estimated aggregate amortization expense for each of the next three years is $30,290 in 2018 and $17,905 in 2019, at which time the patents will be fully amortized.


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 when a triggering event occurs. As described in ASU 2010-28, ASU 2011-08 and ASC 350-20-35, the Company has adopted the two step goodwill impairment analysis that includes quantitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two –step goodwill impairment test. A fair-value-based test is applied at the overall Company level. The test compares the estimated fair value of the Company at the date of the analysis to the carrying value of its net assets. The analysis also requires various judgments and estimates, including general and macroeconomic conditions, industry and the Company’s targeted market conditions, as well as relevant entity-specific events; such as a change in the market for the Company’s products and services. After considering the qualitative factors that would indicate a need for interim impairment of goodwill and applying the two-step process described in ASC 350-20-35, paragraphs 4-13, management has determined that the value of Company’s assets is not, “more likely than not” less than the carrying value of the Company including goodwill, and that no impairment charge needs be recognized during the reporting periods.


Upon emerging from bankruptcy protection in 2004, the Company engaged Houlihan Valuation Advisors, an independent valuation firm, to assess the fair value of the Company’s goodwill, patents and other proprietary technology at the date of emergence.  The appraisal was completed during 2005.  The Company continues to evaluate the fair value of its intangible assets using similar methods as those used by the valuation firm.

INCOME TAXES
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 6 INCOME TAXES


There was no provision for, or benefit from, income tax during the years ended December 31, 2017 and 2016 respectively.  The components of the net deferred tax asset as of December 31, 2017 and 2016, including temporary differences and operating loss carry forwards that arose prior to reorganization from bankruptcy, are as follows:


December 31,

2017

2016

Operating loss carry forwards

$           8,753,626

$            8,062,514 

Origination and amortization of interest on convertible notes

883,998

840,044 

Allowance for doubtful accounts

76,537

61,814 

Change in derivative liabilities

32,687

12,037 

Options issued for services

653,545

646,764 

Total Deferred Tax Assets

$         10,350,393

$            9,623,173 

Valuation allowance

   (10,350,393)

(9,623,173)

Net Deferred Tax Asset

$                      --  

$                        --  


Federal and state net operating loss carry forwards at December 31, 2017 and 2016 were $23,626,845 and $22,742,451, 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 begin 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, 2017 and 2016, respectively:


For the Years Ended December 31,

2017

2016

Tax at statutory rate (34%)

$              (368,438)

$                  (711,683)

Options issued for services

6,781

8,892 

Origination and amortization of  interest on convertible notes

19,471 

313,591 

Allowance for doubtful accounts

14,723 

61,814 

Change in derivative liabilities

20,650 

12,037 

Change in valuation allowance

306,813 

(315,348)

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, 2017, and 2016, the Company did not recognized 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, 2017 and 2016 relating to unrecognized benefits.


The tax years 2017, 2016, 2015 and 2014 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 pf 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 remeasure 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.

CONVERTIBLE NOTES PAYABLE
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
CONVERTIBLE NOTES PAYABLE

NOTE 7 – CONVERTIBLE NOTES PAYABLE


Convertible Notes Payable – Third Parties`


At January 1, 2016 there were three convertible notes outstanding with balances of $684,660, $123,797 and $160,000 with accrued interest of $3,001, $1,926 and $0, respectively.  The first two notes bear interest at the rate of 10% per year (with a 15% default rate) and are convertible into shares of common stock at $0.05 per share.  The third note bears interest at the rate of 10% per year (with a 10% default rate) and is convertible into shares of common stock at $0.07 per share.


During 2016 the Company secured additional financing to cover its ongoing operations in the amount of  $460,000 by issuing various convertible notes bearing 10% annual interest (with a 15% default rate), secured by business assets and carrying exercise prices ranging between $0.06 and $0.07 per share.  During 2016 the Company approved the conversion of the convertible note payable in the amount of $123,797 into 2.7 million shares of common stock.


During 2017 the Company secured additional financing to cover its ongoing operations in the amount of  $380,000 by issuing various convertible notes bearing 10% annual interest (with a 15% default rate), secured by business assets and carrying exercise prices of $0.07 per share.  


During 2017 the Company approved the conversion of the convertible note in the amount of $684,660 of principal and accrued interest of $127,939 into 14.5 million shares of common stock.


At December 31, 2017 there are notes outstanding with principal balances which total $880,000. Of the notes, $840,000 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 $0.06 to $0.07 per share.  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%.


Convertible Note Payable Related Parties


On July 12, 2017 and September 1, 2017, the Company issued promissory notes for $30,000 and $10,000, respectively, to an officer of the Company.  The notes bear interest at the rate of 8%, have a conversion feature for restricted common shares at $0.07 per share and maturity dates of December 31, 2018.


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


At December 31, 2017 the Convertible Notes Payable Related Parties principal was $114,514, the unamortized discount was $33,099 and interest accrued and unpaid was $6,809.  The Company recorded interest expense of $1,907 during the year ended December 31, 2016 as it amortized the discount charges generated by the issuance of convertible notes payable.


On July 12, 2017 two officers assume responsibility for $54,513 of debt owed by the Company.  The officers are making payments against those debts until such time that the Company is able to make the payments on its own behalf.


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 the inception of the Note, the Company determined the fair value of the derivatives were $363,680. The fair value of the embedded derivatives were determined using the Binominal Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 68.68% to 141.83%, (3) weighted average risk-free interest rate of 1.53% to 1.76% (4) expected life of 0.08 to 1.00 years, and (5) the quoted market price of the Company’s common stock at each valuation date.

CAPITAL STOCK
12 Months Ended
Dec. 31, 2017
Stockholders' Equity Note [Abstract]  
CAPITAL STOCK

NOTE 8 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, 2017 and 2016, there were no shares of preferred stock issued or outstanding.


Common Stock – There are 100,000,000 shares of common stock with a par value of $0.001 per share authorized.  During the year ended December 31, 2017, there were 14,500,000 shares of common stock issued.  During the year ended December 31, 2016, there were 6,736,350 shares of common stock issued.  


On November 7, 2017, the Board of Directors approved the conversion of $150,000 in convertible notes held by Liberty Partners, LLC, plus $26,769 in interest accrued and unpaid, to 3,500,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.  On November 7, 2017, the Board of Directors approved the conversion of $160,000 in convertible notes held by Compass Equity Partners, LLC, plus $40,000 in interest accrued and unpaid, to 4,000,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.  On November 7, 2017, the Board of Directors approved the conversion of $160,000 in convertible notes held by Maestro Investments LLC, plus $35,370 in interest accrued and unpaid, to 3,900,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.  On November 7, 2017, the Board of Directors approved the conversion of $130,000 in convertible notes held by Compass Equity Partners  LLC, plus $25,800 in interest accrued and unpaid, to 3,100,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.


In June 2016, the Board of Directors approved the issuance of 86,350 shares of restricted common stock to an employee to fully satisfy the terms of a stock subscription agreement.


In November 2016, the Board of Directors approved the conversion of $123,797 in convertible notes held by Liberty Partners, LLC, plus $12,821 in interest accrued and unpaid, to 2,700,000 shares of restricted common stock at an average price of approximately $0.05 per share.


In November 2016, the Board of Directors approved the conversion of $160,000 in convertible notes held by Compass Equity Partners, LLC, plus $38,400 in interest accrued and unpaid, to 3,950,000 shares of restricted common stock at an average price of approximately $0.05 per share.

STOCK OPTION PLANS
12 Months Ended
Dec. 31, 2017
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]  
STOCK OPTION PLANS

NOTE 9 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 December 31, 2017, 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 vest over three years and expire 10 years from the date of grant.  The Company used the following assumptions in estimating the fair value of the options granted:


·

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

·

Expected term – Range of 3.7 years to 10.0 years

·

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

·

Dividend yield – 0%

·

Expected volatility – 200% to 424%

·

Weighted-average fair value - $0.16 to $2.07


As of the years ended December 31, 2005 through 2017, the Company recognized a total of $2,443,768 of stock-based compensation expense, which includes charges of $19,943 in 2017 and $26,451 in 2016, leaving $0 and $19,943 in unrecognized expense as of December 31, 2017 and 2016, respectively. There were 2,185,000 and 2,185,000 employee stock options outstanding at December 31, 2017 and 2016, respectively.  


A summary of all employee options outstanding and exercisable under the plan as of December 31, 2017, 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

 $                0.16

             8.66

 $              --   

   Granted

                     --   

                             --   

                   --   

                 --   

   Expired

                     --   

                             --   

                   --   

                 --   

   Forfeited

                     --   

                             --   

                   --   

                 --   

Outstanding at the end of Period

       2,185,000

 $                 0.17

             7.65

$               --   

Exercisable at the end of Period

2,185,000

 $                 0.17

             7.65

    $               --  


A summary of all employee options outstanding and exercisable under the plan as of December 31, 2016, 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

 $                  .16

             9.66

 $               --   

   Granted

--   

--

                   --   

                    --   

   Expired

                     --   

                              --

                   --   

                  --   

   Forfeited

--   

--

                   --   

                    --   

Outstanding at the end of Period

       2,185,000

 $                 0.16

             8.66

    $              --   

Exercisable at the end of Period

1,970,000

 $                 0.16

             8.65

$              --   

COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 10 COMMITMENTS AND CONTINGENCIES


The Company currently occupies a manufacturing facility in Draper, Utah. The lease on the facility expired on December 31, 2014, at which time the Company entered into a three year extension which will expire on December 31, 2017.  Either party may terminate the lease upon 90 day written notice.  Under the terms of the lease the Company paid $8,950 per month in 2015 (the same rate as in 2014), paid $9,300 per month in 2016 and paid $9,600 per month in 2017.

RELATED PARTY TRANSACTIONS
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 11 – RELATED PARTY TRANSACTIONS


At December 31, 2017 and 2016, the Company had accounts payable of $0 and $1,420 to its Chief Executive Office for reimbursement of various operating expenses paid by him in the course of business.


On April 17, 2017, July 12, 2017, August 2, 2017, and September 1, 2017, the Company issued promissory notes for $20,000, $30,000, $10,000 and $10,000, respectively, to an officer of the Company.  The notes bear interest at the rate of 8%, have a conversion feature for restricted common shares at $0.07 per share.  The April 17 and August 2, 2017 notes have maturity dates of December 31, 2017.  The July 12 and September 1, 2017 notes have maturity dates of December 31, 2018.


On July 1, 2016 and September 22, 2016, the Company issued two promissory notes for $10,000 each to an officer of the Company.  The notes bear interest at the rate of 10%, have a conversion feature for restricted common shares at $0.07 per share and a maturity date of December 31, 2016.

SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2017
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 12 - SUBSEQUENT EVENTS


The Company entered into a new convertible promissory note for up to $100,000 from a third party on January 31, 2018.  The note has an annual interest rate of 10% and is secured by the Company’s equipment.  The note has a conversion feature for restricted common shares at $0.07 per share and a maturity date of July 31, 2018.  The Company drew $40,000 against that note on February 23, 2018.

NATURE OF BUSINESS (Policies)
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Nature of Operations

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, 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 December 31, 2017 the Company continued to manufacture products and sensors to fill customer orders and provide engineering and design work.

Principles of Consolidation

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

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 – 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

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

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 $145,194 and $102,140 in the years ended December 31, 2017 and 2016, respectively.

Inventories

Inventories – Inventories are stated at the lower of cost or market. Cost is determined by using the first in, first out (FIFO) method.  

Going Concern

Going Concern– The Company suffered losses of $1,083,642 and $2,093,184 and used cash in operating activities of $410,897 and $506,131 during the years ended December 31, 2017 and 2016, respectively.  At December 31, 2017, the Company had an accumulated deficit of $27,306,453. 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 2017 the Company raised $5,379,278, which includes $420,000 raised in 2017, in additional capital, including accrued interest, through the issuance of long and short-term notes to related and other parties. 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, 2017 through December 31, 2018.


In June of 2016 a stock subscription in the amount of $9,958 was converted into 86,350 shares of restricted common stock.


In November of 2016, $335,018 in convertible notes and accrued interest were converted into 6,650,000 shares of restricted common stock at an average conversion price of approximately $0.05 per share.


In November 2017, $812,597 in convertible notes and accrued interest were converted into 14,500,000 shares of restricted common stock at an average conversion price of approximately $0.06 per share.  The conversion resulted in a $115,183 gain recognized on the extinguishment of the debt.

Property and Equipment

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

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, 2017.  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

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, 2017.

Research and Development

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 – 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 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

Revenue Recognition – Revenue is generally recognized when persuasive evidence of an arrangement exists, services have been provided or goods delivered, the price to the buyer is fixed or determinable and collectability is reasonably assured. Revenue from the sale of products is recorded at the time of shipment to the customers.  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 contracts are met and then recognized as licensing royalty revenue over the remaining term of the contracts.  The Company does not provide extended warranties or guarantees on its products.

Stock-Based Compensation

Stock-Based Compensation – The Company recognizes the cost of employee services received in exchange for stock options and awards of equity instruments based on the grant-date fair value of such options and awards, over the period they vest.  All share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense in operations over the requisite service period. For the years ended December 31, 2017 and 2016, the Company recognized expense for stock-based compensation of $19,943 and $26,154, respectively.

Basic and Diluted Loss Per Share

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, 2017 and 2016, there were outstanding common share equivalents (options and convertible notes payable) which amounted to 16,644,625 and 23,399,094, 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

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, 2017, a customer who is a toy manufacturer represented 29% of sales and represented 0% of accounts receivable.  A customer who is utilizing our technology for commercialization in shoes represented 50% of accounts receivable and 100% of notes receivable at December 31, 2017. 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.  The Company has the option, under one of the notes receivable, to convert the principal and interest into equity of the customer

Income Taxes

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

Recent Accounting Pronouncements - In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740); Intra-Entity Transfers of Assets Other Than Inventory.  This ASU requires entities to recognize the income tax consequences of many intercompany asset transfers at the transaction date.  The seller and buyer will immediately recognize the current and deferred income tax consequences of an intercompany transfer of an asset other than inventory.  The tax consequences were previously deferred until the asset is sold to a third part or recovered through use.  This guidance will become effective on January 1, 2018.  


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments.  This ASU addresses the following eight specific cash flow issues:  Debt costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.  This guidance will become effective on January 1, 2018. We do not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements.  


In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718); Improvements to Employee Share-Based Payments Accounting.  The ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows.  This guidance will become effective January 1, 2017.  We do not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements.


In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, “Leases.”  This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment.  This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases.  For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  The Company is currently evaluating the impact of this ASU on its financial statements and disclosures.


In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606).  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAA{ and replace it with a principle based approach for determining revenue recognition.  Under ASU 2017-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20 and ASU 2017-05, all of which clarify certain implementation guidance within ASU 2014-09.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.  The standard can be adopted either retrospectively to each prior reporting period presented of retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application.  The Company will adopt the provisions of this statement in the first quarter of 2018 using the modified retrospective approach.  We have assessed the impact adoption of this standard will have on our consolidated financial statements and related disclosures. Based on our assessment, the adoption of this standard will not have a material impact on our revenue recognition policies for either our products or services.


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.

DERIVATIVE INSTRUMENTS (Tables)
12 Months Ended
Dec. 31, 2017
Derivative Instruments Tables  
Schedule of Changes in Level 3 Financial Liabilities

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


 

 

 

 

Total

 

Balance, December 31, 2015

 

 

 

 

-

 

Recognition of derivative liabilities upon initial valuation

 

 

 

 

40,892

 

Change in fair value of derivative liabilities

 

 

 

 

35,403

 

Conversions of derivative liabilities into equity instruments

 

 

 

 

-

 

Balance, December 31, 2016

 

 

 

 

76,295

 

Recognition of derivative liabilities upon initial valuation

 

 

 

 

226,651

 

Change in fair value of derivative liabilities

 

 

 

 

60,734

 

Conversions of derivative liabilities into equity instruments

 

 

 

 

-

 

Balance, December 31, 2017

 

 

 

 

363,680

 

 

Schedule of Liabilities Measured at Fair Value on Recurring Basis

Liabilities measured at fair value on a recurring basis are summarized as follows:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Derivative Liabilities

 

 

-

 

 

 

-

 

 

 

363,680

 

 

 

363,680

Total

 

$

-

 

 

$

-

 

 

$

363,680

 

 

$

363,680

PROPERTY AND EQUIPMENT (Tables)
12 Months Ended
Dec. 31, 2017
Property, Plant and Equipment [Abstract]  
Schedule of 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 $373 for the years ended December 31, 2017 and 2016, 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, 2017. Property and equipment at December 31, 2017 and 2016 consisted of the following:




Property and Equipment

 

 

 

December  31,

2017

 

2016

 

 

 

 

Machinery and equipment

$     543,249

 

$543,249 

Office equipment

40,455

 

40,455 

Furniture and fixtures

13,470 

 

13,470 

Software

416 

 

416 

 

 

 

 

Total Property and Equipment

597,590 

 

597,590 

 

 

 

 

Less: Accumulated depreciation

(589,006)

 

(586,767)

 

 

 

 

Net Property and Equipment

$        8,584 

 

$10,823 

GOODWILL AND INTANGIBLE ASSETS (Tables)
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

The components of intangible assets at December 31, 2017 and 2016 were as follows:


December 31, 2017

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

 

 

 

 

 

 

Patents

$174,963

 

$162,935 

 

$12,028

Proprietary Technology

799,082

 

762,815 

 

36,267

Total Amortizing Asset

$974,045

 

$925,750 

 

$48,295

 

 

 

 

 

 

December 31, 2016

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

 

 

 

 

 

 

Patents

$173,313

 

$150,427 

 

$22,886

Proprietary Technology

799,082

 

725,610 

 

73,472

Total Amortizing Asset

$972,395

 

$876,037 

 

$96,358

INCOME TAXES (Tables)
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Schedule of Deferred Tax Asset

There was no provision for, or benefit from, income tax during the years ended December 31, 2017 and 2016 respectively.  The components of the net deferred tax asset as of December 31, 2017 and 2016, including temporary differences and operating loss carry forwards that arose prior to reorganization from bankruptcy, are as follows:


December 31,

2017

2016

Operating loss carry forwards

$           8,753,626

$            8,062,514 

Origination and amortization of interest on convertible notes

883,998

840,044 

Allowance for doubtful accounts

76,537

61,814 

Change in derivative liabilities

32,687

12,037 

Options issued for services

653,545

646,764 

Total Deferred Tax Assets

$         10,350,393

$            9,623,173 

Valuation allowance

   (10,350,393)

(9,623,173)

Net Deferred Tax Asset

$                      --  

$                        --  

Schedule of Effective Income Tax Rate Reconciliation

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, 2017 and 2016, respectively:


For the Years Ended December 31,

2017

2016

Tax at statutory rate (34%)

$              (368,438)

$                  (711,683)

Options issued for services

6,781

8,892 

Origination and amortization of  interest on convertible notes

19,471 

313,591 

Allowance for doubtful accounts

14,723 

61,814 

Change in derivative liabilities

20,650 

12,037 

Change in valuation allowance

306,813 

(315,348)

Provision for Income Taxes

 $                          --  

$                             --  

STOCK OPTION PLANS (Tables)
12 Months Ended
Dec. 31, 2017
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]  
Schedule of Stock Option Activity

A summary of all employee options outstanding and exercisable under the plan as of December 31, 2017, 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

 $                0.16

             8.66

 $              --   

   Granted

                     --   

                             --   

                   --   

                 --   

   Expired

                     --   

                             --   

                   --   

                 --   

   Forfeited

                     --   

                             --   

                   --   

                 --   

Outstanding at the end of Period

       2,185,000

 $                 0.17

             7.65

$               --   

Exercisable at the end of Period

2,185,000

 $                 0.17

             7.65

    $               --  


A summary of all employee options outstanding and exercisable under the plan as of December 31, 2016, 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

 $                  .16

             9.66

 $               --   

   Granted

--   

--

                   --   

                    --   

   Expired

                     --   

                              --

                   --   

                  --   

   Forfeited

--   

--

                   --   

                    --   

Outstanding at the end of Period

       2,185,000

 $                 0.16

             8.66

    $              --   

Exercisable at the end of Period

1,970,000

 $                 0.16

             8.65

$              --   

NATURE OF BUSINESS (Details) - USD ($)
1 Months Ended 12 Months Ended 108 Months Ended
Dec. 31, 2017
Nov. 30, 2017
Nov. 30, 2016
Nov. 30, 2016
Jun. 30, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2017
Sep. 22, 2016
Jul. 01, 2016
Nature Of Business [Line Items]                      
Accounts receivable, allowance for bad debts $ 145,194         $ 145,194 $ 102,140   $ 145,194    
Net loss           1,083,642 2,093,184        
Cash used in operating activities           (410,897) (506,131)        
Accumulated deficit 27,306,453         27,306,453 26,222,811   27,306,453    
Proceeds from notes payable - related parties $ 420,000         $ 40,000 $ 20,000   $ 5,379,278    
Debt instrument, interest rate 10.00%         10.00%     10.00%    
Conversion of note payable, conversion price per share $ 0.07         $ 0.07     $ 0.07 $ 0.07 $ 0.07
Shares issued from conversion of convertible debt           14,500,000 14,500,000        
Impairment of intangible assets                    
Stock-based compensation expense for employees           $ 19,943 $ 26,154        
Anti-dilutive securities excluded from computation of earnings per share amount           16,644,625 23,399,094        
Loss on extinguishment of the debt           $ 115,183 $ (915)        
Maximum [Member]                      
Nature Of Business [Line Items]                      
Debt instrument, interest rate 15.00%         15.00%     15.00%    
Conversion of note payable, conversion price per share $ 0.05         $ 0.05     $ 0.05    
Intangible assets, useful lives           15 years          
Property and equipment, useful life           10 years          
Minimum [Member]                      
Nature Of Business [Line Items]                      
Debt instrument, interest rate 10.00%         10.00%     10.00%    
Conversion of note payable, conversion price per share $ 0.20         $ 0.20     $ 0.20    
Intangible assets, useful lives           5 years          
Property and equipment, useful life           3 years          
Accounts Receivable [Member] | Customer One [Member]                      
Nature Of Business [Line Items]                      
Risk percentage           0.00%   50.00%      
Notes Receivable [Member] | Customer One [Member]                      
Nature Of Business [Line Items]                      
Risk percentage           100.00%          
Sales [Member] | Customer One [Member]                      
Nature Of Business [Line Items]                      
Risk percentage           29.00%          
Restricted Stock [Member]                      
Nature Of Business [Line Items]                      
Convertible debt, amount converted   $ 812,597 $ 335,018   $ 9,958            
Shares issued from conversion of convertible debt   14,500,000 6,650,000   86,350            
Common stock, price per share   $ 0.06 $ 0.05 $ 0.05              
Loss on extinguishment of the debt   $ 115,183                  
Restricted Stock [Member] | Consulting firm [Member]                      
Nature Of Business [Line Items]                      
Conversion of note payable, conversion price per share     $ 0.05 $ 0.05              
Shares issued from conversion of convertible debt     3,950,000 3,950,000              
Loss on extinguishment of the debt     $ 115,183                
NOTES RECEIVABLE (Details) - USD ($)
12 Months Ended
Apr. 09, 2013
Dec. 31, 2017
Dec. 31, 2016
Legal Proceedings [Line Items]      
Payment for note receivable   $ 51,157  
Maturity date   Apr. 01, 2015  
Conversion right, ownership percentage   5.00%  
Notes Receivable One [Member] | Mr. deGreef [Member]      
Legal Proceedings [Line Items]      
Allowance of notes receivables     $ 31,813
Notes Receivable One [Member] | Settled Litigation [Member] | R&D Products, LLC [Member]      
Legal Proceedings [Line Items]      
Interest rate 10.00%    
Notes receivable $ 25,000    
Bend Tech LLC [Member] | Notes Receivable One [Member]      
Legal Proceedings [Line Items]      
Allowance of notes receivables     $ 54,993
DERIVATIVE INSTRUMENTS (Narrative) (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Derivative liabilities $ 363,680 $ 76,295
Loss on change in fair value of derivative liabilities $ (60,734) $ (35,403)
Derivative Classification [Member]    
Dividend yield 0.00%  
Derivative Classification [Member] | Minimum [Member]    
Expected volatility 68.68%  
Risk-free interest rate 1.53%  
Expected life 9 months 18 days  
Derivative Classification [Member] | Maximum [Member]    
Expected volatility 141.83%  
Risk-free interest rate 1.76%  
Expected life 1 year  
DERIVATIVE INSTRUMENTS (Schedule of Changes in Level 3 Financial Liabilities) (Details) - Derivative Financial Instruments, Liabilities [Member] - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Balance $ 76,295
Recognition of derivative liabilities upon initial valuation 226,651 40,892
Change in fair value of derivative liabilities 60,734 35,403
Conversions of derivative liabilities into equity instruments
Balance $ 363,680 $ 76,295
DERIVATIVE INSTRUMENTS (Schedule of Liabilities Measured at Fair Value on Recurring Basis) (Details) - Fair Value, Measurements, Recurring [Member]
Dec. 31, 2017
USD ($)
Liabilities, fair value $ 363,680
Level 1 [Member]  
Liabilities, fair value
Level 2 [Member]  
Liabilities, fair value
Level 3 [Member]  
Liabilities, fair value 363,680
Derivative Financial Instruments, Liabilities [Member]  
Liabilities, fair value 363,680
Derivative Financial Instruments, Liabilities [Member] | Level 1 [Member]  
Liabilities, fair value
Derivative Financial Instruments, Liabilities [Member] | Level 2 [Member]  
Liabilities, fair value
Derivative Financial Instruments, Liabilities [Member] | Level 3 [Member]  
Liabilities, fair value $ 363,680
PROPERTY AND EQUIPMENT (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Property and Equipment    
Total Property and Equipment $ 597,590 $ 597,590
Less: Accumulated depreciation (589,006) (586,767)
Net Property and Equipment 8,584 10,823
Depreciation $ 2,239 373
Minimum [Member]    
Property and Equipment    
Property and equipment, estimated useful lives 3 years  
Maximum [Member]    
Property and Equipment    
Property and equipment, estimated useful lives 10 years  
Machinery and Equipment [Member]    
Property and Equipment    
Total Property and Equipment $ 543,249 543,249
Office Equipment [Member]    
Property and Equipment    
Total Property and Equipment 40,455 40,455
Furniture and Fixtures [Member]    
Property and Equipment    
Total Property and Equipment 13,470 13,470
Software [Member]    
Property and Equipment    
Total Property and Equipment $ 416 $ 416
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Components of Intangible Assets    
Gross Carrying Amount $ 974,045 $ 972,395
Accumulated Amortization 925,790 876,037
Net Carrying Amount 48,295 96,358
Amortization expense 49,713 82,934
Estimated aggregate amortization expense:    
2018 30,290  
2019 17,905  
Patents [Member]    
Components of Intangible Assets    
Gross Carrying Amount 174,963 173,313
Accumulated Amortization 162,935 150,427
Net Carrying Amount 12,028 22,886
Amortization expense 12,508 16,274
Proprietary Technology [Member]    
Components of Intangible Assets    
Gross Carrying Amount 799,082 799,082
Accumulated Amortization 762,815 725,610
Net Carrying Amount 36,267 73,472
Amortization expense $ 37,205 $ 66,660
INCOME TAXES (Narrative) (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Income Tax Disclosure [Abstract]    
Federal and state net operating loss carry forwards $ 23,626,845 $ 22,742,451
Net operating loss carryforwards, expiration dates Dec. 31, 2020  
Accrued interest and penalties for unrecognized tax benefits  
INCOME TAXES (Schedule of Deferred Tax Assets) (Details) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Deferred tax assets, net:    
Operating loss carry forwards $ 8,753,626 $ 8,062,514
Origination and amortization of interest on convertible notes 883,988 840,044
Allowance for doubtful accounts 76,537 61,814
Change in derivative liabilities 32,687 12,037
Options issued for services 653,545 646,764
Total Deferred Tax Assets 10,350,393 9,623,173
Valuation allowance (10,350,393) (9,623,173)
Net Deferred Tax Asset
INCOME TAXES (Schedule of Effective Income Tax Rate Reconciliation) (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Effective income tax rate reconciliation:    
Tax at statutory rate (34%) $ (368,438) $ (711,683)
Options issued for services 6,781 8,892
Origination and amortization of interest on convertible notes 19,471 313,591
Allowance for doubtful accounts 14,723 61,814
Change in derivative liabilities 20,650 12,037
Change in valuation allowance 306,813 (315,348)
Provision for Income Taxes
CONVERTIBLE NOTES PAYABLE (Details) - USD ($)
1 Months Ended 12 Months Ended 24 Months Ended
Aug. 02, 2017
Jul. 12, 2017
Jul. 01, 2016
Sep. 23, 2017
Apr. 17, 2017
Sep. 22, 2016
Dec. 31, 2017
Dec. 31, 2016
Jul. 12, 2019
Dec. 31, 2015
Aug. 08, 2011
Debt Instrument [Line Items]                      
Convertible notes payable, balance             $ 684,660        
Accrued interest             $ 127,939        
Debt instrument, face amount $ 10,000 $ 30,000 $ 10,000 $ 10,000 $ 20,000 $ 10,000          
Interest rate     10.00%     10.00% 8.00%        
Debt instrument, maturity date Dec. 31, 2017   Dec. 31, 2018 Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2018     Dec. 31, 2018    
Debt instrument, interest rate             10.00%        
Debt instrument, default rate             15.00%        
Proceeds from borrowings under convertible note payable             $ 380,000 $ 460,000      
Convertible notes payable, principal amount outstanding             880,000        
Beneficial conversion feature               118,083      
Discount balance             $ 72,986 $ 0      
Conversion of convertible notes, shares issued             14,500,000 14,500,000      
Debt instrument, conversion price     $ 0.07     $ 0.07 $ 0.07        
Loss on extinguishment of the debt             $ 115,183 $ (915)      
Proceeds from line of credit   7,000                  
Repayments of line of credit       $ 7,000              
Director [Member]                      
Debt Instrument [Line Items]                      
Convertible notes payable, balance                     $ 40,000
Two Officer [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, face amount   $ 54,513                  
Minimum [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, interest rate             10.00%        
Debt instrument, conversion price             $ 0.20        
Maximum [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, interest rate             15.00%        
Debt instrument, conversion price             $ 0.05        
2016 Various Convertible Notes [Member]                      
Debt Instrument [Line Items]                      
Convertible notes payable, balance               123,797      
Debt instrument, face amount               $ 460,000      
Debt instrument, interest rate               10.00%      
Debt instrument, default rate               15.00%      
Conversion of convertible notes, shares issued               2,700,000      
2016 Various Convertible Notes [Member] | Minimum [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, conversion price             0.06        
2016 Various Convertible Notes [Member] | Maximum [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, conversion price             $ 0.07        
2017 Various Convertible Notes [Member]                      
Debt Instrument [Line Items]                      
Debt instrument, face amount             $ 380,000        
Debt instrument, interest rate             10.00%        
Debt instrument, default rate             15.00%        
Debt instrument, conversion price             $ 0.07        
Convertible Notes Payable to Related Party [Member]                      
Debt Instrument [Line Items]                      
Convertible notes payable, balance             $ 114,514        
Interest expense             1,907        
Discount balance             33,099        
Accrued interest             6,809        
Derivative Classification [Member]                      
Debt Instrument [Line Items]                      
Fair value of derivatives             $ 363,680        
Dividend yield             0.00%        
Derivative Classification [Member] | Minimum [Member]                      
Debt Instrument [Line Items]                      
Expected volatility             68.68%        
Risk-free interest rate             1.53%        
Expected life             9 months 18 days        
Derivative Classification [Member] | Maximum [Member]                      
Debt Instrument [Line Items]                      
Expected volatility             141.83%        
Risk-free interest rate             1.76%        
Expected life             1 year        
Convertible Debt [Member]                      
Debt Instrument [Line Items]                      
Convertible notes payable, principal amount outstanding             $ 840,000        
Convertible Notes Payable One [Member]                      
Debt Instrument [Line Items]                      
Convertible notes payable, balance                   $ 684,660  
Accrued interest                   $ 3,001  
Debt instrument, interest rate                   10.00%  
Debt instrument, default rate                   15.00%  
Debt instrument, conversion price                   $ 0.05  
Convertible Notes Payable Two [Member]