Applied Digital Corp. 10-Q

Item 1A: Risk Factors The following discussion supplements the discussion of the Company’s known trends, risks and uncertainties contained in the Company’s Annual Report filed on form 10-KSB for the year-ended May 31, 2008. RISKS RELATING TO CONTINUATION OF OUR BUSINESS We have indicated that we need to raise an additional $2.5 million in 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. Risks Related to Our Business CONTINUING OPERATING LOSSES We have a history of incurring significant operating losses, including an operating loss of $333,721 for the three-months ended August 31, 2008. We anticipate that we will continue to incur operating losses until such time as we are able to successfully commercialize our newly licensed technology. However, we can provide no assurances as to when, if ever, we will achieve operating profits or if we do, that we will be able to sustain such profitability and at what level of profitability. OUR SUCCESS DEPENDS ON OUR SUCCESSFUL COMMERCIALIZATION OF THE ATMOSPHERIC GLOW PLASMA TECHNOLOGY Our future success will depend on our ability to execute our operating plan to commercialize our newly acquired atmospheric glow plasma technology. On September 2, 2008 we organized a wholly owned subsidiary named Advanced Plasma Products, Inc. (“APP”) to conduct the Company’s plasma products line of business. APP has no history of operations or experience in commercialization of technology. We believe that our new senior management will be able to provide the necessary expertise to manage the commercialization of the technology, including the identification, acquisition and retention of the necessary resources. In addition, we will need $2.5 million of working capital to execute our operating plan. However, there can be no assurances that we will be successful in these undertakings or that these undertakings will occur in a timely manner. 18 FLIGHT SAFETY TECHNOLOGIES, INC. AND SUBSIDIARY GOVERNMENT APPROVAL OF OUR PRODUCTS Certain markets to be targeted by APP will require that our products receive governmental approval before they can be offered for sale. There can be no assurances that we will be able to secure such governmental approval or that we can get such governmental approval on a timely basis to take advantage of market conditions. LOSS OF KEY PERSONNEL The future success of APP depends to a significant degree on the skills, experience and efforts of certain key employees of APP and of the Company. The loss of any one or more of those individuals for any reason could have a material adverse impact on the operations of APP and the Company. We anticipate hiring additional expertise so as to minimize this risk, but will be unable to do so until we have raised sufficient working capital. However, there is no assurance that we will be able to hire the additional expertise or be able to do so in a timely manner. SUCCESSFUL SALES AND MARKETING The sales and marketing of our products will require us to find additional capable employees or distributors and manufacturer’s representatives, who can understand, explain, market, and sell our technology and products to our targeted markets. We may not be successful in attracting, integrating, motivating or retaining new personnel for this effort. SUCCESSFUL PRODUCTION We also will need to assemble new personnel for the production of our products or identify an outside manufacturer for the production of our products. These demands will require us to rapidly increase the number of our employees, vendors, and subcontractors. There is intense competition for capable personnel in all of these areas, and we may not be successful in attracting, integrating, motivating, or retaining new personnel, vendors, or subcontractors for these required functions. SIGNIFICANT COMPETITION In many of our targeted markets, we may face significant competition in areas such as price, performance, perceived value, product recognition and availability of financial resources. Our strategy will be to design and position our products so that we can overcome these risks. However, we cannot guarantee that we will be able to overcome any or all of these competitive issues. ACQUISITIONS COULD DISRUPT OUR BUSINESS We may attempt to acquire businesses or technologies that we believe are a strategic or financial fit with our business. Any future acquisitions may result in unforeseen operating difficulties and expenditures and may absorb significant management attention. Since we may not be able to accurately predict these difficulties and expenditures, these costs may outweigh the value we realize from a future acquisition. Future acquisitions could result in issuances of equity securities that would reduce our stockholders’ ownership interest. FLIGHT SAFETY TECHNOLOGIES, INC. AND SUBSIDIARY 19 Risks Related to Investment in Our Securities RISKS RELATING TO PENNY STOCKS On September 29, 2008 our securities were delisted from the American Stock Exchange because we were unable to meet the continuing listing requirements relating to minimum stockholders’ equity, share price and our history of continuing losses. Our share price was $.20 at the time our delisting. Securities trading below $5.00 per share are subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934. These rules require additional disclosure by broker-dealers in connection with any trades involving a security defined as a penny stock and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally institutions. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of such securities and the ability of purchasers to sell our securities in the secondary market. A penny stock is defined generally as any non-exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions. We are now trading on the Over-the-Counter pink sheet market. RISKS RELATING TO SHAREHOLDER DILUTION We have indicated that we need to raise an additional $2.5 million dollars in working capital. With the trading range of the share price of our common stock between approximately $.07 and $.50, any future issuance of securities will significantly dilute the position of current shareholders. YOU SHOULD CAREFULLY READ AND EVALUATE THIS ENTIRE FORM 10-Q AND OUR CURRENT SEC FILINGS INCLUDING THE RISKS IT DESCRIBES AND NOT CONSIDER OR RELY UPON ANY STATEMENT OR OPINION ABOUT US THAT IS NOT CONTAINED IN THIS FORM 10-Q AND OUR CURRENT SEC FILINGS. Certain statements, information and opinions about us have appeared and may continue to appear in published news reports, analysts’ reports, other media sources and our web site. Some of the information contained in these reports or sources may not be material to understanding our business or may be out of date, erroneous or inconsistent with that disclosed in this Form 10-Q and our current SEC filings. In making a decision to invest in our securities, you should not rely upon any of these statements , information or opinions and should only rely upon, consider and carefully evaluate the information and risks contained I this Form 10-Q and our current SEC filings. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable Item 3. Defaults Upon Senior Securities Not applicable 20 FLIGHT SAFETY TECHNOLOGIES, INC. AND SUBSIDIARY Item 4. Submission of Matters to a Vote of Security Holders Not applicable