FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED BALANCE SHEETS

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

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed Consolidated Interim Financial Statements – The accompanying unaudited condensed consolidated financial statements include the accounts of Flexpoint Sensor Systems, Inc. and its former subsidiaries (the “Company”). These financial statements are condensed and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America. Therefore, these statements should be read in conjunction with the most recent annual consolidated financial statements of Flexpoint Sensor Systems, Inc. and subsidiaries for the year ended December 31, 20152016 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on April 14, 2016.18, 2017. In particular, the Company’s significant accounting principles were presented as Note 1 to the Consolidated Financial Statements in that report. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.2017.

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, limited production and seeking long-term manufacturing contracts. The Company’s operations are in designing, engineering, manufacturing and selling sensor technology and equipment using flexible potentiometer technology. Through March 31, 2017 the Company continued to manufacture products and sensors to fill customer orders and provide engineering and design work.

Use of Estimates – The Company is located near Salt Lake City,preparation of financial statements in Draper, Utahconformity with generally accepted accounting principles requires management to make estimates and is a company engaged principally in designing, engineering,assumptions that affect the reported amounts of assets and manufacturing sensor technology productsliabilities at the date of the consolidated financial statements and equipment using Bend Sensors^® flexible potentiometer technology. The Company suffered lossesthe reported amounts of $1,329,641revenue and $1,660,777 and used cash in operating activities of $414,600 and $405,413expenses during the nine months ended September 30, 2016 and 2015, respectively. Through September 30, 2016, the Company had an accumulated deficit of $25,299,268. These matters raise 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.reporting periods.  Actual results could differ from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents are considered to be cash and highly liquid securities with original maturities of three months or less. The cash and equivalents of $2,395 at September 30, 2016 and $22,706 at December 31, 2015 represent cash on deposit in various bank accounts with a financial institution.   

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 Instruments - 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 amounts reported invalue of the balance sheets for accounts receivable,Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and accruedother current assets and liabilities approximate fair value because of their short-term maturity.

The Company has classified the immediateinputs 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 short-term nature of these financial instruments. The carrying amounts reported for notes payable approximateassumptions to determine the fair value becauseof 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 instruments are at interest rates that approximate current market rates.common stock of the Company.

Accounts Receivable – Trade accounts receivable are recorded at the time product is shipped or services are provided including any shipping and handling fees, and are shown net of the allowance for bad debts. Due to the limited amount of transactions, collectability of the trade receivables is reasonably assured.  Although the Company has historically experienced very minimal bad debts it felt it prudent to create an allowance for doubtful accounts to provide for any risk associated with bad debts on current receivables.

Most contractsfees. Contracts associated with design and development engineering generally require a deposit of up to 50% of the quoted price of the initial phase of such contracts prior to the commencement of work. As the Company completes each phase or milestone of such a contract additional fundingThe deposit is normally required from the customer. These deposits are considered deferred income until each phase or milestonethe entire project is completed and accepted by the customer, at which time the agreed uponentire contract price for that particular phase of the contract is billed to the customer and the deposit applied.

Inventories – Inventories are stated at The Company has established an allowance for bad debts based on a historical experience and an analysis of risk associated with the lower of cost or market. Cost is determined by usingaccount balances.  The balance in the firstallowance account was $102,140 and $102,140 in first out (FIFO) method.  Inventories consist of raw materials.the periods ended March 31, 2017 and December 31, 2016, respectively.  

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.

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 – Under ASC Topic 718, Stock Compensation, theThe Company is required to recognizerecognizes 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 periods ended March 31, 2017 and 2016, the Company recognized expense for stock-based compensation of $3,154 and $0, 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 earningsloss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. At September 30,March 31, 2017 and March 31, 2016, there were outstanding common share equivalents (options and convertible notes payable) which amounted to 24,459,697 shares25,942,815 and 21,720,103, respectively, of common stock. These common stockshare equivalents were not included in the computation of diluted loss per share as their effect would be anti-dilutive.  Other convertible notes and options- related exercise prices were less than the average market price of thehave been anti-dilutive, thereby decreasing loss per common stock.share.

Concentrations and Credit Risk - The Company has a few major customercustomers who representsrepresent a significant portion of revenue, accounts receivable and notes receivable.  During the nine monthsthree month period ended September 30, 2016, theMarch 31, 2017, a customer who manufacturers toys represented 7%64% of sales 44%and represented 27% of accounts receivable and 100% of notes receivable at September 30, 2016.

receivable.  The Company has a strong ongoing relationship with this customer with scheduled delivery extending through the year 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.

has an effective adoption date of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The guidance is effective for fiscal years beginning after December 15, 2016, although earlyJanuary 1, 2019.  Early adoption is permitted.  The Company is currently evaluatinganalyzing the impact of this ASU on its financial statements and disclosures.new standard.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position and cash flows.  Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.

NOTE 2 – NOTES RECEIVABLEDERIVATIVE INSTRUMENTS

On June 23, 2010,The derivative liability as of March 31, 2017, in the amount of $115,269 has a Level 3 fair value classification.

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

During the year ended 2016 and the period ended March 31, 2017, the Company alongissued 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 David B. Beck,ASC 815-40-25, the Company's DirectorCompany determined that the conversion features related to these notes are derivative instruments since we do not have control to increase the number of Engineering, filed a complaint against R&D Products, LLC, Persimmon Investments, Inc. and Jules A. deGreef,authorized shares to settle all convertible instruments.  The accounting treatment of derivative financial instruments requires that the managing member of R&D Products, LLC. The complaint alleged that allCompany record fair value 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 propertyderivatives as of the Company. The assignment by Mr. Beckinception date of his rights indebenture and to fair value as of each subsequent reporting date.

At March 31, 2017, the patents and intellectual properties were improperly given and areCompany marked to market the propertyfair value of the Company.derivatives and determined a fair value of $115,269. The Company believed that since Mr. Beck was an employeerecorded a gain from change in fair value of derivatives of $15,687 for the three month period ended March 31, 2017. During the three months ended March 31, 2017, the Company recorded additional interest expense of $54,661 in connection with the recognition of derivative liabilities. The fair value of the Company duringembedded derivatives was determined using binomial lattice model based on the time that he became the primary creative force and inventorfollowing assumptions: (1) dividend yield 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 belong0%, (2) expected volatility of 123.09% to Flexpoint and therefore is 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 annual135.66%, (3) weighted average risk-free interest rate of 10%0.76% to be paid no later than December 31, 2015.  The Company is currently evaluating actions it should take relative0.97% (4) expected life of 0.75 to this note receivable which is in default.  

On April 1, 2015,0.98 years, and (5) the Company paid $51,157 for the assumption and assignment of a convertible promissory note receivable issued by Bend Tech, LLC (“Bend Tech”; onequoted market price 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 interestcommon stock 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 principal and interest to the Investor at the dueeach valuation 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

In accordance ASC 840-15-25, the Company has not exercisedimplemented a sequencing policy with respect to all outstanding convertible instruments. The Company evaluates its conversion option.contracts based upon earliest issuance date.

FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The fair valuedrew $160,000 against that note during 2016 and $40,000 on January 6, $40,000 on January 31, $40,000 on March 7, 2017 and the balance of the common stock at the date of the September 23, 2016 advance was $0.08, establishing an intrinsic value of $0.01, which created a BCF of $4,971.  The BCF was recorded as a debt discount and is being amortized over the life of the note.  The debt discount remaining as of September 30, 2016 was $4,620.

At September 30, 2016, the Convertible Notes Payable principal is $1,188,457, the unamortized discount is $244,656 and interest accrued and unpaid is $79,926.  The Company recorded interest expense of $717,440 during the nine months ended September 30, 2016 as it amortized the discount charges generated by the issuance of convertible notes payable.

Convertible Note Payable Related Party$20,000 on April 28, 2017.

On August 8, 2011, the Company entered into a convertible note payable with a former Company Director for $40,000. This note is due on December 31, 2015, bears an annual interest rate of 10% annual interest (15% default interest) and is secured by business equipment.

Convertible Note Payable Related Party

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.

Since the fair value of the common stock at the date of the July 1, 2016 advance was $0.07, no BCF was recorded.

The fair value of the common stock at the date of the September 22, 2016 advance from an officer was $0.08, establishing an intrinsic value of $0.01, which created a BCF of $1,286.  The BCF was recorded as a debt discount and is being amortized over the life of the note.  The debt discount remaining as of September 30, 2016March 31, 2017 was $1,171.

At September 30, 2016 the Convertible Notes Payable Related Parties principal is $60,000, the unamortized discount is $1,171 and interest accrued and unpaid is $22,120.  The Company recorded interest expense of $3,337 during the nine months ended September 30, 2016 as it amortized the discount charges generated by the issuance of convertible notes payable.$0.

NOTE 43 – 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 will continue in effect for ten years, unless terminated.  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, 900,000500,000 have an option price of $0.15 per share, 595,000995,000 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.  We relied on an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.

ended March 31, 2016, the Company recognized $8,401 in stock-based compensation expense. There were 2,185,000 and 2,185,000 employee stock options outstanding at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively.  

A summary of all employee options outstanding and exercisable under the plan as of September 30, 2016,March 31, 2017, and changes during the ninethree months then ended is set forth below:

NOTE 54 – CAPITAL STOCK

Preferred Stock – There are 1,000,000 shares of preferred stock with a par value of $0.001 per share authorized.  At September 30, 2016March 31, 2017 and December 31, 2015,2016, 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 nine months ended September 30, 2016, 86,350No shares of restricted common stock were issued to an employee in compliance withduring the stock subscription agreement issued at the time of his employment.  The subscription amount was fully paid prior to the issuance of the stock.three months ended March 31, 2017.  

On January 12, 2015, the Board of Directors approved the conversion of $165,000 in convertible notes held by Capital Communications LLC, plus $33,023 in interest accrued and unpaid, to 2,800,000 shares of restricted common stock at an average conversion price of $0.07 per share

On January 20, 2015, the Board of Directors approved the conversion of $135,000 in convertible notes held by Empire Fund Managers, plus $23,760 in interest accrued and unpaid, to 2,650,000 shares of restricted common stock at an average conversion price of $0.06 per share.

In this quarterly report references to “Flexpoint", "the Company," “we,” “us,” and “our” refer to Flexpoint Sensor Systems, Inc. and its subsidiaries.

FORWARD LOOKING STATEMENTS

The U.S. Securities and Exchange Commission (“SEC”) encourages reporting companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions.  This report contains these types of statements. Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Flexpoint Sensor Systems, Inc. is an innovativeprincipally engaged in designing, engineering and manufacturing bend sensor technology firm specializing inand products using Bend Sensor^® technology, (a flexible potentiometer technology).  We continue to make further improvements to our technologies, manufacturing and developing fully integrated devices and related products that featurewe 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 Company’s patentedmarket.  We own five patents, including patents on specific devices that use the Bend Sensor^® and related technology.  The Bend Sensor^® is a groundbreaking sensing solution that is revolutionizing applications in the automobile, safety, medical and industrial industries.  The Bend Sensor’s single-layer, thin film construction cuts costs and mechanical bulk while introducing a range of functions and stylistic design possibilities that have never before been available in sensing technology.  We currently own sixexclusive rights through licensing agreements to other patents and throughdevices.

We are continuing to develop and enhance our researchintellectual properties that will result in additional patents being filed. The Company currently manufactures, and development, effortshas jointly developed, eighteen products that are in the process of filing for more that include fully integrated products being sold and supplied to current customers and we continue to receive orders for custom prototype sensors as well as our limited customer base. Westandard sensors.  Our sales and marketing efforts have also jointly developing additional commercially viable products, including a universal sensor that will be usedbeen 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 medicalindustry.  We have built and industrial industries.

Our marketing efforts forshipped orders to a number of these companies to enable them to test the utilization of our sensors into their existing and developing product lines.  During the balance of 2016 will concentrate2017 we plan to focus our marketing efforts on those projectsa number of larger domestic and international companies that have applications which have the potential to greatly increase the volume of sensors we believe can be broughtare currently manufacturing.

The Company continues to marketdevelop relationships in the shortest perioda number of time. Approximately one year agoapplication fields.  In March 2017 we announced the hiring of Mr. Paul Sexauer as our Vice President of Salesa collaborative working arrangement with 11 Health and Marketing with the intent of accelerating the introduction of our products into multiple markets.  Since the hiring of Mr. Sexauer the Company has streamlined its effortsTechnologies Inc. to work directly with customers, expand sales pipelines and finalize deals.  We anticipate introducing additional products featuring our patented Bend Sensor^® technology into the market during the last half of 2016, includingdevelop next generation products in the medical sport shoe, residential home careindustry.  Flexpoint has also established relationships with several other medical IoT vendors.  These include companies like 11Health, Neofect, Gloreha and industrial control industries.YouReHab; all with a focus on medical rehabilitation with a different approach.  Products from these companies range from gloves to prosthetics to virtual reality, all with the intention of improving medical health or medical rehab.  Medical IoT sensor volume is expected to be more than 50,000 sensors in 2017.

We have experienced continued growth during the first nine months of 2016.  Currently the Company isAlso, in negotiations onMarch 2017 we announced a contract to co-develop a specialized Industrial Internet of Things (“IIOT”) application with a specialty equipment manufacturer in the energy industry.  The customer designs, manufacturers and maintains “special use” equipment employed by hundreds of power companies to produce electricity and fulfill the real-time demands of the grid.

The Company is in negotiations with HTK Engineering, LLC (“HTK”) on the go-to-market strategy development and sales execution of HTK’s anti-rollaway safety system.  Rollaways occur weekly across a multitude of industries causing significant property damage and, in some cases personal injury and loss of life.  Additionally, the Company is in negotiations on a controls and distribution agreement with New Eagle, who will serve as the primary supplier of controller systems (hardware and software) for the patented BrakeAlert system developed by HTK.  The HTK system features Flexpoint’s custom Bend Sensor^®.  The Company and HTK Safety have entered into a strategic salescollaborative relationship with Harris Groups.  Harris GroupsCaptoGlove, a company which manufactures a wearable virtual reality gaming motion controller.  Our companies will utilize its connectionswork together to deliver innovative, integrated virtual reality/augmented reality (VR/AR) systems to mass markets.  We are currently working to fill orders against purchase orders for sensors utilized in their products.  Their ground-breaking glove systems, combined with unique, leading edge software applications, also adapt to a wide range or other applications, including health rehabilitation, unmanned systems control, smartphone interaction and professional training across multiple industries.  In May of 2017 we announced that Virtual reality/augmented reality (VR/AR) continues to be a focus of Flexpoint’s because it has proven to be an incredibly fast growing multi-billion industry.   ManusVR and Virtual Motion Labs both have products that are currently commercially available and feature the truck and automobile industries to provide sales channels for our products.

In April 2016 we started full scale production for a number of different toy models.  While their schedule was delayed beyond their anticipated June 2016 date, we began shipping orders to them during the third quarter of 2016 and will continue filling their production orders during the final quarter of 2016 and into 2017. We expectFlexpoint Bend

annualized sensor order volumesSensor®.   CaptoGlove along with a few other companies are all expected to be between 750,000release Bend Sensor® products in 2017. Flexpoint expects the purchase orders that are currently being fulfilled for ManusVR and 1,000,000 unitsCaptoGlove to significantly ramp up in 2016, with significant annual increases thereafter.  volume and frequency throughout 2017.

By April 2016 wePurchase orders were receiving increasing frequent ordersalso recently received from repeat customersNoDNA GmbH, a new customer who provides advanced robotics solutions.  This customer serves an expanding global customer base comprised of professional organizations, governmental entities and their sub-suppliers, as well as orders from new customers from around the worldhobbyists and across a number of industries.   We experienced an increase in deliverables, increases in revenue, and a decrease in net loss per share.  We successfully met key milestones and deliverables for a turnkey design/development contract with an automaker, for which the Company received nearly $65,000.  Work continues to move forward on that project which is scheduled to be completed in the fourth quarter of 2016.entrepreneurs.

The Company announced a strategic partnership for the development of technology to allow computers to have any shape or formbegan selling and distributing sensors through flexible displaystwo resellers in 2016.  Flexpoint has since greatly increased its relationships with resellers and other non-flat display technologies.  It is anticipated that the actuationcurrently working with seven resellers across diverse industries. Some of these technologies may be enabled in large part through the integration of next generation materials, the Flexpoint Bend Sensor® technologycompanies include Amazon, NoDNA, RobotShop, Oz Robotics, Karlsson Robotics, SPI and advanced power and electronics designs/techniques.

In June 2016 we announced the commercialization and launch of Gloreha® Sinfonia, an advanced next generation medical rehabilitation suite of products.  These products will have broad use in hospitals, physical therapy centers, and physician offices, as well as in patients’ homes.    

In July 2016 we announced that Bend Sensor® has been chosen by numerous global virtual reality (VR) market leaders to help power their innovative VR platforms.  Manus VR recently has entered the VR market with a revolutionary VR glove which features the Bend Sensor®.  We believe that the Manus VR glove will revolutionize the traditional consumer gaming market.Infusion Systems.  We are excited to bereceiving recurring sales from these resellers with most experiencing a partgrowing number of this VR revolution.

In November 2016 we announced the launch of the Flexpoint Bendsensors ordered each time.  We anticipate that Sensor Glove Kit for usevolume sold in marketing glove-based applications.  The software depicts a 3D hand that mimics in real-time the orientation of the wrist, hand and position of the fingers with respect to the hand. It integrates multiple sensors, including the Bend Sensor®, which are used to derive the orientation of the fingers. Schematics and all development codes are provided for the engineer to view and to be used as a basis for migration and evolution into their own unique application.

Management believes the market for glove applications is expanding and includes industries like the soon to be multi-billion dollar virtual reality/augmented reality (VR/AR) industry, as well as medical wearables, robotics, toys, industrial, music and many other market segments.2017 through these channels should approach 25,000.

The Bend Sensor®biggest revenue contributors during the 2017 second quarter are expected to be glove based technology features high reliability alongproducts and the toy relationship.  Flexpoint, year-to-date, has delivered on approximately 150,000 sensors for its partnership with an extensive life span. Itthe toy manufacturer.  The Company expects annualized volumes for 2017 to be in excess of one million sensors.  Sensor volume from glove based applications is lighter and less obtrusiveexpected to the fingers than other technologies and provides the least complicated way of measuring finger position over other sensor methods. Price/performance is unparalleled by any other sensing technologies.exceed 175,000 in 2017.  

Our patented technology continues to gain recognition in various markets and industries as evidenced by the recent receipt of an initial production order from CPS Color Equipment S.p.A Italy and orders from a Fortune 100 automotive maker for our horn system.  Although, so far the volumes for our applications and devises have been relatively small we continue to receive follow up orders for the universal sensor that we jointly developed last year.developed. We expect to receive additional orders from other customers for this sensor as it becomes more recognizable in the market. Currently our customers for this type of sensor include companies in the following industries: automobiles, trucking, emergency vehicles, 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.

While developing new types of products for our Bend Sensor^® technologies we continue to receive 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.  We have continued to work with market makers and Tier I automotive suppliers in the U.S and Europe on numerous applications for our sensors and devises.   Based upon our discussions within the automotive industry in the U.S. and Europe our unique sensor systems meet the requirements for manufacturers to have lighter weight, more fuel efficient cars.  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^® to be viable as the next generation of sensing devises to the industry. Due to the advanced technology of the Bend Sensor^® and its versatility of applications, we anticipate being a part of the evolution taking place in the automotive, energy and technological industries.

Management believes that our current cash burn rate is approximately $60,000$75,000 per month and the proceeds from the convertible notes and our manufacturing, 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.

We also expect that in the short term we may have to continue to issue common stock to pay for services and agreements rather than use our limited cash resources.  Any issuance of common stock will likely be pursuant to exemptions provided by federal and state securities laws. The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions.  We also note that if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.  

As we enter into production and development agreements, we must ensure that those agreements provide adequate funding for any pre-production research 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/or royalties related to these agreements. However, other than the recent development agreement with Bend Tech that we believe will provide future revenues, we have not formalized any additionalonly a few agreements during the past yearfour years and there can be no assurance that the agreements we currently have will come to fruitiongenerate sufficient revenues or be profitable in the near future or that a desired technological application canwill be broughtsuccessful enough to market on a commercially viable basis.produce the volumes and profits necessary to fund our operations.  

FINANCIAL OBLIGATIONS AND CONTINGENT LIABILITIES

Our principal commitments at September 30, 2016March 31, 2017 consisted of our operating lease of $9,300$9,600 per month, and total liabilities of $1,843,165,$2,450,543, which includes $1,002,630$1,324,660 of convertible notes payable, net of discounts of $245,827.  

impairment testing performed at December 31, 2016, 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.

We test long-lived assets for impairment annually or when a triggering event occurs. Impairment is indicated if undiscounted cash flows are less than the carrying value of the assets. The amount of impairment is measured using a discounted-cash-flows model considering future revenues, operating costs and risk-adjusted discount rate and other factors. The analysis compares the present value of projected net cash flows for the remaining current year and next two years against the carrying value of the long-lived assets. If the carrying values of the long liveslong-lived assets exceed the present value of the discounted projected revenues an impairment expense would be recognized in the period and the carrying value of the assets would be adjusted accordingly.

Other expense for the three-month period ended September 30, 2016 was $264,264, an $88,217 decrease compared to the same period in 2015.  The decrease is attributable to beneficial conversion charges on the convertible notes.    

A net loss of $445,785 was realized for the three months ended September 30, 2016.  This is an improvement of $290,461 over the net loss of $736,246 realized for the three-month period ended September 30, 2015.

NINE MONTH PERIOD ENDED SEPTEMBER 30, 2016:

For the nine months ending September 30, 2016 revenue increased by 100% to $232,569, an increase of $116,289 when compared to the same period in 2015. The majority of the revenue for this period came from production and manufacturing with additional revenue from billable engineering, design and testing services . The Company continues to concentrate its marketing resources on a limited number of customers that have the greatest potential to generate the most short-term revenue while still building relationships with our larger customers. Management believes this approach has the highest potential to bring long-term commercially viable products to market and will provide sustainable cash flow to fund the Company's operations in the future. Currently, overall revenues are not sufficient to sustain our operations.  Management anticipates that revenues will continue to increase as we execute our long-term business plan and cultivate larger customer bases with our existing product offering. However, until a long-term production contract is in place there is no guarantee that our current customer base will order in sufficient volumes to sustain our operations. Therefore, management continues to work with larger companies and industries and is hopeful that in the near future we will sign a long-term licensing or manufacturing contract.

We received revenue from production and manufacturing with additional revenue from billable engineering, design and testing services 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 $847,179$266,651 and $920,135$282,564 total operating costs and expense for the ninethree months ending September 30,March 31, 2017 and 2016, respectively, $79,366 and 2015, respectively, $241,055 and $205,074$80,059 were for direct research and development cost, respectively. For the ninethree months ended September 30, 2016,March 31, 2017, total operating expenses decreased by $72,956$15,910 when compared to the same period in 2015,2016, due primarily to a $214,997 non-cash stock-based compensation charge in 2015 related to the issuance of stock options, offset by increases in personnel expensesreduced amortization charges and research and development costs.professional fees.  

Other expense for the nine-monththree month period ended September 30, 2016March 31, 2017 was $715,031,$85,911, a $141,891$136,065 decrease compared to the same period in 2015.2016.  The decrease is attributable to higher beneficial conversion charges in 2015 on the convertible notes and the $168,286 loss on extinguishment of debt realized in 2015.notes.    

A net loss of $1,329,641$291,497 was realized for the ninethree months ended September 30, 2016.  This represents an improvement of $331,136 over theMarch 31, 2017.  A net loss of $1,660,777$469,375 was realized for the nine-monththree month period ended September 30, 2015.

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have concluded that our disclosure controls and procedures were not effective at that reasonable assurance level as of the end of the period March 31, 2017.  

The material weaknesses relate to the limited number of persons responsible for the nine month period ending September 30, 2016.recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses

(b)

Changes in Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequateThere have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) underduring the Exchange Act). Management reviewed our internal controls over financial reporting, and there have been no changes in our internal controls over financial reporting for the nine month period ended September 30, 2016first quarter of 2017 that have materially affected, or are reasonably likely to materially affect our internal controlscontrol over financial reporting.

ISO/TS-16949 qualification or that the production lines will produce product in the volumes required or that the production lines will satisfy the requirements of our automotive customers.

Our success is dependent on our intellectual property rights which are difficult to protect.

Our future success depends on our ability to protect our intellectual property. We use a combination of patents and other intellectual property arrangements to protect our intellectual property. There can be no assurance that the protection provided by our patents will be broad enough to prevent competitors from introducing similar products or that our patents, if challenged, will be upheld by courts of any jurisdiction. Patent infringement litigation, either to enforce patents or defend ourselves from infringement suits, will be expensive and could divert our resources from other planned uses. Patent applications filed in foreign countries and patents in these countries are subject to laws and procedures that differ from those in the U.S. and may not be as favorable to us. We also attempt to protect our confidential 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 confidential information and intellectual properties from our competitors.

Research and development may result in problems which may become insurmountable to full implementation of production.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Part I Exhibits

Part II Exhibits

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, who is duly authorized.

FLEXPOINT SENSOR SYSTEMS, INC.

Date:   November 14, 2016May 15, 2017

/s/ Clark M. Mower

Clark M. Mower

President, Chief Executive Officer and Director,

Principal Financial Officer