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 September 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 October 31, 1998: 5,120,613 shares.
<PAGE>
FRISBY TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I Financial Information 3
Item 1. Financial Statements 3
Balance Sheets - September 30, 1998 (unaudited) and
December 31, 1997 3
Statements of Operations - Three and Nine
Month Periods Ended September 30, 1998 (unaudited)
and September 30, 1997(unaudited) 4
Statement of Stockholders' Equity - Nine Month Period
Ended September 30, 1998 (unaudited) 5
Statements of Cash Flows - Nine Month Period Ended
September 30, 1998 (unaudited) and September 30, 1997 (unaudited) 6
Notes to Financial Statements - September 30, 1998 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II Other Information 14
Signatures 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Frisby Technologies, Inc.
Balance Sheets
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,029,474 $ 375,222
Short-term investments 7,422,255 -
Accounts receivable - billed 501,988 358,452
Accounts receivable - unbilled 165,560 52,150
Inventory 720,945 247,686
Recoverable and prepaid income taxes 26,902 26,902
Other current assets 558,010 7,192
---------- ---------
Total current assets 11,425,134 1,067,604
Property and equipment, net 98,636 61,323
Other assets 2,136,969 138,908
---------- ---------
Total assets $ 13,660,739 $ 1,267,835
============== ===============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,044,410 $ 353,427
Accrued expenses and other current liabilities 477,029 63,143
License fees payable 57,704 184,640
Deferred license revenues 21,188 50,000
--------- ---------
Total current liabilities 1,600,331 651,210
Accrued license agreement costs 101,250 101,250
Other liabilities 1,326,868 40,000
--------- ---------
Total liabilities 3,028,449 792,460
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; 5,120,613 5,121 3,281
and 3,280,613 shares issued and outstanding in 1998 and 1997
Additional paid-in capital 12,212,327 1,540,575
Deferred compensation expense (130,000) -
Accumulated deficit (3,934,158) (1,068,481)
----------- -----------
Total stockholders' equity 10,632,290 475,375
---------- -----------
Total liabilities and stockholders' equity $ 13,660,739 $ 1,267,835
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Frisby Technologies, Inc.
Statements of Operations
(Unaudited)
Three month period ended Nine month period ended
September 30, September 30,
---------------------------------------- ----------------------------------
1998 1997 1998 1997
------------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 599,791 $ 156,164 $ 1,417,931 $ 376,626
Research and development projects 43,577 117,880 172,269 349,212
Licenses and royalties 61,780 42,000 136,448 88,000
--------------- ------------ ------------- ------------
Total revenues 705,148 316,044 1,726,648 813,838
--------------- ------------ ------------- ------------
Cost of sales:
Product sales 715,486 136,871 1,468,185 378,318
Research and development projects 39,407 51,407 138,388 186,807
Licenses and royalties 22,505 26,369 29,809 54,469
--------------- ------------ ------------- --------------
Total cost of sales 777,398 214,647 1,636,382 619,594
--------------- ------------ ------------- --------------
Gross profit (72,250) 101,397 90,266 194,244
Selling and marketing expense 718,849 95,500 1,437,673 247,668
General and administrative expense 992,806 214,200 1,761,395 644,886
--------------- ------------ ------------- --------------
Loss from operations (1,783,905) (208,303) (3,108,802) (698,310)
Interest income (expense) 129,106 (11,500) 243,125 (25,541)
--------------- ------------ ------------- --------------
Loss before income taxes 1,654,799) (219,803) (2,865,677) (723,851)
Income tax provision - - - 44,792
--------------- ------------ ------------- --------------
Net loss 1,654,799) (219,803) 2,865,677 (768,643)
=============== ============ ============= ==============
Net loss per common share -
basic and diluted (0.32) (0.08) (0.62) (0.27)
====== ====== ====== ======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Frisby Technologies, Inc.
Statement of Stockholders' Equity
(Unaudited)
Additional Deferred
Preferred Stock Common Stock Paid-In Compensation Accumulated
Capital Expense Deficit Total
------- --------- ----------- -----
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 -- -- 3,280,613 $ 3,281 $1,540,575 -- $ (1,068,481) $ 475,375
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 of options -- -- -- -- 277,000 ($250,000) -- 27,000
and warrants to
third parties
Amortization of -- -- -- -- -- 120,000 -- 120,000
of deferred
compensation expense
Net loss -- -- -- -- -- -- (2,865,677) (2,865,677)
--------- --------- --------- --------- ---------- --------- ---------- ---------
Balance at
September 30, 1998 587,500 $ 2,479,000 5,120,613 $ 5,121 $ 12,212,327 $ (130,000) $(3,934,158) $ 10,632,290
========== ========== ========= ========= ============ =========== ============ ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Frisby Technologies, Inc.
Statements of Cash Flows
(Unaudited)
Nine month period ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net loss $ (2,865,677) $ (768,643)
================= ===============
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 17,955 11,349
Amortization of deferred compensation 120,000 -
Deferred income tax provision - 44,792
Changes in assets and liabilities:
Accounts receivable (256,946) (90,011)
Inventory (473,259) (101,347)
Other current assets (550,818) -
Other non-current assets 53,619 2,165
Accounts payable (33,697) 137,004
Accrued expenses and other current liabilities 413,886 52,860
Licenses fees payable (126,936) 124,529
Deferred licenses revenues (41,944) 17,504
Payments to related party - 15,738
------------ ------
Net cash used in operating activities (3,743,817) (554,060)
Investing activities
Capital expenditures (55,268) -
Purchases of short-term investments (9,956,255) -
Proceeds from sale of short-term investments 2,534,000 -
----------
Net cash used in investing activities (7,477,523) -
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 - 376,000
Borrowings from bank - 250,000
Prepayment of transaction costs (100,188)
---------- ---------
Net cash provided by financing activities 12,875,592 525,812
Net increase (decrease) in cash and cash equivalents 1,654,252 (28,248)
Cash and cash equivalents-beginning of period 375,222 52,677
---------- ---------
Cash and cash equivalents-end of period $ 2,029,474 24,429
========== =========
Supplemental information
Interest paid 1,189 25,541
========== =========
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements
September 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 controlled by a member of the Company's Board of Directors. In
addition to a monthly fee, 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 of the Frisby Technologies common stock. 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. Significant Events
In September 1998, the Company entered into a transaction with the inventor
of the Company's patented and proprietary thermal management technology,
Triangle Research and Development Corporation ("TRDC"), that will reduce the
Company's future royalty payments to TRDC. Additionally, the Company has been
assigned TRDC's rights to an agreement with another licensee of the technology.
This assignment will result in the Company receiving royalty income from this
third party licensee subject to certain payback to TRDC.
4. Summary of Significant Accounting Policies
Net Loss Per Share
Net loss per share for the three and nine month periods ended September 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 nine
month periods ended September 30, 1998 were 5,120,613 and 4,605,854,
respectively. Shares used in the computation of net loss per share for both the
three and nine month periods ended September 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 is 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 nine month period ended September 30, 1998 due
to their anti-dilutive nature.
Stock options granted to the employees and directors under the Company's
Stock Option Plan adopted in March 1998 and other options granted to Underwriter
and consultants, would have had an effect on the number of Common Shares
outstanding in 1998. The total number of options outstanding as of September 30,
1998 was 545,000.
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 nine month periods ended September
30, 1998 compared with the three and nine month periods ended September 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 September 30, 1998 increased by
approximately $390,000 to $705,000 from $316,000 for the three month period
ended September 30, 1997. Total revenues for the nine month period ended
September 30, 1998 increased by approximately $913,000 to $1,727,000 from
$814,000 for the nine month period ended September 30, 1997.
Product sales. Product sales for the three month period ended September 30,
1998 increased by approximately $444,000 to $600,000 from $156,000 for the three
month period ended September 30, 1997. Product sales for the nine month period
ended September 30, 1998 increased by approximately $1,041,000 to $1,418,000
from $377,000 for the three month period ended September 30, 1997. These
increases were primarily the result of the Company bringing its ComforTemp(R)
foams and Thermasorb(R) additives to market commencing in the second quarter of
1997. Sales to partners that were present in 1997 more than doubled in 1998 as
compared to 1997. An additional increase results from relationships with
strategic partners that began this year such as Titleist and Footjoy Worldwide
and Foamex International.
Research and development projects. Revenues from research and development
projects for the three month period ended September 30, 1998 decreased by
approximately $74,000 to $44,000 from $118,000 for the three month period ended
September 30, 1997. Revenues from research and development projects for the nine
month period ended September 30, 1998 decreased by approximately $177,000 to
$172,000 from $349,000 for the three month period ended September 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 September 30, 1998 increased by approximately $20,000
to $62,000 from $42,000 for the three month period ended September 30, 1997.
Revenues from license fees and royalties for the nine month period ended
September 30, 1998 increased by approximately $48,000 to $136,000 from $88,000
for the nine month period ended September 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 $66,000 for the nine months ended September 30, 1998 from
20,000 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 cost of sales for the three month period
ended September 30, 1998 increased by approximately $563,000 to $777,000 from
$215,000 for the three month period ended September 30, 1997. Total cost of
sales for the nine month period ended September 30, 1998 increased by
approximately $1,016,000 to $1,636,000 from $620,000 for the nine month period
ended September 30, 1997.
Cost of sales -- Products. The cost of sales related to products for the
three month period ended September 30, 1998 increased by approximately $579,000
to $715,000 from $137,000 for the three month period ended September 30, 1997.
The cost of sales related to products for the nine month period ended September
30, 1998 increased by approximately $1,090,000 to $1,468,000 from $378,000 for
the nine month period ended September 30, 1997. These increases reflect the
higher volume of product sales and the corresponding costs related to such
product sales in the three and nine month period ended September 30, 1998 as
compared to the corresponding period in the prior year. Unit costs increased in
the quarter ended September 30, 1998 as compared to the corresponding period of
1997 resulting from production inefficiencies at a supplier. Management is
currently addressing this issue and implementing changes that will improve unit
costs in the future.
Cost of sales -- Research and development projects. The cost of sales
related to research and development projects for the three month period ended
September 30, 1998 decreased by approximately $12,000 to $39,000 from $51,000
for the three month period ended September 30, 1997. The cost of sales related
to research and development projects for the nine month period ended September
30, 1998 decreased by approximately $49,000 to $138,000 from $187,000 for the
nine month period ended September 30, 1997. These decreases are 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 September 30, 1998
decreased by approximately $3,000 to $23,000 from $26,000 for the three month
period ended September 30, 1997. The cost of sales related to licenses and
royalties for the nine month period ended September 30, 1998 decreased by
approximately $24,000 to $30,000 from $54,000 for the nine month period ended
September 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 September 30, 1998 increased by approximately $623,000 to
$719,000 from $96,000 for the three month period ended September 30, 1997.
Selling and marketing expense for the nine month period ended September 30, 1998
increased by approximately $1,190,000 to $1,437,000 from $248,000 for the nine
month period ended September 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. These activities included advertising placements in many national
trade and consumer publications. Additionally, the amortization of deferred
compensation expense of $120,000 for options granted to consultants in the
current year also contributed to this increase.
<PAGE>
General and administrative expense. General and administrative expense for
the three month period ended September 30, 1998 increased by approximately
$779,000 to $993,000 from $214,000 for the three month period ended September
30, 1997. General and administrative expense for the nine month period ended
September 30, 1998 increased by approximately $1,116,000 to $1,761,000 from
$645,000 for the nine month period ended September 30, 1997. These increases
reflect the increase in personnel and personnel-related expenses, including
travel, and recruiting costs of new employees. As of September 30, 1998, the
Company's total headcount equaled 20 employees. This represents an increase of 8
employees from January 1, 1998.
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.
Net interest income/expense. The Company earned net interest income of
$129,000 for the three month period ended September 30, 1998 as compared to net
interest expense of $12,000 for the three month period ended September 30, 1997.
The Company earned net interest income of $243,000 for the nine month period
ended September 30, 1998 as compared to net interest expense of $26,000 for the
nine month period ended September 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 September 30, 1998 and 1997. For the three and nine
month period ended September 30, 1998 and the three month period ended September
30, 1997, the Company recorded a valuation allowance equal to the net deferred
tax asset recorded in the period. For the nine month period ended September 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 September 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 September 30, 1998 increased to $1,654,000 from $219,000 for the
three month period ended September 30, 1997. Additionally, the net loss for the
nine month period ended September 30, 1998 increased to $2,866,000 from $724,000
for the nine month period ended September 30, 1997.
Liquidity and capital resources. At September 30, 1998, the Company had
working capital of $9,825,000, including short-term investments of $7,422,000,
accounts receivable-billed of $501,000 and inventory of $720,000, offset by
accounts payable of $1,044,000 and accrued expenses of $477,000.
Cash used by operating activities was $3,744,000 and $554,000,
respectively, for the nine month period ended September 30, 1998 and 1997. The
principal factor contributing to the cash used in operating activities for the
nine month period ended September 30, 1998 and 1997 was the net loss for each of
the respective periods. Cash used by investing activities was $7,478,000 for the
nine month period ended September 30, 1998. The principal factor contributing to
the cash used in financing activities for the nine month period was the net
purchase of short-term investments. Cash provided by financing activities was
$12,876,000 and $526,000, receptively, for the nine month period ended September
30, 1998 and 1997. The principal financing activity for the nine month period
ended September 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.
<PAGE>
The facility that the Company was relocating its North Carolina operations
to was destroyed by fire. As such, the expected cash expenditures related to
that relocation and the related purchase of thermal testing equipment has been
delayed to future quarters.
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 has a $1,000,000 line of credit with a bank. The 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.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 ("Y2000") compliance. The Company
has contacted the vendors of its information systems and has been informed that
these systems are Y2000 compliant and those workstations that are not Y2000
compliant will be replaced. The Company does not believe that the cost to modify
its information technology infrastructure to be material to its financial
condition or results of operations nor does the Company anticipate any material
disruption of its operations as a result of a failure by the Company to be
compliant. However, there can be no assurance that there will not be a delay in,
or increased costs associated with, the need to address Y2000 issues. The
Company also relies, directly and indirectly, on other businesses such as third
party service providers, creditors, financial institutions and governmental
entitles. Even if the Company's computer systems are not materially adversely
affected by the Y2000 issue, the Company's business and operations could be
materially adversely affected by disruptions in the operations of other entities
with which the Company interacts. The Company has contingency plans for certain
critical applications and is working on plans for others. These contingency
plans involve, among other actions, manual workarounds, increasing inventories,
and adjusting staffing strategies.
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
On August 27, 1998 a new research and development center where the Company
had planned to relocate to in mid-September was destroyed in a fire. The Company
will remain at its current facilities nearby until a new location can be found.
In September 1998 the Company entered into a transaction with the inventor
of the Company's patented and proprietary thermal management technology,
Triangle Research and Development Corporation ("TRDC"), that will reduce the
Company's future royalty payments to TRDC. Additionally, the Company has been
assigned TRDC's rights to an agreement with another licensee of the technology.
This assignment will result in the Company receiving royalty income from this
third party licensee subject to certain payback to TRDC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
99.1 Form 8-K dated September 8, 1998.*
* incorporated by reference
<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: November 16, 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
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001051904
<NAME> Frisby Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,029,474
<SECURITIES> 7,422,255
<RECEIVABLES> 1,694,450
<ALLOWANCES> (25,000)
<INVENTORY> 720,945
<CURRENT-ASSETS> 11,425,134
<PP&E> 162,191
<DEPRECIATION> (63,554)
<TOTAL-ASSETS> 13,660,739
<CURRENT-LIABILITIES> 1,600,331
<BONDS> 0
0
0
<COMMON> 5,121
<OTHER-SE> 10,627,169
<TOTAL-LIABILITY-AND-EQUITY> 13,660,739
<SALES> 1,417,931
<TOTAL-REVENUES> 1,726,648
<CGS> 1,468,185
<TOTAL-COSTS> 1,636,382
<OTHER-EXPENSES> 3,199,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (243,125)
<INCOME-PRETAX> (2,865,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,865,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,865,677)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>