SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1997
Commission file number 0-21151
PROFILE TECHNOLOGIES, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 91-1418002
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1077 Northern Blvd., Roslyn, NY 11576
- - --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
516-365-1909
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
There were 4,262,600 shares of common stock issued and outstanding on May
9, 1997.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
----- -----
<PAGE>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Condensed Balance Sheets
- - --------------------------------------------------------------------------------
March 31, June 30,
1997 1996
- - --------------------------------------------------------------------------------
(unaudited)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 5,122,139 212,689
Prepaid expenses 77,883 249
----------- -----------
Total Current Assets $ 5,200,022 212,938
Property and equipment, net 22,012 34,443
Patents 128,813 118,361
Other assets 1,950 --
Deferred offering costs -- 95,864
----------- -----------
$ 5,352,797 461,606
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable - stockholder 2,500 14,654
Accounts payable 1,406 4,540
Accrued liabilities 64,369 52,699
----------- -----------
Total current liabilities 68,275 71,893
----------- -----------
Stockholders' equity:
Common stock, $0.001 par value
Authorized 10,000,000 share; issued
and outstanding 4,262,600 shares
at March 31, 1997 and 3,212,600
at June 30, 1996 4,263 3,213
Additional paid-in capital 7,521,110 1,784,354
Deficit accumulated during the
development stage (2,240,851) (1,397,854)
----------- -----------
Total stockholders' equity 5,284,522 389,713
- - --------------------------------------------------------------------------------
$ 5,352,797 $ 461,606
- - --------------------------------------------------------------------------------
See accompanying notes to condensed financial statements
1
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Condensed Statements of Operations
(unaudited)
Period from
July 1, 1988
(inception) through Three months ended Nine months ended
March 31, March 31, March 31,
----------------------- ----------------------
1997 1997 1996 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues - testing services and research
and development fees $ 462,189 -- -- 30,000 37,500
-------------------------------------------------------------------------------
Costs and expenses:
Research and development 1,259,559 55,943 82,018 174,109 166,285
General and administrative 624,854 108,480 36,731 169,421 97,605
Excess of fair market value over exercise
price of extended and assigned existing
common stock purchase warrants 350,000 -- 90,000 50,000 90,000
Fair value of common stock purchase warrants
granted to consultants 509,154 -- -- 509,154 --
-------------------------------------------------------------------------------
Total costs and expenses 2,743,567 164,423 208,749 902,684 353,890
-------------------------------------------------------------------------------
Loss from operations (2,281,378) (164,423) (208,749) (872,684) (316,390)
--------------------------------------------------------------------------------
Interest Income 40,427 28,345 1,645 29,687 3,700
Other Income 100 -- -- -- --
-------------------------------------------------------------------------------
Net loss $ (2,240,851) (136,078) (207,104) (842,997) (312,690)
-------------------------------------------------------------------------------
Net loss per share $ (0.03) (0.06) (0.20) (0.08)
Weighted average common and common share
equivalents outstanding 4,214,239 3,756,350 4,214,239 3,756,350
- - ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
(unaudited)
Period from
July 1, 1988
(inception) through Nine months ended
March 31, March 31,
---------------------
1997 1997 1996
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $( 2,240,851) (842,997) (312,690)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 111,792 15,272 15,931
Services rendered in exchange for common stock 10,000 -- --
Excess of fair value over exercise price of extended
and assigned existing common stock purchase warrants 350,000 50,000 90,000
Fair value of common stock purchase warrants granted to
consultants 509,154 509,154 --
Change in assets and liabilities:
Contract work in progress -- -- ( 2,500)
Accounts receivable/payable-stockholder 2,500 (12,154) 21,580
Prepaid expenses ( 77,883) (77,634) ( 708)
Security deposits ( 1,950) ( 1,950) --
Accounts payable 1,406 ( 3,134) 1,354
Accrued liabilities 64,369 11,670 (34,193)
Accrued wages -- -- (11,555)
---------------------------------------
Net cash used in operating activities (1,271,463) (351,773) (232,781)
---------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,650,219 5,306,151 401,400
Repurchase of common stock ( 14,000) -- --
Deferred IPO costs -- (31,635) ( 43,516)
Organization costs ( 4,101) -- --
--------------------------------------
Net cash provided by (used in) financing activities 6,632,118 5,274,516 357,884
--------------------------------------
Cash flows from investing activities:
Patents ( 108,813) (10,452) --
Purchase of property and equipment ( 129,703) ( 2,841) ( 6,318)
--------------------------------------
Net cash used in investing activities ( 238,516) (13,293) ( 6,318)
--------------------------------------
Increase (decrease) in cash and cash equivalents 5,122,139 5,122,139 118,785
Cash and cash equivalents at beginning of period 0 212,689 191,126
---------------------------------------
Cash and cash equivalents at end of period 5,122,139 5,122,139 309,911
--------------------------------------
Supplemental disclosure of noncash financing and investing activities:
Deferred IPO costs netted against proceeds from issuance of
common stock 127,499 127,499 --
Patent costs in exchange for common stock $ 20,000 -- 20,000
- - ---------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Statements of Stockholders' Equity
(unaudited)
- - -------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated Total
Additional during the stock-
Common Stock paid-in development holders'
Shares Amount capital stage equity
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sale at inception (July 1, 1988), $.0005 per share 1,000,000 $ 500 -- 500
Sale of common stock in July, $.0005 per share 600,000 300 -- 300
Sale of common stock in September, $.25 per share 400,000 1,200 98,800 100,000
Net loss -- -- -- ( 85,749) ( 85,749)
----------------------------------------------------------------
Balances at June 30, 1989 2,000,000 2,000 98,800 ( 85,749) 15,051
Sale of common stock in September, $.25 per share 80,000 80 19,920 -- 20,000
Net loss -- -- -- ( 13,683) ( 13,683)
----------------------------------------------------------------
Balances at June 30, 1990 2,080,000 2,080 118,720 ( 99,432) 21,368
Sale of common stock in October, $.25 per share 114,000 114 28,386 -- 28,500
Issuance of common stock for services in November, $.25
per share 40,000 40 9,960 -- 10,000
Net loss -- -- -- ( 30,593) (30,593)
----------------------------------------------------------------
Balances at June 30, 1991 2,234,000 2,234 157,066 (130,025) 29,275
Sale of common stock in September, $.625 per share 296,000 296 184,704 -- 185,000
Sale of common stock in May, $1.50 pe share 141,268 141 211,761 -- 211,902
Net loss -- -- -- (267,186) (267,186)
---------------------------------------------------------------
Balances at June 30, 1992 2,671,268 2,671 553,531 (397,211) 158,991
Sale of common stock in January, $1.50 per share 51,000 51 76,449 -- 76,500
Net loss -- -- -- (132,905) (132,905)
----------------------------------------------------------------
Balances at June 30, 1993 2,722,268 2,722 629,980 (530,116) 102,586
Net loss -- -- -- ( 13,503) ( 13,503)
----------------------------------------------------------------
Balances at June 30, 1994 2,722,298 2,722 629,980 (543,619) 89,063
Repurchase of common stock in October ( 16,000) ( 16) ( 13,984) -- ( 14,000)
Sale of common stock in December, $1.75 per share,
net of issuance costs of $22,115 268,332 269 447,196 -- 447,465
Excess of fair value over exercise price of existing
common stock purchase warrants extended in December -- -- 210,000 -- 210,000
Net loss -- -- -- (453,382) (453,382)
---------------------------------------------------------------
Balance at June 30, 1995 2,974,600 2,975 1,273,192 (997,001) 279,166
Issuance of common stock for services in
October, $1.00 per share 20,000 20 19,980 -- 20,000
Sale of common stock in December-March, $2.00 per
share, net of issuance costs of $34,600 218,000 216 401,182 -- 401,400
Excess of fair value over exercise price of
existing common stock purchase warrants extended
in March -- -- 90,000 -- 90,000
Net loss -- -- -- (400,853) (400,853)
----------------------------------------------------------------
Balances at June 30, 1996 3,212,600 3,213 1,784,354 (1,397,854) 389,713
Fair value of common stock purchase warrants granted
to consultants (unaudited) -- -- 509,154 -- 509,154
Excess fair market value over exercise price of
existing common stock purchase warrants assigned by
principal stockholder to others (unaudited) -- -- 50,000 -- 50,000
Sale of common stock in February-March, $6.00 per
share, net of issuance costs of $1,087,391 1,050,000 1,050 5,177,602 -- 5,178,652
Net loss (unaudited) -- -- -- ( 842,997) ( 842,997)
- - -------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1997 (unaudited) 4,262,600 4,263 7,521,110 (2,240,851) 5,284,522
- - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements
4
</TABLE>
<PAGE>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles. Ltd.)
(A Development Stage Enterprise)
Notes to Condensed Financial Statements
(1) Basis of Presentation
The unaudited interim condensed financial statements and related notes have
been prepared pursuant to the instructions to Form 10QSB. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such instructions. The
accompanying condensed financial statements and related notes should be
read in conjunction with the audited financial statements and notes thereto
included in the registration statement on Form SB-2 filed by the Company
under the Securities Act in February 1997.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring items, necessary for fair
presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
(2) Initial Public Offering
During February, 1997, the Company closed an initial public offering of
1,050,000 shares of its common stock at a price of $6 per share. Net
proceeds to the Company were approximately $5,179,000.
(3) Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents outstanding
during each year. Common stock equivalents include all warrants and stock
options which would have a dilutive effect, applying the treasury stock
method. Additionally, common and common equivalent shares issued during the
twelve months immediately preceding the date of the Company's / initial
public offering have been included in the calculation of common and common
equivalent shares as if they were outstanding for all periods presented,
including loss years where the impact of the incremental shares is anti
dilutive, using the treasury stock method and an initial public offering
price of $6 per share.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- - --------------------------------------------------------------------------------
GENERAL
The Company is in the business of developing and commercializing potential
processes for the non-destructive, non-invasive testing of both above ground and
buried pipeline to evaluate the condition and integrity of the pipeline. The
Company believes that the development of its pulse propagation analyzer process
and the further refinement of the technology associated therewith has progressed
to the point where it believes commercial utilization is feasible in the near
term. The Company has not, as of yet, obtained significant revenues from its
planned primary source of revenues and has no commercial contracts in place for
the use of its process or technology. The goal of the Company has been the
establishment of technological feasibility associated with its services to
electronically measure corrosion in piping of all kinds. The Company's process
identifies areas of corrosion, areas that lack cathodic protection and areas
that may have defective coating on both below ground and above ground pipes. The
pulse propagation analyzer consists of a computer, software to enhance
collection and processing of data, a precision multi-channel pulse generator and
a signal analyzer. During fiscal 1996, the Company began to see rapid progress
in the development of its technology and its ability to meet the expectations of
potential customers. By that time, the Company had begun to accelerate its
efforts and expend more resources to develop its technology faster. Thus,
expenses have been generally increasing at a faster pace than in prior periods.
The Company expects these trends to continue as its technological development
continues at this accelerated pace. The Company believes that it attained
technological feasibility of its process with the completion of its research and
development activity in a controlled environment in July of 1996.
In order for the Company to obtain significant revenues from the use of its
technology, the Company must establish a sales and marketing organization that
is effective and obtains customers for its pulse propagation analyzer. The
Company must also be able to supply and train work crews in sufficient numbers
to satisfy the requirements of its customers. From inception through March 31,
1997, the Company incurred losses of $2,240,851 and losses are expected to
continue at least through the fourth quarter of the year ending June 30, 1997;
no assurances can be given that losses will not continue thereafter.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared to the Quarter Ended March 31, 1996
- - -------------------------------------------------------------------------
The Company has no revenues for either of the quarters ended March 31, 1997
and March 31, 1996 respectively. The loss from operations for the quarter ended
March 31, 1997 was $164,423 compared to a loss from operations of $208,749 for
the quarter ended March 31, 1996. The operating loss for the quarter ended March
31, 1997 was offset somewhat by interest income in the amount of $28,345,
representing interest earned from proceeds of the Company's public offering
which was completed in February of 1997. This resulted in a net loss of $136,078
for the quarter ended March 31, 1997 compared to a net loss of $207,104 for the
quarter ended March 31, 1996. Research and development expenses decreased to
$55,943 for the quarter ended March 31, 1997 compared to $82,018 for the quarter
ended March 31, 1996. This was indicative of limited amounts of cash available
to the Company in the quarter ended March 31, 1997 prior to completion of the
7
<PAGE>
Company's public stock offering. General and administrative expenses increased
to $108,480 for the quarter ended March 31, 1997 from $36,731 for the quarter
ended March 31, 1996, primarily because of increased expenses associated with
setting up new corporate offices in New York following the completion of the
public offering, professional fees related to various tax and accounting
matters, and board of directors liability insurance.
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996.
- - ------------------------------------------------------------------------------
Revenues decreased slightly to $30,000 for the nine months ended March 31,
1997 from $37,500 for the nine months ended March 31, 1996. Revenues in both
nine month periods were derived from research and development contracts or
demonstration contracts with two large multi-national oil companies. Total costs
and expenses for the nine months ended March 31, 1997 were $902,684 compared to
total costs and expenses of $353,890 for the nine months ended March 31, 1996.
Of the total costs and expenses for the nine months ended March 31, 1997,
$559,154, or 61.9% were for noncash, nonrecurring charges associated with the
issuance or extension of common stock purchase warrants. Without giving effect
to such costs and expenses, total costs and expenses for the nine months ended
March 31, 1997 were $343,530 compared to $263,890 for the nine months ended
March 31, 1996. This represents an increase of $79,640 or 30.2%. Research and
development expenses increased to $174,109 for the nine months ended March 31,
1997 from $166,285 for the nine months ended March 31, 1996, an increase of
$7,824 or 4.7%. The increase is primarily due to an increase in expenses
relating to a field demonstration of the Company's technology for a large
multi-national oil company in Alaska in September of 1996. General and
administrative expenses increased for the nine months ended March 31, 1997 to
$169,421 compared to $97,605 for the nine months ended March 31, 1996.
Management believes that both revenues and expenses of the Company are
likely to increase during the fiscal year ending June 30, 1997 if it is able to
secure contracts with customers, of which there is no assurance. The revenues
earned by the Company to date principally relate to research and development
activities that have been sponsored by large multi-national oil companies and
large utilities. These activities included field research and development at
such companies' facilities. These activities are likely to continue during the
year ending June 30, 1997 and for the foreseeable future. Management is also
vigorously working towards obtaining fee for service contracts, which are hoped
to be the major source of the Company's revenues. If fee for service contracts
are obtained, management expects its expenditures associated with personnel and
testing equipment will begin to rise. In addition, as the Company begins to
actually provide fee for service work, additional administrative support
activities will increase together with related expenses.
LIQUIDITY AND CAPITAL RESOURCES
Revenues for the period from July 1, 1988 (inception) through March 31,
1997, were $462,189 while expenses were $2,743,567, resulting in a loss from
operations, since inception, of $2,281,378. Net cash used in operating
activities from inception through March 31, 1997 was $1,271,463. Of this amount,
$196,593 was spent in the three month period ended March 31, 1997. For the nine
months ended March 31, 1997, cash used in operations was $351,773. Thus, while
the revenues derived from research and development activities funded by
multi-national oil companies and major utilities have been indicative of
financial support for the Company's efforts to develop its technology, they have
8
<PAGE>
not been sufficient to cover expenses. Accordingly, the Company has maintained
adequate liquidity and cash reserves through the private placement of its common
stock. Such offerings, from inception through the period ended March 31, 1997,
totaled $1,471,567. In December 1994 the Company extended the expiration date on
certain Common Stock purchase warrants which, pursuant to the requirements of
generally accepted accounting principals, resulted in the recognition of an
additional contribution of capital in the amount of $210,000 together with a
corresponding charge to compensation expense. Such warrants were further
extended in the quarter ended March 31, 1996 and the Company incurred an
additional expense of $90,000 in connection therewith. Additional noncash
expenses relating to the issuance of new warrants or the extension of previously
issued warrants in the amount of $559,154 were incurred in the quarter ended
December 31, 1996. These transactions had no effect on aggregate stockholders'
equity. The Company did not have difficulty arranging for private placements of
its common stock in the past, and these placements provided sufficient liquidity
for the Company to operate. The Company's available cash as of March 31, 1997
increased substantially because of the public offering proceeds. The Company was
able to maintain a positive working capital position in between common stock
offerings through prudent expense control. At March 31, 1997, the Company had
working capital of $5,131,747 and no long term commitments or material
commitments for capital expenditures.
In February of 1997, the Company completed an initial public offering of
its common stock, selling 1,000,000 shares at a price of $6.00 per share, as
well as an Underwriter's overallotment option of 50,000 shares, also at a price
of $6.00 per share. Net offering proceeds of approximately $5,179,000 were
realized by the Company from this public offering. The Company, pending
utilization of the net proceeds in operations, anticipates that it will invest
such proceeds in short-term, high grade, interest-bearing instruments. The
Company believes that its current capital resources and liquidity are adequate
for at least the next twelve months. Other than equipment purchases for field
crews if the Company is successful in obtaining commercial contracts, the
Company does not have any plans for significant capital expenditures. To date,
the Company has only obtained small research and development contracts, the
proceeds of which were used to defray a portion of the Company's research and
development costs.
RESOURCES
As of March 31, 1997 the Company did not have any material commitments for
capital expenditures. However, it is management's intention to direct the
Company's activities towards obtaining fee for service contracts, which will
necessitate the Company attracting, hiring, training and outfitting qualified
technicians. The Company's intention is to purchase such equipment for its field
crews for the foreseeable future, until such time as the scope of the operations
may require alternate sources of financing such equipment. The timing of these
events is dependent upon the Company's ability to obtain fee for service
contracts, which is dependent upon the Company's continuing ability to
demonstrate the effectiveness of its technology. The Company believes that its
cash position is sufficient to satisfy its operating needs for the next twelve
months. Management believes it is well on the way to reaching these milestones,
but there can be no assurance that the Company's process will be accepted within
any particular time frame, or at all. The Company recently acquired commercial
office space in the NewYork City area and is looking for space to carry out
research and development activities in Lynden, Washington. The Company will
incur increased expenses associated with the leasing of such space. The Company
will also incur additional personnel expenses as it hires and trains field crews
and support personnel related to the successful receipt of commercial contracts.
9
<PAGE>
PART II
Item 1. Legal Proceedings.
The Company is not a party to any pending or threatened legal proceedings.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROFILE TECHNOLOGIES, INC.
(Registrant)
Date: May 12, 1997 /S/ G. L. SCOTT
-------------------------------
G.L. SCOTT
Chief Executive Officer
/S/ HENRY GEMINO
--------------------------------
HENRY GEMINO
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,122,139
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,200,022
<PP&E> 122,703
<DEPRECIATION> 107,691
<TOTAL-ASSETS> 5,352,797
<CURRENT-LIABILITIES> 68,275
<BONDS> 0
0
0
<COMMON> 4,263
<OTHER-SE> 5,280,259
<TOTAL-LIABILITY-AND-EQUITY> 5,352,797
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 164,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (136,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> (136,078)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,078)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
