Frisby Technologies Inc – ‘424B4’ on 4/2/98

As of:  Thursday, 4/2/98   ·   Accession #:  950116-98-788   ·   File #:  333-45121

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Prospectus   —   Rule 424(b)(4)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                            77    487K 

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PROSPECTUS                                                                      

1,600,000 Shares  

FRISBY TECHNOLOGIES 
[GRAPHIC OMITTED] 

Common Stock  

  Frisby Technologies, Inc. (the "Company") hereby offers (the "Offering")
1,600,000 shares of common stock, $.001 par value per share (the "Common        
Stock"). Prior to the Offering, there has been no public market for the Common  
Stock. The Common Stock has been approved for quotation on the Nasdaq SmallCap  
Market under the symbol "FRIZ" and on the Boston Stock Exchange ("BSE") under   
the symbol "FRZ". See "Underwriting" for information relating to the factors    
considered in determining the initial public offering price.                    

----------------  

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND    
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES   
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE      
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS  
A CRIMINAL OFFENSE. 

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND   
SUBSTANTIAL DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD 
TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. PROSPECTIVE PURCHASERS SHOULD  
CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON  
PAGE 9 OF THIS PROSPECTUS.                                                  

--------------------------------------------------------------------------------

                                                                [Download Table]

                                     Underwriting Discounts                         
                    Price to Public   and Commissions (1)    Proceeds to Company (2)
                    ---------------  ----------------------  -----------------------
                                                                                    
Per Share .........   $      7.00        $     0.68                $      6.32      
Total (3) .........   $11,200,000        $1,092,000                $10,108,000      

--------------------------------------------------------------------------------

(1) Does not reflect additional compensation to be received by Barington        
 Capital Group, L.P. ("Barington"), the representative of the Underwriters
(the "Underwriters"), including: (i) a non-accountable expense allowance
equal to three percent of the gross proceeds of the Offering (of which  
  $40,000 has been paid); and (ii) an option entitling Barington to purchase
from the Company, for a period of five years from the date of this      
Prospectus, up to 160,000 shares of Common Stock at an exercise price   
 equal to 165% of the initial public offering price (the "Representative's
Option").                                                               
(2) Before deducting expenses of the Offering payable by the Company (including 
Barington's non-accountable expense allowance) estimated at $964,000    
($1,014,000 if the Over-Allotment Option is exercised in full). See "Use
of Proceeds."                                                           
(3) The Company has granted to the Underwriters an option (the "Over-Allotment  
Option"), exercisable within 45 days after the date of the Offering to  
  purchase up to 240,000 additional shares of Common Stock on the same terms
 and conditions as set forth above solely to cover over-allotments. If the
Over-Allotment Option is exercised in full, the total Price to Public,  
  total Underwriting Discounts and Commissions and total Proceeds to Company
will be $12,880,000, $1,255,800 and $11,624,200, respectively. See      
"Underwriting."                                                         

   The Common Stock offered hereby is subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, and subject to approval of       
certain legal matters by its counsel and to certain other conditions. The       
Underwriters reserve the right to withdraw, cancel or modify such offer and to  
reject any order in whole or part. It is expected that delivery of the          
certificates representing the shares of Common Stock will be made at the        
offices of Barington Capital Group, L.P., 888 Seventh Avenue, New York, New     
York 10019, on or about April 8, 1998.                                          

BARINGTON CAPITAL GROUP 

The date of this Prospectus is April 1, 1998

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--------------------------------------------------------------------------------

Group Photograph
of product applications 

--------------------------------------------------------------------------------

Depicted above are various product applications incorporating the     
Company's Thermasorb(R) and ComforTemp(R) products.                   

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
ON THE NASDAQ SMALLCAP MARKET, REGIONAL MARKETS OR OTHERWISE, WHICH STABILIZE,  
MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK.              
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,   
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK ON THE OPEN MARKET IN ORDER TO  
STABILIZE THE MARKET PRICE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED 
AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."         

---------------------   

Upon completion of the Offering, the Company will be subject to the   
reporting requirements of the Securities Exchange Act of 1934 (the "Exchange    
Act"). The Company intends to furnish its stockholders with annual reports      
containing financial statements audited by its independent auditors and         
quarterly reports for the first three quarters of each fiscal year containing   
unaudited financial statements.                                                 

---------------------   

  Thermasorb(R) and ComforTemp(R) are registered trademarks of the Company
and the Company has applied for trademark registration for Comfort in the       
Extreme(TM). This Prospectus also contains trademarks and trade names of other  
companies.                                                                      

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                                                        [Enlarge/Download Table]

                                                                                                                                 
                                          ------------------------------------------     ----------------------------------------

                                                       Photograph of                                                             
   LOGO                                                   Gloves                                       Photograph of             
COMFORTEMP                                                   &                                            Helmet                 
 HangTag                                                Ear-warmers                                                              

                                          ------------------------------------------     ----------------------------------------

----------------------------------------  ------------------------------------------     ----------------------------------------

        Photograph of                                 Photograph of                                  Photograph of               
           Waders                                         Boots                                        Packaging                 

----------------------------------------  ------------------------------------------     ----------------------------------------
                                          Depicted above are various product                                                     
                                          applications incorporating the Company's                                               
                                          Thermasorb(R) and ComforTemp(R) products.                                              

----------------------------------------  ------------------------------------------     ----------------------------------------
                                            The Company's thermal managment                                                      
                                          technology utilized in Thermasorb(R)                                                   
                                          additives and CorforTemp(R) foams provide                                              
                                          the following unique characteristics:                                                  

                                          o Intelligent thermal management -- provide                                            
                                            pre-selected temperature control;                                                    
                                          o Versatile -- may be incorporated into a                                              
                                            wide variety of end-use products;                                                    
           Photograph of                  o Lightweight -- lighter and less bulky than                Photograph of              
       Thermasorb(R) additive               conventional insulating materials;                      ComforTemp(R) foam           
                                          o Durable -- typically outlasts product to                                             
                                            which it is applied;                                                                 
                                          o Rechargeable -- continuous, automatic thermal                                        
                                            management;                                                                          
                                          o Customizable -- may be engineered to meet the                                        
                                            requirements of applications across a wide                                           
                                            temperature range;                                                                   
                                          o Complementary -- may be used to enhance other                                        
                                            insulating products.                                                                 
----------------------------------------  ------------------------------------------     ----------------------------------------
The Company's Thermasorb(R) additive.                                                    The Company's ComforTemp(R) product in  
                                                                                         the form of polyurethane foam.          

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  Unless otherwise indicated, the information contained in this Prospectus
assumes the Over-Allotment Option is not exercised. Except as otherwise         
indicated, all share information and per share amounts set forth in this        
Prospectus have been adjusted to reflect the issuance of 587,500 shares of the  
Company's convertible preferred stock (the "Convertible Preferred Stock"), in a 
private placement, concluded prior to the commencement of the Offering. This    
Prospectus contains forward-looking statements that involve risks and           
uncertainties. The Company's actual results may differ significantly from the   
results discussed in such forward-looking statements. Factors that might cause  
such differences include, but are not limited to, those discussed under the     
heading "Risk Factors." The shares offered hereby involve a high degree of      
risk.                                                                           

PROSPECTUS SUMMARY  

 The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing    
elsewhere in this Prospectus and should be read in conjunction with that        
information and those financial statements and notes. Prospective investors are 
urged to read this Prospectus in its entirety.                                  

THE COMPANY 

 Frisby Technologies, Inc. (the "Company") is engaged in the development
and commercialization of innovative advanced thermal management products for    
use in a broad range of consumer and industrial products such as gloves, boots, 
athletic footwear, apparel, protective and temperature retardant equipment,     
electronics cooling systems, packaging materials, and coating substances. The   
Company's Thermasorb(R) and ComforTemp(R) products utilize licensed patents and 
the Company's proprietary microencapsulated phase change material ("MicroPCM")  
technology to enhance thermal characteristics (i.e., insulation, cooling or     
temperature control properties) of these and a variety of other consumer and    
industrial products. For example, when ComforTemp(R) foams are incorporated     
into ski gloves, the skier's hands remain within a constant, pre-set            
temperature range without the typical accumulation of moisture. If a            
firefighter were to wear flame retardant clothing incorporating ComforTemp(R)   
foam, the firefighter would remain cooler and be able to fight fires longer and 
more safely than a firefighter wearing flame retardant clothing without         
ComforTemp(R) foam. See "Business -- General."                                  

The Company's marketing strategy is based on penetrating large select 
markets for its thermal management technology through relationships with        
strategic partners. The Company works closely with its strategic partners       
within each market to develop commercially viable product applications. To      
date, the Company has entered into such strategic partnerships with, among      
others, Wells Lamont Division of Marmon Holdings, Inc., LaCrosse Footwear, Inc. 
and Bell Sports Corp.                                                           

Industry Overview                                                               

Thermal management is the process by which the temperature of various 
materials is controlled or manipulated. The thermal management materials        
industry consists primarily of a wide variety of non-phase change materials     
such as Thinsulate(R) brand insulation for use in apparel; flexible and rigid   
polyurethane foams for use in footwear, sporting goods, automotive and          
transportation industries; specialized chemical additives for use in            
temperature resistant paints and coatings; and liquid coolants for use in       
aerospace, automotive and computer/electronics cooling systems. Phase change    
thermal management materials are comprised of materials that have the ability   
to absorb and reject large amounts of heat by changing from solid to liquid and 
back, thereby greatly enhancing the ability to heat or cool a particular        
object. See "Business -- Industry Overview."                                    

 The Company believes that its products are the first to combine the two
distinct technologies of thermal management phase change materials ("PCMs") and 
microencapsulation to effect meaningful thermal performance improvements within 
applications across broad markets. Microencapsulation is the enclosing of       
materials inside a microscopic shell to maintain the integrity of the enclosed  
material. The combination                                                       

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of PCM technology with microencapsulation technology overcomes many of the      
inherent shortcomings of non-encapsulated PCMs, such as the tendency of         
non-encapsulated PCMs to lose their integrity, and to dissipate, evaporate or   
exhaust themselves over time. Microencapsulation permits PCMs to be imbedded    
into a variety of host materials, while maintaining the integrity and thermal   
functionality of the core PCMs. Microencapsulation is a proven technology and   
has been used extensively in the pharmaceutical industry (time release          
medication) and the paper industry (carbonless copy paper). Since its advent,   
microencapsulation has been increasingly utilized across diverse applications.  
Management believes that the technology will continue to gain further           
penetration and usage in different fields, including thermal management.        

Products                                                                        

The Company's products offer impressive and cost-effective thermal    
management solutions for a broad range of industries. The Company's current     
MicroPCM based products consist of a series of thermal additives and a series   
of foams in which the thermal additives are embedded. The Company currently     
markets its thermal additives and foams under the trademarks Thermasorb(R) and  
ComforTemp(R), respectively. See "Risk Factor -- Limited Operating History" and 
"Business -- Products."                                                         

Thermasorb(R) additives are a series of thermal management additives  
developed using the latest advances in microencapsulation technology.           
Thermasorb(R) MicroPCMs are micron-sized particles in the form of a dry,        
free-flowing powder, consisting of a heat absorbing core material encapsulated  
within a proprietary, durable shell wall. Thermasorb(R) additives can improve   
the thermal storage capacity of a variety of host materials, including liquid,  
foam, epoxy or composite materials. Thermasorb(R) additives are currently       
commercially available in a variety of transition temperatures ranging from 43o 
F to 190o F. Thermasorb(R) additives incorporated into solid materials enable   
those materials to absorb up to ten times more heat than traditional insulating 
materials. In tests performed for the United States Air Force by Triangle       
Research and Development Corp. ("TRDC"), the principal licensor of the          
Company's technology, liquid coolants containing Thermasorb(R) additives were   
shown to remove up to 40 times more heat than traditional coolants. See         
"Business -- Products."                                                         

 ComforTemp(R) foams are a series of foam products that contain embedded
Thermasorb(R) additives. ComforTemp(R) foams can be fabricated in different     
ways to have the ability to retain or exclude heat thereby maintaining a more   
constant temperature. ComforTemp(R) foams are currently available in a light,   
breathable polyurethane foam which has the added capability of wicking away     
moisture while maintaining comfort in extreme hot or cold climates. For cold    
weather apparel products, the greatest asset of ComforTemp(R) foams is the      
ability to retain body heat during periods of activity and to release the heat  
back to the individual during periods of inactivity when the body is most in    
need of warmth. ComforTemp(R) foams "recharge" naturally depending on the       
individual level of physical activity or other external conditions. For hot     
weather products, ComforTemp(R) foams can be used as a thin thermal             
barrier/heat shield to protect against extreme heat as well as to facilitate    
the regulation of body heat generated during activity thereby providing a       
cooling effect.                                                                 

The Company's thermal management technology utilized in Thermasorb(R) 
additives and ComforTemp(R) foams provides the following unique                 
characteristics:                                                                

o Intelligent thermal management -- provides pre-selected temperature       
control;                                                                
o Versatile -- may be incorporated into a wide variety of end-use products; 
o Lightweight -- lighter and less bulky than conventional insulating        
materials;                                                              
o Durable -- typically outlasts product to which it is applied;             
o Rechargeable -- continuous, automatic thermal management;                 
o Customizable -- may be engineered to meet the requirements of applications
across a wide temperature range;                                        
o Maintenance free -- no maintenance or power source required; and          
o Complementary -- may be used to enhance other insulating products.        

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Strategy                                                                        

The Company's current primary objective is to increase acceptance and 
usage of its existing products and to adapt such products for use in additional 
consumer and commercial products within targeted industries through strategic   
partnerships with leaders in such industries. The Company intends to establish  
its Thermasorb(R) and ComforTemp(R) products as the most advanced thermal       
management products available, and to establish Thermasorb(R) and ComforTemp(R) 
as internationally recognized consumer and industrial brands. See "Risk Factor  
-- Limited Operating History," "-- Market Acceptance" and "Business --          
Strategy."                                                                      

A significant portion of the Company's marketing and brand promotion  
efforts are coordinated with its strategic partners. The Company's agreements   
with its strategic partners typically obligate the strategic partner to display 
and promote the Company's trademarks, including Thermasorb(R) and               
ComforTemp(R), in all promotional materials, point of sale displays and direct  
product advertising relating to end-products incorporating the Company's        
products. The Company refers to these efforts as "co-branding."                 

The Company's products are currently being marketed commercially in   
apparel, footwear and sporting goods products. Three additional fields in which 
its products are most likely to become commercially feasible in the near term   
are home furnishings, shipping/packaging and healthcare. In the future, the     
Company's plans include developing products and establishing strategic          
partnerships in the automotive, aerospace and computers and electronics         
industries.                                                                     

The Company's strategy is to pursue product applications which it     
determines can: (i) offer significant growth potential within large,            
established and/or growing markets; (ii) generate attractive margins and        
enhanced brand recognition while having low capital requirements; (iii) meet a  
significant unmet market need; and (iv) provide a strong proprietary            
opportunity for industry leaders entering into strategic partnerships with the  
Company. Once a specific market or product is identified, the Company seeks to  
introduce that product by: (i) targeting a market leader in that specific       
industry; (ii) establishing a strategic relationship with that market leader;   
(iii) working closely with its strategic partner to develop the optimal         
characteristics and marketing efforts for each product incorporating the        
Company's products; and (iv) coordinating with its strategic partner to         
maximize market penetration including penetration of the mass market.           

 The Company's current plans involve maximizing the commercial viability
and success of its thermal management products. From time to time, the Company  
becomes aware of and considers conducting funded research projects that do not  
relate to thermal management. The Company expects to evaluate future funded     
research and development projects on a case-by-case basis and will engage in    
those projects management considers to offer complementary opportunities for    
the Company.                                                                    

Strategic Partners                                                              

Through mid-1996, the Company focused its efforts on acquiring patent 
licenses and developing proprietary technology and identifying and testing      
potential applications for its innovative thermal management products. During   
that period, the Company generated substantially all of its revenues from       
United States government related research and development contracts. In March   
1996, the Company began to commercially market its Thermasorb(R) and            
ComforTemp(R) products. See "Risk Factor -- Dependence on Small Number of       
Strategic Partners; Limited Sales and Marketing Experience" and "Business --    
Strategic Partnerships."                                                        

After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its             
Thermasorb(R) and ComforTemp(R) products for use in the products of its         
strategic partners; and (ii) royalties from the use of the Thermasorb(R) and    
ComforTemp(R) trademarks by its strategic partners based on a percentage of its 
strategic partners' sales of products containing the Company's products to      
end-users. The Company also may receive license fees and development fees from  
some strategic partners for the grant of exclusive rights within a specific     
product category and for development services provided by the Company.          

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To date, the Company's products have been incorporated into and are   
currently being sold to consumers of products such as HotFingers(TM) ski gloves 
by Wells Lamont, ski and snowboard helmets by Bell Sports Corp., hiking boots   
and snowboots by Cove Shoe Company and Genfoot, Inc., and fishing waders by Fly 
Technologies, Inc. In addition, the Company's products are currently being      
incorporated into products such as snowboots by LaCrosse Footwear, Inc. and     
personal hydration systems by FasTrak Systems, Inc., each of which are expected 
to first be made available for sale to consumers in 1998.                       

    The Company is currently in negotiations with additional entities that are
interested in entering into strategic partnerships for the use of Thermasorb(R) 
additives or ComforTemp(R) foams in their products. These companies are in the  
technical outerwear, athletic footwear, home furnishing, shipping and           
packaging, healthcare, automotive, aerospace, and computer and electronics      
industries.                                                                     

History                                                                         

The Company was incorporated in North Carolina in November 1989 and   
reincorporated in Delaware in March 1998. The Company's principal executive     
office is located at 417 South Main Street, Freeport, New York 11520. Its       
telephone number is (516) 378-0162 and its web sites are http://www.frisby.com  
and http://www.comfortemp.com.                                                  

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The Offering  

                                                        [Enlarge/Download Table]


                                                                                                         
Common Stock Offered by the Company (1) ............ 1,600,000 shares                                    
Common Stock Outstanding                                                                                 
  Immediately Prior to the Offering (2) ............ 3,280,613 shares                                    
Common Stock to be Outstanding                                                                           
  Following the Offering (1) (2) ................... 4,880,613 shares                                    
Risk Factors ....................................... The shares of Common Stock offered hereby           
                                                     involve a high degree of risk and should be pur-    
                                                     chased only by persons who can afford to sustain    
                                                     a total loss of their investment. See "Risk Factors"
                                                     and "Dilution."                                     
Use of Proceeds .................................... The net proceeds of the Offering will be used by    
                                                     the Company to provide resources for: (i) sales     
                                                     and marketing; (ii) product development; (iii)      
                                                     capital expenditures; (iv) research and develop-    
                                                     ment; and (v) working capital. See "Use of          
                                                     Proceeds."                                          
Proposed Nasdaq SmallCap Market Symbol (3) ......... FRIZ                                                
Proposed BSE Symbol (3) ............................ FRZ                                                 

-------------                                                                   
(1) Does not include: (i) 240,000 shares of Common Stock issuable upon exercise 
of the Over-Allotment Option; or (ii) 160,000 shares of Common Stock    
  issuable upon exercise of the Representative's Option. See "Underwriting."

(2) Does not include: (i) 587,500 shares of Common Stock issuable upon          
 conversion of 587,500 shares of the Convertible Preferred Stock issued in
 February 1998 upon exercise of an option (the "Private Placement Option")
 issued in December 1997 in a private placement (the "Private Placement");
  or (ii) 250,000 shares of Common Stock reserved for issuance upon exercise
  of options which may be granted under the Company's 1998 Stock Option Plan
(the "Stock Option Plan"). See "Capitalization," "Management -- Stock   
Option Plan," "Certain Transactions" and "Description of Securities."   

(3) Prior to the Offering there was no market for the Common Stock and there    
 can be no assurance that a market for the Common Stock will develop after
the Offering. The Common Stock has been approved for quotation on the   
Nasdaq SmallCap Market and the BSE. There can be no assurance, however, 
  that such listing will be maintained. See "Risk Factors -- No Prior Market
for the Common Stock; Determination of Offering Price; Potential        
Volatility of Stock Price."                                             

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SUMMARY FINANCIAL DATA  

The actual summary financial data presented below under the captions  
"Statement of Operations Data" and "Balance Sheet Data" for and as of the end   
of each of the periods indicated are derived from the financial statements of   
the Company appearing elsewhere herein. The information set forth below should  
be read in conjunction with such financial statements and the notes thereto and 
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations."                                                                    

                                                        [Enlarge/Download Table]

                                                                        Year Ended           
                                                                       December 31,          
                                                             --------------------------------
                                                                  1996             1997      
                                                             -------------   ----------------
                                                                                             
Statements of Operations Data:                                                               
Revenue ....................................................  $1,208,000       $  1,262,000  
Cost of sales ..............................................   1,036,000            976,000  
                                                              ----------       ------------  
Gross profit ...............................................     173,000            286,000  
Operating expenses:                                                                          
  Selling and marketing ....................................      83,000            315,000  
  General and administrative ...............................     207,000            900,000  
                                                              ----------       ------------  
Total operating expenses ...................................     290,000          1,215,000  
                                                              ----------       ------------  
Loss from operations .......................................    (118,000)          (929,000) 
Net loss ...................................................  $  (88,000)      $ (1,010,000) 
                                                              ==========       ============  
Net loss per common share -- basic and diluted .............  $    (0.03)      $      (0.36) 
                                                              ==========       ============  
Shares used in computing net loss per common share .........   2,839,000          2,843,000  
                                                              ==========       ============  
                                                                [Download Table]

                                               December 31, 1997                
                                ------------------------------------------------
                                                                   Pro Forma    
                                   Actual      Pro Forma(1)    As Adjusted(1)(2)
                                ------------  --------------  ------------------
                                                                                
Balance Sheet Data:                                                             
Cash .........................   $  375,000     $2,875,000        $12,158,000   
Working capital ..............      416,000      2,916,000         12,199,000   
Total assets .................    1,268,000      3,768,000         12,912,000   
Stockholders' equity .........      475,000      2,836,000         12,119,000   

-------------                                                                   
(1) Pro forma to give effect to the exercise in February 1998 of an option to   
purchase 587,500 shares of Convertible Preferred Stock for an aggregate 
  exercise price of $2,500,000 issued in the Private Placement. See "Certain
Transactions."                                                          

(2) Pro forma, as adjusted to give effect to the sale by the Company of the     
1,600,000 shares of Common Stock offered hereby at the initial offering 
price of $7.00 per share and receipt of the estimated net proceeds      
therefrom ($139,000 of related expenses have been paid prior to December
31, 1997). See "Use of Proceeds."                                       

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RISK FACTORS  

 The shares of Common Stock offered hereby involve substantial risks and
should be purchased only by persons who can afford to sustain the loss of their 
entire investment. The following risk factors, in addition to the other         
information and financial data set forth elsewhere in this Prospectus, should   
be considered carefully in evaluating the Company and its business before       
making an investment in the Common Stock. The risks described below and         
elsewhere in this Prospectus are not intended to be an exhaustive list of the   
general or specific risks involved, but merely to identify certain risks that   
are now foreseen by the Company. It must be recognized that other risks, not    
now foreseen, might become significant in the future and that the risks, which  
are now foreseen, might affect the Company to a greater extent than now         
foreseen or in a manner not now contemplated. Furthermore, this Prospectus      
contains certain forward-looking statements that are based on current           
expectations, estimates and projections about the business of the Company and   
the industry in which the Company operates, management's beliefs and            
assumptions made by management. Words such as "expects," "anticipates,"         
"intends," "plans," "believes," "seeks" and "estimates," variations on such     
words and similar expressions are intended to identify such forward-looking     
statements. These statements are not guarantees of future performance and       
involve certain risks, uncertainties and assumptions which are difficult to     
predict. The Company's actual results could differ materially from those        
expressed or forecasted in these forward-looking statements as a result of      
certain factors, including those set forth under "Management's Discussion and   
Analysis of Financial Condition and Results of Operations" and "Business" and   
elsewhere in this Prospectus. Each prospective investor should carefully        
consider all information contained in this Prospectus and should give           
particular consideration to the following risk factors before deciding to       
purchase the Common Stock offered hereby.                                       

Limited Operating History                                                       

 The Company was formed in 1989 and has a limited operating history. The
Company's activities to date have primarily related to: (i) the identification  
and licensing of, and research and materials development related to, its        
MicroPCM technology, the rights to which were initially licensed to the Company 
in 1991; (ii) the arrangement of the contract manufacturing of MicroPCMs by     
third-party suppliers; (iii) identification of initial target markets and entry 
into strategic partnerships in those markets; and (iv) the limited              
commercialization by the Company's first strategic partners of thermal          
management products incorporating the Company's Thermasorb(R) additives and     
ComforTemp(R) foams. The Company commenced producing and selling its products   
commercially in mid-1996 and, as of December 31, 1997, the Company had entered  
into seven agreements with strategic partners. The Company intends to rely      
extensively upon the "co-branding" of its products with the products of its     
strategic partners. The Company's co-branding strategy involves requiring its   
strategic partners to display the Company's trademarks, Thermasorb(R) and       
ComforTemp(R), on or in conjunction with end-use products incorporating its     
products and in all advertising relating to those products. There can be no     
assurance that the Company, alone or with its strategic partners, will be able  
to create awareness of, and demand for, the Company's products through their    
respective marketing efforts. The failure of the Company's co-branding approach 
to marketing would require the Company to develop its marketing capabilities at 
a potentially higher cost to the Company. Further, there can be no assurance    
that the Company's co-branding strategy will be successful or, if successful,   
that such program will lead to increased sales of the Company's products and    
services. If the Company's co-branding strategy is not successful, there can be 
no assurance that the Company will have sufficient resources to develop its own 
marketing program or, if developed, that such program will be successful. See   
"Business -- Strategy" and "-- Sales and Marketing."                            

Additionally, the Company's business and its operations are subject to
unanticipated expenses, uncertain market acceptance, competition, government    
regulation, increases in costs, delays and risks inherent in the establishment  
of a new business enterprise, including limited capital, and delays in product  
development by the Company or its strategic partners. There can be no assurance 
that the Company will succeed in addressing any or all of these risks, and      
failure to do so would have a material adverse effect on the Company's          
business, financial condition and results of operations. See "Management's      
Discussion and Analysis of Financial Condition and Results of Operations,"      
"Business -- Products" and "-- Technology Overview."                            

Accumulated Losses; Possible Need for Additional Financing                      

    For the years ended December 31, 1996 and 1997, the Company had net losses
of $88,000 and $1,010,000, respectively. The Company had working capital of     
$416,000 at December 31, 1997, and an accumulated deficit                       

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of $1,068,000 through December 31, 1997. The Company anticipates that it will   
continue to sustain losses through the third quarter of 1999, principally as a  
result of expenses associated with the Company's continuing product development 
efforts and anticipated selling, marketing and general administrative expenses. 
See "Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Liquidity and Capital Resources."                                 

The Company believes that the net proceeds from the Offering will be  
sufficient to satisfy the Company's working capital requirements for a period   
of approximately 24 months following completion of the Offering. No assurance   
can be given that the Company will become profitable in such time or            
thereafter. In the event that the Company's plans change, its assumptions prove 
to be inaccurate (due to unanticipated expenses, difficulties, delays or        
otherwise) or the proceeds of the Offering otherwise prove to be insufficient   
to fund the implementation of the Company's business strategy and working       
capital requirements, the Company could be required to seek additional          
financing. The Company has no commitments for any future funding, and there can 
be no assurance that the Company will be able to obtain additional capital in   
the future. The type, timing and terms of such funding, if available, will be   
determined by prevailing conditions in the financial markets and the Company's  
financial condition, among other factors. If the Company requires additional    
capital and is unable to obtain such capital, it may be required to             
significantly curtail its activities which would have a material adverse effect 
on the Company's business, financial condition and results of operations. See   
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations -- Liquidity and Capital Resources."                                 

Reduction in Government Funded Development; No Assurance of Continued           
Government Contracts                                                      

 A significant portion of the $5,558,000 in total revenues earned by the
Company since its inception through December 31, 1997 was generated from        
performing contracts and providing engineering services directly or indirectly  
for the United States government. Revenue from these contracts accounted for    
92.7% and 38.6% of the Company's total revenues for the years ended December    
31, 1996 and 1997, respectively, and substantially funded the Company's         
development efforts. Except for four of these contracts which provide for       
future development payments to the Company totalling approximately $361,000,    
these contracts were fully or substantially completed as of December 31, 1997.  
The Company does not believe that it is materially dependent on a continued     
flow of revenue from existing or future government related contracts. The       
Company currently expects to continue to solicit approximately $500,000 per     
year of government related contracts and to fund any remaining development      
efforts through license fees, product sales and royalties. There can be no      
assurance that the United States government and the related contracting parties 
will not curtail or eliminate their expenditures for services of the type       
provided by the Company, or if not curtailed or eliminated, that the Company    
will be successful in obtaining contracts to perform such services in the       
future. See "Business -- Research and Development."                             

Market Acceptance                                                               

Since its inception, the Company has focused its product development  
efforts on research and development with respect to its Thermasorb(R) and       
ComforTemp(R) products and market applications incorporating Thermasorb(R)      
additives and ComforTemp(R) foams which the Company believes will be superior   
to similar applications utilizing currently available non-MicroPCM              
technologies. As with any new technology, there is a risk that the market may   
not appreciate the benefits of or recognize the potential applications for the  
technology. See "Business -- Strategy."                                         

    In order for the Company to achieve broad market acceptance of its thermal
management products, the Company must demonstrate to potential consumers and    
strategic partners that its additives or its products made therefrom are useful 
in addition to or as replacements for existing thermal management technology.   
The Company's strategy is to achieve and capitalize upon brand recognition of   
its thermal management technologies in high profit markets. However, there can  
be no assurance that the Company's existing or future products will be          
commercially accepted. The Company's targeted strategic partner base may not    
change the established thermal management technologies incorporated in their    
products and may not make the necessary investment to purchase the Company's    
products. If market acceptance of the Company's products does not develop, the  
Company's prospects would be materially adversely affected.                     

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Dependence Upon Intellectual Property                                           

The Company's business is dependent on the continued validity of the  
patents that it licenses and the effectiveness of its licenses to such patents. 

    The Company holds licenses under nine issued and one pending United States
patent and one European patent and believes that its rights under these         
licenses together with the Company's proprietary techniques adequately protect  
its MicroPCM technology. The Company's rights under the licenses and in the     
proprietary techniques have not been tested in any court proceeding and there   
can be no assurance that these rights, if tested, will in fact be adequate to   
protect its technology. The Company has a license agreement (the "TRDC          
License") with TRDC for the exclusive worldwide right to develop and            
commercialize all patented and proprietary bulk PCMs and MicroPCM technologies  
owned presently or in the future by TRDC ("TRDC Technology") with the exception 
of MicroPCMs relating to fibers and fabrics with reversible enhanced thermal    
storage properties ("MicroPCM Fibers and Fabrics"). TRDC's principal, Dr. David 
P. Colvin, Ph.D., is a member of the Company's Innovation Advisory Board. The   
TRDC Technology currently includes nine issued and one pending United States    
patent and one European patent. TRDC or its licensees have applied for          
international patent protection for two of the issued United States patents.    
The TRDC License also grants to the Company the exclusive right and license to  
sublicense, to manufacture bulk PCMs, MicroPCMs, end-use products, and any      
improvements thereto based on the TRDC Technology, and to market, sell, use,    
lease or distribute all applications of such products worldwide, with the       
exception of MicroPCM Fibers and Fabrics. The Company has been advised that     
TRDC has assigned its right to receive payments under the TRDC License to an    
affiliated entity. See "Management -- Innovation Advisory Board."               

The rights to the portion of the TRDC Technology relating to MicroPCM 
Fibers and Fabrics were licensed by TRDC to Outlast Technologies, Inc.          
("Outlast") prior to the Company's licensing all of the other rights to the     
TRDC Technology under the TRDC License. In order to further expand its rights   
in the TRDC Technology, in January 1998, the Company entered into an agreement  
with Outlast (the "Outlast Agreement"). The Outlast Agreement expands the       
rights of the Company to include combinations of the Company's products with    
fibers and fabrics. Under the Outlast Agreement, the Company has exclusive      
rights, for most applications, to manufacture, sub-license and sell             
ComforTemp(R) foams that are attached to fibers and fabrics or intended to be   
attached to fibers or fabrics so long as the foam is greater than 2mm in        
thickness. The Company also may sell Thermasorb(R) additives for use in such    
foams to be attached to fibers and fabrics. The Company agreed to pay Outlast a 
royalty if its products are used in certain combinations with fibers and        
fabrics, with minimum annual payment requirements in effect for as long as the  
Company desires the agreement to be exclusive (including exclusive of Outlast). 
Pursuant to the Outlast Agreement, Outlast will not sell fabrics or fibers      
attached to ComforTemp(R)-type foams greater than 2mm in thickness for ten      
years, unless the Company elects to permit its agreement to become              
non-exclusive.                                                                  

  The Company intends to seek TRDC's acknowledgment that Thermasorb(R) and
ComforTemp(R) products, on which royalties are paid under the Outlast           
Agreement, will not be claimed to be royalty-bearing under the Company's TRDC   
License. No assurance can be given that the Company will receive TRDC's         
acknowledgment, and even if obtained, that claims will not be made or, if made, 
will not be successful. In the event of any dispute as to which products of the 
Company fall under the TRDC License and which, if any, fall under the Outlast   
Agreement, the Company believes that it would avoid paying royalties to both    
TRDC and Outlast on the same products by instituting an interpleader action and 
depositing the higher royalty into court for distribution to the appropriate    
licensor. No assurance can be given that such a procedure will be approved by   
any court, if it becomes necessary. The Outlast Agreement further provides,     
that if the scope of Outlast's license is restricted by agreement or court      
decision in a challenge by any third party, the Outlast Agreement is            
automatically restricted to the same extent. No assurance can be given that     
under circumstances not presently foreseen the Company could not be required to 
pay royalties to both TRDC and Outlast on certain product sales.                

  There can be no assurance that any steps taken by the Company to protect
its intellectual property will be adequate to prevent misappropriation, that    
any patents or copyrights issued to the Company or its licensors will not be    
invalidated, circumvented or challenged, or that the rights granted thereunder  
will provide a competitive advantage. TRDC and the Company are jointly          
responsible for the protection of the intellectual property licensed            

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by the Company from TRDC. Both Outlast and the Company are responsible for the  
protection of the intellectual property sublicensed from Outlast. In addition,  
laws of certain countries in which the Company's products are, or may be        
developed, manufactured or sold, may not provide the Company's products and     
intellectual property rights with the same degree of protection as the laws of  
the United States. Furthermore, there can be no assurance that others will not  
independently develop technologies similar or superior to the Company's         
technology and obtain patents, trademarks or copyrights thereon. In such event, 
the Company may not be able to license such technologies on reasonable terms,   
or at all. Although the Company believes that its products and technology do    
not infringe upon proprietary rights of others, there can be no assurance that  
third parties will not assert infringement claims in the future. Moreover,      
litigation may be necessary in the future to enforce the Company's rights under 
licensed patents, copyrights and other intellectual property rights, to protect 
the Company's trade secrets, to determine the validity and scope of the         
proprietary rights of others or to defend against claims of infringement or     
invalidity. Such litigation, regardless of the outcome, could result in         
substantial cost and diversion of resources and could have a material adverse   
effect on the Company's business, financial condition and results of            
operations. See "Business -- Patents/Intellectual Property."                    

In addition to patent protection, the Company seeks to protect its    
proprietary information through confidentiality and non-competition agreements  
with its employees, directors, licensees, customers, strategic partners,        
consultants, advisors and collaborators. There can be no assurance that such    
agreements will not be breached, that the Company will have adequate remedies   
for any such breach or that the Company's proprietary information will not      
otherwise become known to, or be independently developed by, the Company's      
competitors. See "Business -- Patents/Intellectual Property."                   

 The Company holds federal registrations of the trademarks Thermasorb(R)
and ComforTemp(R), Canadian registration for the trademark ComforTemp(R) and    
has applied for trademark registration for Comfort in the Extreme(TM) in the    
United States. The Company has also filed for international registration for    
ComforTemp(R) in the European Community. There can be no assurance that the     
registered or unregistered trademarks of the Company do not infringe upon the   
rights of third parties or that third parties will not assert claims of         
infringement. The cost to defend such claims or the requirement to change any   
trademark (which would result in the loss of any goodwill associated with that  
trademark) could entail significant expense and have a material adverse effect  
on the Company's business, financial condition and results of operations. See   
"Business -- Patents/Intellectual Property."                                    

Dependence on Small Number of Strategic Partners; Limited Sales and Marketing   
Experience                                                                      

  The Company received approximately 45% of its total revenue for the year
ended December 31, 1997 from product sales, royalties and license fees from two 
strategic partners. While its agreements with its strategic partners require    
minimum annual purchases of Thermasorb(R) additives and ComforTemp(R) foams and 
royalty payments on the sale of goods utilizing Thermasorb(R) additives and     
ComforTemp(R) foams for such strategic partners to retain the exclusivity of    
their rights within specified product categories, there can be no assurance     
that these strategic partners will not seek to terminate their agreements, or   
fail to purchase such minimum quantities and/or fail to pay any royalties to    
the Company. There can be no assurance that these or any other strategic        
partners will renew or enter into such agreements with the Company in the       
future. To the extent that the Company's current strategic partners fail to     
renew their agreements, the Company will be forced to find new strategic        
partners to replace them. To the extent that the Company is unable to           
successfully replace such strategic partners or to enter agreements with        
additional strategic partners, the Company's business, financial condition and  
results of operations would be materially adversely affected. See "Business --  
Strategic Partnerships."                                                        

 In the event that sales by the Company's strategic partners of products
incorporating the Company's products cease or are curtailed for any reason, the 
Company will experience a significant adverse effect on its cash flow. No       
assurance can be given that the Company's existing strategic partners will be   
able to generate sufficient sales of products incorporating the Company's       
products, immediately or within a reasonable time after entering into           
agreements with the Company, to enable the Company to achieve its business      
plan.                                                                           

   The present management of the Company has limited experience with respect
to the sales and marketing of thermal management products to retail and         
industrial markets. To date, the Company has only two employees dedicated to    
sales and marketing. From the time the Company began to commercialize its       
products in 1996 through December 31, 1997, the Company generated $488,000 from 
sales of its Thermasorb(R) and ComforTemp(R) products.                          

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Dependence on Single Source Providers for Manufacturing                         

  The Company currently outsources the manufacture of all of its products,
including Thermasorb(R) additives and ComforTemp(R) foams to a limited number   
of manufacturers. For the year ended December 31, 1997, all of the Company's    
Thermasorb(R) additives were manufactured under a purchase order with Minnesota 
Mining and Manufacturing, Inc. ("3M"). Prior to October 23, 1997, all of the    
Company's ComforTemp(R) foams were manufactured under a purchase order with     
Lendell Manufacturing, Inc. ("LMI"). On October 23, 1997, the Company entered   
into a memorandum of understanding with LMI that grants LMI the exclusive       
license to manufacture a specific hydrophilic polyurethane version of the       
Company's ComforTemp(R) foams. The Company and 3M have entered into an          
arrangement that provides firm, fixed pricing for all of the Company's          
anticipated Thermasorb(R) requirements, as well as favorable pricing and        
delivery terms for short run and prototype production volumes. Pursuant to the  
arrangement, the Company placed a blanket purchase order for all of its 1998    
anticipated requirements of Thermasorb(R). The Company has also received        
written assurances from 3M regarding 3M's desire to enter into a long-term      
supply agreement for the manufacture of the Company's Thermasorb(R) additive.   
The Company also has executed a non-binding agreement with Foamex               
International, Inc. ("Foamex") for the manufacture of certain foam products not 
manufactured by LMI and the right to sell, co-exclusively with the Company,     
ComforTemp(R) polyurethane foams. While the Company believes that its           
relationship with Foamex will provide the Company with an additional, high      
capacity, source of supply for polyurethane foams and access to as yet untapped 
areas for new strategic partnerships, there can be no assurance that the        
Company and Foamex will finalize a definitive agreement or that any of the      
perceived benefits will materialize. No assurance can be given that the Company 
will be able to procure long-term supply contracts with either 3M, LMI, Foamex  
or any of its other suppliers. To date, the Company has not experienced         
difficulty in connection with the delivery of Thermasorb(R) additives or        
ComforTemp(R) foams. If for any reason the Company is unable or unwilling to    
procure long-term supply contracts with such suppliers or if any of its         
suppliers are unable to meet the Company's requirements, the Company could      
experience cost increases, a deterioration of services from its suppliers, or   
interruptions, delays or a reduction that may cause the Company to fail to meet 
delivery schedules to its strategic partners which in turn may have a material  
adverse effect on the Company's business. See "Business -- Sales and Marketing" 
and "-- The Manufacturing Process."                                             

Although the Company believes that alternate suppliers exist for the  
manufacture of Thermasorb(R) additives and ComforTemp(R) foams in sufficient    
quantities and at competitive prices with its current suppliers, any            
unanticipated interruption of supply would have, at a minimum, a short-term     
material adverse effect on the Company. The Company may outsource the           
manufacture of some portion of its products to other domestic or international  
manufacturers in the future. The Company has no current arrangement with any    
such domestic or international alternative manufacturer, and there can be no    
assurance that the Company will be able to negotiate acceptable arrangements,   
or if negotiated, that such arrangements will be on terms and conditions        
acceptable to the Company. Any difficulties encountered by third-party          
manufacturers which result in product defects, production delays, cost overruns 
or the inability to fulfill orders on a timely basis could have a material      
adverse effect on the Company. See "Business -- The Manufacturing Process."     

Alternative Technologies; Technological Obsolescence                            

The thermal management products industry is characterized by rapid    
technological change and frequent introduction of new products and product      
enhancements which result in relatively short product life cycles and rapid     
product obsolescence. There can be no assurance that the Company will be able   
to identify and offer thermal management products necessary to remain           
competitive and avoid losses related to obsolete inventory or related drastic   
price reductions.                                                               

    The thermal management products industry presents continuing opportunities
for the development of alternative insulating and protective devices and        
technologies. The development and commercialization of alternative thermal      
management technologies that are less expensive, more effective or more         
efficient than the Company's technologies could place the Company at a          
competitive disadvantage. There can be no assurance that the Company will       
successfully distinguish itself from its competitors, or that the market will   
consider the products incorporating the Company's products to be superior to    
its competitors' products or that the Company will be able to adapt to evolving 
markets and technologies, develop new products or achieve and maintain          
technological advantages. See "Business -- Technology Overview" and "--         
Competition."                                                                   

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Risks Associated With Business Plan and Strategy; Need for Additional Personnel 

The Company has formulated its business plan and strategy based upon  
certain assumptions regarding the size of the thermal management products       
market, the Company's anticipated share of this market, the price at which the  
Company believes it will be able to sell its products, and consumer acceptance  
of the Company's products. There can be no assurance that the Company's         
assumptions will prove to be correct. The Company's ability to operate in the   
future will depend upon many factors, including technological advances and      
product obsolescence; levels of competition, including the entry into the       
market of additional competitors and increased success by existing competitors; 
changes in general economic conditions; increases in operating costs including  
costs of production, supplies, personnel or equipment; and changes in           
requirements and regulations promulgated by applicable federal, state and local 
regulatory authorities. There can be no assurance that the Company will         
successfully obtain or apply the human, operational and financial resources     
needed to manage a developing and expanding business. Failure by the Company to 
manage its growth effectively could have a material adverse effect on the       
Company's business, financial condition and results of operations. See          
"Business -- Strategy."                                                         

  In order to meet both the existing and anticipated market demand for the
Company's products, the Company needs to attract and retain additional          
personnel. The Company currently has only two full-time sales and marketing     
employees, seven product development employees, one quality assurance           
specialist and one clerical employee. The Company recently retained a Chief     
Financial Officer who is expected to begin working on April 6, 1998. In order   
to effectively launch its marketing and sales strategy, the Company will need   
to hire additional sales, marketing, technical and operations personnel. The    
success of the Company will also be dependent upon its ability to hire, train   
and retain new and existing personnel. The Company will compete with other      
companies with greater financial and other resources for such qualified         
personnel. There can be no assurance that the Company will be able to hire and  
retain additional personnel to support the Company's marketing, sales, research 
and product development efforts. See "Business -- Employees."                   

Broad Discretion as to Use of Proceeds                                          

An estimated $1,544,000, or 16.9%, of the net proceeds of the Offering
have been allocated to working capital and will be used for such purposes as    
management of the Company may determine. Management will have broad discretion  
with respect to the expenditure of that portion of the net proceeds of the      
Offering. In addition, the Company's estimated allocation of the remaining net  
proceeds of the Offering is subject to reapportionment among the purposes set   
forth under "Use of Proceeds" including working capital. The amount and timing  
of expenditures will vary depending upon a number of factors, including the     
progress of the Company's product development and marketing efforts, changing   
competitive conditions and general economic conditions. See "Use of Proceeds."  

Fluctuations in Operating Results                                               

The Company's operating results may vary significantly from quarter to
quarter or year to year, depending on various factors such as the timing of     
product development, the timing of increased research and development, the      
timing of sales and marketing expenses, the timing and size of orders and the   
introduction of new products by the Company or its strategic partners.          
Consequently, revenues or profits may vary significantly from quarter to        
quarter or year to year, and revenues or profits in any period will not         
necessarily be predictive of results in subsequent periods. See "Management's   
Discussion and Analysis of Financial Condition and Results of Operations."      

Dependence on Key Personnel; Salary Increases to Management                     

The Company's growth and development is dependent upon the continued  
services of Gregory S. Frisby, Chairman of the Board, President and Chief       
Executive Officer of the Company, and Douglas J. McCrosson, Vice President of   
Market Development and Secretary of the Company and the retention and continued 
services of a qualified Chief Financial Officer. The Company currently has key  
man insurance on the life of Gregory S. Frisby in the amount of $2.5 million.   
The Company has retained a Chief Financial Officer who is expected to begin     

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working on April 6, 1998. Although the Company has been able to hire and retain 
other qualified and experienced personnel, the loss of the services of either   
Gregory S. Frisby or Douglas J. McCrosson, for any reason, could have a         
material adverse effect on the Company's business, financial condition and      
results of operations. See "Management."                                        

 The Company has entered into employment agreements with both Gregory S.
Frisby and Douglas J. McCrosson that will expire on December 31, 2002 and       
December 31, 2000, respectively. The employment agreements effect increases of  
$148,000 and $13,000 for Gregory S. Frisby and Douglas J. McCrosson for 1998,   
respectively, from their respective 1997 salaries. The increases in base salary 
were intended to enable the Company to retain its key managers and were         
approved by the Board of Directors of the Company at a time when the Company    
had no independent compensation committee and at a time when the Company        
continues to experience losses. The agreements contain confidentiality,         
non-competition, and non-solicitation provisions. No assurance can be given     
that such agreements will effectively enable the Company to retain key          
management employees or that the agreements will not be violated, or if         
violated, that such provisions will be enforced in accordance with their terms, 
if at all. See "Management -- Employment Agreements."                           

Competition                                                                     

The markets for thermal management products are widely diversified and
highly competitive. The Company will compete against current and future         
competitors that manufacture, produce and sell natural and synthetic thermal    
management products. Certain of the companies with which the Company competes   
have substantially greater technical, financial, research and development, and  
marketing resources than the Company. There can be no assurance that the        
Company will be able to compete successfully with existing or new competitors.  
See "Business -- Competition."                                                  

Product Liability Exposure and Availability of Insurance                        

The development, testing, manufacturing, marketing and sale of the    
Company's products involve risks of allegations of product liability. While no  
product liability claims have been made against the Company to date, if such    
claims were made and adverse judgments obtained, whether directly against the   
Company or against one of the Company's strategic partners in connection with   
an end-use product incorporating the Company's products, such claims could have 
a material adverse effect on the Company's business, financial condition and    
results of operations. Although the Company has taken and intends to continue   
to take what it believes to be appropriate precautions to minimize exposure to  
product liability claims, there can be no assurance that it will be able to     
avoid significant liability. The Company presently maintains product liability  
insurance in the amount of $1,000,000 per claim with an annual aggregate limit  
of $2,000,000. The Company also maintains additional insurance coverage in the  
amount of $9,000,000 per claim with an annual aggregate limit of $9,000,000.    
There can be no assurance that such coverage is, or any new coverage will be,   
adequate or will continue to be available at an acceptable cost, if at all. A   
product liability claim, product recall or other claim with respect to          
uninsured liabilities or in excess of insurance coverage could have a material  
adverse effect on the Company's business, operating results and financial       
condition.                                                                      

Government Regulations                                                          

    As the licensor and supplier of the MicroPCMs and a licensor for their use
in certain applications, the Company relies upon its strategic partners to      
incorporate the MicroPCM materials into final products, such as boots, gloves,  
outerwear, helmets and automotive and industrial components. Each strategic     
partner is responsible for determining that its final products conform to       
applicable governmental health and safety regulations. The Company has not      
undertaken all necessary tests or analyses to determine if end-products that    
contain its thermal additives will conform to applicable health and safety      
regulations. In the event that end-products incorporating the Company's         
products fail to conform to such regulations, the Company may have to conduct   
additional research and development to reformulate its products. There can be   
no assurance that the products could be reformulated, nor can the Company make  
any estimate of the time or expense involved in such additional research and    
development, if it were to become necessary.                                    

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The Company may be subject to a variety of federal, state and local   
environmental laws relating to the storage, discharge, handling, emission,      
generation, manufacture, use and disposal of chemicals, solid and hazardous     
waste and other toxic and hazardous materials related to its products. All of   
the manufacture of the Company's products is outsourced to third-party          
suppliers, and the Company maintains only a minimal amount of chemicals in its  
own facility in order to support its internal development activity. The Company 
believes that it has been operating its facilities in substantial compliance in 
all material respects with existing laws and regulations. Nevertheless, the     
failure to comply with current or future regulations could result in            
substantial fines being imposed on the Company, suspension of production,       
alteration of its manufacturing or cessation of its operations. Such            
regulations could require the Company to acquire expensive remediation          
equipment or to incur substantial compliance expenses. The Company cannot       
predict the nature, scope or effect of legislation or regulatory requirements   
that could be imposed or how existing or future laws or regulations will be     
administered or interpreted with respect to products or activities to which     
they have not previously applied. Compliance with more stringent laws or        
regulations, as well as more vigorous enforcement policies of regulatory        
agencies, could require substantial expenditures by the Company and could       
adversely affect the results of operations of the Company.                      

   In addition, the Company's local facilities and all of its operations are
subject to the plant and laboratory safety requirements of various federal,     
state and local occupational safety and health laws. The Company believes it    
has complied in all material respects with regard to governmental regulations   
applicable to it. There can be no assurance, however, that the Company will     
continue to comply with applicable government regulations or that such          
regulations will not materially restrict or impede the Company's operations in  
the future.                                                                     

No Prior Market for the Common Stock; Determination of Offering Price;          
Potential Volatility of Stock Price                                             

  Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will  
develop or be sustained or that the Common Stock will be resold at or above the 
initial public offering price. The Common Stock has been approved for listing   
on the Nasdaq SmallCap Market and the BSE. The initial public offering price of 
the Common Stock offered hereby has been determined by negotiations between the 
Company and Barington and does not bear any relationship to the Company's book  
value, assets, past operating results, financial condition and other            
established criteria for value. Among the factors considered in determining the 
initial public offering price were the history of, and the prospects for, the   
Company's business and the industry in which it competes, an assessment of the  
Company's management, its past and present operations, the prospects for        
earnings of the Company, the general condition of the securities market at the  
time of the Offering, the market prices and earnings of similar securities of   
comparable companies at the time of the Offering and prevailing market and      
economic conditions. See "Underwriting."                                        

    After the Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including but not     
limited to, fluctuations or uncertainties in the Company's quarterly operating  
results (including losses), delays with respect to entering new licensing       
agreements, length of time required for the Company's strategic partners to get 
their products to market, announcements of technological innovations of new     
products, patents and technology of other suppliers, governmental regulations,  
conditions in the markets in which the Company and its competitors compete,     
changes by financial analysts in their estimates of the earnings of the         
Company, and the economy in general. From time to time, the stock market        
experiences significant price and volume volatility which may affect the market 
price of the Company's Common Stock for reasons unrelated to the performance of 
the Company. In addition, it is expected that there will be a relatively small  
number of shares of Common Stock trading publicly following the Offering.       
Accordingly, stockholders may experience difficulty selling or otherwise        
disposing of shares of Common Stock at favorable prices, or at all. See "Shares 
Eligible for Future Sale" and "Underwriting."                                   

Control by Principal Stockholders                                               

    Upon completion of the Offering, Gregory S. Frisby, Chairman of the Board,
President and Chief Executive Officer of the Company and his brother, Jeffry D. 
Frisby, who is not involved in the day-to-day operations of the Company, will   
continue to own approximately 26.0% each of the aggregate of the Company's      
outstanding Common Stock and Convertible Preferred Stock (24.9% each if the     
Over-Allotment Option is exercised in full). Pursuant to a Shareholders         
Agreement between Gregory S. Frisby and Jeffry D. Frisby, Gregory S. Frisby     

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controls the voting of all of Jeffry D. Frisby's shares giving Gregory S.       
Frisby control of over 51.9% of the aggregate of the Company's outstanding      
Common Stock and Convertible Preferred Stock after the Offering (49.7% if the   
Over-Allotment Option is exercised in full) and the power to control the        
outcome of matters submitted to a vote of the Company's stockholders, including 
the election of at least a majority of the members of the Company's Board of    
Directors and to direct the future operations of the Company. Such              
concentration may have the effect of discouraging, delaying or preventing a     
change in control of the Company. See "Certain Transactions" and "Principal     
Stockholders."                                                                  

In addition, MUSI Investments S.A. ("MUSI") owns 441,327 shares of the
Company's outstanding Common Stock and 587,500 shares of Convertible Preferred  
Stock that are convertible into an equal number of shares of Common Stock under 
certain circumstances. MUSI, Gregory S. Frisby and Jeffry D. Frisby are parties 
to a Stockholders Agreement which requires the Company to use its best efforts  
to elect a designee of MUSI as a director of the Company (the "MUSI Designee"). 
MUSI owns 100% of the Convertible Preferred Stock. Except as otherwise required 
by law, shares of Convertible Preferred Stock have the same voting rights and   
vote together with the Common Stock. See "Certain Transactions," "Principal     
Stockholders," "Description of Securities" and "Underwriting."                  

Participation in Affiliate's Pension Plan                                       

   Until January 1, 1997, the Company's employees participated in a multiple
employer pension plan administered for the Company and its affiliate, Frisby    
Aerospace, Inc. ("Frisby Aerospace"), by LaSalle National Bank. The plan was a  
401(k) plan (the "Old Plan") and was funded by employee contributions. Although 
the Company believes that the Old Plan was administered in accordance with all  
applicable laws and regulations, the Company could be liable to employees of    
Frisby Aerospace as well as employees of the Company if it were alleged and     
proven that the Old Plan was not administered in accordance with all applicable 
laws and regulations. If imposed, such liability could have a material adverse  
effect on the Company.                                                          

Year 2000 Compliance                                                            

The Company has implemented Year 2000 compliance programs designed to 
ensure that its computer systems and applications will function properly beyond 
1999. The Company believes that adequate resources have been allocated for this 
purpose and expects its Year 2000 date conversion programs to be completed on a 
timely basis. The Company does not expect to incur significant expenditures to  
address this issue. However, there can be no assurance that the Company will    
identify all Year 2000 problems in its computer systems in advance of their     
occurrence or that the Company will be able to successfully remedy any problems 
that are discovered. The expenses of the Company's efforts to address such      
problems, or the expenses or liabilities to which the Company may become        
subject as a result of such problems, could have a material adverse effect on   
the Company's business, financial condition and results of operations. In       
addition, the revenue stream and financial stability of existing customers may  
be adversely impacted by Year 2000 problems, which could cause fluctuations in  
the Company's revenues and operating profitability.                             

No Assurance of Continued Nasdaq SmallCap Market or BSE Listing; Risk of        
Application of Penny Stock Rules                                                

  The trading of the Company's stock in the Nasdaq SmallCap Market and the
BSE will be conditioned upon the Company's meeting certain asset, capital and   
surplus earnings and stock price tests. To maintain eligibility for trading on  
the Nasdaq SmallCap Market, the Company will be required to maintain, among     
other things, net tangible assets of at least $2,000,000; a minimum bid price   
for the listed securities of $1.00 per share; a market value of the public      
float of at least $1,000,000; and at least two market makers for its            
securities. To maintain eligibility on the BSE, the Company is required, among  
other matters, to maintain total net tangible assets in excess of $1,000,000.   
There can be no assurance that the Company will continue to satisfy the         
requirements for maintaining a Nasdaq SmallCap Market or a BSE listing. If the  
Common Stock were to be delisted from the Nasdaq SmallCap Market and/or the     
BSE, the prices and the holders' ability to sell such securities would be       
adversely affected. If the Common Stock were delisted and the Company desired   
to have it relisted, the Company would be required to satisfy the more          
stringent initial listing requirements of the Nasdaq SmallCap Market and the    
BSE.                                                                            

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    If the Company is delisted from the Nasdaq SmallCap Market and the BSE and
the price per share dropped below $5.00, then unless the Company satisfied      
certain net assets tests, the Common Stock would become subject to certain      
penny stock rules promulgated by the Securities and Exchange Commission (the    
"Commission"). The penny stock rules require a broker-dealer, prior to a        
transaction in a penny stock not otherwise exempt from the rules, to deliver a  
standardized risk disclosure document prepared by the Commission that provides  
information about penny stocks and the nature and level of risks in the penny   
stock market. The broker-dealer must also provide the customer with current bid 
and offer quotations for the penny stock, the compensation of the broker-dealer 
and its salesperson in the transaction and monthly account statements showing   
the market value of each penny stock held in the customer's account. In         
addition, the penny stock rules require that prior to a transaction in a penny  
stock not otherwise exempt from such rules, the broker-dealer must make a       
special written determination that the penny stock is a suitable investment for 
the purchaser and receive the purchaser's written agreement to the transaction. 
These disclosure requirements may have the effect of reducing the level of      
trading activity in the secondary market for stock that becomes subject to the  
penny stock rules. If the Common Stock becomes subject to the penny stock       
rules, investors in the Offering may find it more difficult to sell their       
Common Stock.                                                                   

Shares Eligible for Future Sale                                                 

Immediately after completion of the Offering, the Company will have   
4,880,613 shares of Common Stock and 587,500 shares of Convertible Preferred    
Stock outstanding, of which the 1,600,000 shares of Common Stock (1,840,000     
shares of Common Stock if the Over-Allotment Option is exercised in full) sold  
pursuant to the Offering, will be freely tradable without restriction or        
further registration under the Securities Act of 1933, as amended (the          
"Securities Act"), by persons other than "affiliates" of the Company, as        
defined under the Securities Act. The remaining 3,280,613 shares of Common      
Stock and the 587,500 shares of Convertible Preferred Stock are deemed          
"restricted securities" as defined by Rule 144 under the Securities Act and may 
not be sold in the absence of registration under the Securities Act unless an   
exemption from registration is available, including the exemption provided by   
Rule 144. All of the restricted shares of Common Stock will be eligible for     
trading under Rule 144 commencing 90 days following the date of this            
Prospectus, subject to certain limitations and other restrictions, including    
volume restrictions, prescribed by such rule, and to the contractual "lock-up"  
restrictions described below. The Company, its officers, directors and current  
stockholders have agreed to enter into lock-up agreements (the "Lock-Up         
Agreements") under which they will agree not to sell or otherwise dispose of    
any of their shares of Common Stock and Convertible Preferred Stock of the      
Company for a period of 24 months commencing upon the date of this Prospectus,  
or 18 months in certain circumstances, unless certain criteria are met or prior 
written consent is obtained from Barington. In addition, Barington has agreed   
with the Nasdaq Stock Market, Inc. not to consent to any sales by MUSI for a    
period of 12 months from the date of this Prospectus. Sales of substantial      
amounts of Common Stock, or the perception that these sales could occur, could  
adversely affect the prevailing market price for the Common Stock and could     
impair the ability of the Company to raise additional capital through the sale  
of its securities or through debt financing. See "Shares Eligible for Future    
Sale" and "Underwriting."                                                       

Effect of Options and Representative's Option on Stock Price                    

 The Company has reserved 250,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants upon the exercise of options 
available for grant under the Stock Option Plan. The Company also will sell to  
Barington in connection with the Offering, the Representative's Option to       
purchase an aggregate of 160,000 shares, subject to adjustment as provided      
therein. Issuance of the Representative's Option and options issuable under the 
Stock Option Plan could adversely impact future financings. In addition,        
certain holders of such securities have certain registration rights, and the    
sale of shares of Common Stock upon exercise of such rights or the availability 
of such shares for sale could adversely affect the market price of the Common   
Stock. See "Description of Securities" and "Underwriting."                      

The Representative's Option is exercisable for up to 160,000 shares of
Common Stock for a five year period commencing one year from the date of the    
Offering, at an exercise price equal to 165% of the initial public offering     
price. The exercise of the Representative's Option and any options issued under 
the Stock Option Plan may dilute the book value per share of Common Stock. The  
holders of such options may exercise them at a time when the Company would      
otherwise be able to obtain additional equity capital on terms more favorable   
to the Company and have the opportunity to benefit from increases in the price  
of the Common Stock without risk of an equity investment. The Company has       
agreed to grant certain demand and "piggyback" registration rights to the       
holders of the Representative's Option. Such registration rights could involve  
substantial expenses to the Company and may adversely affect the terms upon     
which the Company may obtain additional financing. See "Shares Eligible for     
Future Sale" and "Underwriting."                                                

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Dilution                                                                        

As of December 31, 1997, the pro forma net tangible book value of the 
Common Stock was $0.73 per share. Upon completion of this Offering, the net     
tangible book value will be approximately $2.22 per share, representing         
immediate and substantial dilution to the public investors of approximately     
$4.78 or 68.3%. See "Dilution."                                                 

No Dividends                                                                    

 The Company currently anticipates that it will retain all of its future
earnings, if any, for use in the operation and expansion of its business, and   
does not anticipate paying any cash dividends on its Common Stock in the        
foreseeable future. See "Dividend Policy" and "Description of Securities."      

Anti-Takeover Provisions                                                        

   Certain provisions of the Company's Certificate of Incorporation, By-Laws
and Delaware law may be deemed to have an anti-takeover effect and may delay,   
defer or prevent a tender offer or takeover attempt that a stockholder might    
consider in its best interests, including attempts that might result in a       
premium over the market price for the shares held by the stockholders and could 
make it more difficult to remove incumbent management. The Company's            
Certificate of Incorporation or By-Laws provide that: (i) directors may         
authorize the issuance of preferred stock (the "Preferred Stock") having rights 
and preferences established by the Board of Directors without further approval  
by the stockholders; (ii) except as otherwise required by law, vacancies in the 
Board of Directors may be filled only by the remaining directors; and (iii) all 
nominations for candidates for election as directors, other than nominations by 
or at the discretion of the Board of Directors or a committee of the Board of   
Directors and all stockholder proposals to be considered at annual or special   
meetings of the stockholders be presented to the Company pursuant to an advance 
notice procedure set forth in the Certificate of Incorporation. In general,     
notice of an intent to nominate a director or to make a stockholder proposal to 
be considered at a meeting must be received by the Company not less than 60 nor 
more than 90 days before the meeting and must contain certain information       
concerning the nominee for director or the proposal to be brought before the    
meeting and concerning stockholders submitting the proposal. The affirmative    
vote of at least a majority of the directors or the holders of at least         
two-thirds of the voting power of the Company's stock is required to alter,     
amend, repeal or adopt any provision inconsistent with the provisions described 
in this paragraph. See "Description of Securities -- Preferred Stock" and "--   
Directors' Limitation of Liability and Indemnification."                        

In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the General Corporation Law of the State of Delaware (the        
"DGCL"). In general, this statute restricts a corporation from entering into    
certain business combinations with an interested stockholder (defined as any    
person or entity that is the beneficial owner of at least 15% of a              
corporation's voting stock) or its affiliates for a period of three years after 
the date of the transaction in which the person became an interested            
stockholder unless: (i) the transaction is approved by the Board of Directors   
of the corporation prior to such business combination; (ii) the interested      
stockholder acquires 85% of the corporation's voting stock in the same          
transaction in which it exceeds 15%; or (iii) the business combination is       
approved by the Board of Directors and by a vote of two-thirds of the           
outstanding voting stock not owned by the interested stockholder. A "business   
combination" includes mergers, asset sales and other transactions resulting in  
a financial benefit to the interested stockholder.                              

Indemnification and Limitation on Liability of Directors and Officers           

The Company's Certificate of Incorporation provides for the           
indemnification of the Company's directors and officers to the fullest extent   
permitted under the DGCL. As permitted by the DGCL, the Company's Certificate   
of Incorporation provides that directors of the Company shall not be personally 
liable to the Company or its stockholders for monetary damages for breach of    
fiduciary duty as a director, except: (i) for any breach of the director's duty 
of loyalty to the Company or its stockholders; (ii) for acts or omissions not   
in good faith or which involve intentional misconduct or violation of law;      
(iii) for acts or omissions relating to prohibited dividends or distributions   
or the purchase or redemption of stock; or (iv) for any transaction from which  
the director derives an improper personal benefit. However, insofar as          
indemnification for liabilities arising under the Securities Act may be         
permitted to directors, officers or persons controlling the Company pursuant to 
the foregoing provisions, the Company has been informed that in the opinion of  
the Commission such indemnification is against public policy as expressed in    
the Securities Act and is therefore unenforceable. See "Description of          
Securities -- Directors' Limitation of Liability and Indemnification."          

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USE OF PROCEEDS 

The net proceeds to the Company from the sale of the shares of Common 
Stock offered hereby at the initial offering price of $7.00 per share, after    
deducting underwriting discounts and commissions and other expenses of the      
Offering estimated to be $2,056,000 ($2,270,000 if the Over-Allotment Option is 
exercised in full), will be approximately $9,144,000 ($10,610,000 if the        
Over-Allotment Option is exercised in full).                                    

 The Company intends to use the net proceeds of the Offering as follows:

                         Approximate     Percentage of
Use                                      Amount       Net Proceeds              
----------------------------------   -------------   --------------             
Sales and marketing ..............    $4,400,000          48.1%                 
Product development ..............     2,400,000          26.2                  
Capital expenditures .............       600,000           6.6                  
Research and development .........       200,000           2.2                  
Working capital ..................     1,544,000          16.9                  
                    ----------         -----
TOTAL .........................    $9,144,000         100.0%              
                    ==========         =====

   The Company intends to use an estimated $4,400,000 of the net proceeds of
the Offering to expand its sales and marketing efforts. Of this amount,         
approximately $3,200,000 is expected to be used to increase brand awareness of  
the Company's products through implementation of a comprehensive advertising    
and public relations campaign and increased expenditures on trade shows, and    
the remaining $1,200,000 is expected to be used for hiring of additional        
marketing and technical sales personnel and wages and benefits for current      
sales and marketing personnel. The additional marketing and technical personnel 
are expected to support the Company's sales and marketing efforts in industries 
where the Company's products are currently being marketed (including apparel,   
footwear and sporting goods products), as well as its near term (including home 
furnishings, shipping and packaging, and healthcare) and long term (including   
automotive, aerospace, and computers and electronics) target industries. The    
additional amounts allocated to trade show participation will be used to design 
and construct trade show displays that can be adapted for use in each of the    
industries in which the Company currently competes. See "Business -- Strategy"  
and "--Sales and Marketing."                                                    

   The Company intends to use an estimated $2,400,000 of the net proceeds of
the Offering for product                                                        
development for current and potential customers and strategic partners,         
including the development of additional and improved end-use products to be     
sold by strategic partners utilizing the Company's Thermasorb(R) and            
ComforTemp(R) products and the establishment of customer and technical support  
service teams. See "Business -- Product Development Services and Support."      

  The Company intends to use approximately $600,000 of the net proceeds of
the Offering to fund capital expenditures necessary to support the sales and    
marketing, research and development, improved quality control and product       
development expansion described above, including but not limited to, the        
acquisition of certain testing and analysis equipment for use in connection     
with the Company's product development, research and development and improved   
quality assurance efforts.                                                      

   To date, the Company has funded its research and development efforts (and
anticipates that it will continue to fund the majority of such efforts) through 
funding obtained from government and related private sources. Accordingly, the  
Company intends to use an estimated $200,000 of the net proceeds of the         
Offering for research and development, including, hiring additional technical   
personnel and developing new products and technologies. In the event the        
Company is unable to obtain government or private industry funding for research 
and development, the Company will be required to pay any future research and    
development costs from its own resources which would increase the amount of net 
proceeds allocated to research and development efforts thereafter. See          
"Business -- Research and Development."                                         

    The balance of the net proceeds of approximately $1,544,000 ($3,010,000 if
the Over-Allotment Option is exercised in full), will be employed for working   
capital, including hiring other management personnel. The Company may also from 
time to time utilize a portion of such proceeds to acquire or enter into        
licensing arrangements with respect to complementary businesses, products,      
services or technologies.                                                       

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  The table above represents the Company's best estimate of its allocation
of the uses of the net proceeds of the Offering based upon the current state of 
its business operations, its current business plan and strategy, and current    
economic and industry conditions. The amount and timing of expenditures will    
vary depending upon a number of factors, including, among other things, the     
progress of the Company's product development and marketing efforts, changing   
competitive conditions and general economic conditions. The allocation of the   
net proceeds of the Offering is subject to reapportionment among the purposes   
listed above. Management has broad discretion as to the actual allocation of    
the net proceeds. The actual allocation of the net proceeds cannot be predicted 
with any degree of certainty. See "Risk Factors -- Broad Discretion as to Use   
of Proceeds."                                                                   

 Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds of the Offering in short-term,               
interest-bearing, investment-grade debt securities, money market accounts,      
certificates of deposit, or direct or guaranteed obligations of the United      
States government.                                                              

DIVIDEND POLICY 

The Company intends to retain earnings for use in the operation and   
expansion of its business and therefore does not anticipate paying cash         
dividends on the Common Stock in the foreseeable future. The payment of         
dividends is within the discretion of the Board of Directors and will be        
dependent upon, among other things, earnings, capital requirements, financing   
agreement covenants, the financial condition of the Company and applicable law. 
There is a dividend preference of $1.00 per share on the Convertible Preferred  
Stock, if, as and when declared by the Board of Directors. See "Description of  
Securities."                                                                    

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DILUTION  

As of December 31, 1997, the Company had a pro forma net tangible book
value of approximately $2,836,000, or $0.73 per share of Common Stock           
outstanding, after giving effect to the exercise in February 1998 of an option  
to purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share    
and assuming the conversion of such shares into 587,500 shares of Common Stock. 
Net tangible book value equals the tangible net worth of the Company (total     
tangible assets less total liabilities) divided by the number of shares of      
Common Stock outstanding. After giving effect to the sale by the Company of     
1,600,000 shares of Common Stock in this Offering at the initial public         
offering price of $7.00 per share, after deducting the underwriting discounts   
and estimated Offering expenses (of which $139,000 of related expenses have     
been paid prior to December 31, 1997), the pro forma net tangible book value of 
the Company as of December 31, 1997 would have been approximately $12,119,000   
or $2.22 per share. This represents an immediate increase in pro forma net      
tangible book value of $1.49 per share to current stockholders and an immediate 
dilution of $4.78 or 68.3% per share to new investors. The following table      
illustrates the per share dilution:                                             

                                                                [Download Table]
                                                                               
Assumed initial public offering price per share (1) ............         $ 7.00
 Pro forma net tangible book value before the Offering ......... $ 0.73        
 Increase attributable to new investors ........................  1.49         
                                                                 ------        
Pro forma net tangible book value after the Offering ...........          2.22 
                                                                         ------
Dilution per share to new investors ............................         $ 4.78
                                                                         ======

------------                                                                    
(1) Represents the initial public offering price per share of Common Stock,     
before deducting underwriting discounts and Offering expenses payable by
the Company.                                                            

The following table summarizes, immediately prior to the Offering, the
difference between existing stockholders and investors in the Offering with     
respect to the number and percentage of shares of Common Stock and Convertible  
Preferred Stock purchased from the Company, the amount and percentage of        
consideration paid and the average price paid per share of Common Stock and     
Convertible Preferred Stock, before the deduction of offering expenses and      
underwriting discounts:                                                         

                                                        [Enlarge/Download Table]

                                    Shares Purchased         Total Consideration      Average Price
                                   Number       Percent       Amount       Percent      Per Share  
                                ------------   ---------  -------------   ---------  --------------
                                                                                                   
Existing stockholders .........  3,868,113         71%    $ 5,000,500         31%        $ 1.29    
New investors .................  1,600,000         29      11,200,000         69         $ 7.00    
                                 ---------         --     -----------         --                   
   Total ......................  5,468,113        100%    $16,200,500        100%                  
                                 =========        ===     ===========        ===                   
                                                                              

    The foregoing table reflects the exercise in February 1998 of an option to
purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share and   
assumes the conversion of such shares into 587,500 shares of Common Stock. The  
table does not include: (i) 250,000 shares of Common Stock reserved for         
issuance upon exercise of options which may be granted under the Stock Option   
Plan; (ii) up to 240,000 shares of Common Stock issuable upon exercise of the   
Over-Allotment Option; or (iii) 160,000 shares of Common Stock issuable upon    
exercise of the Representative's Option. See "Management -- Stock Option Plan," 
"Certain Transactions," "Description of Securities" and "Underwriting."         

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CAPITALIZATION  

  The following table sets forth the capitalization of the Company: (i) as
of December 31, 1997; (ii) on a pro forma basis to give effect to the exercise  
in February 1998 of an option to purchase 587,500 shares of Convertible         
Preferred Stock at $4.26 per share; and (iii) on a pro forma, as adjusted basis 
to give further effect to the sale by the Company of 1,600,000 shares of Common 
Stock at the public offering price of $7.00 per share, after deducting          
underwriting discounts and commissions and estimated Offering expenses. This    
table should be read in conjunction with the financial statements, including    
the notes thereto, included elsewhere in this Prospectus.                       

                                                        [Enlarge/Download Table]

                                                                                December 31, 1997                  
                                                               ----------------------------------------------------
                                                                                                       Pro Forma   
                                                                    Actual        Pro Forma (1)     As Adjusted (2)
                                                               ---------------  -----------------  ----------------
                                                                                                                   
Stockholders' equity:                                                                                              
 Preferred Stock, 1,000,000 shares authorized; shares issued                                                       
   and outstanding: none actual; 587,500 pro forma and pro                                                         
   forma as adjusted ........................................   $         --      $  2,500,000       $  2,500,000  
 Common Stock, $.001 par value, 10,000,000 shares autho-                                                           
   rized; shares issued and outstanding: 3,280,613 actual and                                                      
   pro forma; 4,880,613 pro forma, as adjusted (3) ..........          3,000             3,000              5,000  
 Additional paid-in-capital .................................      1,541,000         1,541,000         10,683,000  
 Accumulated deficit ........................................     (1,068,000)       (1,068,000)        (1,068,000) 
                                                                ------------      ------------       ------------  
Total stockholders' equity ..................................        475,000         2,975,000         12,119,000  
                                                                ------------      ------------       ------------  
   Total capitalization .....................................   $    475,000      $  2,975,000       $ 12,119,000  
                                                                ============      ============       ============  


------------                                                                    
(1) Pro forma to give effect to the exercise in February 1998 of an option to   
  purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share.
See "Summary Financial Data," "Certain Transactions" and "Description of
Securities."                                                            

(2) Pro forma, as adjusted to give effect to the sale by the Company of the     
1,600,000 shares of Common Stock offered hereby at the initial offering 
price of $7.00 per share after deducting underwriting discounts and     
commissions and estimated offering expenses.                            

(3) Does not include: (i) 587,500 shares of Common Stock issuable upon the      
 conversion of the Convertible Preferred Stock; and (ii) 250,000 shares of
Common Stock reserved for issuance under the Stock Option Plan. See     
"Certain Transactions," "Description of Securities" and Note 10 of notes
to financial statements.                                                

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

   The following discussion and analysis is intended to assist the reader in
understanding and assessing the significant changes and trends relating to the  
results of operations and financial condition of the Company. This discussion   
and analysis should be read in conjunction with the Company's financial         
statements and notes thereto included elsewhere in this Prospectus.             

Overview                                                                        

The Company was formed in 1989 to identify, acquire, manage, and      
commercialize innovative technologies. Since its inception, the Company's focus 
has been on developing thermal management products utilizing a proprietary and  
patented MicroPCM technology, the rights to which the Company has licensed      
under the TRDC License and the Outlast License. This technology centers around  
a thermal additive material that the Company markets under the trade name       
Thermasorb(R). To date, this additive material has been applied primarily to a  
family of cooling and insulating foams under the trade name ComforTemp(R), as   
well as to other materials. The license agreements give the Company the         
exclusive worldwide right to develop and commercialize this technology with     
respect to certain applications in exchange for royalties that range from one   
percent to five percent of product sales revenue and 12.5% to 50% of license    
fees and royalty revenues, as defined. The TRDC License also requires the       
Company to make minimum annual payments each year if the royalties do not       
exceed certain annual minimums that increase from $15,000 to $150,000 over the  
first eight years of the TRDC License and remain at $150,000 thereafter. The    
Company is expensing these minimum annual payments to cost of sales on a        
straight-line basis over the first eight years of the agreement. Under the      
Outlast License, the Company is required to make minimum annual payments in     
order to maintain the exclusivity of its license. The annual minimum payments   
increase incrementally from $150,000 to $600,000 per year from 1998 through     
2002 and will be $1,000,000 per year thereafter. See "Business --               
Patents/Intellectual Property."                                                 

The Company has incurred cumulative losses since inception through    
December 31, 1997 of approximately $1,068,000. This is primarily due to the     
efforts of the Company to develop a supply infrastructure and to identify and   
test applications of its thermal management products with only limited          
commercialization prior to 1997. During 1997, the Company began to bring its    
products to market, as a result of which, approximately 61.4% of the Company's  
revenue during the year ended December 31, 1997 was attributable to product     
sales and licensing fees related to its thermal management technology. The      
Company is following a strategy of positioning its products as high performance 
products that will be sold in specialty retail or industrial markets. This will 
be accomplished primarily through strategic partnerships with selected market   
leaders within targeted industries.                                             

After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its             
Thermasorb(R) and ComforTemp(R) products for use in the products of its         
strategic partners; and (ii) royalties from the use of the Thermasorb(R) and    
ComforTemp(R) trademarks by its strategic partners based on a percentage of its 
strategic partners' sales of products containing the Company's products to end- 
users. The Company may also receive license fees and development fees from some 
strategic partners for the grant of exclusive rights within a specific product  
category and for development services provided by the Company.                  

  Management anticipates that the Company will continue to incur operating
losses until the fourth quarter of 1999, when it expects to begin realizing     
greater revenues from the increased introduction of its products into the       
marketplace by its strategic partners. The Company plans to use the net         
proceeds of the Offering for sales and marketing, product development, capital  
expenditures, research and development, and for working capital. See "Use of    
Proceeds."                                                                      

The Company utilizes software and related technologies throughout its 
business that will be affected by the date change in the year 2000. System      
modifications or replacements are underway or planned which should make all     
significant computer systems at the Company compliant with the year 2000        
requirement. Anticipated spending for these modifications will be expensed as   
incurred and is not expected to have a material impact on the Company's ongoing 
results of operations.                                                          

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Results of Operations                                                           

The following table sets forth certain operating data in dollars and  
percentage of total revenues for the years indicated:                           

                                                        [Enlarge/Download Table]

                                                                Year Ended December 31,                   
                                                        1996                            1997              
                                             ---------------------------   -------------------------------
                                                                                                          
Revenues:                                                                                                 
 Product sales .............................  $   14,000          1.2%       $    474,000          37.5%  
 Research and development projects .........   1,120,000         92.6             487,000          38.6   
 Licenses and royalties ....................      75,000          6.2             301,000          23.9   
                                              ----------        -----        ------------         -----   
Total revenues .............................   1,208,000        100.0           1,262,000         100.0   
Cost of sales:                                                                                            
 Products ..................................      12,000          1.0             452,000          35.8   
 Research and development projects .........   1,004,000         83.1             258,000          20.4   
 Licenses and royalties ....................      20,000          1.7             265,000          21.0   
                                              ----------        -----        ------------         -----   
Total cost of sales ........................   1,036,000         85.8             976,000          77.3   
                                              ----------        -----        ------------         -----   
Gross profit ...............................     173,000         14.3             286,000          22.7   
Selling and marketing expense ..............      83,000          6.9             315,000          25.0   
General and administrative expense .........     207,000         17.1             900,000          71.3   
                                              ----------        -----        ------------         -----   
Loss from operations .......................    (118,000)       ( 9.8)           (929,000)        (73.6)  
Interest expense ...........................      19,000          1.6              37,000           2.9   
                                              ----------        -----        ------------         -----   
Loss before income taxes ...................    (136,000)       (11.3)           (965,000)        (76.5)  
Income tax (benefit) provision .............     (49,000)       ( 4.1)             45,000           3.6   
                                              ----------        -----        ------------         -----   
Net loss ...................................  $  (88,000)       ( 7.3)%      $ (1,010,000)        (80.0)% 
                                              ==========        =====        ============         =====   

Years ended December 31, 1997 and 1996                                          

 Revenues. The Company generates revenue from three primary sources: (i)
sales of its Thermasorb(R) and ComforTemp(R) products for use in its strategic  
partners' products; (ii) revenue from research and development contracts        
related to the United States Government; and (iii) license fees and royalties   
from the use of Thermasorb(R) and ComforTemp(R) trademarks by strategic         
partners in end-user products, as well as other fees earned in connection with  
its agreements with strategic partners. Total revenues for the year ended       
December 31, 1997 increased by $54,000 to $1,262,000 from $1,208,000 for the    
year ended December 31, 1996.                                                   

 Product sales. Product sales for the year ended December 31, 1997 increased
by $460,000 to $474,000 from $14,000 for the year ended December 31, 1996.
The increase was primarily the result of the Company bringing its         
ComforTemp(R) foams to market in 1997.                                    

Research and development projects. Revenues from research and development 
projects for the year ended December 31, 1997 decreased by $633,000 to    
$487,000 from $1,120,000 for the year ended December 31, 1996. This       
decrease resulted primarily from completion of several long-term contracts
during the year ended December 31, 1997 and the shift in the Company's    
focus from obtaining and performing funded research and development       
contracts to commercialization of its products.                           

Licenses and royalties. Revenues from license fees and royalties for the  
 year ended December 31, 1997 increased by $226,000 to $301,000 from $75,000
 for the year ended December 31, 1996. This increase resulted primarily from
the Company's entry into three additional strategic partnership agreements
during 1997. These arrangements provided for payments to the Company of   
 certain license fees, at signing, in consideration for exclusive use of the
Company's technology in particular product categories. In addition, the   
 Company received $155,000 in royalties based upon sales of end-use products
by its strategic partners.                                                

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 Cost of sales. Total cost of sales for the year ended December 31, 1997
decreased by $60,000 to $976,000 from $1,036,000 for the year ended December    
31, 1996. 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 TRDC in accordance with the TRDC License.                

Cost of sales -- Products. Cost of sales related to products for the year 
ended December 31, 1997 increased by $440,000 to $452,000 from $12,000 for
the year ended December 31, 1996. This increase reflected the             
 commercialization of the Company's products during the last three months of
1996 and the year ended December 31, 1997.                                

Cost of sales -- Research and development projects. Cost of sales related 
to research and development projects for the year ended December 31, 1997 
decreased by $746,000 to $258,000 from $1,004,000 for the year ended      
December 31, 1996, primarily due to a decrease in projects during the year
ended December 31, 1997. This decrease reflected a shift of personnel to  
work on the Company's product development effort, the cost of which is    
 classified as general and administrative expenses. This shift reflected the
Company's general strategy of shifting its focus to commercialization of  
its products and away from funded research and development. The related   
gross profit of such projects increased to 47.0% for the year ended       
December 31, 1997 from 10.4% for the year ended December 31, 1996.        
Approximately 65% of this increase was attributable to the Company's      
overall development contract mix consisting of more cost plus fixed-fee   
 contracts during 1996 as opposed to more fixed priced contracts during 1997
which fixed price contracts proved to be more profitable. The balance of  
this increase was attributable to losses incurred during 1996 relating to 
cost sharing contracts which the Company performed during 1996.           

Cost of sales -- Licenses and royalties. Cost of sales related to license 
fees and royalties for the year ended December 31, 1997 increased by      
$245,000 to $265,000 from $20,000 for the year ended December 31, 1996.   
Approximately 59% of this increase was the result of the increase in      
license fees and royalties which required increased licensing payments to 
be made by the Company in accordance with the terms of the TRDC License.  
The balance of the increase was due to a $100,000 charge related to prior 
periods incurred upon the execution of the Outlast Agreement.             

    Selling and marketing expense. Selling and marketing expenses for the year
ended December 31, 1997 increased by $232,000 to $315,000 from $83,000 for the  
year ended December 31, 1996. This increase was primarily the result of the     
Company increasing its marketing activity with respect to its thermal           
management technology as its products were ready for market and the pursuit of  
additional exclusive and non-exclusive licenses with potential strategic        
partners.                                                                       

 General and administrative expense. General and administrative expenses
for the year ended December 31, 1997 increased by $693,000 to $900,000 from     
$207,000 for the year ended December 31, 1996. This increase was primarily due  
to the shift in personnel and related costs from funded research and            
development to product development, which are classified as general and         
administrative expenses. This shift reflected the Company's general strategy of 
shifting its focus to commercialization of its products and away from funded    
research and development. The product development expenses consisted primarily  
of personnel and related costs in connection with the adaptation of the         
Company's existing thermal management technologies for use by the Company's     
strategic partners which personnel and related costs are characterized as       
general and administrative expenses.                                            

 Interest expense. Interest expense for the year ended December 31, 1997
increased by $18,000 to $37,000 from $19,000 for the year ended December 31,    
1996. The increase was primarily the result of increased average borrowings     
outstanding under the Company's line of credit.                                 

Income tax provision (benefit). The Company recorded an income tax    
provision for the year ended December 31, 1997 of $45,000 compared to an income 
tax benefit of $49,000 for the year ended December 31, 1996. The loss before    
income taxes for the year ended December 31, 1997 was $965,000 compared to      
$136,000 for the year ended December 31, 1996. The income tax provision for the 
year ended December 31, 1997 arose from providing a valuation allowance against 
all deferred tax assets due to uncertainties relating to expected future        
taxable income that would have to be generated to realize such assets. The      
income tax benefit for the year ended December 31, 1996 resulted primarily from 
recognition of a net operating loss carryback and a deferred tax asset.         

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 Net loss. As a result of the foregoing, the net loss for the year ended
December 31, 1997 increased to $1,010,000 from $88,000 for the year ended       
December 31, 1996.                                                              

Liquidity and Capital Resources                                                 

From its inception through December 31, 1997, the Company incurred    
cumulative losses of approximately $1,068,000. The Company has financed its     
operations to date through research and development contracts relating to       
United States government programs, loans from an affiliated company and bank    
borrowings. During 1997, the Company received non-interest bearing advances     
from Frisby Aerospace, certain stockholders of which are also stockholders of   
the Company, aggregating $517,000. Frisby Aerospace provided the Company with   
certain facilities at terms that the Company believes to be substantially       
equivalent to those available from unaffiliated third parties. These facility   
charges, which are non-interest bearing, are based upon estimates of square     
footage and include charges for actual expenses incurred by Frisby Aerospace on 
behalf of the Company. Management believes that such allocations are            
reasonable. Frisby Aerospace has charged the Company approximately $51,000, and 
$57,000 for such facilities and related services during the years ended         
December 31, 1996 and 1997, respectively. In addition, Frisby Aerospace         
provided the Company with certain facilities, accounting, clerical and office   
services without charge, the value of which services are not considered         
material and accordingly, have not been recorded in the accompanying financial  
statements. The Company has also funded its operations through bank borrowings  
in the amount of $500,000. Both the bank debt and the advances due to Frisby    
Aerospace were subsequently repaid with a portion of the proceeds of the        
Private Placement. See "Risk Factors -- Accumulated Losses; Possible Need for   
Additional Financing," "-- Reduction in Government Funded Development; No       
Assurance of Continued Government Contracts" and "Certain Transactions."        

At December 31, 1997, the Company had working capital of $416,000,    
including accounts receivable-billed of $358,000 and inventory of $248,000,     
offset by accounts payable of $353,000 and license fees payable of $185,000.    

The Company's liquidity during the year ended December 31, 1997 was   
significantly impacted by its increasing development of its thermal management  
products and increasing related sales and marketing efforts. In addition, the   
increases in inventory and accounts receivable arising from product sales have  
increased the Company's working capital needs. Net cash used in operating       
activities for the years ended December 31, 1996 and 1997 was $70,000 and       
$832,000, respectively. The principal factor contributing to the cash used in   
operating activities for each of the years ended December 31, 1996 and 1997 was 
the net loss for each of the respective periods.                                

Management anticipates that the Company will continue to incur losses 
until the fourth quarter of 1999, when it expects to begin realizing greater    
revenues from increased introduction of its products into the marketplace by    
its strategic partners.                                                         

   The Company has a $500,000 line of credit with a bank. The line of credit
bears interest at 0.5% above the bank's prime rate and will expire on June 30,  
1998. The amount outstanding under the line of credit was repaid in full in     
December 1997 with a portion of the proceeds from the Private Placement and,    
accordingly, the full amount is currently available.                            

The Company has incurred cumulative losses since its inception, and   
therefore, has not been subject to significant federal income taxes. Through    
December 31, 1997, the Company has generated net operating loss carryforwards   
of approximately $848,000 which may be available to reduce future available     
taxable income and future tax liabilities. These carryforwards expire           
principally in the year 2012. 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. Upon the completion of the Offering, the exercise  
of the Over-Allotment Option, or 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.                         

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On December 29, 1997 the Company consummated the Private Placement    
pursuant to which it sold 441,327 shares of its Common Stock and an option to   
purchase 587,500 shares of Convertible Preferred Stock to an unaffiliated       
foreign investor for an aggregate purchase price of $2,500,000 and net proceeds 
of approximately $1,600,000, after the payment of related issuance costs. The   
Option was exercised at an exercise price of $4.26 per share on February 27,    
1998, resulting in proceeds to the Company of $2,500,000. See "Certain          
Transactions" and "Description of Securities."                                  

Of the $9,144,000 of estimated proceeds of the Offering, the Company  
intends to use approximately $4,400,000 for sales and marketing, $2,400,000 for 
product development of current and potential licensees, $600,000 for capital    
expenditures, $200,000 for research and development, and $1,544,000 for working 
capital. See "Use of Proceeds."                                                 

  Based on the Company's current operating plan, the Company believes that
the net proceeds of the Offering, 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 consummation of the Offering. 
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 the proceeds of the Offering 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, the Company may determine that it is     
advisable to raise additional capital sooner than was anticipated.              

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.                                       

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BUSINESS  

General                                                                         

The Company is engaged in the development and commercialization of    
innovative advanced thermal management products for use in a broad range of     
consumer and industrial products such as gloves, boots, athletic footwear,      
apparel, protective and temperature retardant equipment, electronics cooling    
systems, packaging materials, and coating substances. The Company's             
Thermasorb(R) and ComforTemp(R) products utilize licensed patents and the       
Company's proprietary MicroPCM technology to enhance thermal characteristics    
(i.e., insulation, cooling or temperature control properties) of these as well  
as a variety of other consumer and industrial products. For example, when       
Thermasorb(R) additives and ComforTemp(R) foams are incorporated into ski       
gloves, the skier's hands would remain within a constant, pre-set temperature   
range without the typical accumulation of moisture. Also, if a firefighter were 
to wear flame retardant clothing incorporating ComforTemp(R) foam, the          
firefighter would remain cooler and be able to fight fires longer and more      
safely than a firefighter wearing flame retardant clothing without              
ComforTemp(R) foam.                                                             

The Company's marketing strategy is based on penetrating large select 
markets for its thermal management technology through relationships with        
strategic partners. The Company works closely with its strategic partners       
within each market to develop commercially viable product applications. To      
date, the Company has entered into such strategic partnerships with, among      
others, Wells Lamont Division of Marmon Holdings, Inc., LaCrosse Footwear, Inc. 
and Bell Sports Corp.                                                           

Thermal management is the process by which the temperature of various 
materials can be controlled or manipulated. The thermal management materials    
industry consists primarily of a wide variety of non-phase change materials     
such as Thinsulate(R) brand insulation for use in apparel, flexible and rigid   
polyurethane foams for use in footwear, sporting goods, automotive and          
transportation industries, specialized chemical additives for use in            
temperature resistant paints and coatings, and liquid coolants for use in       
aerospace, automotive and computer/electronics cooling systems. Phase change    
thermal management materials are comprised of materials that have the ability   
to absorb and reject large amounts of heat by changing from solid to liquid and 
back, thereby greatly enhancing the ability to heat or cool a particular        
object.                                                                         

The Company's products offer impressive and cost-effective thermal    
management solutions for a broad range of industries. The Company's current     
MicroPCM based products consist of a series of thermal additives and a series   
of foams in which the thermal additives are embedded. The Company currently     
markets its thermal additives and foams under the trademarks Thermasorb(R) and  
ComforTemp(R), respectively.                                                    

The Company's thermal management technology utilized in Thermasorb(R) 
additives and ComforTemp(R) foams provides the following unique                 
characteristics:                                                                

o  Intelligent thermal management -- provides pre-selected temperature
control;                                                        

o Versatile -- may be incorporated into a wide variety of end-use     
products;                                                         

o Lightweight -- lighter and less bulky than conventional insulating  
materials;                                                        

o Durable -- typically outlasts product to which it is applied;       

o Rechargeable -- continuous automatic thermal management;            

o Customizable -- may be engineered to meet the requirements of       
applications across a wide temperature range;                     

o Maintenance free -- no maintenance or power source required; and    

o Complementary -- may be used to enhance other insulating products.  

After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its             
Thermasorb(R) and ComforTemp(R) products for use in the products of its         
strategic                                                                       

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partners; and (ii) royalties from the use of the Thermasorb(R) and              
ComforTemp(R) trademarks by its strategic partners based on a percentage of its 
strategic partners' sales to end-users of products containing the Company's     
products. The Company also may receive license fees and development fees from   
some strategic partners for the grant of exclusive rights within a specific     
product category and for development services provided by the Company.          

To date, the Company's products have been incorporated into and are   
currently being sold to consumers of products such as HotFingers(TM) ski gloves 
by Wells Lamont, ski and snowboard helmets by Bell Sports Corp., hiking boots   
and snowboots by Cove Shoe Company and Genfoot, Inc. and fishing waders by Fly  
Technologies, Inc. In addition, the Company's products are currently being      
incorporated into products such as snowboots by LaCrosse Footwear, Inc. and     
personal hydration systems by FasTrak Systems, Inc., which are expected to      
first be made available for sale to consumers in 1998.                          

Industry Overview                                                               

Thermal management is the process by which the temperature of various 
materials is controlled or manipulated. The thermal management materials        
industry consists primarily of a wide variety of non-phase change materials     
such as Thinsulate(R) brand insulation for use in apparel; flexible and rigid   
polyurethane foams for use in footwear, sporting goods, automotive and          
transportation industries; specialized chemical additives for use in            
temperature resistant paints and coatings; and liquid coolants for use in       
aerospace, automotive and computer/electronics cooling systems. Phase change    
thermal management materials are comprised of materials that have the ability   
to absorb and reject large amounts of heat by changing from solid to liquid and 
back, thereby greatly enhancing the ability to heat or cool a particular        
object.                                                                         

 The Company believes that its products are the first to combine the two
distinct technologies of thermal management and microencapsulation to effect    
meaningful thermal performance improvements within applications across broad    
markets. Microencapsulation is the enclosing of materials inside a microscopic  
shell to maintain the integrity of the enclosed material. The combination of    
PCM technology with microencapsulation technology overcomes many of the         
inherent shortcomings of non-encapsulated PCMs, such as the tendency of non-    
encapsulated PCMs to lose their integrity, and to dissipate, evaporate or       
exhaust themselves over time. Microencapsulation permits PCMs to be imbedded    
into a variety of host materials, while maintaining the integrity and thermal   
functionality of the core PCMs. Microencapsulation is a proven technology and   
has been used extensively in the pharmaceutical industry (time release          
medication) and the paper industry (carbon-less copy paper). Since its advent,  
microencapsulation has been increasingly utilized across diverse applications.  
Management believes that the technology will continue to gain further           
penetration and usage in different fields, including thermal management.        

Strategy                                                                        

Through mid-1996, the Company focused its efforts on acquiring,       
identifying and testing potential applications for its innovative thermal       
management products and developing its supply chain infrastructure. Having now  
obtained licenses to its technology and identified select applications in which 
to initially market its thermal management products and having completed        
testing and development of products with manufacturers in several fields, the   
Company's primary objective is to increase acceptance and usage of its thermal  
management products in select high performance applications within high-volume  
targeted industries through strategic partnerships with leaders in such         
industries while continuously introducing new products in response to the       
demands of the marketplace.                                                     

Most of the Company's marketing and brand promotion efforts are       
coordinated through its strategic partners. The Company's agreements with its   
strategic partners typically obligate the strategic partner to display and      
promote the Company's trademarks, including, Thermasorb(R) and ComforTemp(R) in 
all promotional materials, point of sale displays, and direct product           
advertising with respect to products incorporating the Company's products. The  
Company refers to these efforts as "co-branding."                               

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The Company's products are currently being marketed commercially in   
apparel, footwear and sporting goods products. Three additional fields in which 
it believes applications of its products are most likely to become commercially 
feasible in the near term are home furnishings, shipping and packaging and      
healthcare. In the future, the Company's plans include developing products and  
establishing strategic partnerships in the automotive, aerospace and computers  
and electronics industries.                                                     

    The Company is following a deliberate strategy of positioning its products
as high performance products that will be sold in specialty retail or           
industrial markets. In the near term the Company intends to focus its attention 
on building high-quality, well-recognized brand names for its ComforTemp(R)     
foams and Thermasorb(R) additives within niche markets such as the athletic     
footwear and outdoor apparel market.                                            

The Company evaluates prospective products by utilizing a four part   
criteria. The Company's strategy is to pursue prospective product applications  
which it determines can: (i) offer significant growth potential within large,   
established and/or growing markets; (ii) generate attractive margins and        
enhanced brand recognition while having low capital requirements; (iii) meet a  
significant unmet market need; and (iv) provide a strong proprietary            
opportunity for industry leaders entering into strategic partnerships with the  
Company. Once a specific market or product is identified, the Company seeks to  
introduce that product by: (i) targeting a market leader in that specific       
industry; (ii) establishing a strategic relationship with that market leader;   
(iii) working closely with its strategic partners to develop the optimal        
characteristics and marketing efforts for each product incorporating the        
Company's products; and (iv) coordinating with its strategic partners to        
maximize market penetration including penetration of the mass market.           

Products                                                                        

 The Company's product portfolio currently consists of its Thermasorb(R)
additives and ComforTemp(R) foams. These products offer advanced thermal        
management solutions for a broad range of industries. In addition, these        
products address the expanding need for improved thermal management             
capabilities in a wide variety of commercial products. In response to the       
requirements of its strategic partners, the Company will work to develop        
applications of its products in other base materials such as epoxy resins,      
paints and composite materials.                                                 

Thermasorb(R) additives are a series of thermal management additives  
developed using the latest advances in microencapsulation technology.           
Thermasorb(R) MicroPCMs are micron-sized particles in the form of a dry         
free-flowing powder, consisting of a heat absorbing core material encapsulated  
within a proprietary, durable shell wall. Thermasorb(R) additives can improve   
the thermal storage capacity of a variety of host materials, including liquid,  
foam, epoxy and composite materials. Thermasorb(R) additives are currently      
commercially available in a variety of transition temperature settings ranging  
from 43oF to 190oF. The variety of the Company's Thermasorb(R) additives allows 
for an engineered solution for a multitude of thermal requirements.             

ComforTemp(R) foams are a series of foam products containing embedded 
Thermasorb(R) additives. ComforTemp(R) foams can be fabricated in different     
ways to have the ability to retain or exclude heat thereby maintaining a more   
constant temperature. Thermasorb(R) and ComforTemp(R) products have impressive  
and cost-effective thermal management properties. For example, Thermasorb(R)    
additives incorporated into solid materials enable those materials to absorb up 
to ten times more heat than traditional insulating materials. In tests          
performed for the United States Air Force by TRDC, liquid coolants containing   
Thermasorb(R) additives have been shown to remove up to 40 times more heat than 
traditional coolants. ComforTemp(R) foams are currently available in a light,   
breathable polyurethane which has the added capability of wicking away moisture 
while maintaining comfort in extreme hot or cold climates. For cold weather     
apparel products, the greatest asset of ComforTemp(R) foam is its ability to    
retain body heat during periods of activity and to release the heat back to the 
individual during periods of inactivity, when the body is most in need of       
warmth. ComforTemp(R) foams can be "recharged" repeatedly, as it recharges      
depending on the individual level of physical activity or other external        
conditions. For hot weather products, ComforTemp(R) foams can be used as a thin 
thermal barrier or heat shield to provide protection against extreme heat as    
well as to facilitate the regulation of body heat generated during activity     
thereby providing a cooling effect. ComforTemp(R) foams can also be used as a   
therapeutic or "climate controlled" wrap for comfort or medical purposes.       

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The Company's thermal management technology utilized in Thermasorb(R) 
additives and ComforTemp(R) foams provides the following unique                 
characteristics:                                                                

o Intelligent thermal management -- provides pre-selected temperature 
control;                                                          
o Versatile -- may be incorporated into a wide variety of end-use     
products;                                                         
o Lightweight -- lighter and less bulky than conventional insulating  
materials;                                                        
o Durable -- typically outlasts product to which it is applied;       
o Rechargeable -- continuous automatic thermal management;            
o Customizable -- may be engineered to meet the requirements of       
applications across a wide temperature range;                     
o Maintenance free -- no maintenance or power source required; and    
o Complementary -- may be used to enhance other insulating products.  

Product Development Services and Support                                        

The Company offers its strategic partners a broad range of applied    
engineering and application support services. The Company's application and     
thermal engineers specialize in the design, use and application of PCMs and     
MicroPCMs. The Company works with all of its strategic partners to tailor       
applications of its product solutions to the strategic partner's specific       
thermal management needs. These services include:                               

Prototype Fabrication: Development of prototypes providing MicroPCM 
  thermal management solutions for custom designed products and systems.

Thermal Analysis: Analysis and testing of the thermal management    
characteristics of existing and prototype products and systems.     

    Program Management: From initial concept to final product, the Company's
     engineers work towards providing a complete thermal management product or
system.                                                             

Technology Assessment and Product Development: Performance of market
     research and product assessments as well as reviews of competing products
and technologies.                                                   

End-Use Product and Systems Design: Design of thermal management    
solutions for temperature control systems and specific components to
ensure optimal thermal management.                                  

   These design, application and support services enable the Company to work
closely with its strategic partners and potential strategic partners early in   
the product development and design process in an effort to reduce the time from 
product conception to market.                                                   

Initial Target Markets                                                          

Apparel Market -- The Company's ComforTemp(R) foams and Thermasorb(R) additives 
can enhance the thermal characteristics of a multitude of end-products in the   
apparel industry. People working in extreme hot or cold conditions or who are   
required to wear protective garments, including firefighters, utility workers,  
construction workers, police officers or individuals who spend significant      
amounts of time outdoors, will benefit from apparel manufacturers' use of       
Thermasorb(R) additives and ComforTemp(R) foams in their products. Such         
products may alleviate the discomfort, fatigue and impaired coordination caused 
by heat stress or prolonged exposure to heat or cold. During 1997, one of the   
Company's strategic partners, Wells Lamont, a large U.S. glove manufacturer,    
launched the worldwide roll-out of gloves incorporating ComforTemp(R) foam in   
its line of HotFingers(TM) ski gloves.                                          

Footwear Markets -- ComforTemp(R) foam is well suited for use as an insulating  
or temperature management material in boots and shoes. During 1997, the         
Company's strategic partners, Cove Shoe Company and Genfoot, Inc., launched the 
worldwide roll-out of cold weather footwear including hunting boots and rubber  
bottom boots. The Company, in January 1998, signed a binding Memorandum of      
Understanding with LaCrosse Footwear, Inc., America's largest manufacturer of   
rubber bottom boots, pursuant to which LaCrosse Footwear, Inc. is to introduce  
three styles of snow boots containing the Company's ComforTemp(R) insulation    
for sale during 1998.                                                           

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Sporting Goods Equipment -- The Company believes that many athletic goods could 
be improved if the Company's products were incorporated into products for       
climbing/mountaineering, cycling, hiking/backpacking, racquet sports,           
canoeing/kayaking, running, cross training, sailing, skiing, snowboarding,      
fishing, hunting, walking and racing. During 1997, the Company's strategic      
partners, Fly Technologies, Inc. and Bell Sports Corp., launched the worldwide  
roll-out of products incorporating ComforTemp(R) foam in fishing and hunting    
waders, and ski and snowboarding helmets, respectively. FasTrak Systems, Inc.   
is currently developing a thermally managed personal hydration system under the 
CamelBak(TM) line for introduction in 1998.                                     

Home Furnishings -- The Company has identified applications for incorporating   
its ComforTemp(R) foams into home furnishings and home products including       
mattresses, mattress covers, comforters and pillows. The Company is working     
with a leading home furnishings manufacturer to develop a line of home          
furnishing products incorporating its ComforTemp(R) foam.                       

Shipping and Packaging -- Thermasorb(R) and ComforTemp(R) products have         
applications in the packaging and shipping industries. The Company is currently 
working with a strategic partner to develop enhanced insulating packages        
designed to keep foods hot or frozen longer without the need for portable       
heaters, refrigeration systems or dry ice. Currently under development is a     
soft-sided delivery bag that will be used for fast food and home delivery       
applications. These thermally-enhanced bags will ensure that products remain    
hot until orders are received by customers. The bags are designed to keep food  
at cooking temperatures for up to 90 minutes. The Company sees significant      
market potential for this type of product due to the number of people ordering  
prepared food for home delivery.                                                

Other potential shipping and packaging applications for the Company's       
products include pharmaceutical packaging, flower/seed transport, produce       
transport, organ transplant containers, blood/plasma containers, retrofitting   
of insulated truck bodies, thermal blankets, speedwalls and electronic          
component packaging.                                                            

Healthcare Industry -- The Company's Thermasorb(R) and ComforTemp(R) products   
may be incorporated into many products useful in the healthcare industry,       
including hot and cold packs. Cold packs containing the Company's Thermasorb(R) 
additives are being developed to maintain temperatures as low as -30oF, while   
hot packs containing the Company's Thermasorb(R) additives are being developed  
to maintain temperatures as high as 190oF and can be heated using a microwave   
oven. Other healthcare applications include wraps, braces and blankets.         

Automotive Industry -- The Company has identified many applications for         
incorporating its Thermasorb(R) additives into automotive components, including 
seating systems, heat shields, interior and exterior trim, foams and foam       
laminates, engine cooling systems, thermal grease, epoxies, lubricants and      
oils, and adhesives. The Company's strategy is to work with end-product         
manufacturers to identify, test, and provide product solutions to existing and  
future thermal management problems. The Company is currently working with       
automotive industry participants on the development of prototypes for interior  
trim, heat shields, slurry engine coolants, battery insulation and oil coolers, 
as well as for cooling the next generation of electric and hybrid motor         
vehicles.                                                                       

Aerospace Industry -- The Company continues to be involved with government      
sponsored research and development efforts on avionics, computer and            
electronics cooling systems. In this regard, the Company has developed or is    
currently in the process of developing prototypes utilizing its proprietary     
thermal management products in conjunction with heat sinks, slurry coolants,    
thermal capacitors and power supplies. In addition, the Company has identified  
applications of its products which can be used in the manufacture of insulating 
coatings and paints, which have historically been targeted and tested for the   
commercial aircraft industry because it can provide a decrease in the overall   
weight of commercial aircraft through more efficient insulation systems.        
Aircraft skin protected with a coating impregnated with Thermasorb(R) additives 
permit manufacturers to use lighter and less expensive composite materials to   
replace premium-priced exotic metals that are capable of withstanding high      
temperatures. This not only reduces the weight of the aircraft, but greatly     
reduces maintenance costs and has the added benefit of protecting underlying    
materials from thermal shock.                                                   

Electronics/Computer Industry -- As computers, electronic systems and           
components become smaller and more powerful, the amount of heat generated       
increases as does the need for thermal management solutions. Excessive heat     
degrades system performance and reliability and can cause system failure. The   
Company has recognized and is addressing these thermal management opportunities 
by developing products that use Thermasorb(R) based solutions to safeguard      
electronic components from system failure by utilizing the ability of           
Thermasorb(R) additives to absorb large amounts of heat.                        

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Sales and Marketing                                                             

Currently the Company's sales strategy consists of working with its   
strategic partners to increase the number of end-use products incorporating     
Thermasorb(R) and ComforTemp(R) offered for sale. The Company leverages the     
existing sales, marketing and distribution systems of its strategic partners to 
maximize exposure of its products to retailers around the world. This strategy  
permits the Company to support a large volume of end-use sales through a small  
in-house sales staff servicing a small number of strategic partners. The        
combined sales forces of the Company's strategic partners comprise an extensive 
network of salespersons and sales representatives.                              

   The Company's sales process with respect to prospective strategic partner
is as follows:                                                        

 o A market leader for a particular niche is identified by the Company's
marketing group.                                                  

  o A relationship is established with a technical point of contact within
     the target company to achieve "buy in" of the Company's product concept
 by the technology experts within the prospective strategic partner.

  o The Company and the prospect enter into a reciprocal secrecy agreement
      ensuring mutual confidentiality and prohibiting "reverse engineering" of
       the Company's products and requiring the prospect to enter into a license
     with the Company should it ever decide to place the MicroPCM technology
into production.                                                  

o The Company's product development personnel (application engineers) 
       evaluate the prospective strategic partners' needs and recommend a course
of action.                                                        

  o Upon receipt of an indication of further interest from the prospective
strategic partner, the parties may elect to enter into a Joint    
  Development and Option to License Agreement (a "JD/Option to License
Agreement") if further development is needed to determine if the  
   Company's products meet the requirements of the prospective strategic
     partner. This permits the prospective strategic partner to evaluate the
      technology more closely while (for a fee) reserving the rights to obtain
a license once development is completed.                          

o The Company and the strategic partner negotiate and enter into a    
      Memorandum of Understanding with a view to the finalization of a License
Agreement.                                                        

 o The Company and the strategic partner enter into a License Agreement.

A significant portion of the Company's marketing and brand promotion  
efforts are coordinated through its strategic partners. The Company's           
agreements with its strategic partners typically obligate the strategic partner 
to display and promote the Company's trademarks, including, Thermasorb(R) and   
ComforTemp(R) in all promotional materials, point of sale displays, and direct  
product advertising for end-use products incorporating the Company's products.  
The Company plans to coordinate the promotion of its Thermasorb(R) additives    
and ComforTemp(R) foams with the promotional efforts of its strategic partners  
and to implement a scaled-up public relations campaign in order to accelerate   
the inclusion of feature stories and references to ComforTemp(R) foams and its  
strategic partners in targeted industry and consumer periodicals. The Company   
believes that this co-branding strategy will help to minimize its advertising   
and marketing costs, thereby allowing the Company to allocate a greater portion 
of its financial resources to the identification of new strategic partners and  
the development of new product applications in conjunction with its new and     
existing strategic partners.                                                    

   In addition to its own marketing efforts and the efforts of its strategic
partners, the Company entered into a non-binding agreement in December 1997     
with Foamex granting to Foamex a co-exclusive license with the Company to sell  
ComforTemp(R) polyurethane foams and an exclusive license to manufacture        
ComforTemp(R) polyurethane foams (other than certain ComforTemp(R)              
formulations, currently supplied to the Company by another supplier). The       
agreement contemplates a definitive agreement having a term of five years with  
an option for a two year renewal and a worldwide license to sell and to         
sublicense the right to develop and sell ComforTemp(R) based products to        
selected end-product manufacturers with which Foamex has existing               
relationships, subject to the Company's prior written consent. In addition, the 
Company intends to provide Foamex with a license to manufacture certain         
ComforTemp(R) foams within the Americas. The license would provide the Company  
with up-front license fees, technical support payments, minimum purchase        
requirements, payment of a percentage of sublicensing revenues to the Company   
and co-branding obligations in return for continued exclusive                   

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rights and reciprocal agreements to be the sole source of supply for MicroPCMs  
and polyurethane foams (other than certain ComforTemp(R) formulations), as the  
case may be. The Company believes that its relationship with Foamex provides    
several substantial benefits: (i) an additional, high capacity, source of       
supply for polyurethane foams; and (ii) access to as yet untapped areas for new 
strategic partnerships. For the fiscal year ended December 31, 1996, Foamex had 
total revenues of approximately $926,000,000.                                   

Strategic Partnerships                                                          

 The Company seeks to enter into agreements with strategic partners that
have very strong brand names, excellent reputations for quality and performance 
and extensive and established sales and distribution networks. A typical        
agreement with a strategic partner: (i) identifies a narrowly defined end-use   
product area in which to develop and commercialize products; (ii) requires the  
strategic partner to purchase all of its requirements for ComforTemp(R) and     
Thermasorb(R) MicroPCM additives and foams from the Company; (iii) establishes  
minimum annual purchases of such additives and foams; and (iv) in exchange for  
a royalty, grants to the strategic partner a license, which may or may not be   
exclusive, to use the Company's name and trademarks in conjunction with the     
products produced.                                                              

 The Company earns revenues from the sale of its Thermasorb(R) additives
and ComforTemp(R) foams for inclusion in the products of its strategic partners 
(including annual minimum purchases to maintain exclusivity), earned royalties, 
license fees for exclusive agreements and development fees for development      
services. In order to maintain exclusive rights within their respective fields  
of use, several of the Company's strategic partners are required to make        
minimum purchases of the Company's products. If those already contracted for    
minimum purchase requirements are satisfied, the Company will receive           
approximately $800,000 from the required minimum product sales and related      
royalties during fiscal 1998.                                                   

  Generally, the Company's strategic partners are required to co-brand the
Company's products by including the Company's trademarks in all their marketing 
materials, point of sale displays, and sales promotion efforts for end-use      
products incorporating the Company's products. Exclusivity, when granted, is    
established within narrowly-defined end-use products intended to maximize the   
Company's ability to selectively enter into additional agreements with market   
leaders in many different product categories and to focus the strategic partner 
on its field of specialization.                                                 

The table below lists the Company's current strategic partners and the
product category which is the subject of its current arrangements with such     
partners.                                                                       

                                                        [Enlarge/Download Table]

Strategic Partner                                 Product                                                 
------------------------------------------------  --------------------------------------------------------
                                                                                                          
Wells Lamont Division of Marmon Holdings, Inc.    All Hand Apparel and Selected Accessories               
Bell Sports Corp. (*)                             Winter Sports Helmets (Ski/Snowboard)                   
Cove Shoe Company, Inc. (H.H. Brown)              Outdoor Goodyear Welt Construction Boots                
Genfoot, Inc.                                     Cold Weather Insulated Rubber Bottom Boots              
Fly Technologies, Inc.                            Fishing and Hunting Waders                              
LaCrosse Footwear, Inc. (*)                       Cold Weather Insulated Rubber Bottom Boots              
CamelBak/FasTrak Systems, Inc. (*)                Personal Hydration Systems                              
Thermo Solutions, Inc. (*)                        Temperature Sensitive Food Storage/Transport Containers 

------------                                                                    
*A signed Memorandum of Understanding is in effect.                             

Wells Lamont Division of Marmon Holdings, Inc. -- All Hand Apparel. The Company 
entered into an agreement in January 1997 with Wells Lamont Division of Marmon  
Holdings, Inc. ("Wells Lamont"), granting Wells Lamont exclusive rights to use  
the Company's products and trademarks with respect to all hand apparel (e.g.,   
gloves and mittens) and selected other products (e.g., ear warmers and          
industrial gloves) for a period of three years. Pursuant to the agreement,      
Wells Lamont is required to purchase all of its requirements (including certain 
minimum purchases to maintain its exclusive rights) for Thermasorb(R) additives 
and ComforTemp(R) foams from the Company and is required to pay to the Company  
an up front fee with respect to its exclusive rights and a royalty based on     
sales. The agreement permits Wells Lamont to enter into sub-license agreements  
and requires Wells                                                              

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Lamont to pay the Company a specified percentage of any royalties received      
under any such sub-license agreements for the production or sale of the         
licensed products. Wells Lamont is a large U.S. glove manufacturer with a       
significant market share for gardening gloves and work gloves. Wells Lamont is  
also a significant supplier of ski gloves with its HotFingers(TM) brand. Wells  
Lamont has been in continuous operation for 90 years and also manufactures ear  
warmers, hats, socks, and industrial gloves.                                    

Bell Sports Corp. -- Winter Sports Helmets. The Company has entered into an MOU 
in April 1997 with Bell Sports Corp. ("Bell") granting Bell exclusive rights to 
use the Company's products and trademarks with respect to winter sports helmets 
(skiing and snowboarding) for a period of two years. The Company and Bell are   
proceeding to finalize a license agreement. Pursuant to the MOU, Bell is        
required to purchase all of its requirements for Thermasorb(R) additives and    
ComforTemp(R) foams from the Company and to pay a royalty to the Company based  
on sales. The MOU also requires Bell to co-brand products that incorporate the  
Company's products, thereby enhancing the name recognition for the Company's    
trademarks. For the fiscal year ended June 30, 1997, Bell had total revenues of 
approximately $260,000,000.                                                     

Cove Shoe Company, Inc. -- Outdoor Boots with Goodyear Welt Construction. The   
Company entered into an agreement in February 1997 with Cove Shoe Company, Inc. 
("Cove Shoe") granting Cove Shoe exclusive rights to use the Company's products 
and trademarks with respect to the manufacture and distribution of outdoor      
boots with Goodyear welt construction within certain specific style categories  
(e.g., military, outdoor and others) for a period of three years. Pursuant to   
the agreement, Cove Shoe is required to purchase all of its requirements        
(including certain minimum purchases to maintain its exclusive rights) for      
Thermasorb(R) additives and ComforTemp(R) foams from the Company and is         
required to pay to the Company an up front fee with respect to its exclusive    
rights and a royalty based on sales. The agreement also permits Cove Shoe to    
enter into sub-license agreements provided Cove Shoe pays to the Company a      
specified percentage of any royalties received under any such sub-license. Cove 
Shoe is a division of H.H. Brown Shoe Company, a subsidiary of Berkshire        
Hathaway, Inc., and is one of the oldest shoe manufacturers in the United       
States. Cove Shoe engages in private label manufacturing for many companies     
including L.L. Bean, Cabelas, Orvis, DKNY, Ralph Lauren, Harley-Davidson and    
Bass Pro Shops. Cove Shoe is a major supplier to military and army-navy stores. 

Genfoot, Inc. -- Cold Weather Insulated Rubber Bottom Boots. The Company        
entered into an agreement in February 1997 with Genfoot, Inc. ("Genfoot")       
granting to Genfoot non-exclusive rights to use the Company's products and      
trademarks with respect to the manufacture and distribution of cold weather     
insulated rubber bottom boots for a period of two years. The agreement requires 
Genfoot to purchase all of its requirements for Thermasorb(R) additives and     
ComforTemp(R) foams from the Company. The agreement also requires Genfoot to    
co-brand the Company's products in connection with its products incorporating   
the Company's products, thereby enhancing the name recognition of the Company's 
trademarks. In accordance with the terms of the agreement, Genfoot produced and 
displayed ten styles of Kamik brand boots incorporating the Company's products  
at the 1997 Outdoor Retailers Show and has advised the Company that it plans to 
increase this to 12 styles for 1998 including two children's styles. Genfoot is 
one of the largest Canadian boot manufacturers measured in number of pairs of   
boots shipped. Genfoot has been in continuous operation for nearly 100 years.   

Fly Technologies, Inc. -- Fishing and Hunting Waders. The Company entered into  
an agreement in March 1997, with Fly Technologies, Inc. ("Fly Tech") granting   
Fly Tech the exclusive right to use the Company's products and trademarks with  
respect to the manufacture and distribution of fishing and hunting waders for a 
period of 21 months. The agreement requires Fly Tech to purchase all of its     
requirements (including certain minimum purchases to maintain its exclusive     
rights) for Thermasorb(R) additives and ComforTemp(R) foams from the Company    
and provides for an up front fee with respect to its exclusive rights and a     
royalty based on sales. The agreement permits Fly Tech to enter into            
sub-license agreements that require Fly Tech to pay the Company a specified     
percentage of any royalties received under any such sub-license. The agreement  
also requires Fly Tech to co-brand the Company's products in connection with    
its products incorporating the Company's products, thereby enhancing the name   
recognition of the Company's trademarks. In addition to their own Fly Tech      
brand, Fly Tech manufactures private label fishing and hunting waders for Bass  
Pro Shops.                                                                      

LaCrosse Footwear, Inc. -- Cold Weather Rubber Bottom Boots. The Company        
entered into an MOU in January 1998 with LaCrosse Footwear, Inc. ("LaCrosse")   
granting LaCrosse non-exclusive rights to use the Company's products and        
trademarks with respect to cold weather, insulated rubber bottom boots other    
than welt-constructed                                                           

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boots for a period of two years. The Company and LaCrosse are proceeding to     
finalize an agreement. The MOU provides for royalties based on product sales,   
requires LaCrosse to purchase all of its requirements of Thermasorb(R)          
additives and ComforTemp(R) foams from the Company. The MOU also requires       
LaCrosse to design, produce and market at least three styles of rubber bottom   
boots incorporating ComforTemp(R) foam in its Fall/Winter 1998 product line.    
The MOU also requires LaCrosse to co-brand its products that incorporate the    
Company's products thereby enhancing the name recognition for the Company's     
trademarks. For the fiscal year ended December 31, 1996, LaCrosse had total     
revenues of approximately $122,000,000.                                         

CamelBak/FasTrak Systems, Inc. -- Personal Hydration Systems. The Company       
entered into an MOU in July 1997 with CamelBak/FasTrak Systems, Inc.            
("CamelBak") granting CamelBak exclusive rights to use the Company's products   
and trademarks with respect to cold-weather personal portable hydration systems 
for commercial and military use for a period of two years. The Company and      
CamelBak are proceeding to finalize an agreement. The agreement is royalty free 
but requires CamelBak to purchase all of its requirements (including certain    
minimum purchases) of Thermasorb(R) additives and ComforTemp(R) foams from the  
Company and requires CamelBak to design, produce and market at least one style  
of winter hydration system incorporating ComforTemp(R) foam which is expected   
to first be made available for sale to consumers in 1998. The MOU also requires 
CamelBak to co-brand products that incorporate the Company's products thereby   
enhancing the name recognition for the Company's trademarks.                    

Thermo Solutions, Inc. -- Temperature Sensitive Food Storage/Transport          
Containers. The Company entered into an agreement in May 1996 that was amended  
by an MOU entered into in January 1998 with Thermo Solutions, Inc. ("Thermo     
Solutions"), an early stage company specializing in the manufacture, sale and   
distribution of packaging containers for food storage and delivery              
applications. The Company and Thermo Solutions are proceeding to finalize an    
agreement. As amended, the agreement is expected to grant Thermo Solutions the  
exclusive right to use the Company's products and trademarks with respect to    
temperature sensitive food storage/transport containers of certain sizes        
through December 1998 with two, one year options. The amended agreement         
requires Thermo Solutions to purchase all of its requirements (including        
certain minimum purchases) for Thermasorb(R) additives and ComforTemp(R) foams  
from the Company and provides for annual licensing fees and royalties based on  
sales. The final agreement is expected to provide that Thermo Solutions, with   
the Company's prior consent, may enter into sub-license agreements that require 
Thermo Solutions to pay a percentage of any royalties received under any such   
sub-license to the Company. The MOU also requires Thermo Solutions to co-brand  
products that incorporate the Company's products thereby enhancing the name     
recognition for the Company's trademarks.                                       

Research and Development                                                        

From its inception in 1989 until mid-1997, the Company's revenues were
largely derived from a variety of government related research and development   
contracts which funded the Company's research and development efforts during    
that period. Terms and conditions under these government contracts varied from  
a cost plus basis to a fixed price basis. Upon completion of research and       
development under these contracts, the government may retain some rights to a   
royalty-free license to use the newly developed technology for certain of its   
own uses, and the Company retains all other rights to use and further           
commercialize the newly developed technology.                                   

  The Company was awarded its first research and development contract from
McDonnell Douglas Corporation in 1991 to study the benefits of using MicroPCM   
technology in avionics cooling systems in military aircraft. Since that time,   
the Company has identified many applications for its products in a wide variety 
of areas, including both intermediate and end-use products, and across a wide   
range of large and/or growing industry segments.                                

For the fiscal years ended December 31, 1996 and 1997, the Company was
involved in government research and development projects related to technology  
that is used to improve the thermal management properties of military aircraft  
and protective outerwear. For those periods, the Company's revenues from        
research and development were $1,120,000 and $487,000, respectively, and its    
costs related to such projects were $1,004,000 and $258,000, respectively.      

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  From time to time, the Company becomes aware of and considers conducting
funded research projects that do not relate to thermal management. The Company  
expects to evaluate future funded research and development projects on a case   
by case basis and will engage in those projects management considers to offer   
complementary opportunities for the Company. Of the total research and          
development revenues received during the fiscal years ended December 31, 1996   
and 1997, revenues from projects unrelated to thermal management technology     
amounted to approximately, $402,000 and $113,000, respectively. To date, the    
Company has not developed any non-thermal technologies or products that it      
considers ready to commercialize.                                               

As of December 31, 1997, the Company had ongoing research projects    
providing engineering services directly or indirectly for the United States     
government in the amount of $361,000 and proposals outstanding for research     
projects having an aggregate potential value of less than $250,000. The Company 
anticipates that it will continue to conduct some funded research projects in   
the future. At present the Company would estimate approximately $500,000 per    
year will be realized from funded research projects. See "Risk Factors --       
Accumulated Losses; Possible Need for Additional Financing," "-- Reduction in   
Government Funded Development; No Assurance of Continued Government Contracts"  
and "-- Dependence on Small Number of Strategic Partners; Limited Sales and     
Marketing Experience."                                                          

Technology Overview                                                             

Encapsulation technology and traditional PCMs have been separately in 
development and use since the early 1970's. Nonencapsulated PCMs have been used 
in many energy-related products for heat storage and temperature control.       
Microencapsulation has been used extensively in the pharmaceutical industry     
(time released medication) and the paper industry (carbonless copy paper). The  
Company's technology combines these two sciences to form an entirely new class  
of materials that creates heretofore unmatched thermal management solutions.    

  PCMs have the capacity to absorb and reject large amounts of heat upon a
change of phase (e.g., from solid to liquid, liquid to gas, etc.). The          
temperature at which the heat absorption and rejection takes place is known as  
the phase change or transition temperature. The amount of heat either rejected  
or absorbed is known as the latent heat of fusion.                              

In the Company's products, the PCM is encapsulated into tiny capsules 
ranging in size from one to several hundred microns in diameter. Encapsulating  
PCMs within a thin polymer shell, thereby forming a microscopic sphere or       
MicroPCM, allows for the melting and freezing of the PCM core to be contained   
within this shell. The capsules resemble a fine powder, permitting them to be   
mixed into a variety of host materials (e.g., fluids, foams and other solid     
structures) while maintaining the integrity and thermal functionality of the    
core PCM. The shell wall material used in the Company's MicroPCM additive       
Thermasorb(R) is extremely durable and is designed and formulated to perform    
under extreme mechanical, chemical, and thermal conditions.                     

 Upon heat absorption, the core material in the MicroPCM melts, changing
from solid to liquid. Upon heat release or at freezing, the core material turns 
solid again and is ready for the next melting phase. This unique, reversible    
characteristic is referred to as "recharging".                                  

Since the latent heat of fusion of Thermasorb(R) additives is         
substantially higher than the heat capacity of a host material, the net effect  
of adding a concentration of Thermasorb(R) additives to a host material results 
in an increase in the heat capacity of the end product. The choice of core      
materials contained in the MicroPCM for any given application depends on the    
desired transition temperature and other system level parameters. The Company   
has identified dozens of PCMs that are suitable for encapsulation with the      
Company's existing processes, ranging in melting points from -65oF to over      
225oF.                                                                          

   ComforTemp(R) foams are currently available in a soft hydrophilic version
which is light, breathable, open-cell, polyurethane foam which the Company      
believes is best suited to apparel and footwear applications. The Company's     
ComforTemp(R) product also has the potential to be produced in at least seven   
different foam categories including rubber, closed cell neoprene, latex, soft   
hydrophilic, polyurethane soft, polyurethane rigid, silicone and styrofoam.     
Each foam category exhibits different thermal, operational and functional       
capabilities. Depending upon the thermal management characteristics required    
for a strategic partner's end-use application, the appropriate type of foam     
(impregnated with Thermasorb(R) additives having the desired transition         
temperature) can be used to provide optimal thermal protection.                 

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 Test results -- Insulation. Tests performed by the Company for the U.S.
Air Force, as well as by independent third-party testing laboratories,          
including Holometrix, Inc. and the Naval Clothing and Textile Research Center   
("NCTRF"), have demonstrated that certain ComforTemp(R) foams provided greater  
thermal insulation than other existing thermal management materials. The graph  
below depicts the results of two such tests. The heavily shaded portion of the  
graph shows the inherent thermal insulation value of the materials (including   
ComforTemp(R) foam in the uncharged state) as tested by industry standards      
while the lightly shaded portion shows the additional insulation value of       
ComforTemp(R) foam in the charged state. The information with respect to the    
"uncharged" state relates to ComforTemp(R) foam either prior to being charged   
by wearer activity or after being de-charged by extended exposure at cold       
temperatures. The lightly shaded portion of the graph relates to the additional 
insulative benefit derived from the ComforTemp(R) foam as a result of the heat  
release characteristic of the embedded Thermasorb(R) capsules in their          
"charged" state.                                                                

Insulating Value of ComforTemp(R) Foam in Charged and Uncharged States Compared 
to Other  
Commercially Available Insulating Materials 

                                                        [Enlarge/Download Table]

                                                                                                                        
I       |                                                                                                               
        |                                                                                                               
N       |                                                                                                               
        |                                                                                                               
S       |                                                                                                               
        |                                                                                                               
U  10 --|     *                                                                                                         
        |                     *                                                                                         
L   9 --|                                                                                                               
        |                                                                                                               
A   8 --|                                                                                                               
        |                                                                                                               
T   7 --|                                                                                                               
        |                                                                                                               
I   6 --|     X                                                                                                         
        |                     X                  X                                                                      
N   5 --|                                                                                                               
        |                                                                                                               
G   4 --|                                                             X                  X                    X         
        |                                                                                                               
    3 --|                                                                                                               
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V   2 --|                                                                                                               
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A   1 --|                                                                                                               
        |                                                                                                               
L       |                                                                                                               
        |                                                                                                               
U       |                                                                                                               
        |                                                                                                               
E       |---------------------------------------------------------------------------------------------------------------
           ColorTemp      ColorTemp       name brand fabric      typical foam       typical felt       name brand fabric
           from(LX)       foam(DX)         insulation "A"         insulation         insulation         insulation "B"  

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  Test results -- Heat protection. The following graph depicts the results
of a test conducted on ComforTemp(R) by the Air Force Fire Research Lab at      
Tyndall Air Force Base. This test demonstrated the extended period of           
protection that would be provided to a firefighter as a result of incorporating 
a layer of ComforTemp(R) foam in a conventional fire suit when exposed to a     
temperature simulating the intense heat of a jet fuel fire. By measuring the    
temperature increase inside the fire-suit material, with and without            
ComforTemp(R) foam, the skin temperature of a firefighter is simulated.         

Relative Heat Shielding Capability of a Fire-Suit 
With and Without ComforTemp(R) Foams

200 |                                                                   
|                                                               
|                                                               
|                                                               
T   180 |                                                                       
E       |                                                                       
M       |                   *                                                   
P       |                                                                       
E       |                                                                       
R   160 |                                                                       
A       |                                                                       
T       |                                                                       
U       |                                                       X               
R       |                                                                       
E   140 |                                                                       
,       |                                                                       
|                                                               
D       |                                                                       
E       |                                                                       
G   120 |                                                                       
R       |                                                                       
E       |                                                                       
E       |                                                                       
S       |                                                                       
100 |                                                                   
F       |                                                                       
|                                                               
|                                                               
|                                                               
80 |                                                                  
       |----------------------------------------------------------------------
        0         50        100       150         200         250          300
 seconds

* = standard material                                                           
X = ComforTemp foam                                                             

The "*" and "X" each represent the end point of a line originating at the       
intersection of the vertical and horizontal axes of the graph and extending to  
such points. Although neither line maintains a perfectly constant slope, overall
the straight lines described above fairly approximate the slope of the lines    
produced from the actual data.                                                  

The Manufacturing Process                                                       

The Company currently outsources all of its production needs and      
anticipates that it will continue to do so for the foreseeable future. The      
Company currently has informal agreements and is negotiating definitive supply  
agreements with companies involved in each stage of the manufacturing process.  
In the event that any of those companies were unable to continue to supply the  
Company with materials or services, the Company believes that it would be able  
to arrange for other sources available on similar terms and at competitive      
prices. See "Risk Factors -- Dependence on Single Source Providers for          
Manufacturing."                                                                 

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The chart below illustrates the manufacturing and quality assurance   
processes for the Company's products:                                           

[GRAPHIC OMITTED] 

   The flow chart shows the flow of the Company's manufacturing process from
(level 1) raw phase change materials to (level 2) Thermasorb(R) additives to    
(level 3) ComforTemp(R) foam in slab form to (level 4) ComforTemp(R) foam in    
thin sheets, with corresponding quality assurance at each stage of the          
process. Sales are indicated, after quality assurance reviews of finished       
Thermasorb(R) additive (level 2) and of ComforTemp(R) foam in thin sheets       
(level 4).                                                                      

  Currently, all of the Company's requirements for Thermasorb(R) additives
are manufactured by the Minnesota Mining and Manufacturing Company ("3M"). The  
Company and 3M are parties to a Reciprocal Secrecy Agreement pursuant to which  
each agrees to maintain the confidence of the others' proprietary information   
and to not use or divulge that information except with the written consent of   
the other. The Company and 3M have entered into an arrangement that provides    
firm fixed pricing for all of the Company's anticipated 1998 requirements for   
Thermasorb(R) additives, as well as favorable pricing and delivery terms for    
short run and prototype production volumes. Pursuant to the arrangement the     
Company placed a blanket purchase order for all of its 1998 anticipated         
requirements of Thermasorb(R). Prior to October 23, 1997, the Company obtained  
all of its requirements for ComforTemp(R) foams under purchase orders with LMI. 
The Company has relationships with other suppliers for each of the other steps  
of the production process. On October 23, 1997, the Company entered into a      
memorandum of understanding with LMI granting LMI the exclusive licence to      
manufacture a specific hydrophilic polyurethane version of the Company's        
ComforTemp(R) foams. Foamex is an additional supplier for the production of     
ComforTemp(R) polyurethane foams. The Company has agreed to permit Foamex to    
sell ComforTemp(R) polyurethane foams for applications specifically consented   
to by the Company. Foamex is a major manufacturer of foam products, having      
significant manufacturing capacity both within and outside of the United        
States. For the fiscal year ended December 31, 1996, Foamex had total revenues  
of approximately $926,000,000. See "Business -- Sales and Marketing."           

The Company monitors and tests its products during each step of the   
manufacturing process for quality assurance purposes. Raw PCM, identified by    
lot number, is delivered to the Company to ensure that the quantity of heat the 
PCM can hold at different temperature levels adheres to the Company's product   
specifications. After encapsulation, the Company tests and verifies the quality 
of the shell wall and validates that the product satisfies its thermal          
requirements. The Company verifies and tests the foam products prior to         
shipment to its strategic partners. All testing is performed by the Company's   
quality assurance team based in its North Carolina facility.                    

Patents/Intellectual Property                                                   

 In 1991, the Company secured exclusive rights under a Joint Development
Agreement and subsequently entered into the TRDC License with TRDC. Pursuant to 
the TRDC License, TRDC granted to the Company perpetual exclusive worldwide     
rights with respect to all applications of bulk PCMs and MicroPCMs covered by   
TRDC's patents and proprietary intellectual property other than MicroPCM Fibers 
and Fabrics which previously                                                    

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had been licensed to Outlast. Pursuant to the terms of the TRDC License, the    
Company has the exclusive right to manufacture bulk PCMs and MicroPCMs, end-use 
products and improvements and the right to market, sell, use, lease and         
distribute all applications except MicroPCM Fibers and Fabrics, and to          
sublicense such rights. The Company is required to pay TRDC a royalty based on  
gross product sales revenues and a percentage of any royalties the Company      
receives from its strategic partners and sublicensees. The TRDC License         
establishes minimum annual royalties payable over the term of the TRDC License  
which are offset to the extent of any actual earned royalties paid to TRDC and  
a percentage of any research and development contracts accepted by TRDC from    
the Company. Pursuant to the terms of the TRDC License, the Company is required 
to pay all of the patent expenses with respect to inventions that exclusively   
benefit the Company and a portion of the patent expenses with respect to        
inventions in which the Company shares the benefits with others. Effective      
January 3, 1997, TRDC assigned its rights under the TRDC License to an          
affiliated entity. TRDC is obligated under the TRDC License to notify the       
Company and to give the Company the benefit of any future developments for bulk 
PCM and MicroPCM technologies other than MicroPCM Fibers and Fabrics.           

The TRDC License granted to the Company broad exclusive rights in the 
MicroPCM Technology. Even so, the Company wanted to secure exclusive rights to  
a significant portion of the rights granted earlier by TRDC to Outlast,         
especially in light of the Company's initial successes with strategic partners  
in the fields of apparel and footwear where there exists a high likelihood of   
some combination of the Company's Thermasorb(R) and ComforTemp(R) products with 
some type of fiber or fabric. In order to expand the scope of the Company's     
rights in the MicroPCM Technology, in January 1998, the Company entered into    
the Outlast Agreement. The Outlast Agreement, among other things, secures       
additional exclusive rights for the Company and limits Outlast's rights with    
respect to the combination of MicroPCM foams with fibers and fabrics. Under the 
Outlast Agreement, the Company has exclusive rights, for most applications, to  
manufacture, sub-license and sell ComforTemp(R) foams that are attached to      
fibers and fabrics or intended to be attached to fibers or fabrics so long as   
the foam is greater than 2mm in thickness. The Company also may sell            
Thermasorb(R) additives for use in foams attached to fibers and fabrics. The    
Company agreed to pay Outlast a royalty for its products if its products are    
used in such combinations with fibers and fabrics, with minimum annual payment  
requirements in effect for as long as the Company desires the agreement to be   
exclusive (including exclusive of Outlast). Pursuant to the Outlast Agreement,  
Outlast will not sell ComforTemp(R)-type foams greater than 2mm in thickness    
attached to fibers and fabrics for ten years, unless the Company elects to      
permit its agreement to become non-exclusive. See "Risk Factors -- Dependence   
Upon Intellectual Property."                                                    

Currently, TRDC's intellectual property relating to MicroPCMs includes
nine issued United States patents, one pending United States patent and one     
European patent which expire from 2006 to 2013. TRDC or its licensees are in    
the process of applying for international patent protection for the TRDC        
patented technology. The Company believes that its MicroPCM technology is       
adequately protected by its existing licenses of the TRDC patents and by its    
proprietary know-how, although the validity of the patents underlying the       
licenses and the limits of the licenses have never been contested in any legal  
proceeding. See "Risk Factors -- Dependence Upon Intellectual Property."        

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    The following table sets forth information regarding the patents currently
licensed to the Company.                                                        

                                                        [Enlarge/Download Table]

                                                                                                      Patent  
  Date of                                                                                           Expiration
   Patent      Patent Number                  Description                        Industry             (Year)  
-----------  ----------------  ----------------------------------------  ------------------------  -----------
                                                                                                              
  2/28/89    4,807,696         Thermal Energy Storage Apparatus          Automotive, Aerospace,       2006    
                               Using Encapsulated PCMs                   Electronics                          
  3/27/90    4,911,232         Heat Transfer Using MicroPCM Slurries     Automotive, Computers,       2007    
                                                                         Electronics                          
  8/25/92    5,141,079         Cutting/Cooling Fluid                     All Industries               2009    
   7/6/93    5,224,356         Thermal Energy Absorbing and              Electronics                  2010    
                               Conducting Potting Materials                                                   
   3/1/94    5,290,904         Thermally Enhanced Heat Shields           Protective Apparel           2011    
 11/22/94    5,366,801         Coated Fabric With Reversible Enhanced    Protective Apparel           2011    
                               Properties                                                                     
  5/16/95    5,415,222         Microclimate Cooling Garments             Protective Apparel           2012    
  3/19/96    5,499,460         Moldable Foam Insole with                 Footwear                     2013    
                               Reversible Enhanced Thermal Storage                                            
  6/10/97    5,637,389         Thermally Enhanced Foam Insulation        All Industries               2012    
             Patent Pending    Thermal Insulating Coating using          All Industries                --     
                               MicroPCMs*                                                                     
  1/14/98    0611330**         Coated Fabric With Reversible             All Industries               2013    
                               Enhanced Properties                                                            

------------                                                                    
*A Notice of Allowance has been issued and a patent number is expected by the 
Company to be issued shortly.                                               
**European Patent granted with respect to the invention covered by United       
States Patent No. 5,366,801                                                 

   The Company has registered the trademarks Thermasorb(R) and ComforTemp(R)
with the United States Patent and Trademark Office (the "PTO") and has applied  
for registration of the trademark Comfort in the Extreme(TM) which application  
has been allowed by the PTO. Effective March 9, 1998, the Company received a    
registered Canadian trademark for ComforTemp(R). A trademark application has    
also been submitted for ComforTemp(R) in the European Community. See "Risk      
Factors -- Dependence Upon Intellectual Property."                              

In addition to its licenses and trademarks, the Company is developing 
considerable proprietary technology and trade secrets with respect to the       
selection of the raw material(s) to be used for the capsules' core material,    
shell wall materials and the composition of the capsule which the Company       
believes accords it a considerable competitive advantage. The Company believes  
that significant barriers have been created for potential competitors by        
securing licenses under patents which grant and protect its rights to a wide    
variety of applications, spanning a broad spectrum of industries and end-use    
products. In order to further protect its proprietary trade secrets and         
know-how, the Company generally requires any person having access to such       
confidential information to execute an agreement whereby such person agrees to  
keep such information confidential.                                             

Competition                                                                     

    The Company's Thermasorb(R) additives and ComforTemp(R) foams compete with
a wide variety of natural and synthetic insulating products, including other    
applications of MicroPCMs and bulk PCMs, open and closed cell foams, synthetic  
insulators (e.g., Thinsulate(R), Polar Guard(R)), wool and down. The Company    
believes that its ComforTemp(R) foams offer significant benefits over natural   
and synthetic insulation materials and foams not containing MicroPCMs because   
of (i) the ability of the ComforTemp(R) foam to absorb heat and release it when 
cooling occurs; (ii) its lightweight, low bulk characteristics; (iii) its       
durability; (iv) its rechargeability; (v) its ability to be customized to a     
particular temperature within a wide range of temperatures in a wide variety of 
applications; (vi) its minimal maintenance requirements; and (vii) its ability  
to be combined with other available heat management materials. The Company's    
products also have the capacity to function reversibly. Depending on the        
placement of the ComforTemp(R) foam, it may be engineered to absorb, reject or  
regulate heat.                                                                  

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 The Company competes directly with Outlast in certain applications. The
license granted to Outlast by TRDC permits it to market applications of         
MicroPCM Fibers and Fabrics. The Company believes that the principal area of    
competition with Outlast involves applications where MicroPCM Fibers or Fabrics 
less than 2mm thick may be used instead of combinations including the Company's 
ComforTemp(R) foam. The Company believes that products incorporating its        
ComforTemp(R) foam will offer significant advantages over such fabric           
application because fabrics will not have sufficient volume of MicroPCMs to     
provide a significant thermal management solution. See "Business --             
Patents/Intellectual Property."                                                 

  The Company will also compete with other companies, including R.G. Barry
Company and Phase Change Laboratories, Inc., companies utilizing bulk PCMs      
primarily for heat retention products. The Company believes Thermasorb(R)       
additives and ComforTemp(R) foams offer superior performance characteristics    
because microencapsulation obviates the need for containment of the PCM in a    
sealed bag or other packaging which may tear or leak resulting in contamination 
and rendering the end product useless.                                          

The Company's products also compete with active mechanical and solid  
cooling alternatives (e.g., fans, conductive heat sinks) currently utilized for 
selected electronics and computer cooling applications and certain medical      
products. For these applications, Thermasorb(R) will compete within a           
fragmented market comprised of specialty firms, including Aavid Thermal         
Technologies, Inc. and various smaller companies, including Advanced Ceramics   
Corporation, Thermacore, Inc., Chipcoolers, Inc. and Marlow Industries, Inc.    
The Company believes that Thermasorb(R) would be an effective means to enhance  
the performance of thermal solutions being provided by these and other firms,   
resulting in a fertile area for strategic partnerships within this segment of   
the industry.                                                                   

The Company's products will also compete with actively cooled liquid  
solutions (e.g., automobile radiator circulating water to cool an engine) which 
the Company believes is inferior in technical performance to                    
Thermasorb(R)-based cooling solutions. The Company recognizes, however, that    
there is a significant price differential between existing water-based systems  
and cooling solutions incorporating the Company's Thermasorb(R) additives. The  
Company believes that based upon its current technology the additional cost     
involved in utilizing a Thermasorb(R) solution will not be justified in such a  
price sensitive market, therefore, the Company will not target this area in the 
near term.                                                                      

Facilities                                                                      

The Company currently has three facilities. The Company occupies its  
current headquarters located in Freeport, New York, consisting of approximately 
500 square feet under a rent free arrangement with an affiliated company,       
Frisby Aerospace. The Company expects to vacate its current space in April 1998 
and take occupancy of approximately 2,000 square feet of space located at 77    
East Main Street, Bay Shore, New York. This space will be occupied by the       
Company pending completion of its permanent space also to be located in Bay     
Shore. The landlord for both the temporary and the permanent space in Bay Shore 
is the Town of Islip. The Company anticipates taking occupancy of the permanent 
space in Bay Shore by January 1999. The temporary space in Bay Shore is         
currently occupied on a rent free basis and the Company believes it will        
continue to be occupied on a rent free basis until the Company takes occupancy  
of the permanent space in Bay Shore. The Company is currently negotiating the   
lease for the new headquarters space in the newly renovated facility in Bay     
Shore, New York. See "Certain Transactions."                                    

    The Company currently sub-leases its development and laboratory facilities
in Clemmons, North Carolina, consisting of approximately 8,000 square feet from 
Frisby Aerospace. The existing sublease expired on November 30, 1997 and has    
been extended on a month-to-month basis at a monthly rent of $2,520. On March   
2, 1998, the Company entered into a lease with Piedmont Institute for Research  
& Technology II, LLC ("Piedmont") to lease space in a facility in Winston       
Salem, North Carolina (the "Piedmont Lease") which will better suit the         
Company's near and long-term requirements for expansion space. The Piedmont     
Lease has a 20 year term with a monthly lease payment beginning at $10,462 and  
increasing to $11,612 per month over the term of the lease. The rental payments 
for the facility will increase by an additional $1,046 per month if the Company 
elects not to lease the basement of the building, at the rate of $5.00 per      
square foot per month, after occupying the premises for 24 months. In addition, 
the Company will pay approximately 26% of the operating expenses of the         
building containing the leased premises which is proportionate to the space     
occupied by the Company. The                                                    

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Company expects to take possession of approximately 25,100 square feet of new   
space and to vacate its Clemmons facility by June 1998. The Company has also    
reserved two condominium units in the Winston-Salem facility for a purchase     
price of $80,000 and $78,000, respectively. The Company plans to use the        
condominium units as accommodations for visiting employees, directors and       
strategic partners which the Company believes will provide more cost effective  
lodging for such visitors. See "Certain Transactions."                          

The Company also leases approximately 5,000 square feet from a        
non-affiliate in Aiken, South Carolina. The Company uses the Aiken facility to  
perform some of its research and development activities. The facility is        
expected to remain in use until June 1998. The monthly rent for the facility is 
$1,250.                                                                         

   The Company does not consider any of the facilities it currently occupies
suitable for its future needs and is negotiating a new lease in New York and    
has executed a lease for a new facility in North Carolina as described above.   
The Company believes that the new space in North Carolina will be sufficient    
for the Company's product development efforts for the foreseeable future. Upon  
taking occupancy of the new North Carolina facility, the Company will move the  
operations currently conducted at its South Carolina facility into the new      
North Carolina facility.                                                        

Employees                                                                       

  As of December 31, 1997, the Company had 13 full-time employees of which
two are executives, seven are product development personnel, two are engaged in 
sales and marketing, one is a quality assurance specialist and one is clerical. 
The Company has also retained the services of a Chief Financial Officer who is  
expected to begin working on April 6, 1998. The Company has no collective       
bargaining agreements and believes its relations with its employees are good.   

Legal Proceedings                                                               

The Company is not involved in any legal proceedings. In the ordinary 
course of its business, the Company, from time to time, may be subject to       
litigation.                                                                     

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MANAGEMENT  

Directors and Executive Officers                                                

The following table sets forth the names and ages of the Company's    
directors, executive officers and significant employees and the positions they  
hold with the Company.                                                          

                                                        [Enlarge/Download Table]

              Name                Age                          Position                      
-------------------------------  -----  -----------------------------------------------------
                                                                                             
Gregory S. Frisby(1) ..........   38    Chairman of the Board of Directors, President, Chief 
                                        Executive Officer and Treasurer                      
Jeffry D. Frisby(1) ...........   42    Director                                             
Douglas J. McCrosson ..........   35    Vice President of Market Development and Secretary   
Stephen P. Villa(2) ...........   34    Chief Financial Officer                              
Pietro A. Motta ...............   60    Director                                             

------------                                                                    
(1) Gregory S. Frisby and Jeffry D. Frisby are brothers.                        
(2) Stephen P. Villa will begin working for the Company on April 6, 1998.       

Gregory S. Frisby has been the Chairman of the Board of Directors,    
President and Chief Executive Officer of the Company since its inception in     
1989. From 1991 to 1997, Gregory S. Frisby was the Chief Executive Officer of   
Frisby Aerospace. He also serves as a member of the Board of Directors of       
Applied Technology Center Corporation since 1995 and the Long Island Forum for  
Technology since 1994. He is a member of the Scientific and Business Advisory   
Board of the Long Island Research Institute. From 1993 to 1994, Gregory S.      
Frisby was Chairman of the National Advisory Board for the Small Business       
Development Center Program for the Small Business Administration, from 1991 to  
1993 he was a member of the advisory panel assessing U.S. technology and the    
transition to a peacetime economy for the Congressional Office of Technology    
Assessment, and from 1995 to 1996 he was a member of the CEM Task Force on      
Privatization at the U.S. Department of Energy and a member of the Economic     
Policy Council's Panel on "Economic Adjustment After the Cold War" for the      
United Nations Association. Gregory S. Frisby received his Bachelor of Science  
degree in Business Administration from Wake Forest University in 1981.          

    Douglas J. McCrosson has been the Vice President of Market Development and
Secretary of the Company since 1997. Mr. McCrosson became the Vice President of 
Technical Operations in 1997 and from 1992 through 1997, he was the Group       
Director responsible for all of the Company's thermal product development       
programs. From 1988 to 1992, Mr. McCrosson was employed as an engineering       
manager at Frisby Aerospace. From 1984 to 1988, Mr. McCrosson was a hydraulic   
systems engineer for the Grumman Corporation. Mr. McCrosson received his        
Bachelor of Science degree in Mechanical Engineering from the State University  
of New York at Buffalo in 1984 and his Masters of Science degree in Management  
from Polytechnic University in 1990.                                            

Jeffry D. Frisby is a director of the Company. Since 1986, Jeffry D.  
Frisby has been the President and a director of Frisby Aerospace. Jeffry D.     
Frisby also serves on the Industrial Advisory Board of the American Society of  
Mechanical Engineers. He received his Bachelor of Science degree in Business    
Administration from Wake Forest University in 1977.                             

Stephen P. Villa has been named as the Chief Financial Officer of the 
Company and will begin working on April 6, 1998. From January 1997 to March     
1998, Mr. Villa was the controller of Harman Consumer Group an operating        
company of Harman International, Inc. which sells consumer electronic products. 
From 1986 to 1993 Mr. Villa was an audit manager with Price Waterhouse LLP in   
New York. From 1993 to mid-1996, Mr. Villa was an audit senior manager with     
Befec-Price Waterhouse in Paris, France. From mid-1996 through January 1997 Mr. 
Villa was an audit senior manager with Price Waterhouse LLP in New York. Mr.    
Villa is a certified public accountant. Mr. Villa received his Bachelor of      
Science degree in accounting from Babson College in 1986.                       

   Pietro A. Motta is a director of the Company. Since 1984, he has provided
independent legal and financial advisory services for corporate transactions to 
private financial, industrial and real estate groups. He is also                

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a director of SMEF, the investment banking unit of Compagnie Monegasque de      
Banque, and an international advisor to HSBC Investment Banking of Hong Kong &  
Shanghai Bank. Mr. Motta received his Bachelors degree from Collegio San Carlo  
& Liceo Manzoni in 1956 and his Juris Doctor degree from Universita degli Studi 
di Milano in 1960.                                                              

Board of Directors                                                              

 Upon completion of the Offering, the Board of Directors will consist of
five members. There are currently three directors and two vacancies on the      
Board. Pursuant to agreements between the Company and Barington and the Company 
and MUSI, Barington and MUSI each have the right to designate one nominee for   
election as a member of the Board of Directors of the Company. Mr. Motta is the 
MUSI designee to the Board. Following completion of the Offering, the Company   
expects to appoint two additional members of the Board of Directors including a 
designee of Barington. See "Certain Transactions."                              

Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.      

Board Committees                                                                

   After completion of the Offering, the Board of Directors will have Audit,
Compensation and Option Committees. The Audit Committee will make annual        
recommendations to the Board of Directors concerning the appointment of the     
independent public accountants of the Company and will review the results and   
scope of the audit and other services provided by the Company's independent     
auditors. The Compensation Committee will make recommendations to the Board of  
Directors concerning salaries and incentive compensation for employees of the   
Company. The Option Committee will make recommendations to the Board of         
Directors concerning incentive stock option plans for officers, directors, key  
employees and consultants of the Company. After completion of the Offering, the 
independent directors to be appointed to the Board of Directors, will be        
appointed to the Audit Committee, the Compensation Committee and the Option     
Committee.                                                                      

Director Compensation                                                           

Directors who are employees of the Company receive no compensation for
their service as members of the Board. It is expected that directors who are    
not employees of the Company will receive options to purchase 7,500 shares of   
Common Stock for each year served on the Board of Directors at a price equal to 
no less than the fair market value on the date of the grant that will vest one  
year after such grant and reimbursement of expenses incurred in connection with 
attendance at Board of Directors and committee meetings.                        

Innovation Advisory Board                                                       

    The Company is in the process of forming an innovation advisory board (the
"Advisory Board"). The members (the "Advisors") of the Advisory Board will      
consult with the Company on developments relating to the scientific, research   
and sales and marketing aspects of its business. In selecting the members of    
the Advisory Board, the Company's Board of Directors intends to seek expertise  
in a variety of areas, including financial, technical and marketing matters     
related to the Company's thermal management products as well as the marketing   
of products manufactured or sold by the Company's strategic partners and        
customers. Currently the Company has identified five members of the Advisory    
Board including Dr. David P. Colvin, Ph.D., the inventor of the Company's       
MicroPCM technology and principal of TRDC, and representatives of certain of    
the Company's current and potential strategic partners including Hannoosh       
Industries, Sensormatic Electronics, Nike, Inc. and Sun Microsystems, Inc.      
Advisors will devote only a small portion of their time to the affairs of the   
Company and will have other commitments to, or consulting or advisory contracts 
with, other institutions which may conflict with the Advisors' obligations to   
the Company. If any such conflict would adversely effect such Advisor's ability 
to perform his or her duties, or cause harm to the Company or its shareholders, 
such Advisor would be forced to resign. The Company is not currently aware of   
any such conflict. Additionally, the Company will require each of its Advisors  
to execute a confidentiality agreement upon the commencement of his or her      
relationship with the Company. The agreements generally provide that all        
confidential information made known to the individual during the term of the    
relationship shall be the exclusive property of the Company and shall be kept   
confidential and not disclosed to third parties except under specified          
circumstances.                                                                  

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Set forth below are the names and areas of expertise of individuals   
currently identified by the Company and agreeing to serve on the Company's      
Advisory Board:                                                                 

Name                                    Area of Expertise                       
-------------------------------------   -------------------------------------   
     Dr. David P. Colvin, Ph.D.     Thermal Science and medical research
Dr. James Hannoosh, Ph.D.      Advanced materials development 
Mark Krom                      Electronics                    
Mary Ellen Smith               Materials research             
Marlin R. Vogel                Advanced computer cooling      

Advisory Board Compensation                                                     

Advisors who are not employees of the Company will receive options to 
purchase 2,500 shares of Common Stock for each year served on the Advisory      
Board at a price equal to no less than the fair market value on the date of the 
grant, and reimbursement of expenses incurred in connection with attendance of  
Advisory Board meetings.                                                        

Limitation of Liability and Indemnification of Directors and Officers           

  The Certificate of Incorporation provides for the indemnification of the
Company's directors and officers to the fullest extent permitted under the      
DGCL.                                                                           

As permitted by the DGCL, the Company's Certificate of Incorporation  
provides that directors of the Company shall not be personally liable to the    
Company or its stockholders for monetary damages for breach of fiduciary duty   
as a director, except: (i) for any breach of the director's duty of loyalty to  
the Company or its stockholders; (ii) for acts or omissions not in good faith   
or which involve intentional misconduct or violation of law; (iii) for acts and 
omissions relating to prohibited dividends or distributions or the purchase or  
redemption of stock; or (iv) for any transaction from which the director        
derives an improper personal benefit. As a result of this provision, the        
Company and its stockholders may be unable to obtain monetary damages from a    
director for breach of his or her duty of care.                                 

 Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company  
pursuant to the foregoing provisions, the Company has been informed that in the 
opinion of the Securities and Exchange Commission such indemnification is       
against public policy as expressed in the Securities Act and is therefore       
unenforceable.                                                                  

Executive Compensation                                                          

The following table sets forth the compensation for services in all   
capacities awarded to, earned by or paid to the Company's Chief Executive       
Officer. There were no other executive officers of the Company whose aggregate  
salary and bonus during the fiscal year ended December 31, 1997 exceeded        
$100,000.                                                                       

                                                                [Download Table]

                                        Annual Compensation                        
                                        -------------------                        
                                                                       Other Annual
      Name and Principal Position        Year      Salary     Bonus    Compensation
--------------------------------------  ------   ----------  -------  -------------
                                                                                   
Gregory S. Frisby, Chairman of the      1997      $52,000      --          --      
 Board of Directors, Chief Executive    1996      $52,000      --          --      
 Officer, President and Treasurer       1995      $52,000      --          --      

Employment Agreements                                                           

Effective January 1, 1998, the Company entered into an employment     
agreement with Gregory S. Frisby (the "Frisby Employment Agreement"), pursuant  
to which the Company will employ Gregory S. Frisby until December 31, 2002,     
unless sooner terminated for death, physical or mental incapacity or cause. The 
Frisby Employment Agreement provides for a base salary of $200,000 per year,    
with an annual increase of ten percent per year                                 

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after the first year, a bonus equal to two percent of the Company's pre-tax     
profits, an automobile allowance of $400 per month, five weeks paid vacation    
each year and, until the second anniversary of the consummation of the          
Offering, a Company provided life insurance policy payable to his named         
beneficiaries having a death benefit of $7,500,000.                             

If the Frisby Employment Agreement is terminated early for death or   
physical or mental incapacity by the Company, the Company will pay Gregory S.   
Frisby, or his estate, any accrued but unpaid salary, bonus, vacation pay,      
reimbursement, benefits due to him as a former employee of the Company pursuant 
to any of the Company's benefit plans and he shall continue to receive his then 
current salary for a period of three months (or a shorter period ending when    
disability insurance payments under the Company's disability insurance policy   
are at least 60% of his then current salary).                                   

   If following 30 days notice, the Company terminates Gregory S. Frisby for
cause, he shall be entitled only to accrued but unpaid salary and benefits      
(excluding any declared but unpaid bonus). "Cause" is defined under the Frisby  
Employment Agreement to include (i) any act of fraud or embezzlement in respect 
of the Company or its funds, properties or assets; (ii) his conviction of a     
felony under the laws of the United States or any state thereof unless such     
acts were committed with the knowledge and approval of the Company's            
independent members of the Board of Directors and counsel in the reasonable,    
good faith belief that such actions were in the best interests of the Company   
and its stockholders and would not violate criminal law; (iii) the willful      
misconduct or gross negligence by him in connection with the performance of his 
duties that has caused or is highly likely to cause a material adverse effect,  
to the Company's business or its results of operations; or (iv) the intentional 
dishonesty, of Gregory S. Frisby in the performance of his duties hereunder     
which has a material adverse effect on the Company.                             

 The Company may terminate the Frisby Employment Agreement without cause
following 30 days notice. Additionally, Gregory S. Frisby may terminate the     
Frisby Employment Agreement if the Company has materially breached the Frisby   
Employment Agreement and such breach continues for 30 days after notice by      
Gregory S. Frisby or five days after notice of any subsequent breach. If the    
Frisby Employment Agreement is terminated pursuant to this paragraph, Gregory   
S. Frisby will be entitled to any reimbursement due to him, any benefits due to 
him as a former employee of the Company and to continue to receive his then     
current salary through December 31, 2002.                                       

If the Company does not elect to renew or extend Gregory S. Frisby's  
employment arrangement after December 31, 2002, Gregory S. Frisby will be       
entitled to a severance payment equal to one year of his then current salary.   
However, the Company will not be liable for any payments under this paragraph   
if the Company offers to extend the Frisby Employment Agreement for a period of 
at least three years on terms at least as favorable to Gregory S. Frisby as     
those in the Frisby Employment Agreement but no agreement is reached.           

Additionally, pursuant to the Frisby Employment Agreement, Gregory S. 
Frisby has agreed (i) both during and after his employment not to disclose or   
misappropriate confidential information of the Company; (ii) to disclose and    
upon request convey to the Company any intellectual property originated by him  
during his employment by the Company or one year thereafter, or with the        
Company's time, material or funds; (iii) not to compete (as defined) with the   
Company for a period of 12 months from the termination or expiration of the     
Frisby Employment Agreement, or such shorter time as may be determined by the   
Board of Directors, provided that the Company shall pay to him monthly during   
such period an amount equal to the aggregate of his base salary (as in effect   
as of the termination or expiration of the Frisby Employment Agreement),        
benefits and bonus unless he has received certain severance payments otherwise  
due him.                                                                        

Effective January 1, 1998, the Company entered into an employment     
agreement with Douglas J. McCrosson (the "McCrosson Employment Agreement"),     
pursuant to which the Company will employ Mr. McCrosson until December 31,      
2000, unless sooner terminated for death, physical or mental incapacity or      
cause. The McCrosson Employment Agreement provides for a base salary of $88,400 
for 1998, $96,200 for 1999 and $105,300 for the year 2000, an automobile        
allowance of $400 per month and three weeks paid vacation each year.            

If the McCrosson Employment Agreement is terminated early for death or
physical or mental incapacity by the Company, the Company will pay Douglas J.   
McCrosson, or his estate, any accrued but unpaid salary (including any declared 
but unpaid bonus) and a severance payment equal to two months of his then       
current salary.                                                                 

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If, following 30 days notice and opportunity to cure, the Company     
terminates Mr. McCrosson for cause, he shall be entitled only to accrued but    
unpaid salary and benefits (including any declared but unpaid bonus). "Cause"   
is defined under the McCrosson Employment Agreement to include: (i) the         
commission of any material breach of any of the provisions or covenants of his  
employment agreement; (ii) the commission of any act of willful misconduct or   
gross negligence in the performance of his duties or obligations under his      
employment agreement, or, without proper cause, the willful refusal or habitual 
neglect of the performance of his employment duties or obligations under his    
employment agreement; (iii) the commission of any act of dishonesty, breach of  
trust, fraud or embezzlement; or (iv) his conviction, or plea of guilty or nolo 
contendere to, a felony or indictable offense (unless committed in the          
reasonable, good faith belief that the Executive's actions were in the best     
interests of the Company and its stockholders and would not violate criminal    
law).                                                                           

    The Company may terminate the McCrosson Employment Agreement without cause
following 30 days notice. Following 30 days notice and opportunity to cure, Mr. 
McCrosson may terminate the McCrosson Employment Agreement if the Company has   
materially breached the McCrosson Employment Agreement. If the McCrosson        
Employment Agreement is terminated pursuant to this paragraph, Mr. McCrosson    
will be entitled to a severance payment equal to four months of his then        
current salary and all accrued and unpaid salary and benefits (including any    
declared but unpaid bonus).                                                     

 The McCrosson Employment Agreement also contains: (i) a non-competition
provision that precludes Mr. McCrosson from competing with the Company for a    
period of three years from the date of termination of his employment; (ii) a    
non-disclosure and confidentiality provision; and (iii) a non-interference      
provision whereby, for a period of three years after the termination of his     
employment with the Company, he will not interfere with the Company's           
relationship with its strategic partners, customers or employees.               

   The Company has agreed to employ Stephen P. Villa, as the Company's Chief
Financial Officer at a base salary of $124,800 per year, an automobile          
allowance of $400 per month, three weeks paid vacation each year (which will    
increase by one day for each two years worked), the receipt of 20,000 stock     
options and additional bonuses at the discretion of the Board of Directors of   
the Company. Mr. Villa will also be eligible to receive additional stock        
options pursuant to any subsequent management incentive program. The terms of   
this arrangement also include full tuition reimbursement for continuing         
education classes approved by the Company. Mr. Villa will be required to sign   
confidentiality and non-competition agreements.                                 

Stock Option Plan                                                               

  On March 13, 1998, the stockholders adopted a Stock Option Plan pursuant
to which 250,000 shares of Common Stock are reserved for issuance to key        
employees, officers, directors and consultants of the Company other than        
Gregory S. Frisby and Jeffry D. Frisby and to attract, motivate and retain      
capable management personnel. At the date of this Prospectus, no stock options  
have been granted under the Stock Option Plan. However, concurrently with the   
effective date of the Offering, the Company anticipates granting up to 125,000  
incentive and non-qualified stock options to its employees and consultants      
pursuant to the Stock Option Plan.                                              

   The Stock Option Plan will be administered by the Option Committee of the
Board of Directors, which is required to be comprised of at least two           
non-employee directors, as defined under Rule 16b-3 under the Exchange Act or,  
if no Committee is appointed, by the Board of Directors of the Company. The     
Stock Option Plan authorizes the grant of incentive stock options (as defined   
in Section 422 of the Code) and non-qualified stock options at the discretion   
of the Option Committee.                                                        

   The option price per share of Common Stock underlying each option granted
under the Stock Option Plan may not be less than 100% (110% in the case of an   
incentive stock option granted to a 10% stockholder) of the fair market value   
per share of Common Stock on the date of the option grant.                      

   Options may not be exercised after five years from the option grant date.
In the case of any incentive stock option, the option shall terminate on the    
date that is three months (one year, in the event that the termination of       
employment is by reasonof death or disability) after the date on which the      
optionee terminates employment or, if earlier, the date specified in the        
agreement relating to the option grant.                                         

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Retirement Plan                                                                 

  All eligible employees of the Company have been permitted to participate
in a 401(k)/Profit Sharing Plan (the "Plan") adopted effective January 1, 1997  
by Frisby Aerospace as employees of a company that is a member of an affiliated 
group with Frisby Aerospace. The Plan is funded from contributions by employees 
for their own account and does not provide for any mandatory or matching        
contributions by the Company. To date, the Company has not made any             
contributions to the Plan. The Plan is administered by LaSalle National Bank,   
an independent third-party administrator of pension plans. Funds in each        
employee's account will be invested at the employee's direction among the       
investment options available under the Plan. All employees of the Company on    
the effective date of the Plan immediately became eligible. An employee who     
became employed after January 1, 1997 will become entitled to participate in    
the Plan after the completion of six months of service and the attainment of 21 
years of age. Under the Plan, participants will be permitted to contribute from 
their compensation any amount up to the lesser of 20% of their annual gross     
salary or the maximum deferral allowed under the Internal Revenue Code. The     
Company will be entitled to make optional profit sharing contributions for any  
plan year in its discretion. See "Risk Factors -- Participation in Affiliate's  
Pension Plan."                                                                  

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CERTAIN TRANSACTIONS  

   On November 3, 1989, the Company issued 567,857 shares of Common Stock in
equal portions to each of five siblings of the Frisby family, including Gregory 
S. Frisby, President, Founder and Chief Executive Officer of the Company for a  
nominal amount. Pursuant to Stock Option Agreements entered into in November    
1996 by the five siblings, Gregory S. Frisby and Jeffry D. Frisby exercised     
options in November 1997 to purchase the 60% of the outstanding shares not then 
owned by them of the Company and two affiliated companies, Frisby Aerospace and 
Frisby Industries, from the other siblings for the previously negotiated        
aggregate purchase price of $4,078,854. As a result of that transaction,        
Gregory S. Frisby and Jeffry D. Frisby each owned 50% of the shares of the      
Company.                                                                        

   On December 10, 1997, Gregory S. Frisby and Jeffry D. Frisby entered into
a Shareholder Agreement (the "JF/GF Agreement") pursuant to which Jeffry D.     
Frisby agreed to vote all of his shares in accordance with Gregory S. Frisby's  
direction. As a result, Gregory S. Frisby will have effective control of the    
Company and will continue to have the power to control the outcome of matters   
submitted to a vote of the Company's stockholders, such as the election of at   
least a majority of the members of the Company's Board of Directors and to      
direct the future operations of the Company. Such concentration of voting power 
may have the effect of discouraging, delaying or preventing a change in control 
of the Company. The JF/GF Agreement prohibits the transfer of shares by either  
party except in accordance with its terms which include a right of first        
refusal to purchase one another's stock on the same terms as any potential      
third-party purchaser. Pursuant to the terms of the JF/GF Agreement, upon the   
death of Gregory S. Frisby, Jeffry D. Frisby will have voting control of all    
shares then owned by Gregory S. Frisby and upon the death of either Gregory S.  
Frisby or Jeffry D. Frisby, the Company may, at its election, purchase the      
shares of Common Stock then owned by such stockholder for a per share price     
equal to the fair market value of the Common Stock as then determined by the    
Company's Board of Directors. See "Management -- Board of Directors."           

The assets of Frisby Aerospace and Frisby Industries were sold to an  
unaffiliated third party on February 10, 1998.                                  

The Company has, since its inception, received non-interest bearing   
advances from Frisby Aerospace in order to meet operating expenses and has      
received certain facilities, accounting, clerical and office services from      
Frisby Aerospace without charge. During 1997, the Company continued to borrow   
operating capital from Frisby Aerospace and, as of December 30, 1997, the       
Company repaid the entire balance of $517,000 with a portion of the proceeds of 
the Private Placement. The Company anticipates that as a result of the sale of  
the assets of Frisby Aerospace, Frisby Aerospace will cease providing such      
services without charge. The Company believes that it can replace, at           
reasonable cost, such facilities, accounting, clerical and office services.     

 During 1997, the Company exhausted its $500,000 existing line of credit
with European American Bank ("EAB"), which is jointly and severally guaranteed  
by Gregory S. Frisby, Jeffry D. Frisby and Frisby Aerospace, which guarantees   
the Company expects to have released after the consummation of the Offering.    
The EAB loan was repaid in full in December 1997 with a portion of the proceeds 
of the Private Placement. From September 30, 1997 until December 29, 1997 the   
Company was not in compliance with a convenant under the EAB loan which         
required that the Company maintain a positive net worth. On December 29, 1997   
the Company restored its compliance with this covenant.                         

 The Company currently occupies a portion of Frisby Aerospace's New York
facility and subleases its North Carolina offices from Frisby Aerospace. No     
lease for the New York facility exists between the Company and Frisby Aerospace 
and no rental payments are made by the Company to Frisby Aerospace with respect 
to such facility. The rental payment for the North Carolina lease is $2,520 per 
month. The Company's North Carolina lease with Frisby Aerospace expired on      
November 30, 1997 and has been extended on a month-to-month basis. The Company  
expects that such arrangement will continue until the Company vacates the New   
York facility in April 1998 and the North Carolina facility in June 1998. For   
each of the years ended December 31, 1996 and 1997, the Company made aggregate  
rental payments of $30,240 to Frisby Aerospace with respect to the North        
Carolina facility.                                                              

   The Company entered into the Piedmont Lease with an unrelated third party
for the lease of a new facility in North Carolina. The Company plans to move    
its North Carolina and South Carolina facilities into the new                   

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North Carolina facility by June 1998. The Company leased from Piedmont          
approximately 25,100 square feet, with a monthly lease payment beginning at     
$10,462 and increasing to $11,612 per month over the term of the lease. The     
rental payments for the facility will increase by an additional $1,046 per      
month if the Company elects not to lease the basement of the building, at the   
rate of $5.00 per square foot per month, after occupying the premises for 24    
months. In addition, the Company will pay approximately 26% of the operating    
expenses of the building containing the leased premises which is proportionate  
to the space occupied by the Company. Upon execution of the Piedmont Lease      
Gregory S. Frisby and Jeffry D. Frisby each received a five percent equity      
interest (the "Equity Interest") in Piedmont. The Equity Interest will vest in  
ten years from the date of execution of the Piedmont Lease on the condition     
that the Company remains in the premises for ten years from the date the lease  
is executed. Notwithstanding the grant of the Equity Interest, the Company      
believes that the rental payment represents an arm's-length price for the       
Piedmont Lease.                                                                 

 Additionally, the Company has reserved two condominium units in the new
North Carolina facility which it plans to purchase at a cost of $80,000 and     
$78,000 to be used for accommodating visiting employees, directors and          
strategic partners and which the Company believes will provide cost-effective   
lodging for such visitors. The Company believes that the cost of the            
condominium units approximates the price that would be negotiated on an         
arm's-length basis.                                                             

The Company was a guarantor of a $350,000 loan made by Long Island    
Development Corp. ("LIDC") to Frisby Industries, Inc. ("Frisby Industries"), an 
affiliate of the Company, on November 4, 1994. Pursuant to the Other            
Stockholder Agreement, as hereinafter described, Gregory S. Frisby agreed to    
reimburse the Company for any payments the Company makes to LIDC pursuant to    
the guaranty. The LIDC loan was repaid in full on February 23, 1998 at which    
time the Company's guarantee was released.                                      

In December 1997, pursuant to a Purchase Agreement (the "Purchase     
Agreement") the Company issued to MUSI 441,327 shares of the Company's Common   
Stock and the Private Placement Option for an aggregate purchase price of       
$2,500,000. MUSI exercised the Private Placement Option on February 27, 1998    
for 587,500 shares of the Company's Convertible Preferred Stock at an exercise  
price of $2,500,000. The Company paid $300,000 to an entity designated by MUSI  
in respect of related transaction costs incurred by MUSI. See "Description of   
Securities -- Preferred Stock" and "Shares Eligible for Future Sale -- Lock-Up  
Agreements."                                                                    

    In connection with MUSI's purchase of the Common Stock, MUSI, the Company,
Gregory S. Frisby and Jeffry D. Frisby entered into a Stockholders Agreement in 
December 1997 (the "Other Stockholders Agreement"). The Other Stockholders      
Agreement provides for restrictions on the transfers of shares, rights of first 
refusal, the designation by MUSI of one nominee for director (the "MUSI         
Designee") and the designation by management of the remaining nominees (the     
"Frisby Designees") and prior to the Offering, the requirement that the MUSI    
Designee and the Frisby Designees must agree in order for the Company to take   
certain actions. Pursuant to the Other Stockholders Agreement, Gregory S.       
Frisby and Jeffry D. Frisby agree to use their best efforts to cause the MUSI   
Designee to be elected as a director of the Company. See "Management -- Board   
of Directors."                                                                  

   Additionally, the Other Stockholders Agreement provides that MUSI, at any
time beginning 18 months after the Company's Offering, may require the Company  
to register, on two occasions, at the Company's expense, all or an amount equal 
to or exceeding $500,000 of MUSI's Common Stock in a public offering pursuant   
to the Securities Act. The Other Stockholders Agreement grants to MUSI, Gregory 
S. Frisby and Jeffry D. Frisby the right to "piggyback" their Common Stock in   
any registration by the Company of its Common Stock, other than the Offering,   
subject to the right of the managing underwriter to restrict or limit the       
registration of such shares if the number of such shares requested to be sold   
would have an adverse effect on the Offering. The expenses incurred in          
connection with a "piggyback" registration, other than underwriter's discounts  
and commissions, are to be paid by the Company. In the event MUSI, Gregory S.   
Frisby or Jeffry D. Frisby own less than 25% of the number of the Company's     
Common Stock owned by them on the date of the Other Stockholders Agreement,     
their rights under the Other Stockholders Agreement shall terminate.            

   The Company has agreed to indemnify MUSI from all losses, costs, damages,
liabilities and expenses resulting from any misrepresentation or breach of any  
representation, warranty, covenant or undertaking made or to be performed by    
the Company in accordance with the terms of the Purchase Agreement between the  
Company and MUSI.                                                               

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   Upon completion of the Offering, Barington has the right to designate one
nominee for election to the Company's Board of Directors. The Company has       
agreed to use its best efforts to effect the election of such nominee to the    
Board. See "Management -- Board of Directors."                                  

  The Company believes that all of the transactions described above except
for the guaranty of the LIDC loan, which guaranty has been released, is at      
least as favorable to the Company as those available on an arms-length basis.   
In the future, all material transactions entered into between the Company and   
affiliated entities will be on terms no less favorable to the Company than can  
be obtained from unaffiliated parties and will not be entered into or           
terminated except on the affirmative vote of a majority of the disinterested    
directors.                                                                      

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PRINCIPAL STOCKHOLDERS  

The following table sets forth the beneficial ownership of shares of  
Common Stock as of the date of this Prospectus, and as adjusted to reflect the  
sale of 1,600,000 shares of Common Stock offered hereby by: (i) each person     
known to the Company to be the beneficial owner of more than five percent of    
the outstanding shares of Common Stock or Convertible Preferred Stock; (ii)     
each director and nominee director of the Company; (iii) each named executive   
officer of the Company; and (iv) all directors and executive officers of the    
Company as a group:                                                             

                                                        [Enlarge/Download Table]

                                                                                                   Combined Percentage of   
                                                             Number of     Percentage of Class     Beneficial Voting Power  
                                                                          Beneficially Owned (1)          Owned (2)         
                                                              Shares      ----------------------  --------------------------
                                                           Beneficially     Before       After       Before         After   
          Name and Address              Title of Class       Owned (1)     Offering    Offering     Offering      Offering  
------------------------------------  ------------------  --------------  ----------  ----------  ------------  ------------
                                                                                                                            
Gregory S. Frisby (3)(4)              Common Stock           2,839,286     86.5%       58.2%       73.4%         51.9%      
Jeffry D. Frisby (4)(5) ............  Common Stock           1,419,643     43.3        29.1         36.7          26.0      
MUSI Investments S.A. (6) ..........  Common Stock             441,327     13.5         9.0          --(2)         --(2)    
                                      Convertible                                                                           
                                       Preferred Stock         587,500    100.0       100.0        26.6(2)       18.8(2)    
Pietro A. Motta (7) ................  Common Stock                  --       --          --          --            --       
All executive officers and directors                                                                                        
 as a group (4 persons) ............  Common Stock           2,839,286     86.5%       58.2%       73.4%         51.9%      

------------                                                                    
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the     
Exchange Act, and generally includes voting or investment power with    
respect to securities, subject to community property laws, where        
applicable. A person is deemed to be the beneficial owner of securities 
that can be acquired by such person within 60 days from the date of this
Prospectus upon exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants 
 that are held by such person (but not those held by any other person) and
 that are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all   
persons named in the table have sole voting and investment power with   
respect to all shares of Common Stock beneficially owned by them.       

(2) Except as otherwise required by law, the Company's Convertible Preferred    
 Stock is entitled to one vote per share on matters presented to a vote of
  the Company's stockholders. The percentages indicated reflect the combined
voting power of the Company's Common Stock and Convertible Preferred    
Stock.                                                                  

(3) The address of Gregory S. Frisby is c/o Frisby Technologies, Inc., 417      
South Main Street, Freeport, New York 11520.                            

(4) Gregory S. Frisby has been granted voting rights with respect to the shares 
owned by Jeffry D. Frisby pursuant to a Shareholder Agreement between   
Gregory S. Frisby and Jeffry D. Frisby. See "Certain Transactions."     

(5) The address of Jeffry D. Frisby is c/o Frisby Aerospace, Inc., 4520 Hampton 
Road, Clemmons, North Carolina 27012.                                   

(6) The address of MUSI Investments S.A. is c/o CMB Compagnie Monegasque de     
Banque, 23, Avenue de la Costa, BP #167 MC 9800 3 Monaco. MUSI is       
beneficially owned by an individual who is not otherwise affiliated with
the Company.                                                            

(7) The address of Pietro A. Motta is Motta & Co., Via Bigli, 7, 20121 Milano,  
Italy.                                                                  

DESCRIPTION OF SECURITIES 

 The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.001 per share and 1,000,000 shares of Preferred       
Stock, par value $.001. As of December 31, 1997, there were 3,280,613 shares of 
Common Stock issued and outstanding held of record by three stockholders. No    
shares of Preferred Stock were issued and outstanding.                          

Common Stock                                                                    

   Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.    
Holders of shares of Common Stock are entitled to receive dividends when, as,   
and if declared by the Company's Board of Directors, out of funds legally       
available to the Company. The Company currently intends to retain all future    
earnings for the use in the operation of its business and therefore does not    
anticipate paying any cash dividends on its Common Stock in the foreseeable     
future. See "Dividend Policy." Upon liquidation, dissolution or winding up of   
the Company, the holders of Common                                              

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Stock are entitled to share ratably in the assets remaining after payment of    
all liabilities and liquidation preferences, if any. Shares of Common Stock are 
not redeemable and have no preemptive or similar rights to subscribe for        
additional shares. All outstanding shares of Common Stock are, and the shares   
of Common Stock offered hereby will be, upon payment and issuance, fully paid   
and non-assessable.                                                             

Preferred Stock                                                                 

The Board of Directors has the authority to cause the Company to issue
without any further vote or action by the stockholders, up to 1,000,000 shares  
of Preferred Stock, in one or more series, and to designate the number of       
shares constituting any series, and to fix the rights, preferences, privileges  
and restrictions thereof, including dividend rights, voting rights, rights and  
terms of redemption, redemption price or prices and liquidation preferences of  
such series. The issuance of Preferred Stock may have the effect of delaying,   
deferring or preventing a change in control of the Company without further      
action by the stockholders. The issuance of Preferred Stock with voting and     
conversion rights may adversely affect the voting power of the holders of       
Common Stock, including the loss of voting control.                             

The Company has filed a certificate of designation designating 587,500
shares of the Preferred Stock as the Convertible Preferred Stock with the       
rights, privileges and designations of the Convertible Preferred Stock which    
includes: (i) a dividend preference (the "Dividend Preference") of $1.00 per    
share of Convertible Preferred Stock prior to any payment of dividends to       
holders of the Common Stock; (ii) the right, following the payment of the       
Dividend Preference, for such share of Convertible Preferred Stock to share     
equally with each share of Common Stock with respect to any dividend which may  
be declared by the Company's Board of Directors; (iii) the right to cast one    
vote per share of Convertible Preferred Stock, together with the holders of the 
Common Stock, on each matter subject to the vote of the Company's stockholders; 
(iv) a liquidation preference (the "Liquidation Preference") of $4.26 per share 
of Convertible Preferred Stock in the event the Company shall be liquidated or  
dissolved; and (v) the right, following the payment of the Liquidation          
Preference, to share equally with each share of Common Stock with respect to    
any distribution made to the Company's stockholders upon the Company's          
liquidation or dissolution. Each share of Convertible Preferred Stock is        
convertible at the election of MUSI into one share of the Company's Common      
Stock (subject to adjustments for subdivisions or combinations of the Common    
Stock or reclassification of the Common Stock) during the 60-day period         
commencing 370 days following the closing by the Company of an initial public   
offering. See "Management's Discussion and Analysis of Financial Condition and  
Results of Operations -- Liquidity and Capital Resources" and "Certain          
Transactions."                                                                  

Directors' Limitation of Liability and Indemnification                          

  The Certificate of Incorporation provides for the indemnification of the
Company's directors and officers to the fullest extent permitted under the      
DGCL. As permitted by the DGCL, the Company's Certificate of Incorporation also 
provides that directors of the Company shall not be personally liable to the    
Company or its stockholders for monetary damages for breach of fiduciary duty   
as a director, except: (i) for any breach of the director's duty of loyalty to  
the Company or its stockholders; (ii) for acts or omissions not in good faith   
or which involve intentional misconduct or violation of law; (iii) for acts and 
omissions relating to prohibited dividends or distributions or the purchase or  
redemption of stock; or (iv) for any transaction from which the director        
derives an improper personal benefit. As a result of this provision, the        
Company and its stockholders may be unable to obtain monetary damages from a    
director for breach of his or her duty of care.                                 

 Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company  
pursuant to the foregoing provisions, the Company has been informed that in the 
opinion of the Commission such indemnification is against public policy as      
expressed in the Securities Act and is therefore unenforceable.                 

Anti-Takeover Provisions; Section 203 of the Delaware General Corporation Law   

   The Company is governed by Section 203 of the DGCL, an anti-takeover law.
In general, this statute restricts a corporation from entering into certain     
business combinations with an interested stockholder (defined as any person or  
entity that is the beneficial owner of at least 15% of a corporation's voting   
stock) or its affiliates for a period of three years after the date of the      
transaction in which the person became an interested stockholder unless: (i)    
the transaction is approved by the Board of Directors of the corporation prior  
to such business                                                                

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combination; (ii) the interested stockholder acquires 85% of the corporation's  
voting stock in the same transaction in which it exceeds 15%; or (iii) the      
business combination is approved by the Board of Directors and by a vote of     
two-thirds of the outstanding voting stock not owned by the interested          
stockholder. A "business combination" includes mergers, asset sales and other   
transactions resulting in a financial benefit to the interested stockholder.    

The Company's Certificate of Incorporation and By-Laws include certain
provisions which may have an anti-takeover effect and may delay, defer or       
prevent a tender offer or takeover attempt that a stockholder might consider in 
its best interests, including attempts that might result in a premium over the  
market price for the shares held by the stockholders and could make it more     
difficult to remove incumbent management. The Company's Certificate of          
Incorporation or By-Laws provides that: (i) directors may authorize the         
issuance of Preferred Stock having rights and preferences established by the    
Board of Directors without further approval by the stockholders; (ii) except as 
otherwise required by law, vacancies in the Board of Directors may be filled    
only by the remaining directors; and (iii) all nominations for candidates for   
election as directors, other than nominations by or at the discretion of the    
Board of Directors or a committee of the Board of Directors and all stockholder 
proposals to be considered at annual or special meetings of the stockholders be 
presented to the Company pursuant to an advance notice procedure set forth in   
the Certificate of Incorporation. In general, notice of an intent to nominate a 
director or to make a stockholder proposal to be considered at a meeting must   
be received by the Company not less than 60 nor more than 90 days before the    
meeting and must contain certain information concerning the nominee for         
director or the proposal to be brought before the meeting and concerning        
stockholders submitting the proposal. The affirmative vote of at least a        
majority of the directors or the holders of at least two-thirds of the voting   
power of the Company's stock is required to alter, amend, repeal or adopt any   
provision inconsistent with the provisions described in this paragraph. See     
"Description of Securities -- Preferred Stock."                                 

   The DGCL, the Certificate of Incorporation and the By-Laws may discourage
certain types of transactions involving an actual or potential change in        
control of the Company.                                                         

Transfer Agent and Registrar                                                    

 The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.                                                       

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SHARES ELIGIBLE FOR FUTURE SALE 

   Upon completion of the Offering, there will be 4,880,613 shares of Common
Stock (5,120,613 if the Over-Allotment Option is exercised in full) and 587,500 
shares of Convertible Preferred Stock outstanding. Of such shares, all of the   
1,600,000 shares sold in the Offering (1,840,000 if the Over-Allotment Option   
is exercised in full) will be freely transferable without restriction or        
further registration under the Securities Act unless acquired by an "affiliate" 
of the Company within the meaning of the Securities Act. Upon completion of the 
Offering, the existing stockholders of the Company will own 3,280,613 shares of 
Common Stock and 587,500 shares of Con-vertible Preferred Stock. All of these   

shares are deemed "restricted securities" as defined by Rule 144 of the         
Securities Act ("Rule 144"). Upon expiration of the contractual restrictions    
between the Company, its officers and directors and Barington, but not earlier  
than one year after the date of this Prospectus, the Common Stock will be       
available for sale in the public market, subject to compliance with Rule 144.   

    Rule 144, as currently in effect, provides that a person (or persons whose
sales are aggregated) who is an affiliate of the Company, or who has            
beneficially owned shares for at least one year which were issued and sold in   
reliance upon certain exemptions from registration under the Securities Act     
("Restricted Shares"), is entitled to sell within any three month period a      
number of shares that does not exceed the greater of one percent of the then    
outstanding shares of Common Stock or the average weekly trading volume in the  
Common Stock during the four calendar weeks preceding such sale. Sales under    
Rule 144 are also subject to certain manner-of-sale provisions, notice          
requirements and the availability of current public information about the       
Company. However, a person who has beneficially owned Restricted Shares for at  
least two years and who is not an affiliate of the Company may sell such shares 
under Rule 144 without regard to volume limitations, manner-of-sale provisions, 
notice requirements or the availability of current public information about the 
Company.                                                                        

Subject to certain limitations on the aggregate offering price of a   
transaction and other conditions, Rule 701 of the Securities Act ("Rule 701")   
may be relied upon with respect to the resale of securities originally          
purchased from the Company by its employees, directors, officers, consultants   
or advisors prior to the date the issuer becomes subject to the reporting       
requirements of the Exchange Act, pursuant to written compensatory benefit      
plans or written contracts relating to the compensation of such persons. In     
addition, the Commission has indicated that Rule 701 will apply to typical      
stock options granted by an issuer before it becomes subject to the reporting   
requirements of the Exchange Act, along with the shares acquired upon exercise  
of such options (including exercises after the date of this Prospectus).        
Securities issued in reliance on Rule 701 are restricted securities and,        
subject to the contractual restrictions described above, beginning one year     
after the date of this Prospectus, may be sold by persons other than affiliates 
subject only to the manner of sale provisions of Rule 144 and by Affiliates     
under Rule 144 without compliance with its one-year minimum holding period      
requirements.                                                                   

Subject to certain limited exceptions, the holders of shares of Common
Stock and Convertible Preferred Stock, sold by the Company prior to the         
Offering, have agreed not to transfer or otherwise dispose of any securities of 
the Company for a period following the closing of the Offering, without the     
prior written consent of Barington. In addition, Barington has agreed with the  
Nasdaq Stock Market, Inc. not to consent to any such disposition by MUSI for a  
period of 12 months from the date of this Prospectus. See "-- Lock-Up           
Agreements."                                                                    

Prior to the Offering, there has been no public market for the Common 
Stock, and no predictions can be made as to the effect, if any, that market     
sales of Restricted Shares or the availability of Restricted Shares for sale    
will have on the market price prevailing from time to time. See "Risk Factors   
-- Effect of Options and Representative's Option on Stock Price." Nevertheless, 
sales of substantial amounts of Restricted Shares in the public market could    
adversely affect prevailing market prices.                                      

Up to 160,000 additional shares of Common Stock may be purchased by   
Barington through the exercise of the Representative's Option during the period 
commencing on the closing of the Offering and ending on the fifth anniversary   
of such date. The holders of the Representative's Option will have certain      
demand and "piggyback" registration rights with respect to the shares of Common 
Stock underlying such options. Such shares of Common Stock issuable upon        
exercise of the Representative's Option may be freely tradable, provided that   
the Company satisfies certain securities registration and qualification         
requirements in accordance with the terms of the Representative's Option. See   
"-- Registration Rights" and "Underwriting."                                    

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Registration Rights                                                             

    The Company has granted certain demand and "piggyback" registration rights
with respect to the 160,000 shares of Common Stock issuable upon exercise of    
the Representative's Option. Subject to certain conditions and limitations, the 
registration rights granted to such holders give such holders the right to      
register all or any portion of the Common Stock held by them or issuable upon   
the exercise of the Representative's Option (collectively, the "Registrable     
Securities"), in connection with any registration by the Company of shares of   
Common Stock or securities substantially similar to the Common Stock. Barington 
is entitled to exercise demand registration rights to require the Company to    
register under the Securities Act the shares issuable upon exercise of the      
Representative's Option not more than twice. See "Underwriting."                

    The Other Stockholders Agreement provides that MUSI, at any time following
the 18 month anniversary of the Offering, may require the Company to register,  
on two occasions, at the Company's expense, all, or an amount exceeding         
$500,000, of the MUSI's Common Stock in a public offering pursuant to the       
Securities Act. The Other Stockholders Agreement grants to MUSI, Gregory S.     
Frisby and Jeffry D. Frisby the right to "piggyback" their Common Stock in any  
registration by the Company of its Common Stock, other than the Offering,       
subject to the right of the managing underwriter to restrict or limit the       
registration of such shares if the number of such shares requested to be sold   
would have an adverse effect on the Company's offering. The expenses incurred   
in connection with a "piggyback" registration, other than underwriters          
documents and commissions, are to be paid by the Company. In the event MUSI,    
Gregory S. Frisby or Jeffry D. Frisby own less than 25% percent of the number   
of the Company's Common Stock owned by them on the date of the Other            
Stockholders Agreement, their rights against the Company under the Other        
Stockholders Agreement will terminate.                                          

The registration rights described herein are subject to certain notice
requirements, timing restrictions and volume limitations which may be imposed   
by the underwriters of an offering. The Company is required to bear the         
expenses of all such registrations, except for the expenses associated with the 
second of the demand registrations, if applicable, granted to the holders of    
the Representative's Option, and the underwriting discounts and commissions     
relating to the sale of the shares of Common Stock held by such investors.      

Lock-Up Agreements                                                              

Subject to the limited exceptions described below, and pursuant to the
Underwriting Agreement, the Company and pursuant to lock-up agreements with     
Barington, all of the existing stockholders of the Company and all of the       
existing option holders of the Company as of the effective date of the          
Registration Statement, have agreed not to offer, issue, sell, contract to      
sell, grant any option for the sale of or otherwise dispose of any securities   
of the Company for a period of 24 months (or, in MUSI's case, 18 months) from   
the date of closing of the Offering, without the prior written consent of       
Barington. Notwithstanding these lock-up agreements, any stockholder subject to 
such agreement may sell his, her or its shares of Common Stock commencing 12    
months after the completion of the Offering in the event that the last sale     
price for the Common Stock on its principal exchange has been at least 200% of  
the initial public offering price for a period of 20 consecutive trading days   
ending within five days of the date of such sale, and such sale is completed at 
a price in excess of 200% of the initial public offering price or upon the      
later to occur of (i) the first anniversary of the date of this Prospectus and  
(ii) the Closing by the Company of a follow-on public offering underwritten by  
a major bracket or large regional underwriting firm which raises at least $20   
million in gross proceeds. Barington currently has no plans, proposals,         
arrangements or understandings to modify, shorten or waive the lock-up          
agreements. In addition, Barington has agreed with the Nasdaq Stock Market,     
Inc. not to consent to any such disposition by MUSI for a period of 12 months   
from the date of this Prospectus.                                               

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UNDERWRITING  

Subject to the terms and conditions set forth in the Underwriting     
Agreement (the form of which has been filed as an exhibit to the Registration   
Statement on Form SB-2, of which this Prospectus forms a part), Barington and   
each of the underwriters for whom Barington is acting as representative have    
severally agreed to purchase from the Company the aggregate number of shares of 
Common Stock set forth opposite their names below:                              

                                                                [Download Table]

                         Underwriters                            Number of Shares
--------------------------------------------------------------  -----------------
                                                                                 
Barington Capital Group, L.P. ................................      1,050,000    
BT Alex.Brown Incorporated ...................................         50,000    
Donaldson, Lufkin & Jenrette Securities Corporation ..........         50,000    
A.G. Edwards & Sons, Inc. ....................................         50,000    
Furman Selz LLC ..............................................         50,000    
Lehman Brothers Inc. .........................................         50,000    
NationsBanc Montgomery Securities LLC ........................         50,000    
EVEREN Securities, Inc. ......................................         25,000    
Gruntal & Co., L.L.C. ........................................         25,000    
Mesirow Financial, Inc. ......................................         25,000    
C.E. UNTERBERG, TOWBIN .......................................         25,000    
BlueStone Capital Partners, L.P. .............................         15,000    
Brean Murray & Co., Inc. .....................................         15,000    
Chatsworth Securities, LLC ...................................         15,000    
Donald & Co. Securities, Inc. ................................         15,000    
Gaines, Berland Inc. .........................................         15,000    
GKN Securities Corp. .........................................         15,000    
C.L. King & Associates, Inc. .................................         15,000    
Redwine & Company Inc. .......................................         15,000    
M.J. Whitman Incorporated ....................................         15,000    
Wit Capital Corporation ......................................         15,000    
                                                                    ---------    
  TOTAL ......................................................      1,600,000    
                                                                    =========    

The Common Stock is being sold on a firm commitment basis. The        
Underwriting Agreement provides, however, that the obligations of the           
Underwriters are subject to certain conditions precedent. Barington and the     
Underwriters are committed to purchase all the Common Stock offered hereby if   
any is purchased.                                                               

   Barington has advised the Company that it proposes to offer the shares of
Common Stock offered hereby to the public at the offering price set forth on    
the cover page of this Prospectus. The Underwriters may allow to certain        
dealers, who are members of the National Association of Securities Dealers (the 
"NASD"), concessions not in excess of $0.34 per share of Common Stock, of which 
not in excess of $0.10 may be reallowed to other dealers who are members of the 
NASD. After the commencement of this Offering, the Offering price, the          
concessions and the reallowance may be changed.                                 

The Company has granted the Over-Allotment Option to the Underwriters,
exercisable during the 45-day period after the closing date of the Offering, to 
purchase up to an aggregate of 240,000 additional shares of Common Stock at the 
Offering price, less underwriting discounts and commissions. The Underwriters   
may exercise such option only for the purpose of covering over-allotments made  
in connection with the sale of the Common Stock offered hereby.                 

The Company has agreed to pay Barington a non-accountable expense     
allowance of three percent of the aggregate offering price of the shares of     
Common Stock offered hereby (including any shares of Common Stock purchased     
pursuant to the Over-Allotment Option), of which $40,000 has been paid to date. 

 The Company also has agreed to sell to Barington, or its designees, the
Representative's Option to purchase 160,000 shares at a price of $.001 per      
option. The Representative's Option will be exercisable for a period of         

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five years, commencing on the closing date of the Offering, at an initial per   
share exercise price equal to 165% of the initial public offering price per     
share. The Representative's Option cannot be transferred, assigned or           
hypothecated for one year from the effective date of the Registration Statement 
of which this Prospectus forms a part, except that it may be assigned in whole  
or in part, to any successor, officer or partner of Barington (or to officers   
or partners of any such successor or partner), any other Underwriter or member  
of the selling group which participated in the Offering, any purchaser of       
substantially all of the assets of Barington or otherwise by operation of law.  
The Representative's Option may be exercised on one or a number of occasions as 
to all or a portion of the shares covered by the option, and will contain       
certain registration rights and anti-dilution provisions providing for          
appropriate adjustment of the exercise price and number of shares which may be  
purchased upon exercise, upon the occurrence of certain events. See "Risk       
Factors -- Effect of Options and Representative's Option on Stock Price."       

 The Company has granted to Barington two demand registration rights for
the sale of the shares of Common Stock underlying the Representative's Option,  
for a period of five years after the effective date of the Registration         
Statement of which this Prospectus forms a part, of which one registration will 
be at the Company's expense. The Company also has granted to Barington, for a   
period of seven years after the effective date of the Registration Statement of 
which this Prospectus forms a part, unlimited "piggyback" registration rights   
for the sale of the shares of Common Stock underlying the Representative's      
Option. See "Shares Eligible for Future Sale."                                  

    The Company also has agreed that for a period of three years following the
completion of the Offering, it will use its best efforts (including the         
solicitation of proxies) to elect one designee of Barington to the Board of     
Directors of the Company.                                                       

The foregoing discussion of the material terms and provisions of the  
Underwriting Agreement is qualified in its entirety by reference to the         
detailed provisions of the Underwriting Agreement.                              

Pursuant to the Underwriting Agreement, the Company and all of the    
existing stockholders of the Company as of the effective date of the            
Registration Statement, have agreed not to offer, issue, sell, contract to      
sell, grant any option for or otherwise dispose of any securities of the        
Company for a period of 24 months from the date of closing of the Offering      
(MUSI may sell its shares after 18 months), without the prior written consent   
of Barington except for: (i) options granted pursuant to the Employee Stock     
Option Plan and the issuance of Common Stock upon the exercise of such options; 
(ii) the issuance of securities in connection with any merger or acquisition    
approved by a majority of the independent directors of the Company; and (iii)   
the issuance of shares of Common Stock to unaffiliated third parties at fair    
market value pursuant to a Private Placement approved by a majority of the      
independent directors of the Company, commencing 12 months after the Offering   
has closed. Notwithstanding these lock-up arrangements, any stockholder subject 
to such arrangement may sell shares of Common Stock commencing 12 months after  
the completion of the Offering in the event that the last sale price for the    
Common Stock on its principal exchange has been at least 200% of the Offering   
price for a period of 20 consecutive trading days ending within five days of    
the date of such sale, and such sale is completed at a price in excess of 200%  
of the initial public offering price or upon the later to occur of (i) the      
first anniversary of the date of this Prospectus and (ii) the Closing by the    
Company of a follow-up public offering underwritten by a major bracket or large 
regional underwriting firm and which raises at least $20 million in gross       
proceeds. Barington has no current or future plans, proposals, arrangements or  
understandings to modify, shorten or waive the lock-up arrangements. In         
addition, Barington agreed with the Nasdaq Stock Market, Inc. not to consent to 
any such disposition by MUSI for a period of 12 months from the date of this    
Prospectus. The Company will file a post-effective amendment to the             
registration statement of which this Prospectus constitutes a part, in the      
event that Barington waives the lock-up agreements with respect to ten percent  
or more of the shares held by existing stockholders of the Company, or will     
revise the Prospectus if the lock-up is waived with respect to five percent to  
ten percent of the shares held by existing stockholders of the Company.         

  The Underwriters may engage in certain transactions which may stabilize,
maintain or otherwise affect the price of the Common Stock. Such transactions   
may include over-allotments of Common Stock and purchases of the Common Stock.  

Prior to the Offering, there has been no public market for the Common 
Stock. Consequently, the Offering price of the shares of Common Stock offered   
and sold in the Offering has been determined by arms length negotiation between 
the Company and Barington and does not necessarily bear any relationship to the 
Company's                                                                       

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book value, assets, past operating results, financial condition, or other       
established criteria of value. Factors considered in determining such price     
include an assessment of the Company's recent financial results and current     
financial condition, future prospects of the Company, the qualifications of the 
Company's management and other relevant factors.                                

LEGAL MATTERS 

  The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New  
York. Certain legal matters in connection with the Offering will be passed upon 
for the Underwriters by Kramer, Levin, Naftalis & Frankel, New York, New York.  

EXPERTS 

   The financial statements of the Company at December 31, 1997 and for each
of the two years in the period ended December 31, 1997 appearing in this        
Prospectus and Registration Statement have been audited by Ernst & Young LLP,   
independent auditors, as set forth in their report thereon appearing elsewhere  
in this Prospectus, and are included in reliance upon such report given upon    
the authority of such firm as experts in accounting and auditing.               

CHANGE IN INDEPENDENT AUDITORS

   In December 1996, after the completion of the audit of the Company's 1995
financial statements, the Company dismissed KPMG Peat Marwick LLP ("KPMG") as   
its independent auditors. The report of KPMG on the Company's financial         
statements for 1995 contained no adverse opinion or disclaimer of opinion, and  
was not qualified or modified as to uncertainty, audit scope or accounting      
principles. In connection with its audit for the year ended December 31, 1995,  
there have been no disagreements with KPMG on any matter of accounting          
principles or practices, financial statement disclosure, or auditing scope or   
procedure, which disagreements if not resolved to the satisfaction of KPMG      
would have caused them to make reference thereto in their report on the         
financial statements for such year. The decision to change firms was approved   
by the Company's Board of Directors.                                            

  The Company engaged Ernst & Young LLP as its new independent auditors in
December 1996.                                                                  

   During the year ended December 31, 1995 and until completion of the audit
of the Company's 1995 financial statements, the Company did not consult with    
Ernst & Young LLP on items which (i) were or should have been subject to        
Statement on Auditing Standards No. 50 or (ii) concerned the subject matter of  
a disagreement or reportable event with KPMG.                                   

ADDITIONAL INFORMATION  

    The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to    
the shares of Common Stock offered hereby. This Prospectus, which forms a part  
of the Registration Statement, does not contain all of the information set      
forth in the Registration Statement and the exhibits and schedules thereto. For 
further information with respect to the Company and the Common Stock offered    
hereby, reference is made to the Registration Statement and such exhibits and   
schedules, which may be inspected without charge at the Public Reference        
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,      
N.W., Washington, D.C. 20549 and at the regional offices of the Commission      
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,     
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York    
10048. Copies of such material may also be obtained at prescribed rates from    
the Public Reference Section of the Commission in Washington, D.C. 20549.       
Statements contained in the Prospectus as to the contents of any contract or    
other document referred to are not necessarily complete, and in each instance,  
reference is made to the copy of such contract or document filed as an exhibit  
to the Registration Statement, each such statement being qualified in all       
respects by such reference. The Commission maintains a Web site that contains   
reports, proxy and information statements and other information regarding the   
Company, the address of such site is http://www.sec.gov.                        

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Financial Statements  

Contents  

                                                        [Enlarge/Download Table]
                                                                                              
Report of Independent Auditors ........................................................... F-2
Balance Sheet as of December 31, 1997 .................................................... F-3
Statements of Operations for the Years Ended December 31, 1996 and 1997 .................. F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996 and     F-5
  1997                                                                                        
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997 .................. F-6
Notes to Financial Statements ............................................................ F-7

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Report of Independent Auditors  

The Stockholders                                                                
Frisby Technologies, Inc.                                                       

We have audited the accompanying balance sheet of Frisby Technologies,
Inc. as of December 31, 1997, and the related statements of operations,         
stockholders' equity (deficit) and cash flows for each of the two years in the  
period ended December 31, 1997. These financial statements are the              
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of         
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frisby Technologies, Inc.   
at December 31, 1997, and the results of its operations and its cash flows for  
each of the two years in the period ended December 31, 1997, in conformity with 
generally accepted accounting principles.                                       

                             Ernst & Young LLP

Melville, New York                                                              
February 27, 1998                                                               

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Frisby Technologies, Inc. 

Balance Sheet 

                                                        [Enlarge/Download Table]

                                                                                             December 31, 
                                                                                                 1997     
                                                                                           ---------------
                                                                                                          
Assets                                                                                                    
Current assets:                                                                                           
 Cash ...................................................................................   $    375,222  
 Accounts receivable--billed ............................................................        358,452  
 Accounts receivable--unbilled ..........................................................         52,150  
 Inventory ..............................................................................        247,686  
 Recoverable and prepaid income taxes ...................................................         26,902  
 Other current assets ...................................................................          7,192  
                                                                                            ------------  
Total current assets ....................................................................      1,067,604  
Property and equipment, net .............................................................         61,323  
Deferred transaction costs ..............................................................        138,908  
                                                                                            ------------  
Total assets ............................................................................   $  1,267,835  
                                                                                            ============  
Liabilities and stockholders' equity                                                                      
Current liabilities:                                                                                      
 Accounts payable .......................................................................   $    353,427  
 Accrued expenses and other current liabilities .........................................         63,143  
 License fees payable ...................................................................        184,640  
 Deferred license revenues ..............................................................         50,000  
                                                                                            ------------  
Total current liabilities ...............................................................        651,210  
Accrued license agreement costs .........................................................        101,250  
Deferred license revenues ...............................................................         40,000  
                                                                                            ------------  
Total liabilities .......................................................................        792,460  
Commitments                                                                                               
Stockholders' equity:                                                                                     
 Preferred Stock, 1,000,000 shares authorized; no shares issued or outstanding ..........             --  
 Common Stock, $.001 par value; 10,000,000 shares authorized; 3,280,613 shares issued and                 
   outstanding ..........................................................................          3,281  
 Additional paid-in capital .............................................................      1,540,575  
 Accumulated deficit ....................................................................     (1,068,481) 
                                                                                            ------------  
Total stockholders' equity ..............................................................        475,375  
                                                                                            ------------  
Total liabilities and stockholders' equity ..............................................   $  1,267,835  
                                                                                            ============  

See accompanying notes. 

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Frisby Technologies, Inc. 

Statements of Operations  

                                                        [Enlarge/Download Table]

                                                                    Year ended           
                                                                   December 31           
                                                         --------------------------------
                                                              1996             1997      
                                                         -------------   ----------------
                                                                                         
Revenues:                                                                                
 Product sales .........................................  $   13,638       $    474,179  
 Research and development projects .....................   1,119,549            486,700  
 Licenses and royalties ................................      75,000            300,960  
                                                          ----------       ------------  
Total revenues .........................................   1,208,187          1,261,839  
                                                          ----------       ------------  
Cost of sales:                                                                           
 Products ..............................................      11,581            452,377  
 Research and development projects .....................   1,004,457            257,843  
 Licenses and royalties ................................      19,553            265,350  
                                                          ----------       ------------  
Total cost of sales ....................................   1,035,591            975,570  
                                                          ----------       ------------  
Gross profit ...........................................     172,596            286,269  
Selling and marketing expense ..........................      82,995            315,169  
General and administrative expense .....................     207,263            899,620  
                                                          ----------       ------------  
Loss from operations ...................................    (117,662)          (928,520) 
Interest expense .......................................      18,636             36,666  
                                                          ----------       ------------  
Loss before income taxes ...............................    (136,298)          (965,186) 
Income tax (benefit) provision .........................     (48,642)            44,792  
                                                          ----------       ------------  
Net loss ...............................................  $  (87,656)      $ (1,009,978) 
                                                          ==========       ============  
Net loss per common share -- basic and diluted .........  $     (.03)      $       (.36) 
                                                          ==========       ============  

See accompanying notes. 

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Frisby Technologies, Inc. 

Statements of Stockholders' Equity (Deficit)

                                                        [Enlarge/Download Table]

                                                 Common Stock        Additional       Retained                    
                                             ---------------------     Paid-in        Earnings                    
                                                Shares     Amount      Capital       (Deficit)          Total     
                                             -----------  --------  ------------  ---------------  ---------------
                                                                                                                  
Balance at January 1, 1996 .................  2,839,286    $  500    $       --    $     29,153     $     29,653  
Net loss ...................................         --        --            --         (87,656)         (87,656) 
                                              ---------    ------    ----------    ------------     ------------  
Balance at December 31, 1996 ...............  2,839,286       500            --         (58,503)         (58,003) 
Sale of common stock and option, net of                                                                           
 $956,644 of related costs and expenses.....    441,327     2,781     1,540,575              --        1,543,356  
Net loss ...................................         --        --            --      (1,009,978)      (1,009,978) 
                                              ---------    ------    ----------    ------------     ------------  
Balance at December 31, 1997 ...............  3,280,613    $3,281    $1,540,575    $ (1,068,481)    $    475,375  
                                              =========    ======    ==========    ============     ============  

See accompanying notes. 

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Frisby Technologies, Inc. 

Statements of Cash Flows  

                                                        [Enlarge/Download Table]

                                                                     Year ended           
                                                                    December 31           
                                                          --------------------------------
                                                               1996             1997      
                                                          -------------   ----------------
                                                                                          
Operating activities                                                                      
Net loss ................................................   $ (87,656)      $ (1,009,978) 
Adjustments to reconcile net loss to net cash used in                                     
 operating activities:                                                                    
   Depreciation .........................................      15,065             15,121  
   Deferred income tax (benefit) provision ..............     (21,740)            44,792  
   Changes in assets and liabilities:                                                     
    Accounts receivable .................................      16,813           (226,656) 
    Inventory ...........................................     (32,204)          (199,712) 
    Recoverable and prepaid income taxes ................     (26,902)                --  
    Other current assets ................................         269             (2,269) 
    Accrued license agreement costs .....................      39,509                 --  
    Accounts payable ....................................      74,108            260,190  
    Accrued expenses and other current liabilities             16,408             29,965  
    License fees payable ................................       7,446            177,194  
    Deferred license revenues ...........................          --             90,000  
    Payments to related party ...........................     (43,655)           (10,550) 
    Income taxes payable ................................     (27,872)                --  
                                                            ---------       ------------  
Net cash used in operating activities ...................     (70,411)          (831,903) 
                                                            ---------       ------------  
Investing activities                                                                      
Capital expenditures ....................................     (26,072)                --  
                                                            ---------       ------------  
Net cash used in investing activities ...................     (26,072)                --  
                                                            ---------       ------------  
Financing activities                                                                      
Net proceeds from private placement .....................          --          1,543,356  
Net proceeds from (repayments of) notes payable .........     110,000           (250,000) 
Borrowings from related party ...........................          --            517,000  
Repayment to related party ..............................          --           (517,000) 
Payment of transaction costs ............................          --           (138,908) 
Principal payments of capital lease obligation ..........     (10,186)                --  
                                                            ---------       ------------  
Net cash provided by financing activities ...............      99,814          1,154,448  
                                                            ---------       ------------  
Net increase in cash ....................................       3,331            322,545  
Cash--beginning of year .................................      49,346             52,677  
                                                            ---------       ------------  
Cash--end of year .......................................   $  52,677       $    375,222  
                                                            =========       ============  
Supplemental information                                                                  
Interest paid ...........................................   $  18,636       $     36,666  
Income taxes paid .......................................   $  25,179                 --  

See accompanying notes. 

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Frisby Technologies, Inc. 

Notes to Financial Statements 

1. Organization and Business                                                    

    The Company is a technology development company engaged in the development
and commercialization of thermal management products for use in a broad range   
of consumer and industrial products. The Company's Thermasorb(R) and            
ComforTemp(R) products utilize licensed patents and the Company's proprietary   
MicroPCM technology to enhance thermal characteristics (i.e., insulation,       
cooling or temperature control properties) in a variety of consumer and         
industrial products.                                                            

On December 19, 1997, the Board of Directors authorized and the       
stockholders ratified an amendment to the Company's certificate of              
incorporation increasing the number of authorized shares of Common Stock to     
10,000,000 shares, changing the par value of the Common Stock to $.001 and      
authorizing 1,000,000 shares of "blank check" preferred stock, having such      
rights and preferences and issuable in such series as may from time to time be  
determined by the Company's Board of Directors. On December 23, 1997, the Board 
of Directors authorized: (i) a 5,679-for-1 stock split of the outstanding       
shares of common stock; and (ii) the reservation of 250,000 shares of common    
stock for issuance upon exercise of options which may be granted under the      
Company's Stock Option Plan. Effect has been given to the stock split as if it  
occurred on January 1, 1996. All common share data has been restated to reflect 
the stock split.                                                                

2. Summary of Significant Accounting Policies                                   

Revenue Recognition                                                             

The Company accounts for long-term contracts based on the             
percentage-of-completion method based on the relationship of total costs        
incurred to date to estimated total costs at completion. Adjustments to cost    
estimates are made periodically and related changes reflected in operations     
cumulative to the date of change. Revenue on cost-plus-fixed-fee contracts is   
recognized to the extent of costs incurred plus a proportionate amount of the   
fee earned. Revenue recognized on uncompleted contracts in excess of amounts    
billed is presented as "Accounts receivable -- unbilled" in the accompanying    
balance sheet. Billings are made in accordance with the respective terms of     
such contracts. Provisions for estimated losses, if any, on uncompleted         
contracts are made in the period in which such losses are determined.           

Revenues from sales of products are recognized upon shipment. License 
revenues are recorded ratably over the license period which generally ranges    
between two and three years. Royalty revenues are recorded when the Company's   
strategic partners report sales of products containing Thermasorb(R) and        
ComforTemp(R) to their customers.                                               

Depreciation and Amortization                                                   

 The Company's fixed assets are stated at cost. Depreciation is provided
over the estimated useful lives (three to ten years) of the assets under the    
straight-line method. Leasehold improvements are amortized on a straight-line   
basis over the shorter of the lease term or the estimated useful life of the    
asset.                                                                          

Loss Per Share                                                                  

Shares used in the computation of both the basic and diluted loss per 
share for the years ended December 31, 1996 and 1997 were 2,839,286 and         
2,842,913, respectively, representing the weighted-average shares outstanding   
for each year. There were no dilutive securities for either 1996 or 1997.       

Fair Value of Financial Instruments                                             

The book values of the cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair values principally because of the    
short-term maturities of these instruments.                                     

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Frisby Technologies, Inc. 

Notes to Financial Statements  -- (Continued) 

2. Summary of Significant Accounting Policies  -- (Continued)                   

Inventories                                                                     

   Inventories consist substantially of finished goods and are stated at the
lower of cost or market. Cost is determined by the weighted average method.     

Advertising Expense                                                             

The cost of advertising is expensed as incurred. The Company incurred 
approximately $33,000 and $212,000 of advertising costs for the years ended     
December 31, 1996 and 1997, respectively.                                       

Use of Estimates                                                                

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect amounts reported in the financial statements and        
accompanying notes. Actual results could differ from those estimates.           

3. Significant Concentrations                                                   

  The Company currently outsources the manufacture of all of its products,
including Thermasorb(R) and ComforTemp(R) to a limited number of manufacturers. 
The Company and its Thermasorb(R) supplier have entered into an arrangement     
that provides firm, fixed pricing for all of the Company's anticipated          
requirements for Thermasorb(R) additives, as well as favorable pricing and      
delivery terms for short run and prototype production volumes. Pursuant to the  
arrangement, the Company has placed a blanket purchase order for all of its     
1998 requirements of Thermasorb(R). The Company has also received written       
assurances from the supplier regarding its desire to enter into a long-term     
supply agreement for the manufacture of the Company's Thermasorb(R) additive.   
All of the Company's ComforTemp(R) will be manufactured by a different vendor   
pursuant to a memorandum of understanding.                                      

  The Company does a significant amount of business with the United States
government and a limited number of strategic partners. Total revenues from the  
United States government comprised approximately 93% of the Company's total     
revenues for the year ended December 31, 1996. Total revenues from the United   
States government and two strategic partners comprised approximately 84% (39%,  
34% and 11%) of the Company's total revenues for the year ended December 31,    
1997.                                                                           

At December 31, 1997, the United States government and two strategic  
partners accounted for approximately 81% (22%, 45%, and 14%) of the Company's   
accounts receivable. Consistent with industry standards, receivables are        
payable in accordance with the terms of the underlying contracts and collateral 
is not required.                                                                

4. Property and Equipment                                                       

Property and equipment consist of the following:                      

                                                    December 31,
                                                    1997
                                                   -------------
Leasehold improvements .................................      $ 36,336          
Furniture ..............................................        14,247          
Equipment ..............................................        56,340          
                                                    --------
                                                     106,923
Less accumulated depreciation and amortization .........        45,600          
                                                    --------
                                                    $ 61,323
                                                    ========

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Frisby Technologies, Inc. 

Notes to Financial Statements  -- (Continued) 

5. Note Payable                                                                 

 During 1997, the Company's available line of credit for $250,000 with a
bank (the "Line"), was increased to $500,000 and on December 30, 1997, the      
Company repaid all amounts outstanding with a portion of the proceeds from the  
Private Placement (see Note 10). The Line is maintained for working capital     
purposes. The Line bears interest at .5% above the bank's prime rate and        
expires on June 30, 1998.                                                       

   Substantially all of the Company's assets are pledged as security for any
outstanding borrowings under the Line. The Line is also secured by a joint      
guaranty from the chief executive officer, a member of the Board of Directors   
and Frisby Aerospace, Inc. (see Note 7).                                        

6. Income Taxes                                                                 

Deferred tax assets and liabilities are recognized for future tax     
consequences attributable to differences between the financial statement        
carrying amounts of existing assets and liabilities and their respective tax    
bases. Deferred tax assets and liabilities are measured using enacted rates     
expected to apply to taxable income in the years in which those temporary       
differences are expected to be recovered or settled. Significant components of  
the Company's deferred tax assets are as follows:                               

                                              December 31,
                                              1997
                                             -------------
License agreement costs .............................    $   42,000             
Deferred license revenues ...........................        35,000             
Net operating loss carryforward .....................       331,000             
Other ...............................................        (2,000)            
                                            ----------
Total deferred tax assets ........................       406,000          
Valuation allowance for deferred tax assets .........      (406,000)            
                                            ----------
Net deferred tax assets ..........................    $       --          
                                            ==========

  As a result of losses from operations, at December 31, 1997, the Company
has available a net operating loss carryforward ("NOL") of approximately        
$848,000 for Federal income tax purposes that expires in 2012.                  

In assessing the realizability of deferred tax assets, management     
considers whether it is more likely than not that some portion or all of the    
deferred tax assets will not be realized. The ultimate realization of deferred  
tax assets is dependent upon the generation of future taxable income during the 
period in which the NOL can be utilized and the temporary differences become    
deductible. Since the Company has incurred losses in previous years and it      
anticipates additional losses through the third quarter of 1999, the Company    
has established a valuation allowance for deferred tax assets at December 31,   
1997.                                                                           

Significant components of the income tax provision (benefit) are as   
follows:                                                                        

Year Ended              
December 31,              
-------------------------             
1996          1997          
-------------   ---------             
Current:                                                                        
Federal .........     $ (25,541)     $    --                                  
State ...........        (1,361)          --                                  
---------      -------            
(26,902)          --          
---------      -------            
Deferred:                                                                       
Federal .........       (19,081)      36,000                                  
State ...........        (2,659)       8,792                                  
---------      -------            
(21,740)      44,792          
---------      -------            
Total ............     $ (48,642)     $44,792                                   
=========      =======            

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Frisby Technologies, Inc. 

Notes to Financial Statements  -- (Continued) 

6. Income Taxes  -- (Continued)                                                 

  The income tax benefit differs from the amounts computed by applying the
statutory United States Federal income tax rate as a result of the following:   

                                                        [Enlarge/Download Table]

                                                                          Year Ended          
                                                                         December 31,         
                                                                 -----------------------------
                                                                      1996           1997     
                                                                 -------------  --------------
                                                                                              
Benefit for Federal income taxes at the statutory rate .........   $ (46,341)     $ (328,163) 
State income taxes, net of Federal income tax benefit ..........      (2,653)        (33,061) 
Other ..........................................................         352             214  
Valuation allowance for deferred tax assets ....................          --         405,802  
                                                                   ---------      ----------  
                                                                   $ (48,642)     $   44,792  
                                                                   =========      ==========  

7. Related Party Transactions                                                   

    Frisby Aerospace, Inc. ("Frisby Aerospace"), certain stockholders of which
are also stockholders of the Company, charges the Company for space and related 
services. These charges, which are non-interest bearing, are based upon         
estimates of square footage used for facilities and actual expenses incurred by 
Frisby Aerospace on behalf of the Company. Management believes that such        
allocations are reasonable. These charges aggregated approximately $51,000 and  
$57,000 for the years ended December 31, 1996 and 1997, respectively, and are   
included in cost of sales in the accompanying statement of operations. The      
Company also received unsecured, non-interest bearing advances from Frisby      
Aerospace aggregating $517,000 during the year ended December 31, 1997. In      
addition, Frisby Aerospace provides the Company with certain facilities,        
accounting, clerical and office services without charge. The value of such      
services are not deemed material and accordingly, have not been recorded in the 
accompanying financial statements.                                              

 The assets of Frisby Aerospace were sold to an unrelated third party on
February 10, 1998. The Company anticipates that the loss of the facilities and  
services it has received from Frisby Aerospace can be replaced at a reasonable  
cost.                                                                           

 A portion of the proceeds received from the Private Placement (See Note
10) was used to repay the amounts owed to Frisby Aerospace in full on December  
30, 1997.                                                                       

8. License Arrangements and Other Commitments                                   

    (a) The Company signed an Exclusive License Agreement (the "TRDC License")
in 1995 with a research and development corporation which holds innovative      
proprietary technology in microencapsulated and thermal management technologies 
and with which the Company had an existing agreement since 1991. The TRDC       
License gives the Company the exclusive worldwide right to develop and          
commercialize this technology with respect to certain applications in exchange  
for royalties that range from 1% to 5% of product sales revenue and 12.5% to    
50% of license fees and royalty revenues, as defined. Minimum annual payments   
are required in accordance with the TRDC License and are payable as follows:    

1998                    $ 54,000              
1999                      78,000              
2000                     102,000              
2001                     126,000              
2002 and thereafter      150,000              

  The Company is expensing such minimum annual payments on a straight-line
basis over the period in which such payments fluctuate. Accordingly, the charge 
was approximately $73,000 for each of the years ended December 31, 1996 and     
1997.                                                                           

(b) The rights to the TRDC Technology relating to MicroPCM Fibers and 
Fabrics were licensed by TRDC to Outlast Technologies, Inc. ("Outlast") prior   
to the Company obtaining the TRDC License. In order to expand its rights in the 
TRDC Technology, in January 1998, the Company entered into an agreement with    
Outlast which                                                                   

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Notes to Financial Statements  -- (Continued) 

8. License Arrangements and Other Commitments  -- (Continued)                   

expands the rights of the Company to include the combination of the Company's   
products with fibers and fabrics. Under the terms of the agreement, the Company 
paid Outlast $100,000 as a license payment related to periods prior to the      
execution of the agreement and such amount has been charged to cost of sales    
for the year ended December 31, 1997. In addition, the agreement provides for   
the Company to meet minimum annual payments of $150,000 to $600,000 per year    
from 1998 through 2002, provided that the Company elects to maintain the        
exclusivity granted by the license. If subsequent to the initial licensing      
period the Company elects to extend the exclusivity granted by the license, the 
minimum annual payment for the five years thereafter will be $1,000,000.        

(c) The Company is obligated under several operating leases for its   
operating facility and equipment expiring at various dates in 1998. The         
operating facility is leased from Frisby Aerospace (see Note 7). This lease     
expired on November 30, 1997 and the Company continues to lease the facility    
from Frisby Aerospace on a month to month basis. Total rental expense for the   
years ended December 31, 1996 and 1997, was approximately $45,000, and $61,000, 
respectively.                                                                   

(d) The Company entered into an operating lease agreement with an     
unrelated entity for a facility in North Carolina. The lease term is for 20     
years and monthly payments are expected to commence in June 1998. Future        
minimum payments under the lease are as follows:                                

1998           $   63,000           
1999              126,000           
2000              126,000           
2001              132,000           
2002              138,000           
Thereafter      2,203,000           
    ----------
    $2,788,000
    ==========

Upon execution of the North Carolina lease, two shareholders of the   
Company each received a five percent equity interest in the lessor which vests  
over a ten year period. Notwithstanding the equity interest, the Company        
believes that the rental payments represent an arms-length price for the lease. 

   (e) The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System      
modifications or replacements are underway or planned which should make all     
significant computer systems at the Company compliant with the year 2000        
requirement. Anticipated spending for these modifications will be expensed as   
incurred and is not expected to have a material impact on the Company's ongoing 
results of operations.                                                          

9. Retirement Plan                                                              

  All eligible employees of the Company have been permitted to participate
in a 401(k)/Profit Sharing Plan (the "Plan") adopted effective January 1, 1997  
by Frisby Aerospace. The Plan is funded from contributions by employees for     
their own account and does not provide for any mandatory or matching            
contributions by the Company. All employees of the Company on the effective     
date of the Plan immediately became eligible. An employee who became employed   
after January 1, 1997 will become entitled to participate in the Plan after the 
completion of six months of service and the attainment of 21 years of age.      
Under the Plan, participants will be permitted to contribute from their         
compensation any amount up to the lesser of 20% of their annual gross salary or 
the maximum deferral allowed under the Internal Revenue Code. The Company will  
be entitled to make optional profit sharing contributions for any plan year in  
its discretion. During the year ended December, 1997, the Company did not make  
any contributions to the Plan.                                                  

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Frisby Technologies, Inc. 

Notes to Financial Statements  -- (Continued) 

10. Private Placement                                                           

   On December 29, 1997, the Company sold 441,327 shares of its Common Stock
and an option to purchase 587,500 shares of the Company's Convertible Preferred 
Stock at an exercise price of $4.26 per share until February 27, 1998 to a      
foreign investor for an aggregate purchase price of $2,500,000. The Company has 
allocated $353,000 of the purchase price as the estimated fair value of the     
option. This transaction resulted in net proceeds of approximately $1,600,000,  
after the payment of related costs and expenses. The Convertible Preferred      
Stock is convertible into Common Stock at the election of the investor for a    
60-day period commencing on the 370th day following the anticipated initial     
public offering. On February 27, 1998, the foreign investor exercised the       
Convertible Preferred Stock Option.                                             

F-12

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================================================================================

No person has been authorized in connection with any offering made
hereby to give any information or to make any representation other than those   
contained in this Prospectus in connection with the Offering made hereby, and,  
if given or made, such information or representation must not be relied upon as 
having been authorized by the Company or any underwriter. This Prospectus does  
not constitute an offer to sell or a solicitation of an offer to buy any        
security other than the shares of Common Stock offered hereby, nor does it      
constitute an offer to sell or a solicitation of any offer to buy any of the    
securities offered hereby to any person in any jurisdiction in which it is      
unlawful to make such an offer or solicitation. Neither the delivery of this    
Prospectus nor any sale made hereunder shall under any circumstances create any 
implication that the information contained herein is correct as of any time     
subsequent to the dates as of which such information is furnished or that there 
has been no change in the affairs of the Company since such date.               

------------------------  

TABLE OF CONTENTS 

                                                        Page
                                  .                   ----
Prospectus Summary .........................................        3           
Risk Factors ...............................................        9           
Use of Proceeds ............................................       20           
Dividend Policy ............................................       21           
Dilution ...................................................       22           
Capitalization .............................................       23           
Management's Discussion and Analysis                                            
of Financial Condition and Results of                                     
Operations ..............................................       24        
Business ...................................................       29           
Management .................................................       46           
Certain Transactions .......................................       52           
Principal Stockholders .....................................       55           
Description of Securities ..................................       55           
Shares Eligible for Future Sale ............................       58           
Underwriting ...............................................       60           
Legal Matters ..............................................       62           
Experts ....................................................       62           
Change in Independent Auditors .............................       62           
Additional Information .....................................       62           
Index to Financial Statements ..............................      F-1           

------------------------  

Until April 26, 1998 (25 days after the date hereof), all dealers 
effecting transactions in the registered securities, whether or not             
participating in this distribution, may be required to deliver a Prospectus.    
This is in addition to the obligation of dealers to deliver a Prospectus when   
acting as underwriter and with respect to their unsold allotments or            
subscriptions.                                                                  

=============================================================================== 

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=============================================================================== 

1,600,000 Shares

FRISBY TECHNOLOGIES 
[GRAPHIC OMITTED] 

Common Stock  

----------------------------------------  

Prospectus  

----------------------------------------  

BARINGTON CAPITAL GROUP 

April 1, 1998 

=============================================================================== 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		12/31/02		16		50			8-K,  SC 13G
		12/31/00		16		50			10KSB,  10KSB/A
		6/30/98		28		72			10QSB
		4/26/98		76
		4/8/98		1
		4/6/98		15		47
Filed on:		4/2/98
		4/1/98		1		77
		3/13/98		51
		3/9/98		44					SB-2/A
		3/2/98		45
		2/27/98		29		75
		2/23/98		54
		2/10/98		53		73
		1/1/98		49		50
		12/31/97		9		74
		12/30/97		53		73
		12/29/97		29		75
		12/23/97		70
		12/19/97		70
		12/10/97		53
		11/30/97		45		74
		10/23/97		14		42
		9/30/97		53
		6/30/97		37
		1/3/97		43
		1/1/97		18		74
		12/31/96		10		74
		1/1/96		68		70
		12/31/95		63
		11/4/94		54
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