ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT
Flexpoint Sensor Systems, Inc. was incorporated in the state of Delaware in June 1992 as Nanotech Corporation. In April 1998, Nanotech acquired Sensitron, Inc., a Utah corporation (Sensitron), as a wholly-owned subsidiary through a reverse triangular merger. Nanotech also acquired Sensitrons wholly-owned subsidiary, Flexpoint, Inc. As part of this acquisition, Nanotech changed the company name to Micropoint, Inc. In July 1999 Micropoint changed its name to Flexpoint Sensor Systems, Inc. In 2001 Flexpoint International LLC was formed as a wholly owned subsidiary of Flexpoint Sensor Systems, Inc. to deal with the projected foreign business being generated.
Flexpoint was forced to seek bankruptcy protection on July 3, 2001, and filed a voluntary petition for reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. On February 24, 2004, the bankruptcy court confirmed Flexpoint's Plan of Reorganization. We used fresh-start reporting and all assets of Flexpoint Sensor Systems, Inc. were restated to reflect their reorganization value, which approximated the fair value at the date of reorganization.
BUSINESS OVERVIEW
Flexpoint Sensor Systems, Inc. (Flexpoint, or Company), is principally engaged in designing, engineering and manufacturing bend sensor technology and products using its patented Bend Sensor
®
technology, (a flexible potentiometer technology). Since emerging from bankruptcy we have been making further improvements to our technologies, manufacturing and developing fully integrated devices and related products that we have been marketing and selling to a variety of companies in diverse industries. We are negotiating and signing agreements and contracts that have provided some limited revenues and have proven that our sensors are more durable, adaptable and cost effective than any other product currently on the market. We own five patents, including patents on specific devices that use the Bend Sensor
®
and have exclusive rights through licensing agreements to other patents and devices. We are continuing to develop and enhance our intellectual properties that will result in additional patents being filed. The Company currently manufactures, and has jointly developed, eighteen products that are being sold and supplied to current customers and we continue to receive orders for custom prototype sensors as well as our standard sensors. Our sales and marketing efforts have been targeted toward the development of new relationships with clients while maintaining and strengthening relationships already developed with several Tier 1 (major) suppliers in the automotive industry. We have built and shipped orders to a number of these companies to enable them to test the utilization of our sensors into their existing and developing product lines. In the coming year we plan to focus our marketing efforts on a number of larger domestic and international companies that have applications which have the potential to greatly increase the volume of sensors we are currently manufacturing.
The Company recently announced achievements made in 2015 which have positioned the Company for a remarkable year in 2016.
In 2015, the Company expanded relationships, receiving several orders from repeat and new customers from around the world and across industries, including medical, such as gloves used in rehabilitation, commercial transportation including seat sensors for buses and cabs, and wearable/gloves for industrial uses; entities that have positioned themselves as pioneers and leaders in the fast emerging IoT (Internet of Things) and IIoT, (Industrial Internet of Things) markets. Customers range from universities and medical companies to those in the virtual gaming, virtual reality and music arenas.
Some accomplishments and notable companies Flexpoint developed relationships with in 2015 included:
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Flexpoint's technology was honored for innovation at CES 2015 (Consumer Electronics Show) through their sensors being used in a consumer wearable
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Multiple US and European based virtual reality and virtual gaming companies, one of which was Virtual Motion Labs (VML). VML wearable data gloves are used for virtual reality, motion capture, animation applications, robotics, and rehabilitation, as well as many other uses
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American Fortune 500 multi-national toy manufacturing company
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mi.mu, a recent award winner at the Microsoft Wearable IT Fashion Tech Awards in Berlin, and comprises of musicians, artists, scientists and technologists. Their wearable glove allows for an interactive and flexible approach to the control and composition of music and visuals
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American, multi-national supply chain solutions company
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North American Fortune 100 auto manufacturer, with whom Flexpoint executed an advanced stage turnkey design/development agreement
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International wearable (glove based) companies and organizations from Germany, Italy and Korea. These consist of multiple industrial application developers (Germany), and in Italy and Korea (Neofect) medical application developers
Some of Flexpoint's technological advances included:
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Redesigned the original PCB (printed circuit board) for the Mettis Trainer shoe insert.
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Updated its corporate website
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Released a new USB Bend Sensor
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Kit which enables engineers and product developers to integrate the Flexpoint Bend Sensor
®
into their products within minutes.
Since appointing Paul Sexauer as VP of Sales and Marketing in July of 2015, the Company has streamlined its efforts to work directly with customers, expand sales pipelines and finalize deals. The Company has also successfully upgraded and implemented a commercial grade sales force automation and CRM application; further enhancing its ability to scale.
The Company's redirected efforts will result in Flexpoint expecting to complete the following in the first half of 2016:
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Enter production under long-term purchase orders with products for multiple companies within the toy industry
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Further larger scale purchase orders with various Flexpoint wearables and other glove products customers
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Finalize long-term, multi-year production specifics with automobile manufacturer
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Establish reselling and product development contract with a major, tier 1 auto and truck parts manufacturer
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Completion of work to begin commercialization for Haemoband's colonoscope utilizing Flexpoint's sensor and electronic system
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Begin development of an IIot sensor application with a specialty power plant equipment manufacturer
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Anticipate purchase orders from other medical device companies
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Achievement of Cash Flow neutrality
In the second half of the year, among other things, Flexpoint expects to accomplish:
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Commercialization of Haemoband's colonoscope
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Continued fulfillment of large scale production orders of sensor products to glove and toy manufacturers
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Development of new channel relationships with global sensor manufacturers/resellers
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Establish strategic relationships with IoT/IIoT software framework vendors
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Achieve positive cash flow
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Introduction of new products
Flexpoint began the year by attending and having its patented Bend Sensor Technology featured as an Honoree for the Innovation Award with Mettis Trainer
®
in the Fitness, Sports and Biotech category at the at 2016 CES.
In addition to the sale of our products and engineering and design services we also may consider generating revenues through licensing our unique technology for field of use or territory. We will attempt to negotiate each license agreement to contain a provision for either first right of refusal to manufacture, or royalty provisions for specific products or applications. During the past year we have continued to concentrate our marketing efforts on sensors and electronics which we consider to be quick to market production orders, and on engineering services that have generated limited, but immediate, revenues that have provided cash flow and name recognition. We have also continued our marketing efforts in the automotive industry. Due to the size and the numerous regulations inherent in the automotive industry, it requires a significantly longer time to develop and acquire approvals for new technologies. However, as there are high volumes associated within the automotive industry, we anticipate that this industry will potentially generate significant long term revenue streams.
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We continue to work with various Tier 1 automotive suppliers on a variety of products that are in various stages of development and implementation. Both the medical and automotive industries have undergone significant changes over the past several years. This changing environment has created delays in the implementation of the automotive and medical devices and therefore, over the past three years, we have focused our limited resources and marketing efforts on sensors and products that in the aggregate will generate a smaller dollar volume than those anticipated from our medical or automotive devices, but have a quicker pathway to market and have generated needed limited, but immediate, cash flow while providing additional name and product recognition that we believe will provide long term benefits. Based upon the current interest in our sensors from both the automotive and medical industries, we anticipate that over the next twelve months we will begin producing larger repeatable volumes of sensors and devices in these focus industries.
PRINCIPAL PRODUCTS
Bend Sensor
®
Technology
The Company owns the patent rights to our Bend Sensor
®
technology through Sensitron, a wholly-owned subsidiary of the Company. The Bend Sensor
®
is a flexible potentiometer; the bend sensor product consists of a coated substrate, such as plastic, that changes electrical conductivity as it is bent in a consistent manner. Electronic systems connect to this sensor and measure in detail the amount of bending or movement that occurs in a predictable manner. Certain applications of the Bend Sensor
®
potentiometer have been patented (See Patents and Intellectual Property, below).
A typical potentiometer functions through the means of metal contacts swiping or rubbing across a resistive element. Our Bend Sensor
®
potentiometer is a single layer with no mechanical assembly which makes it more reliable and significantly smaller, lighter in weight and usually less expensive than mechanical potentiometers. Management believes many sensor applications can be improved using our technology and that the use of our technology will result in new products and new sensor applications, including the USB Bend Sensor
®
kit, which has found application in a wide range of products since its introduction in 2015
We have developed the following applications and devices using the Bend Sensor
®
technology and are currently marketing these items:
Automotive Products
For the past several years we have been in negotiations with several Tier 1 suppliers and OEMs and have proved the benefit and capabilities of the Bend Sensor
®
technology in the automotive industry for the following products:
Horn Switch
A major automobile manufacturer has partnered with Tier 1 suppliers to test our patented horn switch to replace their existing technology. This latest phase of testing began in October 2013 and included installation of our horn switch into multiple cars which were then driven by various executives, decision makers and engineers of the company. The advantages of the Bend Sensor
®
switch are that, with the associated electronics, it is a "drop in" item that can immediately go into existing vehicle platforms. Because the Bend Sensor
®
switch and the associated electronics have very few moving parts, our switch will help eliminate the squeaks, rattles and other noise associated with the existing technology in use. Additionally, because the Bend Sensor
®
has few moving parts, it can withstand a higher number of actuations without replacement.
In July 2014 we announced the completion of this hands-on vehicle testing. The driving tests included a 150,000 mile driving test in which the system functioned under actual driving conditions. The system functioned properly and there were no issues.
The Company anticipates that once the manufacturer implements the initial horn switch and the first units are integrated into existing production the project will be expanded to incorporate additional switches on the horn pad of multiple vehicle platforms. The automobile manufacturer is also evaluating the use of the Bend Sensor
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as a switch to open rear doors of SUV's and as a seat belt reminder (SBR).
The Company recently announced the achievement of a milestone related to this automotive market, having executed an advanced stage turnkey design and development agreement. The project is progressing and scheduled to be completed by the end of the second quarter of this year. Once completed, this pro-production design/development agreement clears the way for wide-spread adoption and production deployment to begin.
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Seat Belt Reminder
While working with various Tier 1 automotive suppliers we developed and tested a seat belt reminder (SBR) sensor that alerts the occupant of an automobile to fasten his/her seatbelt. We are currently working with multiple manufacturers to potentially replace existing devices in the marketplace with a system we believe is superior in performance with the advantage of a lower price point.
Using the same concept, this product is currently being considered as a safety device, similar to the emergency vehicle application discussed below, to be used in school buses. A bus driver could immediately be alerted should any of the passengers be in an unsafe position prior to entering traffic. The Bend Sensor
®
not only detects occupancy of a seat, but also has the capability of recording and logging the frequency of use over time. This feature would enable transportation companies to use this recorded information to determine the most optimum usage of their capital equipment to maximize return on their investments. There have been some legislative debates over whether a bus, and school busses in particular, should provide seatbelts for all of the passengers. Coupled with Intertek's Protek Passenger Awareness System, our SBR could be easily implemented to fulfill requirements of such legislation.
Braking Systems
HTK Engineering, LLC continues to market their safety mechanism specifically designed for garbage trucks and other large commercial vehicles. Most commercial vehicles have an "air braking system" which can lose pressure and disengage the brakes while the vehicle is still running. Our Bend Sensor
®
technology is the key component of the HTK system which provides a backup braking system, preventing the vehicle from inadvertently rolling into people, buildings or other vehicles. Part of HTK's marketing effort has been to involve insurance companies who have paid claims related to the initial brake failure. Because the HTK system is easily installed and is adaptable to most vehicles, insurance companies have indicated they would provide a reduction in premiums should their customers install the HTK system. There are over 179,000 garbage and recycling trucks in use in the United States. HTK is also pursuing opportunities for the system throughout Europe and Asia.
The Company recently announced it would partner with HTK on the go-to-market strategy development and sales execution of the Brake Alert technology. HTK recently received full patent approval from the US Patent Office for its promising anti-rollaway system that incorporates the Bend Sensor
®.
The Company also announced that it will join with HTK in attending two major work truck trade shows to highlight the anti-rollaway Brake Alert system and anticipate that exposure of the system will lay the foundation for rapid market adoption of the product.
The Company has developed a similar system for Vista Brakelock Systems, LLC, in Lake Mary, Florida for use on fire trucks. The first units have been delivered and installed with additional orders to follow.
Emergency Vehicles
Intertek Industrial Corp., located in Jacksonville, Florida, is a leading supplier of quality seatbelt systems and safety devices to the emergency vehicle market. Their Protek Passenger Awareness System uses our Bend Sensor
®
technology to enhance the safety of passengers and personnel in emergency vehicles. The system is installed in the seats of the rear compartments of the emergency vehicle and provides the driver with constant feedback as to the seated and secured status of passengers and personnel in the rear of the vehicle. The system is currently installed in about 30 ambulances and is being tested for use in other types of emergency vehicles. Intertek continues to issue additional purchase orders for their existing and new customers.
Toys
We recently announced successful progress with a major global toy manufacture as is rapidly approaches full-scale production of products utilizing the Bend Sensor
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. Production of these toys is being done in coordination with a multi-national supply chain solutions company that offers design, manufacturing, distribution and aftermarket services to original equipment manufacturers.
Comfort Seats
The Company has developed an advanced comfort seat for automobiles utilizing their patented Bend Sensor
®
technology and is currently working with Tier 1 suppliers on development of the seat and various seat related controls. Through a joint development arrangement with a Tier1supplier, we developed and delivered prototypes of the seat. The supplier anticipates marketing the product as an added feature to its luxury car manufacturers.
With the success and acceptance of the comfort seat the Company has received additional inquiries regarding the feasibility and implementation of the technology for commercial vehicles and buses.
Disposable Colonoscope
We have partnered with Haemoband Surgical Ltd. and have satisfactorily completed initial testing for their disposable colonoscope device, which uses our Bend Sensor
®
technology to monitor the device's position while the procedure is conducted on the patient. Testing to date has demonstrated the ability of Flexpoint's sensor to graphically display the shape of the colonoscope and to
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accurately detect any looping of the scope. With more accurate readings on the position of the device, doctors can minimize complications that can arise from the colonoscope coiling, and can reduce the time required to perform the procedure. With the Bend Sensor
®
the current monitoring equipment can graphically display the position and formation of the colonoscope.
We have shipped the required component units to Haemoband Surgical, and they are currently preparing to enter into clinical trials utilizing this device. Haemoband introduced the product at the Medica 2014 medical trade show in Dusseldorf, Germany. Upon the completion of the clinical trials Haemoband will push to have the product certified and available to meet the pent-up demand for inexpensive, accurate methods of determining the position of the colonoscopes, and Haemoband's device is the first product in that class. Once development and certification of the device is completed it is anticipated that we will enter into a long term Manufacturing and Supply Agreement with Haemoband.
Because of the large demand, and the fact that this is a disposable device, it is anticipated that we could begin producing sensors for this device in the millions of sensors annually as acceptance and incorporation of the sensors occurs. Growth in the medical sensors industry has been robust in recent years, and is expected to reach $12.4 billion by 2016, according to one report. Pressure and flow sensors are singled out for particularly strong growth--which are two of Flexpoint's main competencies. With its Haemoband partnership, Flexpoint gains entry into an industry that will likely factor prominently in its future growth.
In November 2009, the Bend Sensor
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technology was featured in a study by the University of Rome Tor Vergeta, using an interactive glove, and was recommended as a possible tool to assist doctors in neuroscience studies to determine a patient's level of monitor skill or post-surgical evaluation and therapy, or for assisting the disabled. Due to the ability of the sensor to measure range of motion, the study also recommends using the Bend Sensor
®
technology as a tool to design ergonomic devices. The University has continued its research and has identified additional medical applications of our sensors.
Flow Control Applications
Our flexible sensor has proven to be an extremely robust and durable flow control switch. The Bend Sensor
®
product allows for the measurement of liquid and air flow, and has been tested to over 35 million cycles without failure. The Company is currently working with a global leader in cleaning, sanitizing, food safety products who have been testing the Bend Sensor
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as a measuring and dispensing device for their harsh chemical products. When the Bend Sensor
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device is placed in a flow stream, it can measure if flow is occurring, or it can measure the amount of flow that is occurring. The fact that our design incorporates a single layer flexible device allows it to effectively operate in many harsh environments. While other technologies are affected by dirt, dust, and liquids, the Bend Sensor
®
product is able to reliably operate in those environments. An international supplier of integrated tinting solutions is interested in a similar dispensing system for its paint manufacturers, retail chains and plastic producers. We continue to receive inquiries from a variety of industries for flow applications.
Medical Bed
Through a joint development agreement with R&D Products, the Company developed and produced 20 prototype medical beds that assist in the management of bed sores. Using the Bend Sensor
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technology and accompanying electronics the bed is able to determine the position and movement of the person in the bed. The bed has the ability to roll a patient left or right to relieve pressure areas as well as to facilitate dressing changes. Needed adjustments can be made through relieving pressure areas to meet the required standards of care and patient comfort. The medical application for the bed was originally scheduled to launch in mid to late 2009. However, due to management changes and an acquisition, the project has been delayed.
The bed technology has a commercial application that will be marketed as an in-home specialty mattress. The specialty (non-innerspring) segment of the bedding market has been growing rapidly over the past six to seven years. With the increasing demand of specialty mattresses, almost every mattress company has a specialty bed they promote. We have had a number of discussions with various mattress companies who have expressed interest in the concept.
R&D Products anticipates applying the medical bed concept and technology to a mattress cover that can be used for both adult in-home care or nursing home facilities or on infant beds.
Wearables
In November 2009, the Bend Sensor
®
technology was featured in a study by the University of Rome Tor Vergeta, using an interactive glove, and was recommended as a possible tool to assist doctors in neuroscience studies to determine a patient's level of monitor skill or post-surgical evaluation and therapy, or for assisting the disabled. Due to the ability of the sensor to measure range of motion, the study also recommends using the Bend Sensor
®
technology as a tool to design ergonomic devices. The University has continued its research and has identified additional medical applications of our sensors.
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In the rapidly growing and emerging Wearables space, Flexpoint has also recently received additional purchase orders from multiple glove manufacturers across various market sub-segments including medical, toys, gaming and virtual reality. The speed to market commercialization plans of these companies are driving this increased order volume. Flexpoint is aggressively going after this evolving market, and expects this pattern to continue and dramatically increase in 2016. In aggregate, Bend Sensor
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2016 wearables order volumes are expected to number in the tens of thousands for the year. The wearables market segment is clearly one where our technology is easily adapted and truly illustrates our technological differentiation. Flexpoints willingness and ability to customize sensors for these innovative companies and deliver them at a competitive price point allows us to deliver real value to our customers.
Shoe Application
We have continued our work with Bend Tech, LLC to develop and market a sensor system that will provide real time feedback and analysis on balance, performance and cadence to runners and other athletes. Utilizing several of our patented Bend Sensor® technology sensors, located within the shoe, provides real-time feedback of a runner's performance that can be utilized for training and teaching proper technique that will aid in the prevention of injuries.
Because the sensor features a single layer construction, the sensors are not damaged or degraded by dust, dirt or other particulates. Moisture and immersion in mud, water, sweat and many other chemicals are not an issue.
The system will provide real time analysis showing balance, performance and other pertinent data relating to the performance of the individual. The fast response time of the sensor allows it to provide time differentials between heel and toe strike. Other metrics like cadence, ground contact time, the time the foot is not in contact with the ground, shoe loading and unloading profiles and information critical to training and injury prevention can be measured and captured for later review and analysis. Running information can be easily integrated into social media and training logs for quick feedback and analysis.
The electronics include miniaturized printed circuit boards, a wireless communication system, blue tooth technologies, wireless rechargeable batteries and "smart phone" interface. Although the original device was developed to be used in running shoes, the Company has incorporated the shoe technology into a golf training tool that will include golf clubs fitted with our sensors. According to one report the estimated equipment and apparel market for golf alone netted $5.1 billion in sales in the U.S., followed by Japan at $3.7 billion (Golf News January 24, 2014; U.S./Japan World Golf Market).
In December 2014 we announced the launch, in conjunction with Bend Tech L.L.C., of a shoe insole system, the Mettis Trainer. We expect to have the product available for delivery in the second quarter of 2016. Bend Tech is beginning to finalize partnerships with larger companies already involved in the athletic shoe industry for distribution.
Other Applications
Management believes the potential market for our technology includes using the technology to replace or upgrade existing devices used in industrial control systems, medical equipment and instrumentation, computer peripherals, automotive transmission equipment, commercial vending equipment and other devices. We have developed, or are developing:
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a vibration sensor;
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a rupture disc/bursting disc utilizing the Bend Sensor
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as the detection/alarm element of a ruptured disc device;
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an infant bed cover using our patented sensors that will be used to monitor infants in the prevention of sudden infant death syndrome (SIDS);
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video gaming devices; and
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other sports applications:
The Company has developed several sports-related products featuring the Company's patented Bend Sensor
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technology. The products currently include the use of sensor technology for bowling and golf shoes. The products will be used to help measure and improve an individual's performance. Among other things the shoes will measure distribution of weight and weight transfer during the monitored event and present a recorded image of the individual's performance for evaluation. The products are currently being demonstrated to major equipment manufacturers and distributors and the Company anticipates they could be easily brought to market through sports related OEM's.
We intend to further identify applications of our technology in numerous fields and industries. A core marketing strategy is to seek applications of our technology for products used by customers that emphasize functionality, reliability, quality, and user convenience.
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BUSINESS STRATEGY
Due to the many potential applications of our technology and our limited financial and other resources, management made the decision to focus our marketing efforts on a few products that can be brought to market quickly, will provide maximum exposure for the technology and will generate additional orders for products from a growing customer base. This has required us to coordinate our product design, manufacturing, distribution and service strategies in a long-term business model, while still generating short term revenues. Another strategic marketing strategy has been to develop a standard line of sensor products with corresponding hardware, electronics and software to facilitate ease of implementation of our technology into a customer's existing system.
Our standard product line is expected to be sold directly to the customer and through manufacturer's representatives and distributors. We have also expanded our product offering to include substantially complete value-added assemblies, which includes the electronics and software. We continue to consider the licensing of our technology and/or products or strategic partnership arrangements that will generate sufficient revenues to sustain our operations. We anticipate selling primarily to OEM or Tier 1 suppliers for worldwide distribution. For our international customers, we anticipate selling and distributing our products through various manufacturer representatives and distributors.
Since our intended customers are typically technology companies, the design phase of the sales cycle is extremely important and considerably longer than in other industries. The original equipment manufacturers typically approach us with a conceptual product and request that we assist in the initial engineering, design, development and production of a working prototype from which we generate limited revenues. The prototype is then tested in the environment in which the ultimate product will be placed. During this process, the customer is in frequent contact with our application and electrical engineers. Customers also meet with internal sales and support individuals to discuss marketing and distribution channels and strategies for the end consumer products.
We also have added value by expanding our sensor product lines to include circuit boards, enclosures, etc. and have moved toward a fully integrated product while validating and showing the versatility of our Bend Sensor
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technology. As mentioned above we currently have several such fully developed products that will directly compete with existing products in the automotive industry. We have also used like designs to develop similar products in other industries, thus leveraging the initial engineering and design work. We believe our products provide great reliability and functionality and can be implemented at a lower overall cost to the customer. These fully integrated products will create a much larger value added profit margin for us. However, there is no assurance that such profit margins will be achieved or that these products will be produced in volumes sufficient to generate significant revenue in the near future.
As announced in January of 2016, it is expected that the Companys redirected marketing efforts will result in the completion of the following in the first half of 2016:
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Enter production under long-term purchase orders with products for multiple companies within the toy industry
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Further larger scale purchase orders with various Flexpoint wearables and other glove product customers
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Finalize long-term, multi-year production specifics with automobile manufacturer
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Establish reselling and product development contract with a major, tier 1 auto and truck parts manufacturer
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Completion of work to begin commercialization for Haemoband's colonoscope utilizing Flexpoint's sensor and electronic system
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Begin development of an IIoT sensor application with a specialty power plant equipment manufacturer
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Anticipate purchase orders from other medical device companies
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Achievement of Cash Flow neutrality
In the second half of the year, among other things, the Company expects to accomplish:
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Commercialization of Haemobands colonoscope
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Continued fulfillment of large scale production orders of sensor products to glove and toy manufacturers
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Development of new channel relationships with global sensor manufacturers/resellers
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Establish strategic relationships with IoT/IIoT software framework vendors
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Achieve positive cash flow
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Introduction of new products
MARKETING AND SALES
Through aggressive marketing efforts, the Company has expanded their exposure in the automotive industry. This has created new opportunities for our existing automotive lines of products. Most of our marketing efforts to date have been to offer our automotive products primarily to original equipment manufacturers (OEMs), either directly or through Tier 1 suppliers, or through collaborative efforts with other specialized suppliers. Other products are being marketed directly to manufacturers or distributors. Our
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primary marketing objectives are to continue to generate demand for our products, enhance name and product recognition and support OEMs and manufactures. As we gain success in branding our name and product recognition we believe the successful use of our products by OEMs and Tier 1 suppliers will generate additional demand for higher quantity orders of our existing products. We also anticipate that the success of our existing products will allow us to successfully introduce new products and applications to the market.
Due to limited resources our sales strategy depends on a few OEMs and manufacturers and, were we to lose their business, it will have a significant adverse effect on our results of operations until alternative distribution channels can be established. We may consider contractual commitments to OEMs and Tier 1 suppliers in exchange for fees and/or royalties. In addition, because we sell on a limited basis directly to end users, we are dependent, in part, on the OEMs for information about retail product sales and demand for sensor technology. Accordingly, any rapid cessation of purchases or a switch to other companies' products by end users may not be immediately evident to us, and could result in increased product returns.
In July 2015 we hired Paul Sexauer as Vice-President of Sales and Marketing. His principal responsibilities are to expand the relationships already established by the Company and to research and identify new companies and markets whose products will benefit from the utilization of the Bend Sensor
®
technology.
We have enhanced our website at www.flexpoint.com to include videos on our current projects and also intend to market our products through the use of other social media, and by developing a field sales force which includes direct marketing employees in strategic areas and potentially manufacturers representatives nationwide to generate OEM and Tier 1 supplier customers. As our market grows we anticipate expanding our distribution network throughout the world. There can be no assurance that we will be successful in developing such a sales force or in expanding our distribution network.
License and supply arrangements, such as those discussed above, create certain risks for us, including:
Reliance for sales of products on other parties and, therefore, reliance on the other parties' marketing ability, marketing plans and credit-worthiness;
If our products are marketed under other parties' labels, goodwill associated with use of the products may inure to the benefit of the other parties rather than Flexpoint Sensor Systems;
We may have only limited protection from changes in manufacturing costs and raw materials costs; and
If we are reliant on other parties for all, or substantially all, of our sales we may be limited in our ability to negotiate with such other parties upon any renewals of their agreements.
MANUFACTURING AND DISTRIBUTION
Automobile manufacturers, Tier 1suppliers and many international companies require all parts to be manufactured in ISO/TS-16949 certified facilities. IS0/TS-16949 is a Quality Management System that contains the particular requirements for the application of ISO 9001:2000 for automotive production and relevant service part organization. TS-16949 is based on ISO requirements 9001:2000, but contains additional requirements that are specific to the automotive industry. These additions are considered automotive interpretations by the ISO community of accreditation bodies and registrars. TS-16949 is a common supplier quality standard for Fiat Chrysler Automobiles, Ford Motor Company and General Motors Corporation. TS-16949 applies to suppliers of production materials, production and service parts, heat treating, painting and plating and other finishing services. It does not, therefore, apply to all suppliers of the major automotive companies.
We have entered into a manufacturing and supply partnership with the Walker Components Group. The partnership includes manufacturing, assembly and component acquisition services and is a key step toward finalizing deals with major companies who are working with Flexpoint, HTK, Intertek and others on various projects. The logistical concerns associated with producing these products on a large scale will be comfortably met through this partnership. Many groups we deal with are concerned about our smaller size and our ability to meet production deadlines and volumes. Walker Components Group is a large manufacturer that has the ability to produce, purchase, aggregate and assemble parts. They also will provide stockpiling and warehousing of parts so that components can be purchased in larger volumes at a better price instead of only on an as needed basis for smaller orders. Walker Components Group can become the supplier for Intertek and users of the HTK Engineering system that will give customers confidence that orders will be filled in much the same way as the large automotive manufacturers use Tier 1 suppliers when working with smaller companies. This arrangement overcomes the hurdle when a customer wants our product, but is concerned about the companys stability or our production capabilities.
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SOURCE OF RAW MATERIALS
The Bend Sensor
®
product consists of a coated substrate, such as plastic, that changes in electrical conductivity as it is bent. Electronic systems connect to the sensor and measure with fine detail the amount of bending or movement that occurs. The single layer design of the Bend Sensor
®
eliminates many of the problems associated with conventional sensors such as dust, dirt, liquids, heat or pressure. Depending on the application an over-laminate or over-molding may also be applied to the sensors for added environmental protection. Due to its unique construction and the ability to use multiple types of substrates, all raw materials needed to produce the Bend Sensor
®
are readily available and therefore the Company is not reliant on a single supplier.
STATUS OF PUBLICALLY ANNOUNCED NEW PRODUCTS AND SERVICES
We have continued to mature from a research and development company into a manufacturing and production company and continue to expand our product line. From 2008 and through 2015 we improved and enhanced the design of products in the automotive, medical, shoe and industrial industries and have cultivated relationships with a limited customer base within these industries. We have designed, manufactured and built various testing prototypes and advanced our overall relationships which we believe will be advantageous and will generate significant revenues in the near future. We have filed patent continuations noting the enhancements and improvements developed over the past several years which could prolong the protection under this and our other patents. We are also reviewing the option of filing additional patents on specific applications and devices that use our Bend Sensor
®
technology.
During 2013 we received a purchase order from a major Tier 1 supplier in conjunction with a Fortune 100 auto maker for completion of horn switch systems to be installed in a limited number of automobiles to be used in vehicle testing. The testing began in October 2013 and the purpose of the tests was to collect additional data and give designers and engineers within the automaker an opportunity to experience the system in an automobile in actual usage situations. This has allowed them a "hands on" experience with the technology prior to their designating the system for incorporation into future vehicle programs.
In July 2014 we announced the completion of this hands-on vehicle testing. The driving tests included a 150,000 mile driving test in which the system must function under actual driving conditions. The system functioned properly and there were no issues. Since that time the manufacturer has changed their approval criterion which has led to the Company receiving an additional purchase order to modify the design and complete the testing and production of documentation for the revised design criteria. Once the horn switch has been incorporated into a specific platform, we will work to get the models identified and have it pulled forward for a drop-in application so that the field testing and verification can be completed.
It is expected that as the first units are integrated into existing production, the project will be expanded to integrate control switches onto the horn pad, and that the application could be expanded to additional models of automobiles and light trucks. The volumes associated with an automotive platform can range from 150,000 to 4 million vehicles. A product launch in a platform can consist of 50,000 to 100,000 vehicles during the shake out period and will then be incorporated into the entire platform.
We continue our relationship with InterTek Industrial Corporation, a leading supplier of quality seatbelt systems and safety devices to the emergency vehicle market. Their award winning ProTek Passenger Awareness System uses our Bend Sensor
®
technology to enhance the safety of passengers and personnel in emergency vehicles. InterTek continues to issue purchase orders ranging from fifty to 100 fully integrated units every six to eight months.
The National Fire Protection Association specification that requires a system such as this has been adopted and was expected to go into effect during 2014. Sales through InterTek are expected to continue at present rates until the legislation requiring safety systems such as the ProTek system goes into effect. Because the system designed and produced by Flexpoint and InterTek meets or exceeds all of the standards of the legislation, we believe that sales will increase in future years. Since the ProTek system is currently in production and has been tested and proven, it is expected Intertek will be the first to market with an acceptable system and therefore we estimate their revenues to increase over the next three years. We have also received inquiries regarding similar systems for other emergency vehicles as well as school buses.
Because of the previous success of the Bend Sensor
®
technology in medical devices, Haemoband Surgical, an Ireland based company, contracted Flexpoint to develop a sensor to be used by a doctor as they perform a colonoscopy procedure. During 2013, we completed the first two phases of the project and received milestone payments for each phase of the development. In the last quarter of 2014 we provided Haemoband with the units needed to begin their clinical trials. The next phase will be the successful completion of the medical trials and gathering the information necessary for completion of the required governmental certifications.
Haemoband Surgical has years of experience in medical markets. They were the first to launch an automatic multi-action, pre-loaded disposable ligator worldwide.
Haemoband Surgical works to the highest levels of quality possible and has achieved many quality certifications. It is anticipated that, upon completion of the clinical trials and certification of the product, we will enter into a long term Manufacturing and Supply agreement with Haemoband.
Through our relationship with Bend Tech LLC, we received initial funding for the development of a smart shoe that will show and collect real time data that can be used for future training and comparisons. The intent of the data points is to provide comprehensive information for analysis about an athletes balance, weight distribution, foot strikes and performance. Due to the advancements in the electronics and software, use along with our Bend Sensor
®
such data points can be communicated to a smart phone or other device at
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the time of the activity or stored for later analysis. These technologies include among other things, miniaturized printed circuit boards, (PCB's), innovative wireless communication systems, long life miniature batteries, blue tooth technologies and "smart phone" interface. These technologies have immediate application in sport shoes and sports related equipment. Equipped with the advanced communications, the smart shoe, sensor equipped golf shaft and the associated electronics Bend Tech intends to market this fully integrated system to the golf industry as a real time training device. Managements informal research found approximately 26 million U.S. golfers helped the industry generate $69 billion in revenue in 2011, according to the latest data from market researcher SRI International. While that is down from $76 billion in a 2005 SRI study, it tops revenue from such professional spectator sports as baseball, basketball, football and hockey combined, according to the Census Bureau. Add in the spillover effect on industries such as tourism, and the golf economy expands to $177 billion.
In December 2014 we announced the launch, in conjunction with Bend Tech L.L.C., of the Mettis Trainer, a shoe insole system. We expect to have the product available for delivery in 2016. Bend Tech is beginning to finalize partnerships with larger companies already involved in the athletic shoe industry for distribution.
COMPETITION
The sensor business is highly competitive and competition is expected to continue to increase. We will compete directly with firms that have longer operating histories, more experience, substantially greater financial resources, greater size, more substantial research and development and marketing organizations, established distribution channels and are better situated in the market. We do not yet have an established long term customer base that orders products on a constant basis and we will encounter a high degree of competition as we develop a larger customer base.
To management's knowledge, technology similar to our technology is currently in production by other competitors. Management believes that our products will be sufficiently distinguishable from the existing products so that it will not compete directly with existing sensor products. Certain force transducer sensors and fiber optic sensors are comparable to our Bend Sensor
®
technology; however, management believes that the force transducer sensor is not as reliable as our Bend Sensor
®
technology and that the fiber optic sensors are not as cost effective as our Bend Sensor
®
technology. As this new area grows, additional manufacturers may attempt to introduce similar products and competition could intensify.
In the medical electronics field, our competitors are the potentiometer manufacturers. In the auto seat field our competitors are the numerous capacitive, piezo, infrared, force sensor resister and ultrasonic sensor manufacturers. Such competitors may use their economic strength and relationships to influence the market to continue to buy their existing products. One or more of these competitors could use their resources to improve their current products or develop new products that may compete more effectively with our products. New competitors may emerge and may develop products and capabilities which compete directly with our products. No assurance can be given that we will be successful in competing in the industries identified or in other industries that would benefit from our Bend Sensor
®
technology.
We intend to compete by offering products that have enhanced value, added features, ease of use, functionality, compatibility, reliability, comparable price, quality and support. Management also believes our intellectual property provides an advantage over current competitors. Although management believes that our products will be well received in the various sensor markets because of their innovative features, performance characteristics and cost-effective pricing, there can be no assurance that comparable or superior products incorporating more advanced technology or other features or having better price or performance characteristics will not be introduced by competitors with greater resources than ours.
PATENTS AND INTELLECTUAL PROPERTY
We regard certain of our designs as proprietary and attempt to protect them with patents and by restricting disclosure of the designs as trade secrets. We have five issued patents for our Bend Sensor
®
technology and have exclusive rights to additional patents and intellectual property, and are in the process of preparing additional patents for new types of sensors and devices using our technology. Due to the joint development of the medical bed product, we believe we also have claims and protection under the patents filed for this specific application. Sensitron owns five United States patents related to the Bend Sensor
®
technology. Patents do expire and it will be necessary for us to file patents in the United States and in various foreign countries for each application, we develop so that it is protected from competition. We also have products that use our unique sensor technology and we are exploring the viability of filing new patents based on the enhancements and the specific applications or value added products. We must file patents on any technology for which we develop enhancements that contain material improvements to the original technology, thereby extending the original life of our original patents. We are aware of three potentially conflicting patents which we believe will not affect our current or planned use of our technology.
There can be no assurance that the protection provided by patents and patent applications, if issued, will be broad enough to prevent competitors from introducing similar products or that such patents, if challenged, will be upheld by the courts of any jurisdiction.
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Patent infringement litigation, either to enforce our patents or defend us from infringement suits, are expensive and could divert resources from other planned uses.
Patent applications filed in foreign countries and patents in those countries are subject to laws and procedures that differ from those in the United States. Patent protection in foreign countries may be different from patent protection under United States laws and may not be as favorable to us. We also attempt to protect our proprietary information through the use of confidentiality agreements and by limiting access to our facilities. There can be no assurance that our program of patents, confidentiality agreements and restricted access to our facilities will be sufficient to protect our proprietary technology.
Management believes that because of the rapid pace of technological change in our markets, legal protection of our proprietary information is less significant to our competitive position than factors such as continuing product innovation in response to evolving industry standards, technical and cost-effective manufacturing expertise, effective product marketing strategies and customer service. Without legal protection; however, it may be possible for third parties to commercially exploit the proprietary aspects of our products.
MAJOR CUSTOMERS
Currently, we have a limited customer base and historically revenues have not been sufficient to support our current operations. For the year ending 2015, two customers (Haemoband Surgical and Bend Tech LLC) represented about 40% of the Companys revenue. This high concentration was primarily related to engineering and design work in the automotive and medical industries. The Company does not have any backlog of production of our Bend Sensor
®
products. Because our technology uses raw materials that are readily available throughout the world, we have never had an environmental complaint or issue.
RESEARCH AND DEVELOPMENT
Although we hold the patent to the basic Bend Sensor
®
technology, as well as other applications, there will be other competitors working to develop competing technologies. To stay on the forefront of the technology, and to serve the needs of the customer, we will need to aggressively pursue improvements to existing systems and develop new systems as well. For the year ended December 31, 2015 we spent $279,138 in research and development, primarily enhancing specific applications for the automotive, medical and sports industries with our Bend Sensor
®
technology, and testing Bend Sensor
®
applications for and in new products. This compares to $273,191 spent on research and development for the year ended December 31, 2014 related to development engineering for new product development resulting in potential of new patents and testing of products for marketable applications.
We believe that our coatings for the Bend Sensor
®
product are difficult to duplicate. We are aware that we must develop new coatings to fit emerging customer needs and to stay ahead of the competition. There can be no assurance that we will be successful in developing new coatings. While we expect that future research and development efforts, if any, will lead to the filing of additional patent applications, there can be no assurance that any additional patent filings will be forthcoming.
EMPLOYEES
As of the date of this filing we have 5 full time employees and employ 3 to 5 sub-contractors and multiple consultants. Until we are under full production with some of our products we will continue to use sub-contractors and consultants which helps to keep our overall labor cost to a minimum. Our employees are not presently covered by any collective bargaining agreement. We have not experienced any work stoppages and believe that our relations with our employees are good.