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Item 1. Financial Statements

2009-01-16 compared with 2008-10-22 · 149 added, 171 removed, 229 unchanged (58% of the section changed)

32 unchanged sentences

STATEMENT OF OPERATIONS

FOR THE THREE-MONTHS ENDED

FOR THE THREE-MONTHS and SIX-MONTHS ENDED

Three-months ended

Six-months ended

Contract revenues

6 unchanged sentences

Operating loss

Interest income

Interest income, net

Loss before provision for income taxes

Provision for income taxes

$ (1,692,065)

Net loss per share:

4 unchanged sentences

STATEMENTS OF CASH FLOW

FOR THE THREE-MONTHS ENDED AUGUST 31,

FOR THE SIX-MONTHS ENDED NOVEMBER 30,

Cash flows from operating activities:

$ (1,692,065)

Adjustments to reconcile net loss to net cash used in

2 unchanged sentences

Share-based compensation

Gain on disposition of assets

Changes in operating assets and liabilities:

6 unchanged sentences

Purchase of furniture and equipment

Proceeds from available for sale securities

Payments for patents

Proceeds from sale of investment securities

Proceeds from sale of assets

Payments for patents and trademarks

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from installment note

Net cash provided by financing activities

4 unchanged sentences

Issuance of common stock for purchase of furniture

and equipment

and equipment and license fee

The accompanying notes are an integral part of these financial statements

2 unchanged sentences

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE-MONTHS ENDED AUGUST 31,

FOR THE SIX-MONTHS ENDED NOVEMBER 30, 2007 and 2008

Additional Paid-in-Capital

3 unchanged sentences

treasury stock

August 31, 2007

November 30, 2007

$(11,033,891)

1 unchanged sentence

Issuance of stock

August 31, 2008

November 30, 2008

$(13,403,908)

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

Basis of Presentation

8 unchanged sentences

We paid $125,000 in cash and issued 289,436 shares of our common stock valued at $200,000.

On September 10, 2008 , we concluded our agreement with UTRF and will issue 260,417 shares of our common stock as payment for the license fee.

These interim financial statements for the three-months ended August 31, 2008 and August 31, 2007, included herein, have been prepared, without audit, pursuant to the rules and regulations of the SEC.

On September 10, 2008 , we concluded our agreement with UTRF and subsequently issued 260,417 shares of our common stock as payment for the license fee.

These interim financial statements for the three and six-months ended November 30, 2008 and November 30, 2007, included herein, have been prepared, without audit, pursuant to the rules and regulations of the SEC.

Results for the periods presented are not necessarily indicative of results for the entire year.

4 unchanged sentences

The report of our independent registered public accountant issued in conjunction with our audited financial statements and notes thereto for the year-ended May 31, 2008 indicated that there is substantial doubt about our ability to continue as a going concern.

The Company has had recurring losses from operations that have diminished its financial resources.

Our liquidity to date has primarily been provided by revenue from government contracts and proceeds from the sale of our equity securities.

We have not been successful in securing any additional government funding and we will have to rely on the sale of our equity securities to generate sufficient working capital in order to successfully commercialize our newly acquired technology and to pay for our ongoing operations.

As a result of the lack of government funding for

FLIGHT SAFETY TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

our aviation security technologies, we have suspended all related research and develop work.

As of August 31, 2008, our cash and investments were $539,420, which will be insufficient to fund our operations through the current year.

The Company is currently exploring various equity transactions in order to raise sufficient working capital to maintain its operations.

However, in light of the current financial climate, we believe it is unlikely that we will be able to complete a transaction on a timely basis without further interruptions in our operations.

Our inability to successfully conclude an equity transaction would have a material adverse affect upon our financial condition and our ability to maintain our operations.

These factors raise substantial doubt about our ability to continue as a going concern.

The Company has had recurring losses from operations that have diminished its financial resources.

Our liquidity to date has primarily been provided by revenue from government contracts and proceeds from the sale of our equity securities.

As a result of the lack of government funding for our aviation security technologies, we have suspended all related research and develop work.

As of November 30, 2008, we had cash on hand of $67,000 which would be insufficient to fund our operations through the current year.

On January 14, 2009, we completed a series of transactions in order to generate additional cash resources.

See Note 9 of Notes to Consolidated Financial Statements for a full description of the transactions.

As a result of these transactions, the Company anticipates it will have sufficient cash resources into its fiscal 4 th quarter, at which time it will need to seek additional working capital.

We anticipate the amount of such additional working capital could be in the range of approximately $350,000 to $500,000 but cannot predict or estimate such amount with certainty as the ultimate amount will depend on many variables, such as potential third party development or licensing fees, the pace and success of our product development and sales, and cash generated the by the transactions described in Note 9.

In the event we are unable to secure additional working capital we will have to curtail our operations accordingly, thus slowing down our product development and marketing efforts.

Any curtailment of our operations could have a material adverse effect on our operations and financial position.

On September 29, 2008, we were delisted from the American Stock Exchange for failure to maintain the required listing standards.

4 unchanged sentences

Actual results could differ from those estimates.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Share-Based Compensation:

Effective June 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.

123, "Share-Based Payments (revised 2004),"

123, "Share-Based Payments (revised 2004)," (SFAS No.

123R) which requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.

3 unchanged sentences

The Company elected the modified prospective transition method under SFAS 123R and accordingly has not restated periods prior to adoption.

The Company recognized $11,640 and $8,325, as compensation expense related to employee stock options in each of the three-months ended August 31, 2008 and 2007, respectively.

The Company recognized $11,648, $8,325, $23,298 and $16,650, as compensation expense related to employee stock options in each of the three and six-month periods ended November 30, 2008 and 2007, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option pricing model.

There were no options granted in each of the three months ended August 31, 2008 and 2007, respectively.

There were no options granted in each of the six-months ended November 30, 2008 and 2007, respectively.

Loss Per Share:

2 unchanged sentences

therefore, they were not included in the computation of diluted loss per share.

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

(Unaudited) (Continued)

would be anti-dilutive, were 2,962,200 and 3,963,632 for the three-month periods ended August 31, 2008 and August 31, 2007, respectively.

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect would be anti-dilutive, were 2,925,737, 3,840,716, 2,963,930, and 3,953,215 for the three and six-month periods ended November 30, 2008 and November 30, 2007, respectively.

Cash and Cash Equivalents:

7 unchanged sentences

Revenue may be adjusted for our estimate of costs that may be categorized as disputed or unallowable as a result of cost overruns or the audit process.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Project costs include all direct material, labor and subcontracting costs.

10 unchanged sentences

The cost of maintenance and repairs is charged to operations as incurred, whereas significant repairs are capitalized.

The assets recently acquired by APP are currently being carried at their acquisition cost.

We are in the process of determining their fair value and will make the appropriate adjustments to the financial accounts, once that is completed.

Estimated useful lives by asset class are as follows:

3 unchanged sentences

Software 3 years

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

(Unaudited) (Continued)

Intangible Assets:

At August 31, 2008, intangible assets consist of patent costs associated with, AWSM, TIICM™ and atmospheric glow technologies.

Acquisition costs and costs of outside legal counsel related to obtaining new patents are capitalized.

At November 30, 2008, intangible assets consist of patent costs associated with, AWSM, TIICM™

and atmospheric glow technologies.

Acquisition costs related to obtaining new patents are capitalized.

Patent costs are being amortized using the straight-line method over the lesser of seventeen years from the date incurred or the remaining life of the underlying patent.

In accordance with Statement of Financial Accounting Standards No.

144, "Accounting for Impairment or Disposal of Long-Lived Assets"

(SFAS 144) the Company assesses its patents for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable.

144, "Accounting for Impairment or Disposal of Long-Lived Assets" (SFAS 144) the Company assesses its patents for impairment whenever events or changes in circumstances indicate their carrying value may not be recoverable.

Such circumstances may include a significant adverse change in legal factors or the business climate that could affect the value of the patents.

4 unchanged sentences

Subsequent reversal of a previously recognized impairment loss is prohibited under SFAS 144.

FLIGHT SAFETY TECHNOLOGIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Concentration of Credit Risk:

3 unchanged sentences

The concentrated risk associated with contract receivables is mitigated by the fact that these receivables are due primarily from the United States Government.

The risk for investment securities is mitigated by an Investment Policy which, approved by the Board of Directors, restricts investing in fixed income securities below an "A"

rating at the time of purchase and investments in asset backed securities, mortgage backed securities and collateralized mortgage obligations below a "AAA"

rating at the time of purchase.

The risk for investment securities is mitigated by an Investment Policy which, approved by the Board of Directors, restricts investing in fixed income securities below an "A" rating at the time of purchase and investments in asset backed securities, mortgage backed securities and collateralized mortgage obligations below a "AAA" rating at the time of purchase.

Research and Development:

8 unchanged sentences

The estimated fair value of financial instruments has been determined based on the available market information and appropriate valuation methodologies.

The carrying amounts of cash and cash equivalents, accounts receivable (including other receivables),

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

(Unaudited) (Continued)

other current assets, accounts payable and accrued expenses, approximate fair value at August 31, 2008 and May 31, 2008, because of the short maturity of these financial instruments.

The carrying amounts of cash and cash equivalents, accounts receivable (including other receivables), other current assets, accounts payable, notes payable and accrued expenses, approximate fair value at November 30, 2008 and May 31, 2008, because of the short maturity of these financial instruments.

Retirement Savings Plan:

Effective July 1, 2004, the Company established a Retirement Savings Plan (the "Plan") under the provisions of Section 401(k) of the Internal Revenue Code.

Employees, as defined in the plan, are eligible to participate on their first day of employment.

1 unchanged sentence

The Company matching funds immediately vest 100%.

The Company match for each of the three-months ended August 31, 2008 and 2007 were $7,456 and $15,651 respectively.

The Company match for each of the three and six-months ended November 30, 2008 and 2007 were $0, $7,780, $7,456 and $23,431 respectively.

FLIGHT SAFETY TECHNOLOGIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Recent Accounting Pronouncements:

18 unchanged sentences

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Also, the Company may be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP.

These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

The Company had no such assets as of November 30, 2008.

FLIGHT SAFETY TECHNOLOGIES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Assets and liabilities measured at fair value on a recurring basis are summarized below:

AUGUST 31, 2008

Assets/Liabilities

at Fair Value

Securities available for sale

Also, the Company may be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP.

These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

The Company had no such assets as of August 31, 2008.

At August 31, 2008 and May 31, 2008 the investment consisted of an auction market preferred security.

At May 31, 2008 the investment consisted of an auction market preferred security, valued using Level 2 methodology.

Contract Receivables

Accounts receivable consisted of the following at:

August 31, 2008

November 30, 2008

Contract receivables - billed

1 unchanged sentence

The amount classified as other receivables and contract receivables unbilled is a retained fee on a recently completed government contract.

At August 31, 2008 we expect to receive payment during this year.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTHS ENDED AUGUST 31, 2008 AND AUGUST 31, 2007

(Unaudited) (End)

Machinery and Equipment

3 unchanged sentences

Software and computers

Bulk asset purchase not yet allocated, at cost

Less accumulated depreciation

3 unchanged sentences

Accordingly, we will be evaluating the carrying value of the TIICM and AWSM technologies to determine if those values have been impaired.

The carrying values of TIICM and AWSM at August 31, 2008 were $54,150 and $12,880, respectively.

The carrying values of TIICM and AWSM at November 30, 2008 were $53,196 and $12,676, respectively.

FLIGHT SAFETY TECHNOLOGIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

Note payable consists of an installment note relating to the financing of certain insurance policies.

The note is payable is 10 equal installments of $7,407 commencing December 22, 2008 after a $12,750 down payment.

Interest is at 5.47%

Stockholders' Equity

As of both August 31, 2008 and May 31, 2008, the Company had 1,919,200 warrants outstanding with exercise prices ranging from $3.30 to $5.40 with an expiration date of January 29, 2009.

As of both November 30, 2008 and May 31, 2008, the Company had 1,919,200 warrants outstanding with exercise prices ranging from $3.30 to $5.40 with an expiration date of January 29, 2009.

The weighted average exercise price was $3.49.

Stock Options:

Under the Companys 2005 Stock Incentive Plan, there are 1,027,000 shares available for future awards.

No awards were made during the three-month period ended August 31, 2008.

Under the Company's 2005 Stock Incentive Plan, there are 1,302,000 shares available for future awards at November 30, 2008.

During the three and six-month period ended November 30, 2008, no award were made and 275,000 shares were cancelled.

The weighted average exercise price of the 1,302,000 options outstanding is $3.50.

The aggregate intrinsic value of the outstanding options is $0.

As of August 31, 2008 there was $41,710 of total unrecognized compensation cost related to the non-vested stock options that is expected to be expensed over the next one and one-half years.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

Managements Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

Except for the historical information presented in this document, the matters discussed in this annual report on Form 10-Q for the three month period ended August 31, 2008 or otherwise incorporated by reference into this document, contain "forward-looking statements"

(as such term is defined in the Private Securities Litigation Reform Act of 1995).

These statements are identified by the use of forward-looking terminology such as "believes", "plans", "intend", "scheduled", "potential", "continue", "estimates", "hopes", "goal", "objective", expects", "may", "will", "should"

or "anticipates"

or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.

The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by us.

We caution you that no statements contained in this Form 10-Q should be construed as a guarantee or assurance of future performance or results.

These forward-looking statements involve risks and uncertainties, which include risks and uncertainties associated with, among other things, availability of capital to fund operations, research and development, the impact of competitive products and pricing, limited visibility into future product demand, generally slower economic growth, difficulties inherent in the development of complex technology, new products sufficiency, fluctuations in operating results, and other risks are discussed in the "Known Trends, Risks and Uncertainties"

section of Management's Discussion and Analysis of Financial Conditions and Results of Operations of this Form 10-Q.

The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties.

These forward-looking statements are based on current expectations, and, except as required by law, we assume no obligation to update this information whether as a result of new information, future events or otherwise.

Readers are urged to carefully review and consider the various disclosures made by us in this Form 10-Q and in our annual report on Form 10-KSB and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

Our Company had four basic technologies, all in the field of aviation security that it was pursuing.

These technologies were substantially funded by government contracts.

The Company has been unsuccessful in securing additional funding for these projects, and at May 31, 2008 decided to suspend all efforts on them.

In an effort to reduce our reliance on our aviation security technologies, we have undertaken an effort to identify potential diversifying, technology-based acquisitions to enhance shareholder value and provide better opportunity for profitable operations.

To that end, we have licensed patent rights from the University of Tennessee Research Foundation relating to atmospheric glow plasma technology.

In addition, we have acquired the key assets from the previous licensee of that technology, hired some of its key employees, and secured a lease on its former facility.

We believe that this technology has been advanced to the stage where several products can be commercialized and released to the market within two years.

As of November 30, 2008 there was $30,055 of total unrecognized compensation cost related to the non-vested stock options that is expected to be expensed over the next one and one-quarter years.

Subsequent Events

We have filed with the Nevada Secretary of State a Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock for Flight Safety Technologies, Inc.

(the "Certificate") designating a Series A Convertible Preferred Stock ("Preferred Stock"), par value $0.01 per share.

Each share of Preferred Stock has a liquidating value of $100 per share, is convertible into 1,429 shares of Common Stock of the Company (subject to adjustment) and pays a cash dividend of 8% or a dividend in kind of 10%.

The dividends are paid quarterly and are based on the original purchase price of the Preferred Stock.

No dividends will accrue or be paid for any fiscal quarter where shares of our common stock, on a volume weighted average price, trade in excess of $0.14.

Initially, each share of Preferred Stock will have the equivalent voting rights of 1,429 shares of common stock and will vote with our existing common shareholders as a group on all matters subject to shareholder vote.

However, the Preferred Stock shareholders will not be able to vote on issues involving redemption or a liquidation event until there has been an affirmative vote on such issues by our common stock shareholders.

In that event,

FLIGHT SAFETY TECHNOLOGIES, INC.

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Atmospheric glow discharge plasma is a technology that produces tailored plasma gas chemistry for a wide range of applications such as air purification, materials processing, decontamination, sterilization and many others.

We believe these applications can create market opportunities that cover homeland security, health care, process control, and environmental protection, remediation and control.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared according to accounting principles generally accepted in the United States of America.

In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

We evaluate these estimates on an on-going basis.

We base these estimates on historical experiences and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results may differ from these estimates under different assumptions or conditions.

Our management has discussed these estimates and assumptions with our finance and audit committee.

Subjective judgments may have a material impact on our financial statements, including the valuation of inventory and intangible assets.

Federal Acquisitions Regulations require that, among other things, our reimbursable costs are reasonable.

We have analyzed our actual overhead rate and general administrative rate for the fiscal year ended May 31, 2008.

We believe all component costs have been ordinary and necessary but that government auditors may consider some of our selling, general and administrative expenses for the fiscal year ended May 31, 2008 unreasonable for a company our size.

The government has audited and accepted our rates through our fiscal year ended May 31, 2006.

Since there is a degree of subjectivity in the judgment of what levels of cost are reasonable, we can make no assurance that the government will not require further adjustments.

Results of Operations

Revenues for the three months ended August 31, 2008 and 2007 of $54,855 and $46,201, respectively, consisted entirely of revenue from our hydrodynamic software development contracts issued by companies in the maritime industry.

The level of revenues is dependent upon the hours worked on the tasks required.

Cost of revenues:

Cost of revenues for the three months ended August 31, 2008 and 2007 were $25,039 and $42,751, respectively.

It is comprised of subcontract, consultant and direct labor costs.

The decrease in cost of revenues for the August 31, 2008 interim period was primarily the result of not incurring costs for subcontractors and consultants, and to a lesser extent, reduced direct labor hours incurred and billed.

Selling, general and administrative expenses:

Selling, general and administrative expenses for the three months ended August 31, 2008 and 2007 were $338,399 and $814,927, respectively.

The decrease of $476,528 was attributable to (i) lower headcount and related employee benefits of $156,000;

(ii) reduced legal, professional and lobbying fees of $183,000;

(iii) reduced stock-based

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

they will be allowed to vote as a group with the Common Stock shareholders on such issues, in effect, giving them a veto right.

In the event of a liquidation of the Company, the Preferred Stock will have a liquidating preference and will participate in any remaining liquidating proceeds on an as-converted basis with the common shareholders after receiving the liquidating value of their Preferred Stock.

Each share of Preferred Stock is convertible at the option of the holder at any time into shares of our common stock by dividing the liquidity value of $100 by a conversion price of $0.07 per share of common stock.

The number of shares of common stock issuable upon conversion is subject to antidilution protections if we issue additional shares of common stock at less than $0.07 per share and upon stock splits, dividends and certain other events.

Reference is made to the Certificate of Designation for a complete description of the terms of the Preferred Stock.

We will not register the shares of Preferred Stock or shares of common stock into which it may be converted with the U.S.

Securities and Exchange Commission so as to make them eligible for publicly trading, and have no obligation or plans to do so in the future.

Such shares will only be eligible to be sold or traded pursuant to the requirements of Rule 144, promulgated by the U.S.

Securities and Exchange Commission, and applicable state securities laws.

SALE OF SHARES OF PREFERRED STOCK TO INVESTORS

Pursuant to a Purchase Agreement dated as of January 13, 2009 (the "Investor Purchase Agreement"), we are selling 4,400 shares of Preferred Stock for $100 per share to a group of investors (the "Investors") in order to raise an aggregate of $440,000 of equity for working capital purposes.

Participating in this transaction are our two senior executives and three key employees (together "Employees").

Payment will be in the form of cash at closing, except for the employees who will purchase an aggregate amount of $100,000 of Preferred Stock.

Four of these employees will purchase shares with a 20% cash payment at closing and by executing a non-interest bearing promissory note payable semimonthly with a maturity date of March 31, 2009.

One of these employees will purchase shares with an 8% cash payment at closing and execute a non-interest bearing promissory note payable semimonthly with a maturity date of October 31, 2009.

These notes are nonrecourse and collateralized solely by the employee's Preferred Stock.

The Preferred Stock sold herewith, is convertible at $0.07 per share into a total of 6,285,714 shares of the Company's common stock, significantly diluting our existing common stock shareholders.

In the Investor Purchase Agreement, we agree to indemnify investors against damages they may suffer as a result of our breach of certain representations and warranties we have made in that Agreement.

Reference is made to the Certificate and the Investor Purchase Agreement for a complete description of the terms of the Preferred Stock.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

compensation of $73,000;

with the remaining decrease of $65,000 spread over various other categories of expense.

All of these reductions were related to an overall contraction in the operations of the business due to liquidity constraints.

Depreciation and amortization:

Depreciation and amortization expenses for the three months ended August 31, 2008 and 2007 were $7,188 and $27,250, respectively.

The reduction of $20,062 resulted from the write-down or disposition of several assets and the completion of depreciation on other assets.

Research and development:

Research and development expenses for the three months ended August 31, 2008 and 2007 were $21,082 and $109,422, respectively.

The reduction of $88,340 resulted from the decision to suspend all develop activities on our aviation related technologies until we are able to raise sufficient working capital for such purposes.

Interest income:

Interest income for the three months ended August 31, 2008 and 2007 were $3,132 and $39,980, respectively.

The reduction of $36,848 was attributable to a reduction in cash available for investment in interest bearing investments and accounts.

Liquidity and Capital Resources

Our sources of liquidity have been primarily from government contracts and equity financings.

We have undertaken several actions to mitigate the liquidity issue.

We have suspended all research and development activities on our related aviation technologies, as we no longer believe that we can obtain additional government contracts to continue such development and do not have the funds internally.

This lack of funding has had an adverse impact on our ability to develop our current aviation and security related technologies.

As a result we have undertaken to diversify our technology base by identifying other technologies to reduce our reliance on our current technologies.

As a result of this diversification effort, on September 10, 2008, we finalized our licensing agreement with the University of Tennessee Research Foundation for the licensing of patent rights related to atmospheric glow plasma technology.

The agreement provides for exclusive worldwide rights to commercialize the technology in all but a few fields of use.

We believe this technology can be applied to produce products used for, among other things, the sterilization or cleaning of a wide variety of objects and substances, such as medical instruments and air.

Commercialization of this technology will require final product development and for certain applications may require regulatory approval.

Additionally, in a related transaction on August 28, 2008, we purchased the assets of the previous licensee of this technology.

These assets included essential instrument prototypes, engineering drawings, test equipment and a variety of facility related assets.

The payment for the assets was $125,000 cash and $200,000 paid by the issuance of 289,436 shares of our common stock.

We have also hired two senior executives to manage the newly acquired technology and oversee the overall growth plan for the Company, due to their experience in growing early stage companies.

The Companys previous senior management had since resigned.

To develop products under the licensed technology and bring products to market, we estimate that we will require approximately $2.5 million of new working capital.

We are looking to obtain this

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

DESCRIPTION OF OUR ACQUISITION OF CFP WITH SHARES OF PREFERRED STOCK

Pursuant to a Purchase Agreement dated as of January 13, 2009 (the "CFP Purchase Agreement"), we are acquiring from the Cummins Family Limited Partnership, an Idaho limited partnership (the "Purchaser"), 100% of the outstanding stock of Cummins Family Produce, Inc., ("CFP") a potato packing business located in Idaho.

The general partner and majority limited partner of the Purchaser is Cummins Family Holdings, LLC, an Idaho limited liability company controlled by Mr.

Wes Cummins, a director of the Company.

The consideration we are providing is the assumption of a bank promissory note in the amount of approximately $211,000 owed by Mr.

Cummins in connection with the operations of CFP and 20,000 shares Preferred Stock we will issue at closing, valued at $2 million.

Under a performance based earn-out provision, we are obligated to issue an additional number of shares of Preferred Stock, such that the total purchase price is equal to 4.25 times the yearly average EBITDA calculated over the next two years, less the value of the bank promissory note assumed.

Immediately prior to this transaction, CFP will execute (a) a 5-year supply agreement with Southern Slope, Inc., and Black Rock Ag., Inc.

(together the "Growers") who will provide their entire potato harvest to the packing facility and (b) a 5-year lease agreement whereby CFP will lease the packing facility and equipment from Cummins Family Holdings, LLC.

We believe that both agreements reflect current pricing in the industry.

We have no rights to renew these agreements.

Cummins is a majority shareholder in Southern Slope, Inc.

and family members of his are the majority shareholders in Black Rock Ag., Inc.

The Preferred Stock initially issued to the Purchaser in regard to this transaction is convertible at $0.07 per share into a total of 28,571,429 shares of our common stock and will substantially dilute our existing common shareholders.

As a result of this transaction, Mr.

Cummins will control over 60% of the voting shares of the Company.

In the CFP Purchase Agreement, we agree to indemnify the Purchaser against damages it may suffer as a result of our breach of certain representations and warranties we have made in that Agreement.

The Purchaser also has agreed to indemnify us against damages that may result if it breaches certain representations and warranties it has made relating to CFP and the Purchaser.

Reference is made to, and each investor in the Preferred Stock must review, the CFP Purchase Agreement for a complete description of the terms of the CFP transactions.

RELATED PARTY TRANSACTIONS

As previously stated, Mr.

Wesley Cummins is a director and shareholder of the Company, and holds a controlling interest in Cummins Family Limited Partnership, Cummins Family Holdings, LLC and Southern Slope, Inc.

Wesley Cummins' family members hold a controlling interest in Black Rock Ag., Inc.

FLIGHT SAFETY TECHNOLOGIES, INC.

AND SUBSIDIARY

working capital with proceeds from one or more private placements of our securities, some type of financial transaction or a combination of both.

However, in light of the current economic climate, we believe it is unlikely that we will be able to complete such a transaction on a timely basis without further interruptions in our operations.

Without new working capital during our current quarter we will have to either, suspend all operations to provide additional time to try to complete an equity transaction or cease our operations and liquidate our assets.

In the event of liquidation we do not expect any proceeds would be available after payment of liabilities for distribution to our shareholders.

We can give no guaranty or assurance as to whether or when we will complete one or more private placements, financial transaction or bridge funding on a timely basis or whether this newly licensed technology and its commercialization will be successful.

As of August 31, 2008 and May 31, 2008, our cash and investments were $539,000 and $1,003,000, respectively.

For the three months ended August 31, 2008:

(i) cash used by operating activities was $338,479 primarily the result of net losses for the period of $333,721 and (ii) cash used by investing activities was $125,000 attributable solely to the bulk acquisition of assets relating to the atmospheric glow technology business.

Our current revenues come from two contracts relating to hydrodynamic software development for the maritime industry.

These contracts generate approximately $15,000 to $20,000 a month in billings.

Our current backlog is approximately $150,000.

Not applicable

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007

(Unaudited) (Continued)

James Schwartz, a director of the Company, is the managing member of Harvey Partners, LLC, a Delaware limited liability company that is the manager of Harvey SMidCap Fund LP, a Delaware limited partnership, and Harvey SMidCap Offshore Fund, Ltd., a Cayman Islands exempted company, which are participating in the Preferred Stock offering.

Kenneth Wood, President and Chief Executive Officer and a director of the Company is participating in the Preferred Stock offering.

Rosenfeld, Chief Financial Officer, Vice president of Operations, Secretary/Treasurer is participating in the Preferred Stock offering.

CHANGE IN CONTROL

As a result of these transactions, Mr.

Wesley Cummins will exercise or control in excess of 60% of the voting power of the Company.

This change in control will also create limitations to the use of the Company's existing net operating tax loss carryforwards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements