UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  [X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For quarterly period ended September
30, 2008  [
  ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from _____
to _____  Commission file number: No. 0-24368  FLEXPOINT SENSOR SYSTEMS, INC. (Exact name of registrant as specified in
its charter)  Delaware
87-0620425(State
of incorporation)
(I.R.S.
 Employer Identification No.)  106 West Business Park Drive, Draper,
Utah  84020 (Address of principal executive offices)  801-568-5111 (Registrants telephone number)  The registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes  [X]   No  [  ]  Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company:  Large accelerated filer  [   ]
Accelerated filer
                  [
  ]Non-accelerated filer    [
  ]
Smaller reporting company
 [X]  Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act. Yes  [   ]     No
 [X]  Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes  [X]   No  [
 ]  The number of shares outstanding of the registrants
common stock was 24,792,887 as of November 12, 2008.   1     TABLE
OF CONTENTS  PART I: FINANCIAL INFORMATION  Item 1.  Financial Statements  Condensed
Consolidated Balance Sheets (Unaudited) at September 30, 2008 and December
31, 2007 3  Condensed
Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 2008 and 2007 and for the Cumulative Period from February
24, 2004 (Date of Emergence from Bankruptcy) through September 30, 2008 4  Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 2008 and 2007 and for the Cumulative Period from February
24, 2004 (Date of Emergence from Bankruptcy) through September 30, 2008 5  Notes
to Condensed Consolidated Financial Statements (Unaudited) 6  Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations 9  Item 3.
Quantitative and Qualitative Disclosures About Market Risk 13  Item 4T.
Controls and Procedures 13   PART II: OTHER INFORMATION  Item 1A.
 Risk Factors 14  Item 6.
 Exhibits 16  Signatures 17   PART I - FINANCIAL INFORMATION  ITEM 1.  FINANCIAL STATEMENTS The financial information set
forth below with respect to our condensed consolidated financial position as of
September 30, 2008, the condensed consolidated statements of operations for the
three and nine month periods ended September 30, 2008 and 2007, and condensed
consolidated statement of cash flows for the nine month period ended September
30, 2008 and 2007 is unaudited.  This financial information, in the opinion
of management, includes all adjustments consisting of normal recurring entries
necessary for the fair presentation of such data.  The results of
operations for the three and nine month periods ended September 30, 2008, are
not necessarily indicative of results to be expected for any subsequent
period.  2     FLEXPOINT SENSOR SYSTEMS, INC. AND
SUBSIDIARIES(A Development Stage
Company)CONDENSED CONSOLIDATED BALANCE
SHEETS(UNAUDITED)September 30,

December 31,2008

2007ASSETSCurrent
AssetsCash and cash
equivalents
$
          202,926

$
       1,058,135Accounts
receivable
23,329

6,933Deposits and
prepaid expenses
36,635

27,224Total
Current Assets
262,890

1,092,292Long-Term
Deposits
6,500

6,500Property and
Equipment,net of accumulated depreciationof
$0 and $0
590,144

792,535Patents and
Proprietary Technology,net of accumulatedamortization
of $0 and $0
960,986

1,216,233Goodwill
5,356,414

5,356,414Total
Assets
$
       7,176,934

$
       8,463,974LIABILITIES
AND STOCKHOLDERS' EQUITYCurrent
LiabilitiesAccounts
payable
$
             9,693

$
            15,588Accrued
liabilities
90,122

34,237Deferred
revenue
30,700

50,000Total
Current Liabilities
130,515

99,825Stockholders'
EquityPreferred stock
 $0.001 par value; 1,000,000 shares authorized;no
shares issued or outstanding
-

-Common stock 
$0.001 par value; 100,000,000 shares authorized;24,792,887
shares issued and outstanding each period
24,792

24,792Additional
paid-in capital
17,791,493

17,791,493Warrants and
options outstanding
2,002,513

1,799,915Deficit
accumulated during the development stage
(12,772,379)

(11,252,051)Total
Stockholders' Equity
7,046,419

8,364,149Total
Liabilities and Stockholders' Equity
$
       7,176,934

$
       8,463,974The accompanying notes are an integral
part of these condensed consolidated financial
statements.    3     FLEXPOINT SENSOR SYSTEMS, INC. AND
SUBSIDIARIES(A Development Stage
Company)CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS(UNAUDITED)For the CumulativePeriod fromFebruary 24, 2004(Date ofEmergenceFor the Three Months

For the Nine Months

from bankruptcy)Ended September 30,

Ended September 30,

through2008

2007

2008

2007

Sept 30, 2008Design, Contract and TestingRevenue

$
       102,657

$
           8,763

$
       112,750

$
         26,966

$    
        604,054Operating Costs and ExpensesAmortization of patents andproprietary
technology

(35,091)

(38,241)

(105,274)

(114,725)

(675,876)Cost of revenue

(7,316)

(3,007)

(10,415)

(9,646)

(123,759)Administrative and marketing expense

(255,466)

(431,041)

(923,794)

(1,174,523)

(8,856,190)Research and development expense

(100,952)

(132,524)

(355,911)

(354,562)

(1,811,867)Impairment of long-term assets

(246,764)

-

(246,764)

-

(546,562)Total Operating Costs  and
Expenses

(645,589)

(604,813)

(1,642,158)

(1,653,456)

(12,014,254)Other Income and ExpensesInterest expense

(107)

-

(107)

-

(1,576,161)Interest income

1,227

8,384

9,187

15,468

130,896Sublease rent income

-

648

-

2,592

11,340Other income

-

-

-

478

478Gain on forgiveness of debt

-

-

-

-

71,268Net Other Income (Expense)

1,120

9,032

9,080

18,538

(1,362,179)Net Loss

$
     (541,812)

$
     (587,018)

$   (1,520,328)

$   (1,607,952)

$   
   (12,772,379)Basic and Diluted LossPer Common Share

$
           (0.02)

$
           (0.02)

$
           (0.06)

$
           (0.07)Basic and Diluted Weighted-Average Common Shares Outstanding

24,792,887

24,363,539

24,792,887

23,737,942The accompanying notes are an integral
part of these condensed consolidated financial
statements.  4     FLEXPOINT SENSOR SYSTEMS, INC. AND
SUBSIDIARIES(A Development Stage
Company)CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS(UNAUDITED)For the CumulativePeriod fromFebruary 24, 2004(Date of EmergenceFor the Nine Months

from Bankruptcy)Ended September 30,

through2008

2007

September 30, 2008Cash Flows from Operating Activities:Net loss




$
     (1,520,328)

$
     (1,607,952)

$
            (12,772,379)Adjustments to reconcile net loss to net cash used
inoperating activities:Depreciation



107,840

123,561

643,329Amortization of patents and proprietary
technology
105,274

114,725

675,876Impairment of long-lived assets


246,764

-

546,562Issuance of common stock and warrants for
services
-

-

2,695,053Expenses paid by increase in convertible note
payable
-

-

60,000Amortization of discount on note payable

-

-

1,556,666Stock-based compensation expense for
employees
202,596

387,253

1,608,963Changes in operating assets and liabilities:Accounts receivable



(16,397)

(1,710)

(23,330)Prepaid expenses



(9,412)

5,728

(36,636)Accounts payable



(5,894)

(5,029)

(198,413)Accrued liabilities



55,886

61,238

87,631Deferred revenue



(19,300)

-

(313,050)Deposits




-

-

(6,500)Net Cash Used in Operating Activities

(852,971)

(922,186)

(5,476,228)Cash Flows from Investing Activities:Payments for the purchase of equipment

-

-

(197,574)Payments for patents



(2,238)

-

(45,864)Payment for acquisition of equipment and
proprietarytechnology from Flexpoint Holdings, LLC

-

-

(265,000)Net Cash Used in Investing Activities


(2,238)

-

(508,438)Cash Flows from Financing Activities:Net proceeds from issuance of common stock and
warrants
-

1,200,000

5,617,207Principal payments on notes payable - related
parties
-

-

(460,300)Proceeds from notes payable - related
parties

-

-

445,300Proceeds from borrowings under convertible note
payable
-

-

583,334Net Cash Provided by Financing
Activities

-

1,200,000

6,185,541Net Change in Cash and Cash
Equivalents

(855,209)

277,814

200,875Cash and Cash Equivalents at Beginning of
Period
1,058,135

768,220

2,051Cash and Cash Equivalents at End of
Period

$
          202,926

$
       1,046,034

$
                   202,926Supplemental Cash Flow Information:Cash paid for interest



$
                 107

$
                   -

$
                     16,995The accompanying notes are an integral
part of these condensed consolidated financial
statements.  5


FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   NOTE
1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Condensed
Interim Financial Statements The accompanying unaudited condensed
consolidated financial statements include the accounts of Flexpoint Sensor
Systems, Inc. and its 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. 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, 2007, included in the Companys
Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2008.
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, 2008.  Nature of
Operations The Company is located near Salt Lake City, in Draper, Utah
and is a development stage company engaged principally in designing,
engineering, and manufacturing sensor technology and equipment using Bend
Sensors® flexible potentiometer technology. The Company is in the
development stage as planned operations have not commenced.  Development
stage activities primarily include acquiring equipment and technology,
organizing activities, obtaining financing, and seeking manufacturing contracts.
During the nine months ended September 30, 2008, the Company entered into new
manufacturing agreements which are described in Note 3.  Even though the
Company is making strides forward with its business plan, it is likely that
significant progress may not occur within the next four to six months.
 Accordingly, the Company may not realize significant revenues or become
profitable within the next twelve months, which would require additional
financing to fund its long-term cash needs. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern. The Company may be required to rely on debt financing, loans
from related parties, and private placements of common stock for additional
funding.  These sources of financing may only be available on terms not
acceptable to the Company.  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.  Valuation of Long-lived Assets The carrying values of the Companys long-lived assets are reviewed for
impairment annually and whenever events or changes in circumstances indicate
that they may not be recoverable.  When projections indicate that the
carrying value of the long-lived asset is not recoverable, the carrying value is
reduced by the estimated excess of the carrying value over the projected
discounted cash flows. With the current down turn and uncertainty in the global
economy, the Company made an adjustment to its estimated future revenues and
projected cash flows that affected its analysis of the carrying values of its
long-lived assets. The impairment test conducted at September 30, 2008 resulted
in a $246,764 impairment of long-lived assets. The analysis compared the present
value of projected revenues for the remaining current year and next two years
against the carrying value of the long-lived assets.  The result of the
valuation analysis showed an impairment of long-lived assets, as their carrying
values exceeded the present value of the projected discounted cash flows.
 The resultant impairment charge is identified as a line item in the
consolidated statement of operations and was applied ratably on the balance
sheet to each class of property and equipment and patents and proprietary
technology.


6


FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Research
and Development Research and development costs are recognized as an
expense during the period incurred until the conceptual formulation, design, and
testing of a process is completed and the process has been determined to be
commercially viable.  Goodwill Goodwill represents the excess of the Companys reorganization value over
the fair value of net assets of the Company upon emergence from bankruptcy.
Goodwill is not amortized, but is tested for impairment annually or when a
triggering event occurs using a fair value approach. A fair-value-based test is
applied at the overall Company level. The test compares the fair value of the
Company to the carrying value of its net assets. This test requires various
judgments and estimates. The fair value of the Company is determined using the
market value of the Companys common stock. The fair value of the Company is
allocated to the Companys assets and liabilities based upon their fair values
with the excess fair value allocated to goodwill. An impairment of goodwill is
measured as the excess of the carrying amount of goodwill over the determined
fair value.  Stock-Based
Compensation  The Company records stock-based compensation according to
the provisions of FASB Statement No. 123 (Revised 2004), Share-Based Payment.
 As such, the Company recognizes expense for employee compensation from
stock options and awards equal to the grant-date fair value over the vesting
period.  Basic and
Diluted Loss Per Share Basic loss per share is computed by dividing
net loss by the weighted-average number of common shares outstanding during the
period.  Diluted loss per share is computed by dividing net loss by the
weighted-average number of common shares and dilutive potential of common shares
outstanding during the period.  At September 30, 2008, there were
outstanding options and warrants to purchase 1,922,000 shares of common stock.
 At September 30, 2007, there were outstanding options and warrants to
purchase 4,888,335 shares of common stock.  These options and warrants were
not included in the computation of diluted loss per share as their effect would
have been anti-dilutive, thereby decreasing loss per common share. NOTE
2 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 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
utilized the Black-Scholes option-pricing model for calculating the fair value
for financial reporting purposes under SFAS No. 123R.  This model requires
the input of subjective assumptions, including the expected price volatility of
the underlying stock.  Projected data related to the expected volatility
and expected life of stock options is based upon historical and other
information, and notably, the Companys common stock has limited trading
history.  Changes in these subjective assumptions can materially affect the
fair value of the estimate, and therefore, the existing valuation models do not
provide a precise measure of the fair value of the Companys employee stock
options.  On August 8,
2008, the Company granted employee options to purchase an aggregate 165,000
shares of common stock at an exercise price of $.72 per share.  The options
vest over three years beginning on the anniversary of the grant date and expire
on August 25, 2015, which is 10 years from date of Board approval of the Plan.
 The Company used the following assumptions in estimating the fair value of
the options granted on August 8, 2008; market value at time of issuance  $.70;
expected holding period  5 years; risk-free interest


7


FLEXPOINT SENSOR SYSTEMS, INC. AND SUBSIDIARIES (A Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   rate  4.93%;
dividend yield  0%; and expected volatility  200%.  Using these
assumptions, the options granted have a weighted-average fair value of $.68 per
share.  During the nine
month periods ended September 30, 2008 and 2007, the Company recognized $202,596
and $387,253 of stock-based compensation expense, respectively. There were
1,572,000 employee stock options outstanding at September 30, 2008.  A
summary of all employee options outstanding and exercisable under the plan as of
September 30, 2008, and changes during the nine months then ended is set forth
below:   Weighted-AverageWeighted-

Remaining

AggregateAverage

Contractual

IntrinsicOptions
Shares

Exercise Price

Life (Years)

ValueOutstanding
at beginning of period
1,607,000

$
           1.66

7.68

$ 
           -Granted
165,000

$
           0.72

6.90Expired
-

-Forfeited
200,000

$
           1.38Outstanding
at end of period
1,572,000

$
           1.62

6.93

$ 
           -Exercisable
at end of period
1,307,000

$
           1.75

6.40

$
            -
  As of September
30, 2008, there was approximately $108,993 of unrecognized compensation cost
related to employee stock options that will be recognized over a weighted
average period of approximately 1.67 years.  NOTE 3 
RELATED PARTY MANUFACTURING CONTRACT  In September 2005
the Company entered into a manufacturing agreement with R&D Products, LLC, a
Utah limited liability company, doing business in Midvale, Utah.  For the
purpose of this contract, management considers R&D Products to be a related
party because a controlling member of R&D Products, LLC is also a
non-controlling shareholder of Flexpoint Sensor Systems, Inc.  R&D
Products has developed a mattress with multiple air chambers that uses the
Companys Bend Sensors® and the Company has agreed to manufacture the
Bend Sensors® for R&Ds specific mattress use.  The initial
order is for 30,000 Bend Sensors® to be used to begin manufacture of
1,000 mattresses.  R&D Products has deposited with Flexpoint the sum of
$100,000 to begin work on the initial production order of 20 commercial beds.
 However, the realization of the manufacture and sales of the Bend Sensors®
under the Manufacturing Contract is dependent upon R&D Products selling
either their bed technology directly or licensing their technology to a third
party.  On September 11,
2008 R&D Products, LLC entered into a long-term Licensing Agreement for
their bed technology with a major medical solutions provider (Licensee). The
Agreement provides the Licensee the exclusive worldwide rights to R&Ds
patented bed technology. On that same day the Company, R&D Products and the
Licensee entered into a long-term joint manufacturing agreement for R&Ds
bed technology and related products. The manufacturing agreement allows for the
Company to manufacture sensors for the bed technology and related products
through 2018 with an option to renew each year thereafter. Ramp up and
production schedules with specific quantities and dead lines are still being
negotiated.


8


In this quarterly report references to the Company,
we, us, and our refer to Flexpoint Sensor Systems, Inc. and itssubsidiaries.  FORWARD LOOKING STATEMENTS  The Securities and Exchange Commission (SEC) encourages
companies to disclose forward-looking information so that investors can better
understand future prospects and make informed investment decisions.  This
report contains these types of statements.  Words such as may,
 expect, believe, anticipate, estimate, project, or continue or
comparable terminology used in connection with any discussion of future
operating results or financial performance identify forward-looking statements.
 You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this report.  All
forward-looking statements reflect our present expectation of future events and
are subject to a number of important factors and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements.  ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS  EXECUTIVE OVERVIEW  Flexpoint Sensor Systems, Inc. is a development stage
company engaged principally in acquiring equipment and technology, obtaining
financing and seeking manufacturing contracts.  Our planned operations have
not commenced to a commercial level and include designing, engineering and
manufacturing and selling sensor technology and equipment featuring our Bend
Sensor® technology and equipment.  We emerged from Chapter 11 bankruptcy on February 24,
2004 and since that time we have leased a manufacturing facility, purchased
necessary equipment to establish a production line, negotiated contracts,
manufactured and enhance Bend Sensor® technology devices and conducted testing
on those devices.  Our goal is to qualify our production line and facility
as an ISO/TS 16949 production line and facility at a time that production
contracts will require it.  This qualification will increase the
marketability of our products to automotive parts suppliers.  The Company has negotiated the following contracts, which
management believes may produce revenues within the next twelve to eighteen
months:  In September 2007 the Company entered into an agreement
with Intertek Industrial Corp. on an automotive seat monitoring device
application for 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.  Revenue from the
development fees and the initial purchase order are estimated to be
approximately $30,000 for 2008. The Company believes that through its
relationship with Intertek we will further validate our technology in the
automotive and safety industries. Through this validation the Company
anticipates additional projects with Intertek using the Bend
Sensors®.  In March 2008 the Company entered into a basic Agreement
with Auto Electronic Corporation (AEC) to mutually develop, manufacture,
market, and sell automotive products utilizing Bend Sensor® technology.
 AEC, a South Korean auto parts supplier, has a strong relationship with
Hyundai-Kia Motors, as well as other Tier 1 automotive suppliers and
manufacturers.  AEC intends to promote new and innovative applications to
automotive manufacturers and parts suppliers including Hyundai-Kia, the sixth
largest auto manufacturer in the world.  In addition, under the agreement
AEC and Flexpoint will cooperatively work toward development of other
applications utilizing the Bend Sensor® technology for which the company sees a
market. Management believes that the automotive sector offers the greatest
potential for acquiring large, long-term contracts, but because of the length of
time required to successfully market and develop products for automotive use,
the realization of income takes longer in this sector, with substantial income
coming as much as three to five years after agreements have been successfully
negotiated.


9


On September 11, 2008 the Company entered into a Joint
Manufacturing Agreement with R&D Products, LLC a Midvale, Utah company and
R&Ds Licensee of its patented bed technology.  The Licensee is one of
the worlds leading medical mattress provider. The Company agrees to sell Bend
Sensors® to be used in the manufacture and development of R&Ds mattress and
related products on a commercial scale. The mattress and related products will
be distributed, sold and marketed through the Licensees current world-wide
distribution channels. Ramp up and production schedules with specific quantities
and deadlines are currently being negotiated. It is anticipated that sensors
sold for the mattress and related products will generate significant revenue by
the forth quarter 2009. The Manufacturing Agreement is for 10 years and contains
an automatic renewal provision each year thereafter.  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 are making positive strides
forward with our business plan, it is likely that significant progress may not
occur for the next six to eight months.  Accordingly, we cannot guarantee
that we will realize significant revenues or that we will become profitable
during 2008 or 2009.  The widespread credit crisis and unprecedented increases
in retail fuel prices has reduced consumer purchasing power and resulted in an
overall down turn in consumer confidence. These factors have contributed to
lower consumer spending and investments by companies and have resulted in a
world wide slowing of the global economy. While all sectors of the economy are
experiencing difficult times, the automotive industry is particularly
challenged. Worldwide automakers are seeing double digit declines in profits and
in the month of September reported sales at a 15 year low. This trend is
expected to continue through 2009 and not only affect the automobile
manufacturer but also the Tier 1 and after market suppliers.  Because the Company has concentrating most of its
marketing efforts on the automotive industry and the downturn in this industry
and the economy as whole might further delay our efforts in securing a long-term
production contract. The economic down turn might also be to our advantage. Our
Bend Sensor® is lighter in weight, has fewer moving parts than
conventional sensing devises, 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 we are not currently under
production in an auto application, we believe we are poised to provide the next
generation of sensing devises to the industry. With the cost of fuel the auto
industry will be looking to develop more fuel-efficient and alternative-fuel
type (green) vehicles that will need to be lighter in weight, less complicated
in design, and more cost effective to run and build. Due to our 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 industry.  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 twelve months.  For the past twelve months we have relied on
proceeds from private placements we completed in June and September of 2007 to
satisfy our cash requirements.  In these private placements we issued an
aggregate of 1,500,000 shares of common stock at a price of $1.00 per share.
 We realized net proceeds of $1,500,000 from the private placements that we
have used to fund continuing operations and business development.  Management believes that our current cash burn rate is
approximately $120,000 per month and that the remaining proceeds from the
private placement and our engineering and design fees will fund our operations
for at least the next two months. We are currently in negotiations with existing
shareholders on convertible debt financing that will provide sufficient funds
for the next four to six months. Because we have not finalized the agreement the
terms of the financing are not available at this time. We believe that this
additional financing will provide the needed capital to extend operations to be
under development production with R&D Products, LLC and their Licensee on
the medical mattress project. At which time the Licensee will be providing some
needed cash flow during the development stage of the agreement.  We
anticipate requiring additional financing to fund our long-term cash needs.
 We may rely on additional debt financing, loans from related parties and
private placements of common stock for additional funding.  However, we
cannot assure you that we will be able to obtain financing, or that sources of
financing, if any, will continue to be available, and if available, that they
will be on terms favorable to us.


10


We also may receive additional funds in the future from
the exercise of warrants.  As of September 30, 2008 we have outstanding
warrants to purchase an aggregate of 350,000 shares at a strike price of $.80
and we may receive an additional $280,000 if those warrants are exercised.
 However, the warrant holders have sole discretion as to when or if the
warrants are exercised.  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.  If we are
successful in establishing agreements with adequate initial funding, management
believes that our operations for the long term will be funded by revenues,
licensing fees and royalties related to these agreements. However, we have
formalized only a few additional agreements during the past year and there can
be no assurance that agreements will come to fruition in the 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 September 30, 2008 consist
of our operating lease and total current liabilities of $130,515. The operating
lease has average monthly payments of $8,979, including common area maintenance
and a 2% annual increase.  The total future minimum payments under this
lease as of September 30, 2008 were $107,748.  Our total current liabilities include accounts payable of
$9,693 related to normal operating expenses, including health insurance,
utilities, production supplies, travel expense, and expenses for professional
fees.  Accrued liabilities at September 30, 2008, were $120,822 and were
related to deferred revenue, payroll, payroll tax liabilities, accrued
professional expenses, accrued lease expense, and accrued paid time off.
 The deferred revenue of $30,700 is related to the medical bed project and
we anticipate recognition of the revenue by year end.  In January 2006 we initiated a legal action for patent
encroachment and we anticipated that this legal action would result in legal
costs of approximately $100,000; however, the cost of this action has been
higher than anticipated and we now estimate that this legal action will result
in legal costs of approximately $250,000.  Management believes it is
critical to protect our patents and will divert a portion of our financial
resources to continue this legal matter.  OFF-BALANCE SHEET ARRANGEMENTS  None.  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.  We annually test long-lived assets for impairment 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 long-lived asset impairment test conducted at December 31, 2007
identified a loss of $299,798 which was recognized at that date. With the
current uncertainties surrounding the global economy the Company revised its
revenue and cash follow projections for the next two years. Because of the
revised projections, there was also an adjustment to the carrying values of the
Companys long-lived assets. The impairment test conducted at September 30, 2008
resulted in a $246,764 impairment of long-lived assets.  The analysis
compared the present value of projected revenues for the remaining current year
and next two years against the carrying value of the long-lived assets.
 The result of the valuation analysis showed an impairment of long-lived
assets, as their carrying values exceeded the present value of the discounted
projected revenues.  The resultant impairment charge is identified as a
line item in the consolidated statement of operations and was applied ratably on
the balance sheet to each class of property and equipment and patents and
proprietary technology.  Impairment tests will be conducted on a regular
basis and, should they indicate a carrying value in excess of fair value,
additional charges may be required.


11


We account for stock options under Statement of Financial
Accounting Standards No. 123(R), effective January 1, 2006.  Statement
123(R) requires 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 nine month periods ended September 30, 2008 and
2007 we recognized $202,596 and $387,253, respectively, of stock-based
compensation expense for our stock options and there was approximately $108,993
of unrecognized compensation cost related to employee stock options that will be
recognized over approximately 1.67 years.  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 and nine month periods ended September 30, 2008 and 2007.  These
financial statements are included in this report at Part I, Item 1, above.  Three month period ended

Nine month period endedSept 30, 2008

Sept 30, 2007

Sept 30, 2008

Sept 30, 2007Design, contract and testing revenue
$
        102,657

$
            8,763

$
        112,750

$
          26,966Total operating costs and expenses
(645,589)

(604,813)

(1,642,158)

(1,653,456)Net other income


1,120

9,032

9,080

18,538Net loss



(541,812)

(587,018)

(1,520,328)

(1,607,952)Basic and diluted loss per common share
$
            (0.02)

$
            (0.02)

$
             (0.06)

$
             (0.07)
  Our revenue for the 2008 and 2007 interim periods was
from design, contract 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 $645,589 and $1,642,158 total operating costs and
expenses for the three and nine months respectively, $246,764 is related to the
September 30, 2008 impairment of long-lived assets. The adjustment was made
based upon the revised estimated discounted cash flow projection over a 36 month
period.  Based upon the analysis the carrying values of property and
equipment were written down by $94,551 and our intangible asset carrying values
were written down by $152,213.  The increase in revenue for the three and nine month
periods ended September 30, 2008 compared to the three and nine month periods
ended September 30, 2007 resulted from increased revenue for design engineering
work performed for both existing and new customers and the recognition of
$69,300 of deferred revenue related to the design work on the R&D hospital
bed. Additional deferred revenues will be recognized in the fourth quarter.
Management does not anticipate that revenues will significantly increase until
we are in the production phase of a long-term licensing or manufacturing
contract  Total operating expenses increased by $40,776 for the
2008 three month period when compared to 2007 for the same period, and decreased
by $11,298 for the 2008 nine month period compared to the respective 2007 nine
month periods. Included in the 2008 three and nine month total operating expense
was a charge of $246,764 taken for the impairment of long-lived assets. There
was no charge during the same period in 2007. The 2008 three month period
increase was due to the impairment charge and was partially offset by a decrease
of $31,572 in research and development expenses, a decrease in depreciation due
to the natural age of the equipment and a decrease of $186,655 in non cash
stock-based compensation.  The impairment charge for the 2008 nine month
results was offset


12


by decreases of $20,075 in trade show and related
expenses,  $184,657 in non-cash stock-based compensation charge, $6,129 in
dues & subscriptions, $15,721 in depreciation and a decrease of $38,572 in
legal and other professional fees. It is expected that operating expenses will
increase due to additional travel and legal expenses related to the pursuit of
technology, license agreements and additional patents.  Total other income for the 2008 and 2007 periods was
primarily the result of interest income from the proceeds of the private
placement offering, which were deposited in a savings account.  The lower
interest income results from lower amounts on deposit.  Due to minimal revenues and increased operating costs and
expenses, we recorded a net loss and loss per share for both the 2008 and 2007
periods.  Management expects losses to continue in the short term.  The chart below presents a summary of our consolidated
balance sheets at September 30, 2008, and December 31, 2007.  SUMMARY OF BALANCE SHEET
INFORMATIONSept 30, 2008

December 31, 2007Cash and cash equivalents


$
                202,926

$
              1,058,135Total current assets



262,890

1,092,292Total assets



7,176,934

8,463,974Total current liabilities



130,515

99,825Deficit accumulated during the development
stage
(12,772,379)

(11,252,051)Total stockholders' equity


$
            7,046,419

$
             8,364,149
  Cash and cash equivalents decreased by $855,209 at
September 30, 2008 compared to December 31, 2007 because we had minimal revenue
in the 2008 nine month period to provide cash.  The entire decrease in cash
resulted from funds used for operating activities.  Until our revenue
increases, our cash will continue to decrease.  Our non-current assets decreased at September 30, 2008
due to adjustments for depreciation, amortization and the write down of their
carrying values based upon the impairment analysis for the three and nine months
then ended. These assets include property and equipment valued at $590,144 net
of depreciation, patents and proprietary technology of $960,986 net of
amortization, goodwill of $5,356,414, and long-term deposits of $6,500.  Total current liabilities increased by $30,690 at
September 30, 2008, the result of increases in accrued liabilities offset by a
small reduction in accounts payable and deferred revenue.  INFLATION  We do not expect the impact of inflation on our
operations to be significant for the next twelve months.  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK  Not applicable.  ITEM 4T.  CONTROLS AND PROCEDURES  (a) Managements
Annual Report on Internal Control Over Financial Reporting.  As of the end of the period covered by this Quarterly
Report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.  Based upon this evaluation, our Chief Executive Officer


13


and Chief Financial  Officer concluded that
information required to be disclosed is recorded, processed, summarized and
reported within the specified periods, and is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow for timely decisions regarding required disclosure of material
information required to be included in our periodic Securities and Exchange
Commission reports.  Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives and our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to a reasonable assurance level of
achieving such objectives.  However, it should be noted that the design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.  (b) Changes in Internal Control Over
Financial Reporting.  In addition, management reviewed our internal controls
over financial reporting, and there have been no changes in our internal
controls over financial reporting for the third quarter ended September 30, 2008
that have materially affected, or are likely to affect, our internal controls
over financial reporting.  PART II - OTHER INFORMATION  ITEM 1A.  RISK FACTORS  We have a history of losses and may never become
profitable.  We are unable to fund our day-to-day operations from
revenues and the lack of revenues for continued growth may cause us to delay our
business development.  For the 2008 nine month period we had negative cash
flows from operating activities of $852,971.  We will require additional
financing to fund our long-term cash needs and we may be required to rely on
debt financing, loans from related parties, and private placements of our common
stock for that additional funding. Such funding sources may not be available or
the terms of such funding sources may not be acceptable to the company. If the
Company is unable to find such funding it could have a material adverse effect
on our ability to continue as a going concern.  We may not have adequate resources to successfully
manage anticipated growth.  We may not be equipped to successfully manage any
possible future periods of rapid growth or expansion, which could be expected to
place a significant strain on our managerial, operating, financial and other
resources.  Our future performance will depend, in part, on our ability to
manage growth effectively, which will require us to:  · improve existing, and implement new,
financial controls and systems, management information systems, operating,
administrative, financial and accounting systems and controls, · maintain close coordination between
engineering,  programming, accounting, finance, marketing, sales and
operations, and · attract and retain additional
qualified technical and marketing personnel.  There is intense competition for management, technical
and marketing personnel in our business.  The loss of the services of any
of our key employees or our failure to attract and retain additional key
employees could have a material adverse effect on our ability to continue as a
going concern.  We may not have adequate manufacturing capacity to
meet anticipated manufacturing contracts.  We have completed installation of our first production
line and are in the process of qualifying our own manufacturing facility for
ISO/TS-16949 certification.  Currently, we may not have the capacity or the
certification necessary to qualify as a manufacturer for our automotive related
customers. Although we are in the process of becoming a qualified TS 16949
production facility, which some of our current automotive contacts will require,
there is no guarantee that our current facilities will meet all of the
ISO/TS-16949 specifications. It is also possible that our current facility may
not have adequate capacity to meet the production quantities and time demands
necessary to meet the large volume contracts associated with the automotive
industry.


14


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.  Customers request that we create prototypes and perform
pre-production research and development. As a result, we are exposed to the risk
that we may find problems in our designs that are insurmountable to fulfill
production.  In that event, we will be unable to recover the costs of the
pre-production research and development.  However, we are currently unaware
of any insurmountable problems with ongoing research and development that may
prevent further development of an application.  Our products must satisfy governmental regulations in
order to be marketable  During the past several years, the automotive industry
has been subject to increased government safety regulation. Among other things,
proposed regulations from the National Highway Transportation and Safety
Administration required automakers to incorporate advanced air bag technology
into vehicles since 2005 and fully integrated by the end of 2008.  The
requirements allow automakers to meet the requirements over a period of time, up
through 2010, through gradually applying a technology to an increasing
percentage of their car models.  Most automakers are meeting the current
requirements through safety advances in their higher-end automobiles.
 Our products may not meet the proposed National Highway Transportation and
Safety Administration standards or the standards may be modified.  These
proposals call for upgraded air bag system performance tests for passenger cars
and light trucks.  The new testing requirements are intended to improve the
safety of infants, children and out-of-position adults, and maximize the
protection of properly seated adults.  The National Highway Transportation
and Safety Administration tests are similar to conditions that we have already
used to test our Seat Mat System and we believe that our Seat Mat System will
meet the standards as proposed.  In addition, automakers may react to these
proposals and the uncertainty surrounding these proposals by curtailing or
deferring investments in new technology, including our Bend Sensor® technology,
until final regulatory action is taken.  We cannot predict what impact, if
any, these proposals or reforms might have on our financial condition and
results of operations.  Because we are significantly smaller than the majority
of our competitors, we may lack the financial resources needed to capture
increased market share.  The market for sensor devices is extremely competitive,
and we expect that competition will intensify in the future. There can be no
assurance that we will be able to compete successfully against current or future
competitors or that competitive pressures we face will not materially adversely
affect our business, operating results or financial condition.  Our primary
competitors in the air bag market are International Electronics and Engineering,
Siemens, Robert Bosch GmbH, Denso, Inc., Breed Technologies, TRW Automotive,
Delphi Corporation, Autoliv Inc., Takata and Temic.  We believe that none
of our competitors have a product that is superior to our Bend Sensor®
technology at this time.  However, many of our competitors and potential
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships than we do.  These
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing new products and markets than we can.


15


Ongoing industry consolidation among worldwide
automotive parts suppliers and financial difficulties of U.S. auto makers may
limit the market potential for our products.  In the automotive parts industry, there is a trend of
consolidation through business combinations and acquisitions of complementary
technologies among worldwide suppliers as these suppliers seek to build stronger
customer relationships with automobile manufacturers.  Automobile
manufacturers look to Tier 1 suppliers (major suppliers) to provide fully
engineered systems and pre-assembled combinations of components rather than
individual components.  This trend of consolidation of suppliers may result
in fewer Tier 1 suppliers and thus limit the marketing opportunities for our
Bend Sensor® technology.  In addition, U.S. auto makers have closed plants
and reduced their work force, some Tier 1 suppliers are in bankruptcy or in
financial difficulty, and automobile manufacturers have reported increased
financial difficulties.  These industry trends may limit the market for our
products.  Failure to achieve and maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act could lead to
loss of investor confidence in our reported financial information.  Pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, we are required to furnish a report by our management on our internal
control over financial reporting.  If we cannot provide reliable financial
reports or prevent fraud, then our business and operating results could be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our stock could drop significantly.  Our
independent registered accounting firm must attest to the effectiveness of our
internal control over financial reporting for the fiscal year ended December 31,
2009.  We cannot assure you as to our independent auditors conclusions at
December 31, 2009 with respect to the effectiveness of our internal control over
financial reporting.  There is a risk that our independent auditors will
not be able to conclude at December 31, 2009 that our internal controls over
financial reporting are effective as required by Section 404 of the Act.  ITEM 6. EXHIBITS  Part I Exhibits  No. Description.  31.1 Certification of Clark M. Mower
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  31.2 Certification of Thomas N. Strong
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  32 Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002  Part II Exhibits  No. Description.  2.1 Order Confirming Plan, dated February
24, 2004 (Incorporated by reference to exhibit 2.1 for Form 8-K filed March 5,
2004)  2.2 Debtors Plan of Reorganization, dated
January 14, 2004 (Incorporated by reference to exhibit 2.2 for Form 8-K filed
March 5, 2004)  3.1 Certificate of Incorporation of
Flexpoint Sensor, as amended (Incorporated by reference to exhibit 3.1 for Form
10-QSB, filed August 4, 2006)  3.2 Bylaws of Flexpoint Sensor, as amended
(Incorporated by reference to exhibit 3.4 of Form 10-QSB, filed May 3, 2004)  10.1 Lease Agreement between Flexpoint
Sensor and F.G.B.P., L.L.C., dated July 12, 2004 (Incorporated by reference to
exhibit 10.2 of Form 10-QSB, filed November 15, 2004, as amended)


16


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 are duly authorized.   FLEXPOINT SENSOR SYSTEMS, INC.    Date: November 12, 2008  /s/ Clark M. Mower Clark M. Mower President, Chief Executive Officer and
Director  Date: November 8, 2006 /s/ Thomas N. Strong Thomas N. Strong Controller, Chief Financial
Officer


17