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, 1999
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, 1999, 5,748,113 shares.
<PAGE>
FRISBY TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1999
(unaudited) and December 31, 1998 3
Statements of Operations - Three Month and
Nine Month Periods Ended
September 30, 1999 (unaudited) and
September 30, 1998
(unaudited) 4
Statement of Stockholders' Equity -
Nine Month Period Ended September 30, 1999
(unaudited) 5
Statements of Cash Flows - Nine Month
Period Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited) 6
Notes to Financial Statements -
September 30, 1999 (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Frisby Technologies, Inc.
Balance Sheets
September 30, December 31,
1999 1998
(unaudited)
Assets
Current assets:
Cash and cash equivalents $2,922,533 $6,516,138
Marketable securities - 1,555,683
Accounts receivable 1,753,352 1,104,134
Inventory 684,298 671,569
Prepaid and other current assets 147,502 595,998
---------- ----------
Total current assets 5,507,685 10,443,522
Property and equipment, net 529,006 277,494
Intangible assets, less
accumulated amortization 1,934,800 2,000,700
Other assets 288,976 391,516
---------- ----------
$8,260,467 $13,113,232
========== ===========
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $809,586 $868,649
Accrued expenses and
other current liabilities 143,642 385,533
Payable to Triangle Research and
Development Corporation - 400,000
License fees payable 194,474 189,726
Deferred license revenues 42,503 85,000
--------- ----------
Total current liabilities 1,190,205 1,928,908
Accrued license agreement costs 120,250 120,250
Deferred license revenues 50,000 46,250
Other liability 1,300,000 1,300,000
--------- ----------
Total liabilities 2,660,455 3,395,408
Commitments
Stockholders' equity:
Preferred Stock, 1,000,000 shares
authorized; shares issued
and outstanding: 0 in 1999 and
587,500 in 1998 - 2,479,000
Common Stock, $.001 par value;
10,000,000 shares authorized;
shares issued and outstanding:
5,708,113 in 1999 and 5,120,613
in 1998 5,708 5,121
Additional paid-in capital 14,678,241 12,199,828
Accumulated other
comprehensive income - 21,000
Accumulated deficit (9,083,937) (4,987,125)
----------- -------------
Total stockholders' equity 5,600,012 9,717,824
----------- -------------
Total liabilities and
stockholders' equity $8,260,467 $13,113,232
=========== =============
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statements of Operations
(Unaudited)
Three month Nine month
period ended period ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ----------- ------------ -----------
Revenues:
Product sales $1,341,497 $599,791 $3,840,443 $1,417,931
Research and
development projects 52,725 43,577 198,975 172,269
Licenses and royalties 45,249 61,780 302,529 136,448
------------- ----------- ------------ -----------
Total revenues 1,439,471 705,148 4,341,947 1,726,648
Cost of sales:
Product sales 1,126,655 715,486 3,055,896 1,468,185
Research and
development projects 30,300 39,407 199,142 138,388
Licenses and royalties 58,800 22,505 296,057 29,809
------------- ----------- ------------ -----------
Total cost of sales 1,215,755 777,398 3,551,095 1,636,382
------------- ----------- ------------ -----------
Gross profit 223,716 (72,250) 790,852 90,266
Selling and
marketing expense 506,877 718,849 2,003,060 1,437,673
General and
administrative expense 1,158,922 992,806 3,051,063 1,761,395
------------- ----------- ------------ -----------
Loss from operations (1,442,083) (1,783,905) (4,263,271) (3,108,802)
Interest income 33,894 129,106 166,459 243,125
------------- ----------- ------------ ----------
Net loss $(1,408,189) $(1,654,799) $(4,096,812) $(2,865,677)
============= =========== ============ ==========
Net loss per
common share -
basic
and diluted $(0.25) $(0.32) $(0.74) $(0.62)
============= =========== ============ ==========
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statement of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<S> <C>
Accumu-
lated
Other
Additional Compre- Accumu-
Preferred Stock Common Stock Paid-In hensive lated
Shares Amount Shares Amount Capital Income Deficit Total
Balance
at
December
31, 1998 587,500 $2,479,000 5,120,613 $5,121 $12,199,828 $21,000 $(4,987,125) $9,717,824
Conversion
of
Preferred
Stock (587,500) (2,479,000) 587,500 587 2,478,413 --- --- ---
Net loss --- --- --- --- --- --- (4,096,812) (4,096,812)
Sale of
marketable
securities --- --- --- --- --- (21,000) --- (21,000)
_________ ___________ _________ ______ ___________ ________ ___________ __________
Balance at
September
30, 1999 - $ - 5,708,113 $5,708 $14,678,241 $ - $(9,083,937) $5,600,012
====== ========= ========= ====== =========== ======== ============ ==========
</TABLE>
See accompanying notes.
<PAGE>
Frisby Technologies, Inc.
Statements of Cash Flows
(Unaudited)
Nine month period ended
September 30,
------------------------------------------
1999 1998
---- ----
Operating activities
Net loss $(4,096,812) $(2,865,677)
Adjustments to reconcile
net loss to net cash used
in operating
activities:
Depreciation and
amortization 129,635 17,955
Non cash consulting
expense 70,000 120,000
Amortization of intangibles 153,900 --
Changes in assets and
liabilities, prior to
effect of acquisition:
Accounts receivable (643,614) (256,946)
Inventory 15,794 (473,259)
Other current assets 378,496 (550,818)
Other non-current assets 99,522 53,619
Accounts payable (77,343) (33,697)
Accrued expenses and other
current liabilities (241,891) 413,886
Licenses fees payable 4,748 (126,936)
Deferred licenses (38,747) (41,944)
revenues --------------- --------------
Net cash used in
operating activities (4,246,312) (3,743,817)
--------------- --------------
Investing activities
Purchases of property and
equipment (381,147) (55,268)
Purchases of short-term investments -- (9,956,255)
Proceeds from sale of
short-term investments 1,534,684 2,534,000
Purchase of intangible assets (400,000) --
Purchase of business,
net of cash acquired (100,830) --
--------------- -------------
Net cash provided by (used in)
investing activities 652,707 (7,477,523)
--------------- -------------
Financing activities
Net proceeds from exercise of
convertible preferred stock option -- 2,479,000
Net proceds from initial public offering -- 10,396,592
Net proceeds from private placement -- --
Payment of transaction costs -- --
--------------- -------------
Net cash provided by
financing activities -- 12,875,592
--------------- -------------
Net (decrease) increase in
cash and cash equivalents (3,593,605) 1,654,252
Cash and cash equivalents -
beginning of period 6,516,138 375,222
--------------- -------------
Cash and cash equivalents -
end of period $2,922,533 $2,029,474
=============== =============
See accompanying notes
Frisby Technologies, Inc.
Notes to Financial Statements
September 30, 1999 (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, 1998 and the notes thereto contained
in the Company's Annual Report on Form 10-KSB, filed with the Securities and
Exchange Commission on March 31, 1999, as amended.
2. Summary of Significant Accounting Policies
Net Loss Per Share
Net loss per share for the three and nine month periods ended September
30, 1999 and 1998 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, 1999 were 5,708,113 and 5,512,345,
respectively. 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. The number of shares used in the calculation of net loss per share
on a basic and diluted basis is the same.
Comprehensive Loss
The comprehensive loss for the three month periods ended September 30,
1999 and 1998 were $1,429,947 and $1,654,799, respectively. The comprehensive
loss for the nine month periods ended September 30, 1999 and 1998 were
$4,117,812 and $2,865,677, respectively. The only difference between the 1999
comprehensive loss amounts and the net loss recorded on the Statements of
Operations was the unrealized gain on marketable securities.
3. Shareholders' Equity
On April 6, 1999, the Company received notice from the shareholder
of the Convertible Preferred Stock of its decision to convert the 587,500
shares of Convertible Preferred Stock shares into Common Stock. This
transaction increased the number of outstanding common stock to 5,708,113.
4. Subsequent Event
On October 12, 1999 the Company entered into an agreement to acqure
100% of the outstanding shares of Extreme Comfort, Inc. This transaction will
be accounted for using the purchase accounting method.
<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,
1999 compared with the three and nine month periods ended September 30, 1998
Revenues. The Company generates revenue from four primary sources: (i)
sales of its Thermasorb(R) additives and ComforTemp(R) foam products for use in
its strategic partners' products; (ii) sales of its SteeleVest(R) personal
cooling systems; (iii) revenue from research and development contracts related
to the United States government and private companies; and (iv) 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, 1999 increased by $734,323 to $1,439,471
from $705,148 for the three month period ended September 30, 1998. Total
revenues for the nine month period ended September 30, 1999 increased by
$2,615,299 to $4,341,947 from $1,726,648 for the nine month period ended
September 30, 1998.
Product sales. Product sales for the three month period ended September 30,
1999 increased by $741,706 to $1,341,497 from $599,791 for the three month
period ended September 30, 1998. Product sales for the nine month period
ended September 30, 1999 increased by $2,422,512 to $3,840,443 from
$1,417,931 for the nine month period ended September 30, 1998. These
increases reflect the large increase in the number of licensees using
Frisby's products in the current year. Specifically, sales to licensees
signed after September 30, 1998 such as Schoeller Textil AG and Pacific
Coast Feather Company resulted in increased product sales. Additionally,
Titleist and Footjoy Worldwide's launch of DRY I.C.E.(R), a new footwear
product line featuring ComforTemp(R), and SteeleVest(R) sales contributed
to these increases.
Research and development projects. Revenues from research and development
projects for the three month period ended September 30, 1999 increased
$9,148 to $52,725 from $43,577 for the three month period ended September
30, 1998. Revenues from research and development projects for the nine
month period ended September 30, 1999 increased by $26,706 to $198,975 from
$172,269 for the nine month period ended September 30, 1998. These
variances reflect the timing of work performed on funded United States
government research and development contracts and undisclosed private
companies for potential applications incorporating the Company's thermal
management products.
Licenses and royalties. Revenues from license fees and royalties for the
three month period ended September 30, 1999 decreased by $16,531 to $45,249
from $61,780 for the three month period ended September 30, 1998. The
decrease for the third quarter is partially indicative of the retail
industry trend to delay shipment of cold weather apparel products until
later in the year. This trend is causing delays in the purchase of end
products from several of Frisby's licensees as is therefore affecting the
timing of royalty income. Revenues from license fees and royalties for the
nine month period ended September 30, 1999 increased by $166,081 to
$302,529 from $136,448. This increase reflects the recognition of fees
received from strategic partners for license agreements entered into after
the third quarter 1998. License fees are recognized as revenue ratably over
the life of the license agreement. Additionally, the increase is due to
royalty income received from a third party as a result of the assignment of
a license agreement from Triangle Research Development Corporation ("TRDC")
to the Company in September 1998.
Cost of Sales. The Company's cost of sales consists of: (i) direct and indirect
costs incurred in connection with product sales, including SteeleVest(R); (ii)
direct and indirect costs incurred in connection with revenue from research and
development contracts for the United States government and private companies;
(iii) royalty payments required to be made to the inventor of the thermal
management technology or another party licensed by the inventor; and (iv) the
amortization expense associated with the September 1998 transaction with the
inventor to lower the royalty rates. Costs of sales for the three month period
ended September 30, 1999 increased by $438,357 to $1,215,755 compared to
$777,398 for the three month period ended September 30, 1998. The cost of sales
related to products for the nine month period ended September 30, 1999 increased
by $1,914,713 to $3,551,095 compared to $1,636,382 for the nine month period
ended September 30, 1998.
Cost of sales - Products. The cost of sales related to products for the
three month period ended September 30, 1999 increased by $411,169 to
$1,126,655 from $715,486 for the three month period ended September 30,
1998. The cost of sales related to products for the nine month period ended
September 30, 1999 increased by $1,587,711 to $3,055,896 from $1,468,185
for the nine month period ended September 30, 1998. These increases reflect
the higher volume of product sales and the corresponding costs related to
such product sales in the three month and nine month periods ended
September 30, 1999 as compared to the corresponding periods in the prior
year. Product margins in the current quarter and year have been improved
over 1998 due to cost-effective supply agreements for Thermasorb(R) and
ComforTemp(R) for 1999 production as well as high margin on the
SteeleVest(R) product line.
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, 1999 decreased by $9,107 to $30,300 from $39,407 for
the three month period ended September 30, 1998. The cost of sales related
to research and development projects for the nine month period ended
September 30, 1999 increased by $60,754 to $199,142 from $138,388 for the
nine month period ended September 30, 1998. This increase reflects the
higher research and development revenues in the nine month period ended
September 30, 1999 as compared to the corresponding period in the prior
year.
Cost of Sales -- Licenses and royalties. The cost of sales related to
licenses and royalties for the three month period ended September 30, 1999
increased by $36,295 to $58,800 from $22,505 for the three month period
ended September 30, 1998. The cost of sales related to licenses and
royalties for the nine month period ended September 30, 1999 increased by
$266,248 to $296,057 from $29,809 for the nine month period ended September
30, 1998. These increases are primarily due to amortization of intangible
and royalties expense related to the September 1998 transaction with TRDC.
Selling and marketing expense. Selling and marketing expense for the three month
period ended September 30, 1999 decreased by $211,972 to $506,877 from $718,849
for the three month period ended September 30, 1998. This decrease reflects a
shift from trade and consumer print advertising placements towards more
cost-effective cooperative advertising and point of purchase displays in support
of certain licensees and retailers. Selling and marketing expense for the nine
month period ended September 30, 1999 increased by $565,387 to $2,003,060
compared to $1,437,673 for the nine month period ended September 30, 1998. This
increase occurred in the first two quarters and primarily resulted from the
Company's increased marketing and advertising activity in order to build brand
name recognition of its Thermasorb(R) and ComforTemp(R) products and trademarks.
These activities included the hiring of additional sales personnel, advertising
placements in many national trade and consumer publications and tradeshow
participation. Additionally, selling expense related to the SteeleVest(R) unit
contributed to these increases.
General and administrative expense. General and administrative expense for the
three month period ended September 30, 1999 increased by $166,116 to $1,158,922
from $992,806 for the three month period ended September 30, 1998. General and
administrative expense for the nine month period ended September 30, 1999
increased by $1,289,668 to $3,051,063 compared to $1,761,395 for the nine month
period ended September 30, 1998. 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.
Net interest income/expense. Net interest income for the three month period
ended September 30, 1999 decreased by $95,212 to $33,894 from $129,106 for the
three month period ended September 30, 1998. Net interest income for the nine
month period ended September 30, 1999 decreased by $76,666 to $166,459 from
$243,125 for the nine month period ended September 30, 1998. These decreases
reflect the higher cash and investment balances, in the prior year, due to
receipts of proceeds from the Initial Public Offering ("IPO") in April, 1998.
Net loss. As a result of the foregoing, the net loss for the three month period
ended September 30, 1999 decreased to $1,408,189 from $1,654,799 for the three
month period ended September 30, 1998. Additionally, the net loss for the nine
month period ended September 30, 1999 increased to $4,096,811 from $2,865,677
for the nine month period ended September 30, 1998.
Liquidity and capital resources. From its inception through September 30, 1999,
the Company has incurred cumulative losses of approximately $9,084,000. The
Company has financed its operations to date through research and development
contracts relating to United States government programs, bank borrowings and
issuance of common stock and convertible preferred stock.
At September 30, 1999, the Company had working capital of $4,317,000, including
cash and marketable securities of $2,923,000 accounts receivable billed of
$1,753,000 and inventory of $684,000, offset by accounts payable of $810,000 and
license fees payable of $194,000.
Cash used by operating activities was $4,246,000 and $3,744,000, for the nine
month period ended September 30, 1999 and 1998, respectively. The principal
factor contributing to the cash used in operating activities for the nine month
period ended September 30, 1999 and 1998 was the net loss for each of the
respective periods. Cash provided by investing activities was $653,000 for the
nine month period ended September 30, 1999. The principal investing activities
for 1999 were: a sales of marketable securities offset in part by an installment
payment to TRDC for the agreement signed in September 1998, the purchase of the
assets of Steele Incorporated, and the purchase of equipment for the development
facility in North Carolina. Cash provided used in investing activities was
$7,478,000 for the nine month periods ended September 30, 1998. The principal
investing activity for 1998 was the purchase of short-term investments. Cash
provided by financing activities was $12,876,000 for the nine month period ended
September 30, 1998. The principal financing activities for the nine month period
ended September 30, 1998 were the receipt of the net proceeds of $2,479,000 from
the exercise of the Convertible Preferred Stock Option by one holder of record
and of $10,397,000 from the Company's IPO.
The Company is consolidating its North Carolina operations to a newly
constructed facility located in Winston-Salem, North Carolina during the first
quarter of fiscal 2000. The remaining cash requirements with respect to
that relocation will be expended in the fourth quarter of 1999 and the first
quarter of 2000. The total 1999 capital expenditures, including certain assets
that may not be placed into service until the building completion in early
2000, are not expected to exceed $1,000,000.
The Company has a $2,000,000 line of credit with a bank. The line of credit
bears interest at the lower of the bank's prime rate or a two point spread
versus the London Interbank Overnight Rate ("LIBOR") and will expire on June 30,
2000. The full amount of the line is currently available and uncommitted. It is
the Company's intent to renew or replace the line of credit in order to
accommodate possible future funding requirements.
The Company has incurred cumulative losses since its inception and, therefore,
has not been subject to significant federal income taxes. Through September 30,
1999, the Company has generated net operating loss carryforwards of
approximately $9,080,000, which may be available to reduce future available
taxable income and future tax liabilities. These carryforwards expire in year
2018. The Tax Reform Act of 1986 provides for an annual limitation on the use of
net operating loss carryforwards (following certain ownership changes) that
could significantly limit the Company's ability to utilize these carryforwards.
Due to the cumulative effect of the IPO and the subsequent exercise of options
or warrants in connection with other future sales of equity, the Company's
ability to utilize the aforementioned carryforwards may be limited.
Additionally, because the United States tax laws limit the time during which
these carryforwards may be applied against future taxes, the Company may not be
able to take full advantage of these attributes for federal tax purposes.
Based on the Company's current operating plan, the Company believes that its
available cash, cash flow from operations and available line of credit, will be
sufficient to satisfy its operational and capital requirements through March
2000. Such belief is based upon certain assumptions, and there can be no
assurance that such assumptions are correct. In the event that the Company's
plans change, or its available cash, cash flow from operations and available
line of credit are insufficient to fund operations due to unanticipated delays,
problems, expenses or otherwise, the Company would be required to seek
additional financing sooner than anticipated. Further, depending on the
Company's progress in marketing its product line, gaining acceptance of its
thermal management technology and its other products and services among the
business community or the identification of strategic acquisition or licensing
opportunities, the Company may determine that it is advisable to raise
additional capital sooner than was anticipated.
The Company has been evaluating various financing alternatives to increase cash
available to fund operations during fiscal year 2000, including potential
private equity sources.
Inflation
The impact of general inflation on the Company's business has been insignificant
to date and the Company believes that it will continue to be insignificant for
the foreseeable future.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on recent assessments, the Company determined that it will not
require significant modifications of its hardware or software so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications of its existing software, the Year
2000 Issue can be mitigated.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing, and implementation. As
of April 30, 1999, the Company has fully completed its assessment of all
internal systems that could be significantly affected by the Year 2000. The
completed assessment indicated that most of the Company's significant
information technology systems will not be significantly affected, particularly
the general ledger, billing, and inventory systems. The Company does not believe
that the Year 2000 presents a material exposure as it relates to the Company's
products. In addition, the Company has begun to gather information about the
Year 2000 compliance status of its external agents and continues to monitor
their compliance. To date, the Company is not aware of any external agent with a
Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. The Company has requested from its
bank an assessment of the extent of the bank's Year 2000 compliance. In the
event the bank is not Year 2000 compliant in a timely manner, the Company is
prepared to change banks. However, the Company has no means of ensuring that
external agents will be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely fashion could materially
and adversely impact the Company. The effect of non-compliance by external
agents is not determinable.
The Company will utilize its external software and service provider to
reprogram, test and implement the software for the Year 2000 modification as
needed, the cost of which is not expected to be significant. The Company
evaluated the status of completion of Year 2000 modifications in the third
quarter and will undertake all remaining necessary steps to seek to ensure its
systems are Year 2000 compliant. In the event the Company is unable to resolve
its Year 2000 modifications in a timely fashion, the business of the Company may
be materially and adversely impacted.
In the event the Company's computer systems are materially adversely
affected by the Year 2000 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. However, the Company believes that the most
likely worst case scenario is that there will be some localized disruptions of
systems that will affect individual processes, facilities or service technology
providers for a short time rather than systematic or long-term problems
affecting its business operations as a whole. In such event 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 1, 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.
Those statements are subject to numerous risks and uncertainties that
could cause actual results, performance and achievements to differ materially
from those described or implied in the forward-looking statements, and reported
results should not be considered an indication of future performance. Those
potential risks and uncertainties include without limitation the uncertainty of
the economic environment for the remainder of this year, the need for further
development of certain of Frisby Technologies' products, markets and supply
chain partners, the development of alternative technologies by third parties,
Year 2000 issues affecting the Company and its customers and suppliers, and the
uncertainty of market acceptance and demand for the Company's products in the
future.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
On April 6, 1999, the Company received notice from the shareholder of
the Convertible Preferred Stock of its decision to convert the 587,500 shares of
Convertible Preferred Stock shares into Common Stock. This transaction increases
the number of outstanding common stock to 5,708,113.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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 15, 1999
FRISBY TECHNOLOGIES, INC.
By:/s/ Gregory S. Frisby
-------------------------------------
President and Chief Executive Officer
By:/s/ Stephen P. Villa
-----------------------
Stephen P. Villa
Chief Financial Officer
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