QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS
                 SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS

                                   FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

     [x] QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934

     For the quarterly period ended September 30, 1998

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934

     Commission File Number: 001-14005

                            FRISBY TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in its Charter)

        Delaware                                    62-1411534
(State or other Jurisdiction of                    (I.R.S. Employer
 Incorporation or Organization)                     Identification Number)

                               77 East Main Street
                                   Suite 2000
                            Bay Shore, New York 11706
              (Address of Principal Executive Offices and Zip Code)
                                 (516) 969-8570
              (Registrant's telephone number, including area code)



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                    Yes       X               No  ________

     Number of shares  outstanding of the issuer's Common Stock, par value $.001
per share, as of October 31, 1998: 5,120,613 shares.



<PAGE>


                            FRISBY TECHNOLOGIES, INC.


                                      INDEX
<TABLE>
<CAPTION>

                                                                                           PAGE NO.
<S>                                                                                        <C>    

Part I            Financial Information                                                       3

Item 1.           Financial Statements                                                        3

                  Balance Sheets - September 30, 1998 (unaudited) and
                  December 31, 1997                                                           3

                  Statements of Operations - Three and Nine
                  Month Periods Ended September 30, 1998 (unaudited)
                  and September 30, 1997(unaudited)                                           4

                  Statement of Stockholders' Equity - Nine Month Period
                  Ended September 30, 1998 (unaudited)                                        5

                  Statements of Cash Flows - Nine Month Period Ended
                  September 30, 1998 (unaudited) and September 30, 1997 (unaudited)           6

                  Notes to Financial Statements - September 30, 1998 (unaudited)              7

Item 2.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                                   9

Part II           Other Information                                                          14

                  Signatures                                                                 16

</TABLE>




<PAGE>


<TABLE>
<CAPTION>

                                              PART I - FINANCIAL INFORMATION
                                               Item 1. Financial Statements

                                                 Frisby Technologies, Inc.
                                                        Balance Sheets



                                                                                 September 30, 1998           December 31, 1997
                                                                                 ------------------           -----------------
                                                                                     (unaudited)
<S>                                                                                 <C>                          <C>    

Assets
Current assets:
Cash and cash equivalents                                                       $     2,029,474               $       375,222
Short-term investments                                                                7,422,255                           -
Accounts receivable - billed                                                            501,988                       358,452
Accounts receivable - unbilled                                                          165,560                        52,150
Inventory                                                                               720,945                       247,686
Recoverable and prepaid income taxes                                                     26,902                        26,902
Other current assets                                                                    558,010                         7,192
                                                                                     ----------                     ---------
Total current assets                                                                 11,425,134                     1,067,604
Property and equipment, net                                                              98,636                        61,323
Other assets                                                                          2,136,969                       138,908
                                                                                     ----------                     ---------
Total assets                                                                     $   13,660,739               $     1,267,835
                                                                                 ==============               ===============

Liabilities and stockholders' equity Current liabilities:
Accounts payable                                                                 $    1,044,410               $       353,427
Accrued expenses and other current liabilities                                          477,029                        63,143
License fees payable                                                                     57,704                       184,640
Deferred license revenues                                                                21,188                        50,000
                                                                                      ---------                     --------- 
Total current liabilities                                                             1,600,331                       651,210
Accrued license agreement costs                                                         101,250                       101,250
Other liabilities                                                                     1,326,868                        40,000
                                                                                      ---------                     ---------
Total liabilities                                                                     3,028,449                       792,460
Commitments
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized; shares issued and                       2,479,000                           -
    outstanding: 587,500 in 1998 and none in 1997                                           
Common Stock, $.001 par value; 10,000,000 shares authorized; 5,120,613                    5,121                         3,281  
    and 3,280,613 shares issued and outstanding in 1998 and 1997
Additional paid-in capital                                                           12,212,327                     1,540,575
Deferred compensation expense                                                          (130,000)                           -
                                                                                                    
Accumulated deficit                                                                  (3,934,158)                   (1,068,481)
                                                                                    -----------                   -----------
Total stockholders' equity                                                           10,632,290                       475,375
                                                                                     ----------                   -----------
Total liabilities and stockholders' equity                                       $   13,660,739                $    1,267,835
                                                                                 ==============                ==============

</TABLE>


                             See accompanying notes.


<PAGE>

<TABLE>
<CAPTION>
  
                                                                          Frisby Technologies, Inc.
                                                                          Statements of Operations
                                                                               (Unaudited)



                                                   Three month period ended                   Nine month period ended
                                                         September 30,                             September 30,
                                            ----------------------------------------   ----------------------------------
                                                   1998                  1997                 1998                1997
                                            -------------------    -----------------    --------------       ------------
<S>                                              <C>                   <C>               <C>                  <C>   

Revenues:
Product sales                                 $    599,791         $    156,164        $   1,417,931       $   376,626
Research and development projects                   43,577              117,880              172,269           349,212
Licenses and royalties                              61,780               42,000              136,448            88,000
                                            ---------------         ------------        -------------      ------------
Total revenues                                     705,148              316,044            1,726,648           813,838
                                            ---------------         ------------        -------------      ------------

Cost of sales:
Product sales                                      715,486              136,871            1,468,185           378,318
Research and development projects                   39,407               51,407              138,388           186,807
Licenses and  royalties                             22,505               26,369               29,809            54,469
                                            ---------------         ------------        -------------    --------------
Total cost of sales                                777,398              214,647            1,636,382           619,594
                                            ---------------         ------------        -------------    --------------
Gross profit                                       (72,250)             101,397               90,266           194,244
Selling and marketing expense                      718,849               95,500            1,437,673           247,668
General and administrative expense                 992,806              214,200            1,761,395           644,886
                                            ---------------         ------------        -------------    --------------
Loss from operations                            (1,783,905)            (208,303)          (3,108,802)        (698,310)
Interest income (expense)                          129,106              (11,500)              243,125         (25,541)
                                            ---------------         ------------        -------------    --------------
Loss before income taxes                        1,654,799)            (219,803)           (2,865,677)        (723,851)
Income tax provision                                -                     -                    -               44,792
                                            ---------------         ------------        -------------    --------------
Net loss                                        1,654,799)            (219,803)            2,865,677         (768,643)
                                            ===============         ============        =============    ==============
Net loss per common share -
 basic and diluted                                  (0.32)               (0.08)               (0.62)            (0.27)
                                                    ======               ======               ======            ======

</TABLE>


                             See accompanying notes.


<PAGE>

<TABLE>
<CAPTION>

                                                              Frisby Technologies, Inc.
                                                            Statement of Stockholders' Equity
                                                                      (Unaudited)



                                                                 Additional         Deferred
                        Preferred Stock      Common Stock          Paid-In        Compensation      Accumulated
                                                                  Capital           Expense          Deficit           Total
                                                                  -------          ---------       -----------         -----
                      Shares     Amount     Shares     Amount
                      ------     ------     ------     ------
<S>                   <C>        <C>        <C>        <C>        <C>              <C>                <C>                <C>   

Balance at
December 31, 1997        --        --      3,280,613  $ 3,281     $1,540,575            --           $ (1,068,481)  $  475,375

Exercise of          587,500  $2,479,000       --        --          --                 --               --          2,479,000
preferred stock
option, net of
related costs

Initial public           --        --      1,840,000    1,840     10,394,752            --               --         10,396,592
offering, net of
related costs

Issuance of options      --        --          --         --         277,000        ($250,000)           --             27,000
and warrants to
third parties

Amortization of          --        --          --         --           --             120,000            --            120,000
of deferred
compensation expense

Net loss                 --        --          --         --           --                --         (2,865,677)     (2,865,677)
                     ---------  ---------  ---------   ---------    ----------      ---------         ----------      ---------
Balance at
September 30, 1998   587,500  $ 2,479,000  5,120,613  $ 5,121   $ 12,212,327      $  (130,000)     $(3,934,158)   $ 10,632,290
                   ==========  ==========  =========   =========  ============     ===========      ============   ============
</TABLE>


                             See accompanying notes.



<PAGE>

<TABLE>
<CAPTION>

                                                      Frisby Technologies, Inc.
                                                      Statements of Cash Flows
                                                            (Unaudited)


                                                                                    Nine month period ended
                                                                                         September 30,
                                                                                  1998                    1997
                                                                                  ----                    ----
<S>                                                                         <C>                       <C>    
Operating activities
Net loss                                                                    $     (2,865,677)         $     (768,643)
                                                                            =================         ===============
Adjustments to reconcile net loss to net cash used in operating
    activities:
Depreciation                                                                           17,955                  11,349
Amortization of deferred compensation                                                 120,000                     -
Deferred income tax provision                                                           -                      44,792
Changes in assets and liabilities:
Accounts receivable                                                                 (256,946)                (90,011)
Inventory                                                                           (473,259)               (101,347)
Other current assets                                                                (550,818)                     -
Other non-current assets                                                               53,619                   2,165
Accounts payable                                                                     (33,697)                 137,004
Accrued expenses and other current liabilities                                        413,886                  52,860
Licenses fees payable                                                               (126,936)                 124,529
Deferred licenses revenues                                                           (41,944)                  17,504
Payments to related party                                                               -                      15,738
                                                                                 ------------                  ------
Net cash used in operating activities                                             (3,743,817)                (554,060)

Investing activities
Capital expenditures                                                                 (55,268)                     -
Purchases of short-term investments                                               (9,956,255)                     -
Proceeds from sale of short-term investments                                       2,534,000                      -
                                                                                   ----------
Net cash used in investing activities                                             (7,477,523)                     -

Financing activities
Net proceeds from exercise of convertible preferred stock option                    2,479,000                     -
Net proceeds from initial public offering                                          10,396,592                     -
Borrowings from related party                                                           -                    376,000
Borrowings from bank                                                                    -                    250,000
Prepayment of transaction costs                                                                             (100,188)
                                                                                   ----------               ---------       
Net cash provided by financing activities                                          12,875,592                525,812

Net increase (decrease) in cash and cash equivalents                                1,654,252                (28,248)
Cash and cash equivalents-beginning of period                                         375,222                 52,677
                                                                                   ----------               ---------
Cash and cash equivalents-end of period                                         $   2,029,474                 24,429
                                                                                   ==========               =========

Supplemental information
Interest paid                                                                           1,189                 25,541
                                                                                   ==========               =========
</TABLE>

                             See accompanying notes.


<PAGE>


                            Frisby Technologies, Inc.
                          Notes to Financial Statements
                         September 30, 1998 (Unaudited)

     1. Basis of Presentation

     The  accompanying  unaudited  financial  statements  have been  prepared in
conformity  with  generally  accepted  accounting  principles  and  reflect  all
adjustments  consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the periods
shown. The results of operations for such periods are not necessarily indicative
of the results  expected for the full fiscal year or for any future period.  The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.

     The accompanying  financial  statements  should be read in conjunction with
the audited financial  statements of Frisby  Technologies,  Inc. (the "Company")
for the year ended  December  31, 1997 and the notes  thereto  contained  in the
Company's Registration Statement on Form SB-2, Registration No. 333-45121, filed
with the Securities and Exchange Commission on March 30, 1998, as amended.

     2. Stockholders' Equity

     On December 29, 1997,  the Company sold 441,327 shares of its common stock,
$.001 par value (the "Common Stock") and an option (the  "Convertible  Preferred
Stock Option") to purchase 587,500 shares of the Company's convertible preferred
stock, $.001 par value (the "Convertible  Preferred Stock") at an exercise price
of $4.26 per share  expiring on February  27, 1998 in a private  placement  (the
"Private  Placement") to a foreign  investor for an aggregate  purchase price of
$2,500,000. On February 27, 1998, the foreign investor exercised the Convertible
Preferred Stock Option. This transaction resulted in net proceeds to the Company
of $2,479,000, after the payment of related expenses.

     On April 1, 1998, the Company  consummated an Initial Public  Offering (the
"IPO") of 1,600,000 shares of Common Stock at a price of $7.00 per share. On May
15, 1998,  Barington Capital Group, L.P., the underwriter in connection with the
IPO (the  "Underwriter"),  exercised  its  over-allotment  option to purchase an
additional 240,000 shares of the Common Stock at a price of $7.00 per share. The
total net proceeds to the Company  amounted to approximately  $10,400,000  after
the  underwriters'  discount  and related  expenses.  The net  proceeds of these
transactions  have been invested in cash deposit accounts and cash  equivalents,
institutional  U.S.  Government  Money  Market  Funds  and  commercial  paper of
selected U.S. companies.

     In April 1998 the Company entered into a two year consulting agreement with
a  company  controlled  by a member  of the  Company's  Board of  Directors.  In
addition to a monthly  fee,  the  Company  issued  warrants to purchase  110,000
shares of the  Company's  common  stock at an  exercise  price equal to the then
market price of the Frisby Technologies common stock. Additionally,  the Company
issued  options to three  other  consultants  to  purchase  4,000  shares of the
Company's  common stock at an exercise price equal to the then market price. The
Company  estimates  that the aggregate  fair market value of these  warrants and
options is $250,000.


<PAGE>



     3. Significant Events

     In September 1998, the Company entered into a transaction with the inventor
of  the  Company's  patented  and  proprietary  thermal  management  technology,
Triangle  Research and Development  Corporation  ("TRDC"),  that will reduce the
Company's  future royalty payments to TRDC.  Additionally,  the Company has been
assigned TRDC's rights to an agreement with another  licensee of the technology.
This  assignment will result in the Company  receiving  royalty income from this
third party licensee subject to certain payback to TRDC.

     4. Summary of Significant Accounting Policies

     Net Loss Per Share

     Net loss per share for the three and nine month periods ended September 30,
1998  and 1997 are  based  on the  weighted  average  number  of  common  shares
outstanding  during the period in  accordance  with the  Statement  of Financial
Accounting Standard ("SFAS") No. 128 "Earnings Per Share."

     Shares used in the computation of net loss per share for the three and nine
month  periods  ended   September  30,  1998  were   5,120,613  and   4,605,854,
respectively.  Shares used in the computation of net loss per share for both the
three and nine month periods ended September 30, 1997 were 2,839,286. The number
of shares used in the  calculation  of net loss per share on a basic and diluted
basis is the same. The 587,500 shares of Convertible  Preferred  Stock represent
potential  common stock that was not included in the  computation of diluted net
loss per share for the three and nine month period ended  September 30, 1998 due
to their anti-dilutive nature.

     Stock options  granted to the  employees and directors  under the Company's
Stock Option Plan adopted in March 1998 and other options granted to Underwriter
and  consultants,  would  have had an  effect on the  number  of  Common  Shares
outstanding in 1998. The total number of options outstanding as of September 30,
1998 was 545,000.

     Recent Accounting Pronouncements

     In June 1997, the Financial  Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." These standards are effective for fiscal
years  beginning after December 15, 1997. The adoption of these standards had no
material impact on the Company's statements of operations, cash flows or balance
sheets.



<PAGE>


     ITEM 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS.


     Results of Operations for the three and nine month periods ended  September
30, 1998 compared with the three and nine month periods ended September 30, 1997

     Revenues.  The Company  generates  revenue from three primary sources:  (i)
sales of its Thermasorb(R)  additives and ComforTemp(R) foam products for use in
its strategic  partners'  products;  (ii) revenue from research and  development
contracts  related to the United States  government and from private  companies;
and (iii)  license  fees and  royalties  from the use of the  Thermasorb(R)  and
ComforTemp(R)  trademarks by strategic partners in end-use products,  as well as
other fees earned in connection  with its agreements  with  strategic  partners.
Total revenues for the three month period ended  September 30, 1998 increased by
approximately  $390,000 to $705,000  from  $316,000  for the three month  period
ended  September  30,  1997.  Total  revenues  for the nine month  period  ended
September  30, 1998  increased  by  approximately  $913,000 to  $1,727,000  from
$814,000 for the nine month period ended September 30, 1997.


     Product sales. Product sales for the three month period ended September 30,
1998 increased by approximately $444,000 to $600,000 from $156,000 for the three
month period ended  September 30, 1997.  Product sales for the nine month period
ended  September 30, 1998  increased by  approximately  $1,041,000 to $1,418,000
from  $377,000  for the three month  period  ended  September  30,  1997.  These
increases  were primarily the result of the Company  bringing its  ComforTemp(R)
foams and Thermasorb(R)  additives to market commencing in the second quarter of
1997.  Sales to partners  that were present in 1997 more than doubled in 1998 as
compared  to 1997.  An  additional  increase  results  from  relationships  with
strategic  partners that began this year such as Titleist and Footjoy  Worldwide
and Foamex International.

     Research and development  projects.  Revenues from research and development
projects  for the three month  period  ended  September  30, 1998  decreased  by
approximately  $74,000 to $44,000 from $118,000 for the three month period ended
September 30, 1997. Revenues from research and development projects for the nine
month period ended  September 30, 1998  decreased by  approximately  $177,000 to
$172,000  from  $349,000 for the three month period  ended  September  30, 1997.
These  decreases  resulted  primarily from the shift in the Company's focus away
from obtaining and performing  funded research and development  contracts to the
commercialization of its thermal management products.

     Licenses and  royalties.  Revenues  from license fees and royalties for the
three month period ended September 30, 1998 increased by  approximately  $20,000
to $62,000 from $42,000 for the three month  period  ended  September  30, 1997.
Revenues  from  license  fees and  royalties  for the nine  month  period  ended
September 30, 1998 increased by  approximately  $48,000 to $136,000 from $88,000
for the nine month period ended September 30, 1997. These increases  reflect the
recognition  of fees received  from  strategic  partners for license  agreements
entered into beginning in the second  quarter 1997.  License fees are recognized
as revenue ratably over the life of the license agreement. Additionally, royalty
fees  increased  to $66,000 for the nine months  ended  September  30, 1998 from
20,000 during the comparable period in 1997.

<PAGE>

     Cost of Sales.  The  Company's  cost of sales  consists  of: (i) direct and
indirect  costs  incurred in  connection  with  product  sales;  (ii) direct and
indirect costs incurred in connection with revenue from research and development
contracts relating to the United States government  programs;  and (iii) royalty
payments  required  to be  made  to  the  inventor  of  the  thermal  management
technology  or other  licensors.  Total cost of sales for the three month period
ended  September 30, 1998 increased by  approximately  $563,000 to $777,000 from
$215,000  for the three month  period ended  September  30, 1997.  Total cost of
sales  for  the  nine  month  period  ended  September  30,  1998  increased  by
approximately  $1,016,000 to $1,636,000  from $620,000 for the nine month period
ended September 30, 1997.

     Cost of sales --  Products.  The cost of sales  related to products for the
three month period ended September 30, 1998 increased by approximately  $579,000
to $715,000 from  $137,000 for the three month period ended  September 30, 1997.
The cost of sales related to products for the nine month period ended  September
30, 1998 increased by  approximately  $1,090,000 to $1,468,000 from $378,000 for
the nine month period ended  September  30, 1997.  These  increases  reflect the
higher  volume of  product  sales and the  corresponding  costs  related to such
product  sales in the three and nine month  period ended  September  30, 1998 as
compared to the corresponding  period in the prior year. Unit costs increased in
the quarter ended September 30, 1998 as compared to the corresponding  period of
1997  resulting  from  production  inefficiencies  at a supplier.  Management is
currently  addressing this issue and implementing changes that will improve unit
costs in the future.

     Cost of sales  --  Research  and  development  projects.  The cost of sales
related to research  and  development  projects for the three month period ended
September 30, 1998  decreased by  approximately  $12,000 to $39,000 from $51,000
for the three month period ended  September 30, 1997.  The cost of sales related
to research and  development  projects for the nine month period ended September
30, 1998  decreased by  approximately  $49,000 to $138,000 from $187,000 for the
nine month period ended September 30, 1997.  These decreases are consistent with
the shift in the  Company's  focus away from  obtaining  and  performing  funded
research and development  contracts and to the  commercialization of its thermal
management products.

     Cost of Sales --  Licenses  and  royalties.  The cost of sales  related  to
licenses  and  royalties  for the three month period  ended  September  30, 1998
decreased  by  approximately  $3,000 to $23,000 from $26,000 for the three month
period  ended  September  30,  1997.  The cost of sales  related to licenses and
royalties  for the nine month  period  ended  September  30, 1998  decreased  by
approximately  $24,000 to $30,000  from  $54,000 for the nine month period ended
September 30, 1997. These decreases  primarily  reflect the expensing in a prior
period  of a  royalty  fee  paid  to  the  inventor  of the  Company's  licensed
technology.

     Selling and marketing expense.  Selling and marketing expense for the three
month period ended  September 30, 1998  increased by  approximately  $623,000 to
$719,000  from  $96,000 for the three month  period  ended  September  30, 1997.
Selling and marketing expense for the nine month period ended September 30, 1998
increased by  approximately  $1,190,000 to $1,437,000 from $248,000 for the nine
month period ended September 30, 1997. These increases were primarily the result
of the Company  increasing  its marketing and  advertising  activity in order to
build brand name recognition of its Thermasorb(R) and ComforTemp(R) products and
trademarks.  These activities included  advertising  placements in many national
trade and consumer  publications.  Additionally,  the  amortization  of deferred
compensation  expense of $120,000  for  options  granted to  consultants  in the
current year also contributed to this increase.

<PAGE>

     General and administrative expense.  General and administrative expense for
the three month  period ended  September  30, 1998  increased  by  approximately
$779,000 to $993,000  from  $214,000 for the three month period ended  September
30,  1997.  General and  administrative  expense for the nine month period ended
September 30, 1998  increased by  approximately  $1,116,000  to $1,761,000  from
$645,000 for the nine month period ended  September  30, 1997.  These  increases
reflect the  increase in personnel  and  personnel-related  expenses,  including
travel,  and recruiting  costs of new  employees.  As of September 30, 1998, the
Company's total headcount equaled 20 employees. This represents an increase of 8
employees from January 1, 1998.

     Additionally,  fees and expenses paid to  consultants  have also  increased
over the comparable period for the prior year. These increases are in connection
with the  expansion of the Company's  operations  and  commercialization  of its
thermal management products.

     Net interest  income/expense.  The Company  earned net  interest  income of
$129,000 for the three month period ended  September 30, 1998 as compared to net
interest expense of $12,000 for the three month period ended September 30, 1997.
The Company  earned net  interest  income of $243,000  for the nine month period
ended September 30, 1998 as compared to net interest  expense of $26,000 for the
nine month period ended September 30, 1997. These changes are due to the receipt
of net proceeds from the Private Placement in December 1997, the exercise of the
Convertible  Preferred  Stock  Option in February  1998 and the  Initial  Public
Offering in April 1998 and the interest earned on the proceeds thereof.

     Income tax provision.  The Company recorded no income tax provision for the
three month period  ended  September  30, 1998 and 1997.  For the three and nine
month period ended September 30, 1998 and the three month period ended September
30, 1997, the Company  recorded a valuation  allowance equal to the net deferred
tax asset recorded in the period.  For the nine month period ended September 30,
1997,  the Company  recorded a provision of $45,000 which arose from providing a
valuation  allowance  against all deferred  tax assets  recorded as of March 31,
1997.  The net deferred tax assets as of both  September 30, 1998 and 1997 arise
principally  from a net operating loss  carryforward.  The valuation  allowances
recorded are due to  uncertainties  relating to expected  future  taxable income
that would have to be generated to realize such assets.

     Net loss.  As a result of the  foregoing,  the net loss for the three month
period ended  September 30, 1998  increased to $1,654,000  from $219,000 for the
three month period ended September 30, 1997. Additionally,  the net loss for the
nine month period ended September 30, 1998 increased to $2,866,000 from $724,000
for the nine month period ended September 30, 1997.


     Liquidity and capital  resources.  At September  30, 1998,  the Company had
working capital of $9,825,000,  including short-term  investments of $7,422,000,
accounts  receivable-billed  of $501,000 and  inventory  of $720,000,  offset by
accounts payable of $1,044,000 and accrued expenses of $477,000.

     Cash  used  by  operating   activities   was   $3,744,000   and   $554,000,
respectively,  for the nine month period ended  September 30, 1998 and 1997. The
principal factor  contributing to the cash used in operating  activities for the
nine month period ended September 30, 1998 and 1997 was the net loss for each of
the respective periods. Cash used by investing activities was $7,478,000 for the
nine month period ended September 30, 1998. The principal factor contributing to
the cash used in  financing  activities  for the nine  month  period was the net
purchase of short-term  investments.  Cash provided by financing  activities was
$12,876,000 and $526,000, receptively, for the nine month period ended September
30, 1998 and 1997.  The principal  financing  activity for the nine month period
ended  September 30, 1998 was the receipt of the net proceeds of $2,479,000 from
the exercise of the Convertible  Preferred Stock Option and $10,397,000 from the
initial public offering.

<PAGE> 

     The facility that the Company was relocating its North Carolina  operations
to was destroyed by fire. As such,  the expected  cash  expenditures  related to
that relocation and the related  purchase of thermal testing  equipment has been
delayed to future quarters.

     Based on the Company's  current  operating plan, the Company  believes that
the proceeds  from the IPO,  together  with its existing  resources and revenues
from  continuing   operations,   will  be  sufficient  to  satisfy  its  capital
requirements for at least 24 months following the IPO. Such belief is based upon
certain current assumptions, and there can be no assurance that such assumptions
are correct.  Further,  depending on the Company's progress related to marketing
its product line, gaining market acceptance of its thermal management technology
and its other products and services in the business community,  and capitalizing
upon potential acquisition  opportunities,  the Company may determine that it is
advisable to raise additional capital sooner than anticipated.

     The Company has a $1,000,000 line of credit with a bank. The line of credit
bears interest at the lower of the bank's prime rate or a two  percentage  point
spread versus the London Interbank  Overnight Rate ("LIBOR") and expires on June
30, 1999. The full amount of the line is currently available.

     Year 2000  Compliance

     The Company is  currently  in the  process of  evaluating  its  information
technology  infrastructure for the Year 2000 ("Y2000")  compliance.  The Company
has contacted the vendors of its information  systems and has been informed that
these  systems are Y2000  compliant  and those  workstations  that are not Y2000
compliant will be replaced. The Company does not believe that the cost to modify
its  information  technology  infrastructure  to be  material  to its  financial
condition or results of operations nor does the Company  anticipate any material
disruption  of its  operations  as a result of a failure  by the  Company  to be
compliant. However, there can be no assurance that there will not be a delay in,
or increased  costs  associated  with,  the need to address  Y2000  issues.  The
Company also relies, directly and indirectly,  on other businesses such as third
party service  providers,  creditors,  financial  institutions  and governmental
entitles.  Even if the Company's  computer systems are not materially  adversely
affected by the Y2000 issue,  the  Company's  business and  operations  could be
materially adversely affected by disruptions in the operations of other entities
with which the Company interacts.  The Company has contingency plans for certain
critical  applications  and is working on plans for  others.  These  contingency
plans involve, among other actions, manual workarounds,  increasing inventories,
and adjusting staffing strategies.

     Forward-Looking Statements

     Certain  information  contained  in this  Quarterly  Report on Form 10-QSB,
including,  without  limitation,  information  appearing  under  Part I, Item 2,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," are  forward-looking  statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities  Exchange Act of
1934).  Factors set forth in the Company's Prospectus filed April 2, 1998, or in
the Company's other Securities and Exchange Commission filings, could affect the
Company's  actual results and could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company in this Quarterly Report on Form 10-QSB.




<PAGE>


                            PART II-OTHER INFORMATION

     Item 1. Legal Proceedings

     None.

     Item 2. Changes in Securities

     On April 1, 1998,  the Company  completed an initial  public  offering (the
"Offering") of 1,600,000 shares of its Common Stock,  $.001 par value per share.
The  Company's   Registration   Statement  on  Form  SB-2  (Registration  Number
333-45121) was declared  effective by the Securities and Exchange  Commission on
April  1,  1998.  On  May  15,  1998,   Barington   Capital  Group,   L.P.  (the
"Underwriter")  exercised  its  over-allotment  option to purchase an additional
240,000 shares of Common Stock at the Offering price.

     The aggregate  offering price of the 1,840,000  shares of Common Stock sold
in the Offering to the public was $12,880,000. The Company realized net proceeds
of  approximately  $10,400,000  after  deduction of  underwriting  discounts and
commissions  and other  Offering  expenses  paid by the Company in the amount of
approximately $2,480,000.


     Item 3. Defaults Upon Senior Securities

     None.

     Item 4. Submission of Matters to a Vote of Security Holders

     None.

     Item 5. Other Information

     On August 27, 1998 a new research and development  center where the Company
had planned to relocate to in mid-September was destroyed in a fire. The Company
will remain at its current facilities nearby until a new location can be found.

     In September 1998 the Company entered into a transaction  with the inventor
of  the  Company's  patented  and  proprietary  thermal  management  technology,
Triangle  Research and Development  Corporation  ("TRDC"),  that will reduce the
Company's  future royalty payments to TRDC.  Additionally,  the Company has been
assigned TRDC's rights to an agreement with another  licensee of the technology.
This  assignment will result in the Company  receiving  royalty income from this
third party licensee subject to certain payback to TRDC.

     Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits


     27.1 Financial Data Schedule

     (b) Reports on Form 8-K

     99.1 Form 8-K dated September 8, 1998.*

     * incorporated by reference



 <PAGE>


                                   Signatures


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

     Dated: November 16, 1998

                                     FRISBY TECHNOLOGIES, INC.



                                  By:/s/Gregory S. Frisby
                                     ------------------------------
                                     Gregory S. Frisby
                                     President and Chief Executive Officer



                                  By:/s/Stephen P. Villa
                                     ------------------------------
                                     Stephen P. Villa
                                     Chief Financial Officer