QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS
SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number: 001-14005
FRISBY TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1411534
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
77 East Main Street
Suite 2000
Bay Shore, New York 11706
(Address of Principal Executive Offices and Zip Code)
(516) 969-8570
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 ________
Number of shares outstanding of the issuer's Common Stock, par value $.001
per share, as of July 31, 1998: 5,120,613 shares.
<PAGE>
FRISBY TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I Financial Information 4
Item 1. Financial Statements 4
Balance Sheets - June 30, 1998 (unaudited) and
December 31, 1997 4
Statements of Operations - Three and Six
Month Periods Ended June 30, 1998 (unaudited)
and June 30, 1997(unaudited) 5
Statement of Stockholders' Equity - Six Month Period
Ended June 30, 1998 (unaudited) 6
Statements of Cash Flows - Six Month Period Ended
June 30, 1998 (unaudited) and June 30, 1997 (unaudited) 7
Notes to Financial Statements - June 30, 1998 (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information 14
Signatures 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Frisby Technologies, Inc.
Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,875,306 $ 375,222
Short-term investments 8,753,702 -
Accounts receivable - billed 467,963 358,452
Accounts receivable - unbilled 150,137 52,150
Inventory 529,604 247,686
Recoverable and prepaid income taxes 26,902 26,902
Other current assets 395,619 7,192
---------- ----------
Total current assets 13,199,233 1,067,604
Property and equipment, net 71,963 61,323
Other non-current assets
76,811 138,908
---------- ----------
Total assets $ 13,348,007 $ 1,267,835
============== ===============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 671,511 $ 353,427
Accrued expenses and other current liabilities 232,791 63,143
License fees payable 50,930 184,640
Deferred license revenues 54,569 50,000
---------- ----------
Total current liabilities 1,009,801 651,210
Accrued license agreement costs 101,250 101,250
Deferred license revenues 36,867 40,000
---------- ----------
Total liabilities 1,147,918 792,460
Commitments
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized; shares issued and 2,479,000 -
outstanding: 587,500 in 1998 and none in 1997
Common Stock, $.001 par value; 10,000,000 shares authorized; 5,121 3,281
5,120,613 and 3,280,613 shares issued and outstanding in
1998 and 1997
Additional paid-in capital 12,185,327 1,540,575
Deferred compensation (190,000) -
Accumulated deficit (2,279,359) (1,068,481)
----------- -----------
Total stockholders' equity 12,200,089 475,375
----------- -----------
Total liabilities and stockholders' equity $ 13,348,007 $ 1,267,835
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three month period ended Six month period ended
June 30, June 30,
---------------------------------------- -- ------------------------------------
1998 1997 1998 1997
------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 546,765 $ 205,636 $ 818,140 $ 220,462
Research and development projects 79,421 92,719 128,692 231,332
Licenses and royalties 48,050 37,000 74,668 46,000
-------------- ----------- ------------ ----------
Total revenues 674,236 335,355 1,021,500 497,794
-------------- ----------- ------------ ----------
Cost of sales:
Product sales 530,886 174,566 752,699 241,447
Research and development projects 64,203 45,967 98,981 135,400
Licenses and royalties 5,541 17,750 7,304 28,100
-------------- ------------ ------------ ----------
Total cost of sales 600,630 238,283 858,984 404,947
-------------- ------------ ------------ ----------
Gross profit 73,606 97,072 162,516 92,847
Selling and marketing expense 224,719 92,327 444,867 152,168
General and administrative expense 641,553 260,141 1,042,546 430,686
-------------- ------------ ------------ ----------
Loss from operations (792,666) (255,396) (1,324,897) (490,007)
Interest income (expense) 111,135 (8,790) 114,019 (14,041)
-------------- ------------ ------------ ----------
Loss before income taxes (681,531) (264,186) (1,210,878) (504,048)
Income tax provision - - - 44,792
-------------- ------------- ------------ ----------
Net loss $ (681,531) $ (264,186) $(1,210,878) $ (548,840)
============== ============= ============ ===========
Net loss per common share - basic and $ (.14) $ (.09) $ (0.30) $ (0.19)
diluted ============== ============= ============ ===========
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional Deferred
Preferred Stock Common Stock Paid-In Compensation Accumulated
Shares Amount Shares Amount Capital Expense Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at -- -- 3,280,613 $ 3,281 $1,540,575 -- $(1,068,481) $ 475,375
December 31, 1997
Exercise of 587,500 $2,479,000 -- -- -- -- -- 2,479,000
preferred stock
option, net of
related costs
Initial public -- -- 1,840,000 1,840 10,394,752 -- -- 10,396,592
offering, net
of related
costs
Issuance -- -- -- -- 250,000 $(250,000) -- --
of options
and warrants
to consultants
Amortization -- -- -- -- -- 60,000 -- 60,000
of deferred
compensation
Net loss -- -- -- -- -- -- (1,210,878) (1,210,878)
--------- --------- --------- --------- -------- ------------ ----------- ---------
Balance
at June 30,
1998 587,500 $ 2,479,000 5,120,613 $ 5,121 $ 12,185,327 $ (190,000) $(2,279,359) $ 12,200,089
========== =========== ========= =========== ============ ============ =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six month period ended
June 30,
-------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net loss $ (1,210,878) $ (548,840)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 9,304 7,566
Amortization of deferred compensation 60,000 -
Deferred income tax provision - 44,792
Changes in assets and liabilities:
Accounts receivable (207,498) (164,996)
Inventory (281,918) (114,329)
Other current assets (388,427) (78,221)
Other non-current assets 62,097 43,732
Accrued license agreement costs - 14,117
Accounts payable 318,084 144,689
Accrued expenses and other current liabilities 169,648 22,686
Licenses fees payable (133,710) (7,446)
Deferred licenses revenues 1,436 174,000
Payments to related party - (10,500)
------------------- -------------------
Net cash used in operating activities (1,601,862) (472,750)
------------------- -------------------
Investing activities
Capital expenditures (19,944) -
Purchases of short-term investments (8,753,702) -
------------------- -------------------
Net cash used in investing activities (8,773,646) -
------------------- -------------------
Financing activities
Net proceeds from exercise of convertible preferred stock option 2,479,000 -
Net proceeds from initial public offering 10,396,592 -
Borrowings from related party - 179,450
Borrowings from bank - 250,000
------------------- -------------------
Net cash provided by financing activities 12,875,592 429,450
------------------- -------------------
Net increase (decrease) in cash and cash equivalents 2,500,084 (43,300)
Cash and cash equivalents-beginning of period 375,222 52,677
------------------- -------------------
Cash and cash equivalents-end of period $ 2,875,306 $ 9,377
=================== ===================
Supplemental information
Interest paid $ 1,189 $ 14,269
=================== ==================
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements
June 30, 1998 (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles and reflect all
adjustments consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the periods
shown. The results of operations for such periods are not necessarily indicative
of the results expected for the full fiscal year or for any future period. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.
The accompanying financial statements should be read in conjunction with
the audited financial statements of Frisby Technologies, Inc. (the "Company")
for the year ended December 31, 1997 and the notes thereto contained in the
Company's Registration Statement on Form SB-2, Registration No. 333-45121, filed
with the Securities and Exchange Commission on March 30, 1998, as amended.
2. Stockholders' Equity
On December 29, 1997, the Company sold 441,327 shares of its common stock,
$.001 par value (the "Common Stock") and an option (the "Convertible Preferred
Stock Option") to purchase 587,500 shares of the Company's convertible preferred
stock, $.001 par value (the "Convertible Preferred Stock") at an exercise price
of $4.26 per share expiring on February 27, 1998 in a private placement (the
"Private Placement") to a foreign investor for an aggregate purchase price of
$2,500,000. On February 27, 1998, the foreign investor exercised the Convertible
Preferred Stock Option. This transaction resulted in net proceeds to the Company
of $2,479,000, after the payment of related expenses.
On April 1, 1998, the Company consummated an Initial Public Offering (the
"IPO") of 1,600,000 shares of Common Stock at a price of $7.00 per share. On May
15, 1998, Barington Capital Group, L.P., the underwriter in connection with the
IPO (the "Underwriter"), exercised its over-allotment option to purchase an
additional 240,000 shares of the Common Stock at a price of $7.00 per share. The
total net proceeds to the Company amounted to approximately $10,400,000 after
the underwriters' discount and related expenses. The net proceeds of these
transactions have been invested in cash deposit accounts and cash equivalents,
institutional U.S. Government Money Market Funds and commercial paper of
selected U.S. companies.
In April, 1998 the Company entered into a two year consulting agreement
with a company managed by a member of the Company's Board of Directors. In
conjunction with this agreement, the Company issued warrants to purchase 110,000
shares of the Company's common stock at an exercise price equal to the then
market price. Additionally, the Company issued options to three other
consultants to purchase 4,000 shares of the Company's common stock at an
exercise price equal to the then market price. The Company estimates that the
aggregate fair market value of these warrants and options is $250,000.
<PAGE>
3. Summary of Significant Accounting Policies
Net Loss Per Share
Net loss per share for the three and six month periods ended June 30, 1998
and 1997 are based on the weighted average number of common shares outstanding
during the period in accordance with the Statement of Financial Accounting
Standard ("SFAS") No. 128 "Earnings Per Share."
Shares used in the computation of net loss per share for the three and six
month periods ended June 30, 1998 were 5,037,995 and 4,036,259, respectively.
Shares used in the computation of net loss per share for both the three and six
month periods ended June 30, 1997 were 2,839,286. The number of shares used in
the calculation of net loss per share on a basic and diluted basis are the same.
The 587,500 shares of Convertible Preferred Stock represent potential common
stock that was not included in the computation of diluted net loss per share for
the three and six month period ended June 30, 1998 due to their anti-dilutive
nature.
Stock options granted to employees and directors under the Company's Stock
Option Plan adopted in March 1998 and other options granted to consultants,
would have had an effect on the number of Common Shares outstanding in 1998. The
total number of options outstanding as of June 30, 1998 was 256,000.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." These standards are effective for fiscal
years beginning after December 15, 1997. The adoption of these standards had no
material impact on the Company's statements of operations, cash flows or balance
sheets.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations for the three and six month periods ended June 30,
1998 compared with the three and six month period ended June 30, 1997
Revenues. The Company generates revenue from three primary sources: (i)
sales of its Thermasorb(R) additives and ComforTemp(R) foam products for use in
its strategic partners' products; (ii) revenue from research and development
contracts related to the United States government and from private companies;
and (iii) license fees and royalties from the use of the Thermasorb(R) and
ComforTemp(R) trademarks by strategic partners in end-use products, as well as
other fees earned in connection with its agreements with strategic partners.
Total revenues for the three month period ended June 30, 1998 increased by
$339,000 to $674,000 from $335,000 for the three month period ended June 30,
1997. Total revenues for the six month period ended June 30, 1998 increased by
$524,000 to $1,022,000 from $498,000 for the six month period ended June 30,
1997.
Product sales. Product sales for the three month period ended June 30, 1998
increased by $341,000 to $547,000 from $206,000 for the three month period ended
June 30, 1997. Product sales for the six month period ended June 30, 1998
increased by $598,000 to $818,000 from $220,000 for the six month period ended
June 30, 1997. These increases were primarily the result of the Company bringing
its ComforTemp(R) foams to market commencing in the second quarter of 1997 with
sales principally to one customer. Product sales for 1998 have primarily been to
five strategic partners in the apparel and footwear industry.
Research and development projects. Revenues from research and development
projects for the three month period ended June 30, 1998 decreased by $14,000 to
$79,000 from $93,000 for the three month period ended June 30, 1997. Revenues
from research and development projects for the six month period ended June 30,
1998 decreased by $102,000 to $129,000 from $231,000 for the six month period
ended June 30, 1997. These decreases resulted primarily from the shift in the
Company's focus away from obtaining and performing funded research and
development contracts to the commercialization of its thermal management
products.
Licenses and royalties. Revenues from license fees and royalties for the
three month period ended June 30, 1998 increased by $11,000 to $48,000 from
$37,000 for the three month period ended June 30, 1997. Revenues from license
fees and royalties for the six month period ended June 30, 1998 increased by
$29,000 to $75,000 from $46,000 for the six month period ended June 30, 1997.
These increases reflect the recognition of fees received from strategic partners
for license agreements entered into beginning in the second quarter 1997.
License fees are recognized as revenue ratably over the life of the license
agreement. Additionally, royalty fees increased to $24,000 for the six months
ended June 30, 1998 from zero during the comparable period in 1997.
<PAGE>
Cost of Sales. The Company's cost of sales consists of: (i) direct and
indirect costs incurred in connection with product sales; (ii) direct and
indirect costs incurred in connection with revenue from research and development
contracts relating to the United States government programs; and (iii) royalty
payments required to be made to the inventor of the thermal management
technology or other licensors. Total gross profit for the three month period
ended June 30, 1998 decreased by $23,000 to $74,000 from $97,000 for the three
month period ended June 30, 1997. Total gross profit for the six month period
ended June 30, 1998 increased by $70,000 to $163,000 from $93,000 for the six
month period ended June 30, 1997.
Cost of sales -- Products. The cost of sales related to products for the
three month period ended June 30, 1998 increased by $356,000 to $531,000 from
$175,000 for the three month period ended June 30, 1997. The cost of sales
related to products for the six month period ended June 30, 1998 increased by
$512,000 to $753,000 from $241,000 for the six month period ended June 30, 1997.
These increases reflect the higher volume of product sales and the corresponding
costs related to such product sales in the three and six month period ended June
30, 1998 as compared to the corresponding period in the prior year. Unit costs
increased in the quarter ended June 30, 1998 as compared to the corresponding
period of 1997 resulting from incremental costs incurred to expedite production
and delivery of a large customer order.
Cost of sales -- Research and development projects. The cost of sales
related to research and development projects for the three month period ended
June 30, 1998 increased by $18,000 to $64,000 from $46,000 for the three month
period ended June 30, 1997. This increase reflects higher costs associated with
the contracts being worked on during the current year. The cost of sales related
to research and development projects for the six month period ended June 30,
1998 decreased by $36,000 to $99,000 from $135,000 for the six month period
ended June 30, 1997. This decrease is consistent with the shift in the Company's
focus away from obtaining and performing funded research and development
contracts and to the commercialization of its thermal management products.
Cost of Sales -- Licenses and royalties. The cost of sales related to
licenses and royalties for the three month period ended June 30, 1998 decreased
by $12,000 to $6,000 from $18,000 for the three month period ended June 30,
1997. The cost of sales related to licenses and royalties for the six month
period ended June 30, 1998 decreased by $21,000 to $7,000 from $28,000 for the
six month period ended June 30, 1997. These decreases primarily reflect the
expensing in a prior period of a royalty fee paid to the inventor of the
Company's licensed technology.
Selling and marketing expense. Selling and marketing expense for the three
month period ended June 30, 1998 increased by $133,000 to $225,000 from $92,000
for the three month period ended June 30, 1997. Selling and marketing expense
for the six month period ended June 30, 1998 increased by $293,000 to $445,000
from $152,000 for the six month period ended June 30, 1997. These increases were
primarily the result of the Company increasing its marketing and advertising
activity in order to build brand name recognition of its Thermasorb(R) and
ComforTemp(R) products and trademarks. Additionally, the amortization of
deferred compensation expense of $60,000 for options and warrants granted to
consultants in the current year also contributed to this increase.
General and administrative expense. General and administrative expense for
the three month period ended June 30, 1998 increased by $382,000 to $642,000
from $260,000 for the three month period ended June 30, 1997. General and
administrative expense for the six month period ended June 30, 1998 increased by
$612,000 to $1,043,000 from $431,000 for the six month period ended June 30,
1997. These increases reflect the increase in personnel and personnel-related
expenses, including travel, and recruiting costs of new employees. Additionally,
fees and expenses paid to consultants have also increased over the comparable
period for the prior year. These increases are in connection with the expansion
of the Company's operations and commercialization of its thermal management
products.
<PAGE>
Net interest income/expense. The Company earned net interest income of
$111,000 for the three month period ended June 30, 1998 as compared to net
interest expense of $9,000 for the three month period ended June 30, 1997. The
Company earned net interest income of $114,000 for the six month period ended
June 30, 1998 as compared to net interest expense of $14,000 for the six month
period ended June 30, 1997. These changes are due to the receipt of net proceeds
from the Private Placement in December 1997, the exercise of the Convertible
Preferred Stock Option in February 1998 and the Initial Public Offering in April
1998 and the interest earned on the proceeds thereof.
Income tax provision. The Company recorded no income tax provision for the
three month period ended June 30, 1998 and 1997. For the three and six month
period ended June 30, 1998 and the three month period ended June 30, 1997, the
Company recorded a valuation allowance equal to the net deferred tax asset
recorded in the period. For the six month period ended June 30, 1997, the
Company recorded a provision of $45,000 which arose from providing a valuation
allowance against all deferred tax assets recorded as of March 31, 1997. The net
deferred tax assets as of both June 30, 1998 and 1997 arise principally from a
net operating loss carryforward. The valuation allowances recorded are due to
uncertainties relating to expected future taxable income that would have to be
generated to realize such assets.
Net loss. As a result of the foregoing, the net loss for the three month
period ended June 30, 1998 increased to $682,000 from $264,000 for the three
month period ended June 30, 1997. Additionally, the net loss for the six month
period ended June 30, 1998 increased to $1,211,000 from $549,000 for the six
month period ended June 30, 1997.
Liquidity and capital resources. At June 30, 1998, the Company had working
capital of $12,190,000, including short-term investments of $8,750,000, accounts
receivable-billed of $468,000 and inventory of $529,000, offset by accounts
payable of $672,000 and accrued expenses of $233,000.
Cash used by operating activities was $1,602,000 and $473,000,
respectively, for the six month period ended June 30, 1998 and 1997. The primary
factor contributing to the cash used in operating activities for the six month
period ended June 30, 1998 and 1997 was the net loss for each of the respective
periods. Cash used by investing activities was $8,774,000 for the six month
period ended June 30, 1998. The primary factor contributing to the cash used in
financing activities for the six month period was the purchase of short-term
investments. Cash provided by financing activities was $12,876,000 and $429,000,
receptively, for the six month period ended June 30, 1998 and 1997. The primary
financing activity for the six month period ended June 30, 1998 was the receipt
of the net proceeds of $2,479,000 from the exercise of the Convertible Preferred
Stock Option and $10,397,000 from the initial public offering. The Company is
relocating its North Carolina operations to a newly renovated facility located
in Winston Salem, North Carolina during the second half of fiscal 1998. The
total cash requirement with respect to that relocation and the related purchase
of thermal testing equipment will be expended primarily in the third quarter of
1998 and is not expected to exceed $1,200,000.
<PAGE>
Based on the Company's current operating plan, the Company believes that
the proceeds from the IPO, together with its existing resources and revenues
from continuing operations, will be sufficient to satisfy its capital
requirements for at least 24 months following the IPO. Such belief is based upon
certain current assumptions, and there can be no assurance that such assumptions
are correct. Further, depending on the Company's progress related to marketing
its product line, gaining market acceptance of its thermal management technology
and its other products and services in the business community, and capitalizing
upon potential acquisition opportunities, the Company may determine that it is
advisable to raise additional capital sooner than anticipated.
The Company renewed its line of credit with a bank as of June 30, 1998. The
$1,000,000 line of credit bears interest at the lower of the bank's prime rate
or a two percentage point spread versus the London Interbank Overnight Rate
("LIBOR") and expires on June 30, 1999. The full amount of the line is currently
available.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-QSB,
including, without limitation, information appearing under Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors set forth in the Company's Prospectus filed April 2, 1998, or in
the Company's other Securities and Exchange Commission filings, could affect the
Company's actual results and could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company in this Quarterly Report on Form 10-QSB.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
On April 1, 1998, the Company completed an initial public offering (the
"Offering") of 1,600,000 shares of its Common Stock, $.001 par value per share.
The Company's Registration Statement on Form SB-2 (Registration Number
333-45121) was declared effective by the Securities and Exchange Commission on
April 1, 1998. On May 15, 1998, Barington Capital Group, L.P. (the
"Underwriter") exercised its over-allotment option to purchase an additional
240,000 shares of Common Stock at the Offering price.
The aggregate offering price of the 1,840,000 shares of Common Stock sold
in the Offering to the public was $12,880,000. The Company realized net proceeds
of approximately $10,400,000 after deduction of underwriting discounts and
commissions and other Offering expenses paid by the Company in the amount of
approximately $2,480,000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.6.1 Revised Line of Credit Agreement with European American Bank
10.25 Consulting Agreement dated April 13, 1998 between the Company and
GGC, Inc.
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1998
FRISBY TECHNOLOGIES, INC.
By: /s/Gregory S. Frisby
-------------------------------
Gregory S. Frisby
President and
Chief Executive Officer
By: /s/Stephen P. Villa
-------------------------------
Stephen P. Villa
Chief Financial Officer
June 24, 1998
Frisby Technologies, Inc.
77 East Main Street
Bay Shore, NY 11706
Re: $1,000,000 line of credit
Gentlemen:
European American Bank ("EAB") is pleased to advise you it holds available
for Frisby Technologies, Inc. (the "Borrower"), a corporation organized and in
good standing under the laws of the State of New York, a line of credit (the
"Line") in the amount of $1,000,000, subject to the following terms and
conditions:
1. Description of the Line:
The Line shall be fully available for direct borrowings (each a "Loan" and
collectively, the "Loans") and standby letters of credit (each an "SBLC" and
collectively, the "SBLCs").
Loans provided under the Line shall be evidenced by EAB's standard Master
Note (the "Note") in the amount of $1,000,000. Each advance thereunder shall
bear interest at a rate to be elected by the Borrower at the time a request for
an advance is made equal to either.
(i) Prime Rate Option: A floating rate of interest equal at all times to
EAB's Prime Rate, (the rate of interest stated by EAB to be its Prime Rate in
effect from time to time and adjusted when said Prime Rate changes) computed on
the basis of actual days elapsed in a 360 day year.
(ii) LIBOR Rate Option: A fixed rate of interest equal to the Reserve
adjusted LIBOR, as such term is defined in the Note, plus a margin of 2% per
annum for interest periods of 30, 60, or 90 days.
Interest on the unpaid principal balance of the Note from time to time
outstanding shall be payable monthly in arrears commencing on the first day of
the month following the date of the first advance under the Note. Any advance
under the Line made by EAB in its discretion shall be in an amount not less than
$10,000.
In the event that an advance bears interest at the Prime Rate Option, such
advance may be prepaid, in whole or in part, in increments of not less than
$10,000, without premium or penalty.
The Borrower agrees to indemnify EAB and to hold EAB harmless from actual
loss or expense, if any, that EAB may sustain or incur should the Borrower make
any prepayment of the principal of an advance hereunder bearing interest at the
LIBOR Rate (whether at stated maturity or by acceleration), including, but
limited to, any interest actually payable by EAB to lenders of funds obtained by
it in order to make or maintain the Note at the LIBOR Rate Option.
<PAGE>
Each SBLC issued under the Line shall be evidenced by EAB's standard
Application and Agreement for Standby Letters of Credit. There shall be payable
in respect of each SBLC, a fee equal to 1% per annum together with EAB's
standard charges for standby letters of credit.
The Borrower acknowledges and agrees that the Line is uncommitted and
requests for advances or extensions of credit thereunder shall be approved in
the discretion of EAB, which may refuse to make an extension of credit under the
Line at any time without prior notice to the Borrower, and that the performance
or compliance by the Borrower of the agreements contained in this letter, or in
any other document or agreement evidencing or securing such advances or
extensions of credit, shall not obligate EAB to make an advance or provide an
extension of credit thereunder.
Subject to the terms and conditions hereof, the Line shall be available
until June 30, 1999.
2. Purpose of the Line: The purpose of the Line shall be to support the
Borrower's short-term working capital needs.
3. Security for the Line: The Line shall be secured by a first priority
security interest in all assets and personal property of the Borrower pursuant
to EAB's standard General Security Agreement and duly filed UCC-1 Financing
Statements. Each advance made or letter of credit issued under the Line shall
also be secured by a pledge of marketable securities or other collateral
acceptable to EAB.
4. Financial Reporting: The Borrower shall provide to EAB:
(i) As soon as available, but in any event within five (5) days after the
filing thereof, a copy of each annual report of the Borrower on Form 10-KSB
prepared for filing with the Securities and Exchange Commission.
(ii) As soon as available, but in any event within five (5) days after the
filing thereof, a copy of each of the Borrowers quarterly report on Form 10-QSB
prepared for filing with the Securities and Exchange Commission.
(iii) Such other financing or additional information as EAB may from time
to time request.
5. Special Requirements: The Borrower shall maintain hazard insurance on
its inventory with a financially sound and reputable insurance company in such
amounts as are necessary to cover not less than the replacement cost of such
inventory and covering such risks as are usually carried by companies engaged in
the same or similar business which insurance policy shall be endorsed to name
EAB lender loss payee.
<PAGE>
6. Integration: This letter replaces and supersedes that certain letter
agreement between the Borrower and EAB dated December 24, 1997.
7. Acceptance: If the foregoing is acceptable, please so indicate by
signing and returning this letter before July 7, 1998, the date this letter will
otherwise expire, unless extended in writing by EAB.
Very truly yours,
EUROPEAN AMERICAN BANK
By: /s/Douglas Schumacher
-------------------------
Douglas Schumacher
Vice President
Agreed and Accepted this
30th day of June, 1998.
FRISBY TECHNOLOGIES, INC.
By: /s/Stephen Villa
------------------------------------
Stephen Villa
Chief Financial Officer
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (herein after the "AGREEMENT"), dated as of the
13th day of April, 1998 by and between:
FRISBY TECHNOLOGIES, INC., a Delaware corporation having its executive
offices at 77 East Main Street, Suite 2000, Bay Shore, New York 11706
(hereinafter referred to as the "COMPANY");
a n d
GGC, INC., a Connecticut corporation having its executive office at One
Lafayette Place, Greenwich, Connecticut 06830 (hereinafter referred to as
"GGC").
WITNESSETH THAT:
WHEREAS, GGC is agreeable to being retained by the COMPANY as a consultant
and is willing to provide consulting services to the COMPANY through its
Chairman, Robert C. Grayson (hereinafter referred to as "Grayson");
WHEREAS, Grayson has certain education, experience, background and contacts
which would be useful and helpful to the COMPANY in its business and the COMPANY
is desirous of retaining GGC as a consultant in order to obtain the benefits of
Grayson's education, experience, background and contacts in accordance with the
terms and provisions of this Agreement; and
WHEREAS, the parties have agreed upon the terms of GGC's retention as a
consultant and desire a written, formal contract to evidence their agreement;
N0W, THEREFORE, in consideration of the mutual promises, covenants and
forbearances contained herein, and intending to be legally bound, the parties
have agreed as follows:
1. Retention.
For the term provided in paragraph 2, the COMPANY hereby retains GGC as a
consultant, and GGC hereby accepts that retention, upon the terms and conditions
hereinafter set forth.
<PAGE>
2. Term.
A. This Agreement shall become effective on the first day of the month (the
"Effective Date") following the closing of the offering by the COMPANY of shares
of its Common Stock to the public, and, subject to the provisions of paragraph 8
below, shall continue for an initial period expiring on the last day of the
month preceding the second anniversary of the Effective Date (the "Initial
Termination Date"), thereby providing for an initial term of two (2) years.
B. The COMPANY shall have the option during the period commencing on the
first day of the third month preceding the second anniversary of the Effective
Date, and ending on the 15th day of such third month, provided that neither
party hereto is then in default under this Agreement, to extend the term of this
Agreement for an additional one (1) year period, subject to GGC's written
acceptance of such extension. GGC's written acceptance must be mailed to the
COMPANY within ten (10) days of receipt of the notice from the COMPANY. Failing
an effective extension of this Agreement, this Agreement shall terminate on the
Initial Termination Date.
C. This Agreement shall be subject to successive additional one (1) year
extensions under the procedure provided in subparagraph B. above.
3. Compensation
A. (i) For services rendered under this Agreement, the COMPANY shall pay to
Robert C. Grayson &Associates, Inc., an affiliate of GGC, $5,000 per month
during the term, commencing the Effective Date.
(ii) In addition to the payments provided in Section 3.A(i), the COMPANY,
as part of the compensation for services rendered under this Agreement, shall
issue to GGC upon the Effective Date: (a) Warrant No.1 of the COMPANY in the
form of Exhibit A hereto; and (b) Warrant No.2 of the COMPANY in the form of
Exhibit B hereto.
4. Duties.
GGC is engaged as a business, management and financial consultant to the
COMPANY and shall make the services of Grayson available to the COMPANY in
discharge of GGC's consulting obligations hereunder. Such consulting services
shall include providing advice to the Chairman of the Board of the Company and
such other members of management as the Chairman shall from time to time direct.
GGC shall render such consulting services for a reasonable period of time per
month as mutually agreed between the parties. The precise consulting scope and
the specific services to be rendered by GGC may be defined, interpreted,
curtailed, or extended, from time to time by mutual agreement of GGC and the
Chairman of the COMPANY, provided, however, that any definition, interpretation,
curtailment, or extension is consistent with the status of, and/or educational
experience required for, the responsibilities for which GGC has been initially
engaged hereunder.
<PAGE>
5. Extent and Place of Services.
GGC and Grayson are engaged in various business activities, including
consulting for other companies. Nothing contained herein is intended to limit
GGC's or Grayson's continuation of existing business activities nor the
commencement of new activities (including consulting). To the best of GGC's and
Grayson's knowledge, none of their respective current business activities,
including consulting will adversely affect the rendering of consulting services
hereunder.
The COMPANY shall furnish GGC and Grayson with a suitably equipped office,
clerical help, and telephone/facsimile/copying services adequate for the
performance of the duties of Grayson when he is rendering service hereunder at
the executive office of the Company.
6. Expenses.
The COMPANY shall reimburse Robert C. Grayson &Associates, Inc. within ten
(10) days of the date Robert C. Grayson & Associates, Inc. submits a request for
payment to the Company, for all reasonable and appropriate business expenses
incurred by Robert C. Grayson & Associates in the discharge of its duties
herewith; provided, however, that Robert C. Grayson & Associates, Inc. shall
obtain the prior consent of the Company for any such expense greater than
$1,000.
7. Disability.
GGC's inability to perform its duties because of temporary illness,
disability or incapacity of Grayson or for any other reasonable cause, shall not
constitute a failure to perform GGC's obligations hereunder and shall not be
deemed a breach or default by GGC. In the event that Grayson is disabled for a
period of more than ninety (90) days, the Company may, commencing upon the
expiration of such initial ninety (90) days, suspend payment of compensation
under paragraph 3(A)(i), above, during any period in which such disability shall
continue.
8. Termination.
A. The COMPANY may terminate GGC's retention at any time for Cause. Cause
shall mean:
(1) Grayson's death; or
(2) The occurrence of one of the following events:
(i) Grayson is convicted of a felony or any crime involving moral turpitude
or unethical conduct which in the good faith opinion of the COMPANY could impair
his ability to perform his duties; or
(ii) a material breach by GGC of any material term or provision of this
Agreement.
B. The COMPANY may terminate GGC's retention at any time without cause upon
ninety (90) days' prior written notice to GGC.
C. In the event of the bankruptcy (Chapter 7), reorganization (Chapter 11)
or other termination of the business of the COMPANY or of any subsidiary or
affiliate on which GGC's continued retention and compensation is dependent, the
provisions of paragraph 4 shall continue in full force and effect only so long
as full compensation, as provided in Section 31 above, shall continue to be
provided by the COMPANY.
D. GGC may terminate this Agreement upon any of the following events: (1) a
material breach by the COMPANY of any material provision of this Agreement; (2)
a change in control of the COMPANY which is not consented to by GGC; (3) an
assignment of this Agreement by the COMPANY which is not consented to in writing
by GGC; or (4) upon ninety (90) days' prior written notice to the COMPANY.
<PAGE>
9. Arbitration.
Any controversy or claim arising out of, or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in New York City, New York
in accordance with the Commercial Arbitration Rules then pertaining of the
American Arbitration Association, but with all rights of discovery provided by
the New York Rules of Civil Procedure, and judgment upon the award rendered may
be entered in any court having jurisdiction thereof.
10. Waiver of Breach.
The waiver by either party of a breach of any provision of this Agreement
by the other party shall not operate or be construed as a waiver of any
subsequent breach by such other party shall not operate or be construed as a
waiver of any subsequent breach by such other party. The failure of a party to
exercise any rights or privileges under this Agreement shall not be deemed to be
a waiver or extinguishment of such rights or privileges, all of which shall
continue to be exercisable.
11. Benefit.
The rights and obligations of the parties under this Agreement shall not be
assignable by either party hereto.
12. Notices.
Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing and sent by certified mail to the address of each party
as set forth on page 1 hereof.
13. Entire Agreement
This instrument contains the entire agreement of the parties and may be
modified only by agreement in writing signed by the party against whom
enforcement of any waiver, change; modification, extension or discharge is
sought
14. Applicable Law.
This Agreement shall be governed for all purposes by the laws of the State
of New York. If any provision of this Agreement is declared void, such provision
shall be deemed severed from this Agreement, which shall otherwise remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto set their hands and seals as of the day and year herein above written.
FRISBY TECHNOLOGIES, INC.
By: /s/Greg Frisby
------------------------------
Greg Frisby, Chairman
Dated: April 13, 1998
GGC, INC.
By: /s/Robert C. Grayson
-----------------------------
Robert C. Grayson, Chairman
Dated: April 13, 1998
<PAGE>
EXHIBIT A
Name of Holder:
GGC, Inc.
Address of Holder:
One Lafayette Place
Greenwich, CT 06830
Number of Shares Purchasable Pursuant to this Warrant:
55,000
Issue Date:
April 13, 1998
FRISBY TECHNOLOGIES, INC.
WARRANT NO.1 FOR PURCHASE OF COMMON STOCK
(Non-transferable)
This Is to certify that, for value received, the above named person
("Holder") is the owner of this Warrant No.1 of Frisby Technologies. Inc., a
Delaware corporation (the "Company") and is entitled, subject to the terms of
this Warrant, to purchase from the Company at any time, but not after 5:00 p.m.,
Eastern Standard Time on April 13, 2003 (the "Expiration Date"), subject to
Section 7 hereof, that number of fully paid and non-assessable shares of common
Stock (the "Common Stock") of the Company (the "Shares") set forth above at a
purchase price of Seven Dollars and 25/100 ($7.25) per share in lawful money of
the United States. The number of Shares to be received upon the exercise of this
Warrant and the purchase price for a Share may be adjusted from time to time as
hereinafter set forth. The Shares deliverable upon such exercise, as adjusted
from time to time, are hereinafter sometimes referred to as "Warrant Securities"
and the exercise price of a Share in effect at any time and as adjusted from
time to time, is hereinafter sometimes referred to as the "Purchase Price."
1. Exercise of Warrant. In case the Holder of this Warrant shall desire to
exercise all or any part of the rights evidenced by this Warrant, the Holder
shall surrender this Warrant with the form of exercise at the end hereof duly
executed by the Holder, to the Company at the principal office of the Company,
accompanied by payment of the Purchase Price in a bank check, or other readily
available funds. This Warrant may be exercised in whole or in part from time to
time prior to the Expiration Date. In case of exercise in part only, the Company
will deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of Warrant Securities as to which
this Warrant has not been exercised. In the event of the Holder's death, the
Estate or other legal representative of the Holder shall have a period of ninety
(90) days after such death to exercise this Warrant in whole or in part. At the
end of such ninety (90) day period, this Warrant shall expire.
2. Issuance of Shares. Upon surrender of this Warrant with the duly
executed form of exercise and payment of the Purchase Price, the Company shall
immediately issue and deliver to the Holder a stock certificate, representing
the number of Shares purchased, which Shares shall be validly issued, fully paid
and non-assessable. Any such stock certificate shall bear an appropriate legend
in the usual and customary form to reflect that the shares have not been
registered under the Securities Act of 1933, as amended.
<PAGE>
3. No Transfer of Warrant. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder other than to an "affiliate" (as such
term is defined in the rules and regulations of the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended) of the
Holder, and such affiliate shall be deemed the Holder thereafter.
4. Adjustment. In case, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall at any time issue Common Stock to its
shareholders as a distribution with respect to their existing Common Stock ("In
Kind Distribution") or subdivide the number of outstanding shares of Common
Stock into a greater number of shares thereof, then, in either of such cases the
Purchase Price per Share of the Warrant Securities in effect at the time of such
action shall be proportionately reduced and the number of Warrant Securities at
that time purchasable pursuant to this Warrant shall be proportionately
increased and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such Common Stock into a smaller
number of shares thereof, then, in such case, the Purchase Price per Share of
the Warrant Securities in effect at the time of such action shall be
proportionately increased and the number of Warrant Securities at that time
purchasable pursuant to this Warrant shall be proportionately decreased.
5. Reorganization, Reclassification. etc. In case of any capital
reorganization, recapitalization, reclassification or other change of the
outstanding shares of the Company which does not result in a change in control
of the Company, then, and in each such case, the Company shall cause effective
provision to be made so that the Holder of this Warrant shall have the right to
receive, upon the exercise of this Warrant as provided in Section 1 hereof, upon
the consummation of such reorganization, recapitalization, reclassification or
other change of the outstanding shares of the Company, the kind and amount of
shares or other securities or property receivable upon such reorganization,
recapitalization, reclassification, or other such change by an owner of the
number of Shares issuable upon exercise of the Warrant immediately prior to such
reorganization, recapitalization, reclassification, or other such change. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. A copy of such provision shall be furnished to the Holder(s) of
Warrants within ten (10) days after execution of the appropriate agreement
pertaining to same and, in any event, prior to any such reorganization,
recapitalization, reclassification or other such change subject to the
provisions of this Section 5. The foregoing provisions of this Section 5 shall
similarly apply to successive reorganizations, recapitalizations,
reclassifications and changes of shares, additional shares shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for or of a
security of the Company other than shares and any such issue shall be treated as
an In Kind Distribution.
6. Determination of Adjusted Purchase Price. Upon the occurrence of each
event requiring an adjustment of the Purchase Price and of the number of Warrant
Securities purchasable pursuant to this Warrant in accordance with, and as
required by, the term of this Warrant, the Company's chief financial officer
shall forthwith compute the adjusted Purchase Price and/or number of Warrant
Securities in accordance with the provisions hereof. The Company shall mail
forthwith to the Holder of this Warrant a copy of such computation.
<PAGE>
7. Merger, Consolidation, Sale, Reorganization, Liquidation and
Dissolution. In case of any merger or consolidation of the Company with or into
another entity, any sale or conveyance to any other entity of all or
substantially all of the assets of the Company, a capital reorganization,
recapitalization, reclassification or other change of the outstanding shares of
the Company which results in a change in' control of the Company, or the
dissolution, liquidation or winding up of the Company, the Company shall give
the Holder at least forty-five (45) days, prior written notice of such merger,
consolidation, sale or conveyance, reorganization or dissolution, liquidation or
winding up in order to afford the Holder sufficient time to exercise the Warrant
prior to or on the effective date of such merger, consolidation, sale or
conveyance, reorganization or dissolution, liquidation or winding up. Upon the
effective date of such transaction, if the Holder has not so exercised the
Warrant, the Warrant shall expire.
8. Reservation of Shares. The Company will reserve and have at all times
available sufficient Shares deliverable against the due exercise of this Warrant
to satisfy the rights and privileges contained herein.
9. Expiration. This Warrant shall be void after 5:00 p.m., Eastern Standard
Time, on April 13, 2003, or earlier upon the exercise and purchase of all of the
Warrant Securities, or pursuant to Section 1 hereof, after which no rights
herein given to the Holder of this Warrant shall exist.
10. Notices. All communications hereunder shall be in writing and shall be
deemed duly given when delivered personally or three (3) days after being mailed
by first class mail, postage prepaid, properly addressed, if to the Company, at
77 East Main Street, Suite 2000, Bay Shore, New York 11706, or if to the Holder
hereof, the Holder's address set forth on the first page hereof.
11. Applicable Law. This Agreement shall be governed by the laws of the
State of Delaware. The invalidity, illegality or unenforceability of any
particular provision of this Agreement shall not affect the other provisions,
and this Agreement shall be construed in all respects as if such invalid,
illegal or unenforceable provision had been omitted.
Dated: April 13,1998
FRISBY TECHNOLOGIES, INC.
By:/s/ Greg Frisby
----------------------
Greg Frisby, Chairman
<PAGE>
FORM OF EXERCISE
TO BE EXECUTED BY THE
HOLDER TO EXERCISE THIS WARRANT
FRISBY TECHNOLOGIES, INC.
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock covered by the Warrant dated April 13, 1998 from the Company
according to the conditions thereof and herewith makes payment of the Purchase
Price for such Shares in full.
GGC, INC.
By: ________________________________
Dated:
<PAGE>
EXHIBIT B
Name of Holder:
GGC, Inc.
Address of Holder:
One Lafayette Place
Greenwich, CT 06830
Number of Shares Purchasable Pursuant to this Warrant:
55,000
Issue Date:
April 13, 1998
FRISBY TECHNOLOGIES, INC.
WARRANT NO.2 FOR PURCHASE OF COMMON STOCK
(Non-transferable)
This is to certify that, for value received, the above named person
("Holder") is the owner of this Warrant No.2 of Frisby Technologies, Inc., a
Delaware corporation (the "Company"), and is entitled, subject to the terms of
this Warrant to purchase from the Company an aggregate of 55,000 fully paid and
non-assessable shares of common stock (the "Common Stock") of the Company (the
"Shares") at a purchase price of Seven Dollars and 25/100 ($7.25) per share in
lawful money of the United States, vesting as follows, subject to the provisions
of Section 8 hereof in respect of earlier vesting:
One year from the Issue Date hereof (April 13, 1999) (the "Vesting Date"),
the right to purchase such 55,000 Shares shall vest and at any time and from
time to time thereafter until the Expiration Date the Holder may purchase such
Shares in accordance with the provisions hereof; provided, however, that if the
Consulting Agreement, dated as of April 13, 1998 (the "Consulting Agreement"),
between the Company and GGC, Inc. has been terminated pursuant to Section
8(A)(2) or Section 8(D)(4) thereof prior to the Vesting Date, vesting shall not
take place after such termination. In the event that the Consulting Agreement is
terminated pursuant to Section 8(B) thereof prior to the Vesting Date, such
55,000 Shares shall vest on the Vesting Date above. No vesting shall occur after
termination of the Consulting Agreement pursuant to Section 8(A)(1) (the
Holder's death) thereof. Vesting shall still occur on the Vesting Date in the
event of termination of the Consulting Agreement pursuant to Section 8(13)(1),
(2) and (3) thereof. The number of Shares to be received upon the exercise of
this Warrant and the purchase price for a Share may be adjusted from time to
time as hereinafter set forth. The Shares deliverable upon such exercise, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Securities" and the exercise price of a Share in effect at any time and as
adjusted from time to time, is hereinafter sometimes referred to as the
"Purchase Price."
This Warrant No.2 expires on and no Shares may be purchased hereunder after
5:00 p.m., Eastern Standard Time, on April 13, 2003 (the "Expiration Date"),
subject to Section 7 hereof.
<PAGE>
1. Exercise of Warrant. In case the Holder of this Warrant shall desire to
exercise all or any part of the vested rights evidenced by this Warrant, the
Holder shall surrender this Warrant with the form of exercise at the end hereof
duly executed by the Holder, to the Company at the principal office of the
Company, accompanied by payment of the Purchase Price in a bank check, or other
readily available funds. This Warrant may be exercised in whole or in part from
time to time. In case of exercise in part only, the Company will deliver to the
Holder a new Warrant of like tenor in the name of the Holder evidencing the
right to purchase the number of Warrant Securities as to which this Warrant has
not been exercised. In the event of the Holder's death, the Estate or other
legal representative of the Holder shall have a period of ninety (90) days after
such death to exercise this Warrant in whole or in part as to the Shares vested
at the time of such death. At the end of such ninety (90) day period, this
Warrant shall expire.
2. Issuance of Shares. Upon surrender of this Warrant with the duly
executed form of exercise and payment of the Purchase Price, the Company shall
immediately issue and deliver to the Holder a stock certificate, representing
the number of Shares purchased, which Shares shall be validly issued, fully paid
and non-assessable. Any such stock certificate shall bear an appropriate legend
in the usual and customary form to reflect that the shares have not been
registered under the Securities Act of 1933, as amended.
3. No Transfer of Warrant. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder other than to an "affiliate" (as such
term is defined in the rules and regulations of the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended) of the
Holder, and such affiliate shall be deemed the Holder thereafter.
4. Adjustment. In case, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall at any time issue Common Stock to its
shareholders as a distribution with respect to their existing Common Stock ("In
Kind Distribution") or subdivide the number of outstanding shares of Common
Stock into a greater number of shares thereof, then, in either of such cases the
Purchase Price per Share of the Warrant Securities in effect at the time of such
action shall be proportionately reduced and the number of Warrant Securities at
that time purchasable pursuant to this Warrant shall be proportionately
increased and conversely, in the event the Company shall contract the number of
outstanding shares of Common stock by combining such Common Stock into a smaller
number of shares thereof, then, in such case, the Purchase Price per Share of
the Warrant Securities in effect at the time of such action shall be
proportionately increased and the number of Warrant Securities at that time
purchasable pursuant to this Warrant shall be proportionately decreased.
<PAGE>
5. Reorganization, Reclassification, etc. In case of any capital
reorganization, recapitalization, reclassification or other change of the
outstanding shares of the Company, then, and in each such case, the Company
shall cause effective provision to be made so that the Holder of this Warrant
shall have the right to receive, upon the exercise of this Warrant as provided
In Section 1 hereof, upon the consummation of such reorganization,
recapitalization, reclassification or other change of the outstanding share of
the Company, the kind and amount of shares or other securities or property
receivable upon such reorganization, recapitalization, reclassification, or
other such change by an owner of the number of Shares issuable upon exercise of
the Warrant immediately prior to such reorganization, recapitalization,
reclassification, or other such change. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. A copy of such
provision shall be furnished to the Holder(s) of Warrants within ten (10) days
after execution of the appropriate agreement pertaining to same and, in any
event, prior to any such reorganization, recapitalization, reclassification or
other such change subject to the provisions of this Section 5. The foregoing
provisions of this Section 5 shall similarly apply to successive
reorganizations, recapitalizations, reclassifications and changes of shares,
additional shares shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
shares and any such issue shall be treated as an In Kind Distribution.
6. Determination of Adjusted Purchase Price. Upon the occurrence of each
event requiring an adjustment of the Purchase Price and of the number of Warrant
Securities purchasable pursuant to this Warrant in accordance with, and as
required by, the term of this Warrant, the Company's chief financial officer
shall forthwith compute the adjusted Purchase Price and/or number of Warrant
Securities in accordance with the provisions hereof. The Company shall mall
forthwith to the Holder of this Warrant a copy of such computation.
7. Merger, Consolidation, Sale, Reorganization, Liquidation and
Dissolution. In case of any merger or consolidation of the Company with or into
another entity, any sale or conveyance to any other entity of all or
substantially all of the assets of the Company, a capital reorganization,
recapitalization, reclassification or other change of the outstanding shares of
the Company which results in a change in control of the Company, reorganization
of the Company into another entity or the dissolution, liquidation or winding up
of the Company, the Company shall give the Holder at least forty-five (45) days'
prior written notice of such merger, consolidation, sale or conveyance,
reorganization or dissolution, liquidation or winding up in order to afford the
Holder sufficient time to exercise the Warrant prior to or on the effective date
of such merger, consolidation, sale or conveyance, reorganization or
dissolution, liquidation or winding. Upon the effective date of such
transaction, if the Holder has not so exercised the Warrant, the Warrant shall
expire.
8. Acceleration of Vesting. In case of a merger or consolidation of the
Company into or with another entity in which the Company is not the surviving
entity, a sale or conveyance to any other entity of all or substantially all of
the assets of the Company, a capital reorganization, recapitalization,
reclassification or other change of the outstanding shares of the Company which
results in a change in control of the Company, or the dissolution, liquidation
or winding up of the Company, immediately prior to the closing or effective date
of any such event, the right of the Holder to purchase any Shares under this
Warrant which has not yet vested shall fully vest and the Holder may purchase
all of the Shares covered by this Warrant immediately.
9. Reservation of Shares. The Company will reserve and have at all times
available sufficient Shares deliverable against the due exercise of this Warrant
to satisfy the rights and privileges contained herein.
<PAGE>
10. Expiration. This Warrant shall be void after 5:00 p.m., Eastern
Standard Time, on April 13, 2003, or earlier upon the exercise and purchase of
all of the Warrant Securities, or pursuant to Section 1 hereof, after which no
rights herein given to the Holder of this Warrant shall exist.
11. Notices. All communications hereunder shall be in writing and shall be
deemed duly given when delivered personally or three (3) days after being mailed
by first class mail, postage prepaid, properly addressed, if to the Company, at
77 East Main Street, Suite 2000, Bay Shore, New York 11706, or if to the Holder
hereof, the Holder's address set forth on the first page hereof.
12. Applicable law. This Agreement shall be governed by the laws of the
State of Delaware. The invalidity, illegality or unenforceability of any
particular provision of this Agreement shall not affect the other provisions,
and this Agreement shall be construed in all respects as if such invalid,
illegal or unenforceable provision had been omitted.
Dated: April 13,1998
FRISBY TECHNOLOGIES, INC.
By:/s/ Greg Frisby
---------------------
Greg Frisby, Chairman
<PAGE>
FORM OF EXERCISE
TO BE EXECUTED BY THE
HOLDER TO EXERCISE THIS WARRANT
FRISBY TECHNOLOGIES, INC.
The undersigned hereby exercises the right to purchase _______ shares of
Common Stock covered by the Warrant dated April 13, 1998 from the Company
according to the conditions thereof and herewith makes payment of the Purchase
Price for such Shares in full.
GGC, INC.
By: ________________________________
Dated:
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three month period ended June 30,
1998 1997
<S> <C> <C>
Weighted average shares outstanding
Common stock 5,037,995 2,839,286
Net loss $ (681,531) $ (264,186)
Net loss per share (1) ($0.14) ($0.09)
Six month period ended June 30,
1998 1997
Weighted average shares outstanding
Common stock 4,036,259 2,839,286
Net loss $ (1,210,878) $ (548,840)
Net loss per share (1) ($0.30) ($0.19)
(1) There is no difference between basic and diluted net loss per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001051904
<NAME> Frisby Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,875,306
<SECURITIES> 8,753,702
<RECEIVABLES> 1,643,100
<ALLOWANCES> (25,000)
<INVENTORY> 529,604
<CURRENT-ASSETS> 13,199,233
<PP&E> 126,866
<DEPRECIATION> (54,903)
<TOTAL-ASSETS> 13,348,007
<CURRENT-LIABILITIES> 1,009,801
<BONDS> 0
0
2,479,000
<COMMON> 5,121
<OTHER-SE> 9,715,968
<TOTAL-LIABILITY-AND-EQUITY> 13,348,007
<SALES> 818,140
<TOTAL-REVENUES> 1,021,500
<CGS> 752,699
<TOTAL-COSTS> 858,984
<OTHER-EXPENSES> (1,487,413)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (114,019)
<INCOME-PRETAX> (1,210,878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,210,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,210,878)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
