EXECUTIVE OVERVIEW

Flexpoint Sensor Systems, Inc. is a development stage company principally engaged in designing, engineering and manufacturing bend sensor technology and devises that use its patented Bend Sensor® technology, (a flexible potentiometer technology). For the past three years we have been making improvements to our technology and proving the versatility and durability of the Bend Sensor® by manufacturing Bend Sensor® devices and related products and introducing these to a variety of industries. We own nine patents and are in the process of filing for more. The Company is currently manufacturing several fully instigated products that are being sold and supplied to its current limited customers. We have also jointly developing additional commercially viable products that will be used in the automotive, medical and industrial industries. We are working towards expansion of our customer base as our patented technology continues to gain recognition in various markets. Over the next six months we will concentrate most of our marketing efforts and limited financial resources on current projects that we believe can be brought to market in the shortest period of time. We anticipate having as many as 10 to 15 different products featuring our patented Bend Sensor® technology on the market over the next 8 to 12 months including products in the automotive, residential home care and industrial control industries.

Over the past three months we have been enhancing our relationships with various automotive Tier 1 suppliers as they continue to test and prove our patented horn and seat switch reliability. We have also developed new types of products for our Bend Sensor® technologies and have received small repeat production orders from existing customers. We have made improvements on our initial prototype for a Home Monitoring Presence Detection System using our Bend Sensor® technologies and have received development and design orders from various industries including the military. In addition, we continue working with significant market makers and Tier 1 automotive suppliers in the U.S. and Europe on numerous other applications for our sensors and devises.

In management's opinion the desire of U.S. manufacturers to have lighter weight more fuel efficient cars have proven to be to our advantage. Our Bend Sensor® is lighter in weight, has fewer moving parts than conventional sensing devices, is more versatile and, due to its unique design is more cost effective. Product and design changes in the automotive industry are slow, averaging two to three years before actually being incorporated into a commercially viable automotive platform. Because of our recent work with several Tier 1 suppliers, we have shown the Bend Sensor® as the next generation of sensing devises to the industry. With the need for higher fuel efficiencies and lower manufacturing costs, the auto industry is developing alternative-fuel type ("green") vehicles that are lighter in weight, less complicated in design, and more cost effective to run and build. Due to the advanced technology of the Bend Sensor® and its versatility of applications we believe we can be a part of the changes needed in the automotive, energy and technological industries.

We continue to manufacture products for Intertek Industrial Corp. Their ProTek System is an automotive seat monitoring device integrated into emergency response vehicles. This monitoring device places the Company's Bend Sensors® in each rear passenger seat with a monitor viewable to the vehicle's driver. The foolproof system informs the driver if the emergency medical technicians are seated and properly secured prior to departure and while the vehicle is in motion. 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 ambulances and is being tested for use in other types of

emergency vehicles. Through its relationship with Intertek the Company has further validated its technology in the automotive and safety industries and is currently working with other companies on similar systems for buses, cabs and heavy equipment operators to ensure the safety of the their passengers and drivers. A national surge in ambulance accidents has called for increased safety standards for emergency vehicles. Due to the rise in injuries and fatalities that result from these accidents, the National Fire Protection Association (NFPA) has taken on the task of rewriting the ambulance standard. As a result there is currently national legislation proposed that could take effect as early as 2013. The proposed legislation will require a safety system similar to Intertek's Pro Tek System, which will give Intertek a significant competitive advantage being first to market with an already proven system that will meet the legislative requirements.

Using our Bend Sensor® technology the Company has developed a patented medical bed. Because of the Bend Sensor's® predictability the accompanying electronics of the bed are able to determine the position of the person in the bed and how they are moved. The bed has the ability to roll a patient left or right to relieve pressure areas that can cause bed sores or other life threatening complications for patients that are bed ridden as well as facilitate dressing changes. Needed adjustments can be programmed into the bed to relieve pressure areas to meet the required standards for patient care and comfort.

The Company anticipates marketing a similar bed as part of 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 commercial mattress company has a specialty bed they promote. The Company has had some discussions with mattress companies who have expressed interest in the concept. In June 2010 the Company initiated legal action against R&D Products, LLC, the joint developer of the medical bed, and at this time management is unsure of the effect that this action may have on our relationship with R&D Products and its Licensee of the medical bed application of the Bend Sensor® technology (See note 7 of the financial statements).

Our Bend Sensor® technology has many other medical applications that the Company is pursuing. We have developed a specialty sensor for an undisclosed medical device for a company. The estimated volumes quoted for this device are between 500,000 to 1 million sensors annually. The application will use a sensor that is an adaptation of a sensor that we already have commercially available; therefore the cost associated with the development of this medical application will be marginal. We are also working with a company on the development of a disposable directional positioning sensor for colonoscopies. It is estimated that the annual demand for colonoscopy ranges from 2.21 to 7.96 million procedures in the United States and as the population continues to age more procedures will be required. One of the difficulties with the procedure is providing an inexpensive means of locating the exact position of the colonoscopes. With the use of a sensor array and monitoring equipment it appears to be possible to locate the positioning of the colonoscopes.

Although so far the volumes have been relatively small we continue to receive follow up orders for the universal sensor that we jointly developed last year. We expect to receive additional orders from other customers for this sensor as it becomes more recognizable in the market. Current our customers for this type of sensor include companies in the following industries; automobiles, trucking, busing, emergency vehicles, taxi cabs, public transportation, military and other governmental entities. As anticipated, the Company is beginning to see the potential for more significant volumes and revenues from the sale of this sensing devise over the next year and beyond.

Finalizing additional long-term revenue generating production contracts with other customers remains our greatest challenge because our on-going business is dependent on the types of revenues and cash flows generated by such contracts. Cash flow and cash requirement risks are closely tied to and are dependent upon our ability to attract significant long-term production contracts. We must continue to obtain funding to operate and expand our operations so that we can deliver our unique Bend Sensor® and Bend Sensor® related technologies and products to the market. Management believes that even though we have made positive strides forward with our business plan, it is likely that significant progress may not occur for the next three to six months, primarily due to the time it takes for negotiating such contracts. Accordingly, we cannot guarantee that we will realize significant revenues or that we will become profitable over the next six to nine months.

In 2010 we entered into a Technology Development Agreement with Design HMi, LLC, which has extensive experience, contact and knowledge involving product design and development in the automotive industry. This

relationship has opened additional automotive opportunities for the implementation of the Bend Sensor® technology for the automotive industry that should be realized over the next six months to a year.

On October 7, 2011 we entered into a joint venture and marketing agreement with Victor S.r.l of Italy ("Victor"). The agreement includes provisions to jointly develop custom sensors to be used in Victor's RimSense Technology. Victor is a 30-year-old diversified company located in Verona, Italy. Victor has grown from the hand-crafting steering wheel company in to one that offers a wide range of products for the automotive, truck and marine industries.

On November 1, 2011 we announced our recently executed Marketing and Agency Agreement with Mobicon Electronic Supplies Company to market Flexpoint's sensors and specialty products in China and Asia. Mobicon was established in 1983 and initially engaged in the retail and wholesale business of electronic and computer components. Mobicon's business has a global reach in the distribution of electronic components, equipment, automation, computer and computer accessories and has over 5000 customers located in 72 countries.

Management believes with the signing of the Victor Joint Venture Agreement and the Mobicon Marketing agreement the Company will be able to leverage the relationships that will open additional markets to our products and technology which will bring additional projects to Flexpoint and build a solid customer base that will drive revenue generation for the future.

LIQUIDITY AND CAPITAL RESOURCES

Our revenue is primarily from design, contract, testing and limited production services and is not to a level to support our operations. Management anticipates that we may not realize significant revenue within the next three to nine months. From 2008 through 2010 we have relied on proceeds from various convertible loans from existing shareholders to fund our operations. In November 2010 we issued 7,590,663 in restricted common shares of stock and retired $1,696,399 of outstanding convertible notes and corresponding accrued interest.

On November 2, 2010 the Company secured a $500,000 line of credit from Maestro Investments. LLC. Under the terms and conditions of the line of credit the Company can draw against the line as needed to fund operations. The line has a fixed interest rate of 12% per annum and the principle amount of all draws and outstanding interest is due and payable on or before December 31, 2012. Over the twelve months ending December 31, 2011 the Company drew down the entire line of credit to fund its operations. On April 10, 2012 the Board of Directors authorized the issues of 2,500,000 restricted common shares to retire the full amount due from the line on credit including accrued interest. The debt was converted at a rate of $0.20 per share and the fair market value of the shares was $0.09 per share on the date of conversion. This resulted in a gain on conversion of debt of $323,248 that will be recognized during the three months ended June 30, 2012.

On January 17, 2012 the Company issued a promissory note for $50,000 to an existing shareholder. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before December 31, 2012 and has a conversion feature for restricted common shares at $0.15 per share.

On February 13, 2012 the Company cancelled the original note dated December 28, 2011, issued a new promissory note in the amount of $10,128 to an existing shareholder, including accrued interest. The new note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before June 31, 2012 and has a conversion feature for restricted common shares at $0.15 per share.

On February 14, 2012 the Company issued a promissory note for $50,000 to an existing shareholder. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before December 31, 2012 and has a conversion feature for restricted common shares at $0.15 per share.

On March 15, 2012 the Company issued a promissory note for $50,000 to an existing shareholder. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before December 31, 2012 and has a conversion feature for restricted common shares at $0.15 per share.

On April 15, 2012 the Company issued a promissory note for $202,397 to an existing shareholder. Consolidating and canceling the $50,000 notes issued in January, February and March 2012, and received an additional $50,000 in proceeds from the new note to help fund operations. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before December 31, 2012 and has a conversion feature for restricted common shares at $0.10 per share.

Management believes that our current cash burn rate is approximately $50,000 per month and the proceeds from the convertible notes and our engineering and design fees will not totally fund our anticipated growth in operations. We will therefore need to raise additional financing. We believe that this additional financing will provide the needed capital to extend operations to the development and production of our growing product offerings and growing manufacturing opportunities. However, we may not be able to obtain financing, or the sources of financing, if any, may not continue to be available, and if available, they may be on terms unfavorable to us.

As we enter into new technology agreements in the future, we must ensure that those agreements provide adequate funding for any pre-production research and development and manufacturing costs. As we are successful in establishing agreements with adequate initial funding, management believes that our operations for the long term will be funded by revenues, licensing fees and royalties related to these agreements. However, other than the joint marketing agreements, that we believe will provide future revenues, we have not formalized any agreements during the past year and there can be no assurance that the agreements we currently have will come to fruition in the near future or that a desired technological application can be brought to market on a commercially viable basis.

FINANCIAL OBLIGATIONS AND CONTINGENT LIABILITIES

Our principal commitments at March 31, 2012 consist of our operating lease of $7,950 per month, and total liabilities of $1,314,615 which includes $700,128 of convertible notes payable related to our current line of credit and shareholder loan. Under the terms of our operating lease the average monthly payments are $8,450, including common area maintenance through December 31, 2014. The total future minimum payments under this lease as of March 31, 2012 are $280,350.

On August 8, 2011 the Company issued a promissory note for $40,000 to an existing shareholder. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before July 31, 2012 and has a conversion feature for restricted common shares at $0.20 per share.

During the first three months of 2012 we issued additional promissory notes in the amount of $160,128. The notes have an annual interest rate of 10% and a conversion feature for the Company's restricted common stock at $0.15 per share. The notes have varying maturity dates and are due and payable, including any outstanding interest, between June 30, 2012 and December 31, 2012.

On April 15, 2012 the Company issued a promissory note for $202,397 to an existing shareholder. Consolidating and canceling the $50,000 notes issued in January, February and March 2012, and received an additional $50,000 in proceeds from the new note to help fund operations. The note has an annual interest rate of 10% and is secured by the Company's equipment. The principle amount of the note, and all accrued interest is due and payable on or before December 31, 2012 and has a conversion feature for restricted common shares at $0.10 per share.

Our total current liabilities include accounts payable of $255,142 related to normal operating expenses, including health insurance, utilities, production supplies, travel expense, and expenses for professional fees.

Accrued liabilities at March 31, 2012, were $359,345 and were related to payroll, payroll tax liabilities, accrued professional expenses, accrued insurance expense, accrued interest expense on notes and accrued paid time off.

OFF-BALANCE SHEET ARRANGEMENTS

Other than our current operating lease identified in Note 6 to the financial statements, above, we have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates of particular significance in our financial statements include goodwill and the annual tests for impairment of goodwill and long-lived assets and valuing stock option compensation.

The Company's goodwill represents the excess of its reorganization value over the fair value of the net assets upon emergence from bankruptcy. Goodwill is not amortized, therefore we test our goodwill for impairment annually or when a triggering event occur using a fair value approach. A fair value based test is applied at the overall Company level. The test compares the fair value of the Company to the carrying value of its nets assets. The test requires various judgments and estimates. During the nine months ended September 30, 2011, the Company recorded an impairment charge of $250,757 to reduce the carrying value of the goodwill to its estimated fair value. As part of the impairment testing, the Company considered factors such as the global market volatility, variables in the economy, and the overall uncertainty in the markets which has resulted in a decline in the market price of the Company's stock price and market capitalization for a sustained period, as indicators for potential goodwill impairment. The analysis for the impairment test for the three months ended March 31, 2012 compared the carrying value of the Company's net assets to the estimated fair value of the overall Company, and the projected net cash flows of the Company over the next three years, based upon our analysis no additional impairment was recognized during the three months ended March 31, 2012.

We test long-lived assets for impairment quarterly or when a triggering event occurs. Impairment is indicated if undiscounted cash flows are less than the carrying value of the assets. The amount of impairment is measured using a discounted-cash-flows model considering future revenues, operating costs and risk-adjusted discount rate and other factors. The analysis compares the present value of projected net cash flows for the remaining current year and next two years against the carrying value of the long-lived assets. If the carrying values of the long lives assets exceed the present value of the discounted projected revenues an impairment expense would be recognized in the period and the carrying value of the assets would be adjusted accordingly. Under similar analysis no impairment charge was taken during the three month period ended March 31, 2012. Impairment tests will be conducted on a quarterly basis and, should they indicate a carrying value in excess of fair value, additional charges may be required.

Financial accounting standards require that recognition of the cost of employee services received in exchange for stock options and awards of equity instruments be based on the grant-date fair value of such options and awards and is recognized as an expense in operations over the period they vest. The fair value of the options we have granted is estimated at the date of grant using the Black-Scholes American option-pricing model. Option pricing models require the input of highly sensitive assumptions, including expected stock volatility. Also, our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable. For the three month periods ended March 31, 2012 and 2011 we recognized $0.00 and $4,366, respectively, of stock-based compensation expense for our stock options and there is no additional unrecognized compensation cost related to employee stock options at the current time.

RESULTS OF OPERATIONS

The following discussions are based on the consolidated operations of Flexpoint Sensor Systems, Inc. and its subsidiaries and should be read in conjunction with our unaudited financial statements for the three months ended March 31, 2012 and 2011, included in Part I, Item 1, above, and the audited financial statements included in the Company's annual report on Form 10-K for the years ended December 31, 2011 and 2010.

                                              Three month period ended
                                           March 31, 2012   March 31, 2011

                                           $                $
Design, contract and testing revenue              14,339            12,125

Total operating costs and expenses               272,845          357,195

Net other income (expense)                       (19,484)          (2,693)

Net loss                                        (277,990)        (347,763)

                                           $                $
Basic and diluted loss per common share            (0.01)           (0.01)

For the three months ending March 31, 2012 revenue increased by $2,214 compared to the same period in 2011. The fluctuation in revenue is due to the Company concentrating its marketing strategy and resources on a limited number of customers, and the repeat orders from those customers. Management believes this approach has the highest potential to bring commercially viable products to market during 2012 and beyond, and will provide sustainable cash flow to fund the Company's operations in the future. Currently, overall revenues are not sufficient to sustain our operations. But management anticipates that revenues will continue to increase as we continue to execute our long-term business plan. However until a long-term production contract is in place there is no guarantee that our limited customer base will order in sufficient volumes to sustain our operations. Therefore management continues to work with larger companies and industries and is hopeful that in the near future will sign a long-term licensing or manufacturing contract.

Revenue for the three months ending March 31, 2012 and 2011 was from design contract, development engineering and limited production. Revenue from research and development engineering contracts is recognized as the services are provided and accepted by the customer. Revenue from contracts to license technology to others is deferred until all conditions under the contract are met and then the sale is recognized as licensing royalty revenue over the remaining term of the contract. Revenue from the sale of a product is recorded at the time of shipment to the customer.

Of the $272, 844 total operating costs and expense for the three months ending March 31, 2012, $64,480 were for direct research and development cost. Of the $357,195 total operating cost and expense for the three months ending March 31, 2011, $45,441 were for direct research and development cost. For the three months ending March 31, 2012, total operating expenses decreased by $84,351 when compared to the same time period in 2011. The decrease in operating expenses for the three month period was partially due to fully expensing during the 2011 year the non-cash compensation to employees associated with stock options issued, and further reduction in compensation taken by the President of the Company to preserve cash.

Due to minimal revenues and overall operating costs and expenses, we recorded a net loss and loss per share for both the three months ending March 31, 2012 and for the same period in 2011.

The chart below presents a summary of our condensed consolidated balance sheets at March 31, 2012 and December 31, 2011

                                                March 31, 2012     December 31, 2011

  Cash and cash equivalents                          $  22,022               $ 7,294

  Total current
  assets                                                59,754                48,904

  Total assets                                       5,930,988             5,967,705

  Total liabilities                                  1,314,616             1,088,334

  Deficit accumulated during the development
  stage                                           (18,675,410)          (18,397,420)

  Total stockholders' equity                    $    4,616,372     $       4,879,371

Cash and cash equivalents increased $14,728 at March 31, 2012 compared to December 31, 2011. The increase in cash resulted from additional funding from the convertible note of an existing shareholder during the first quarter of the year. Our non-current assets decreased at March 31, 2012 due to the depreciation and amortization of long-lived assets. These assets include property and equipment valued at $191,043, net of depreciation; patents and proprietary technology of $558,027, net of amortization; goodwill of $5,105,664 and long-term deposits of $16,500 associated with the facility operating lease and pending patents.

Total liabilities increased by $226,281at March 31, 2012; the increase was the . . .