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 September 30, 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
November 6, 1997.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
--- ---
<PAGE>
Item 1. Financial Statements
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Condensed Balance Sheets
================================================================================
September 30, June 30,
1997 1997
================================================================================
Assets
------
(unaudited)
Current assets:
Cash and cash equivalents $ 4,742,046 4,936,600
Accounts receivable 50,000 0
Contract work-in-progress -- 20,000
Prepaid expenses 30,658 52,798
----------- -----------
Total current assets 4,822,704 5,009,398
Property and equipment, net 72,134 34,941
Patents 189,037 189,037
Other assets 3,530 3,350
----------- -----------
Total assets $ 5,087,405 5,236,726
----------- ---------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable - stockholder -- 2,500
Other accounts payable 16,107 5,919
Accrued wages 6,520 20,614
Other accrued liabilities 103,132 122,142
----------- -----------
Total current liabilities 125,759 151,175
----------- -----------
Stockholders' equity:
Common stock, $0.001 par value
Authorized 10,000,000 shares; issued
and outstanding 4,262,600 shares at
September 30, 1997 and June 30,1997 4,263 4,263
Additional paid-in capital 7,514,145 7,514,145
Deficit accumulated during the development stage (2,556,762) (2,432,857)
----------- -----------
Total stockholders' equity 4,961,646 5,085,551
Commitments
================================================================================
Total liabilities and stockholders' equity $ 5,087,405 $ 5,236,726
================================================================================
See accompanying notes to condensed financial statements
2
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Condensed Statements of Operations
(unaudited)
Period from
July 1, 1988
(inception) through Three months ended
September 30, September 30,
---------------- ---------------------------------
1997 1997 1996
=========================================================================================================
<S> <C> <C> <C>
Revenues - testing services and research and
development fees $ 512,189 30,000 30,000
----------- ----------- -----------
Costs and expenses:
Research and development 1,437,234 79,544 66,593
General and administrative 948,455 141,710 26,130
Excess of fair market value over
exercise price of extended
and assigned existing common stock
purchase warrants 350,000 -- --
Fair value of common stock purchase
warrants granted to consultants 509,154 -- --
----------- ----------- -----------
Total costs and expenses 3,244,843 221,254 92,723
----------- ----------- -----------
Loss from operations (2,732,654) (191,254) (62,723)
----------- ----------- -----------
Interest income 175,792 67,349 1,055
Other income 100 -- --
----------- ----------- -----------
Net loss $(2,556,762) (123,905) (61,668)
----------- ----------- -----------
Net loss per share $ (0.03) (0.02)
Weighted average common and common share
equivalents outstanding 4,262,600 3,756,350
=========================================================================================================
See accompanying notes to condensed financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Stockholders' Equity
(unaudited)
Deficit
accumulated Total
Common stock Additional during the stock-
------------------------- paid-in development holders'
Shares Amount capital stage equity
========================================================================================================================
<S> <C> <C> <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 per 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 2,722,268 2,722 629,980 (543,619) 89,083
Repurchases 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)
---------- ---------- ---------- ---------- ----------
Balances 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 $34,600 218,000 218 401,182 -- 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)
---------- ---------- ---------- ---------- ----------
See accompanying notes to condensed financial statements
4
<PAGE>
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Stockholders' Equity (Continued)
(unaudited)
Deficit
accumulated Total
Common stock Additional during the stock-
------------------------- paid-in development holders'
Shares Amount capital stage equity
========================================================================================================================
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 -- -- 509,154 -- 509,154
Excess of fair market value over exercise
price of existing common stock purchase
warrants assigned by principal
stockholder to others -- -- 50,000 -- 50,000
Sale of common stock in
February - March, $6.00 per share,
net of issuance costs of $1,128,313 1,050,000 1,050 5,170,637 -- 5,171,687
Net loss -- -- -- (1,035,003) (1,035,003)
---------- ---------- ---------- ---------- ----------
Balances at June 30, 1997 4,262,600 4,263 7,514,145 (2,432,857) 5,085,551
Net loss -- -- -- (123,905) (123,905)
======================================================================================================================
Balances at September 30, 1997 4,262,600 4,263 7,514,145 (2,556,762) 4,961,646
======================================================================================================================
See accompanying notes to condensed financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
(unaudited)
Period from
July 1, 1988
(inception) through Three months ended
September 30 September 30
---------------------------------
1997 1997 1996
==============================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,556,762) (123,905) (61,668)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 125,614 8,272 5,053
Services received 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 -- --
Fair value of common stock
purchase warrants granted to
consultants 509,154 -- --
Changes in assets andliabilities:
Accounts receivable 50,000) (50,000) --
Contract work-in-progress -- 20,000 (30,000)
Accounts receivable/payable -
stockholder -- (2,500) (12,154)
Prepaid expenses (30,658) 22,140 249
Other assets (3,530) (180) --
Other accounts payable 16,107 10,188 (2,965)
Accrued wages 6,520 (14,094) --
Other accrued liabilities 103,132 (19,010) 26,954
----------- ----------- -----------
Net cash used in operating
activities (1,520,423) (149,089) (74,531)
---------- ----------- -----------
Cash flows from investing activities:
Patents (169,037) -- (452)
Purchase of property and
equipment (193,647) (45,465) (345)
----------- ----------- -----------
Net cash used in investing
activities (362,684) (45,465) (797)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net of issuance costs 6,643,254 -- --
Repurchase of common stock (14,000) -- --
Deferred IPO costs -- -- (17,910)
Organizational costs (4,101) -- --
----------- ----------- -----------
Net cash provided by
financing activities 6,625,153 0 (17,910)
----------- ----------- -----------
Increase (decrease) in
cash and cash equivalents 4,742,046 (194,554) (93,238)
Cash and cash equivalents at
beginning of period -- 4,936,600 212,689
----------- ----------- -----------
Cash and cash equivalents
at end of period 4,742,046 4,742,046 119,451
----------- ----------- -----------
Supplemental disclosure of noncash
financing and investing activities -
Patent costs in exchange for
common stock $ 20,000 -- --
=============================================================================================================
See accompanying notes to condensed financial statements
</TABLE>
6
<PAGE>
PROFILE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Condensed Financial Statements
- - --------------------------------------------------------------------------------
(1) Basis of Presentation
The unaudited interim condensed financial statements and related notes have
beenprepared 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
readin conjunction with the audited financial statements and notes thereto
included in the annual report Form 10KSB for the year ended June 30, 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) 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, for fiscal year 97, 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 antidilutive, using the treasury stock method and the anticipated
initial public offering price.
7
<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 now feasible. 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 September
30, 1997, the Company incurred losses of $2,556,762 and losses are expected to
continue at least through the second quarter of the year ending June 30, 1998;
no assurances can be given that losses will not continue thereafter.
RESULTS OF OPERATIONS
Quarter Ended September 30, 1997 Compared to the Quarter
Ended September 30, 1996
- - ---------------------------------------------------------
The Company had revenues of $30,000 for the quarter ended September 30,
1997 compared to $30,000 for the quarter ended September 30, 1996. The loss from
operations for the quarter ended September 30, 1997 was $191,254 compared to a
loss from operations of $62,723 for the quarter ended September 30, 1996. The
operating loss for the quarter ended September 30, 1997 was offset somewhat by
interest income in the amount of $67,349 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 $123,905 for the quarter ended September
30, 1997 compared to a net loss of $61,668 for the quarter ended September 30,
1996. Research and development expenses increased slightly to $79,544 for the
quarter ended September 30, 1997 compared to $66,593 for the quarter ended
September 30, 1996. General and administrative expenses increased substantially
8
<PAGE>
to $141,710 for the quarter ended September 30, 1997 from $26,130 for the
quarter ended September 30, 1996, primarily because of increased expenses
associated with setting up new corporate offices in New York and the
establishment of a research and development facility in Ferndale, Washington
following the completion of the public offering. The Company also incurred
increased salary expense because it was in the financial position to pay the
salaries and consulting fees that it had been limited in paying in the quarter
ended September 30, 1996. In addition, professional fees related to various tax
and accounting matters and board of directors liability insurance were incurred
during the quarter ended September 30, 1997 which were necessitated by the
Company's status as a publicly traded company.
LIQUIDITY AND CAPITAL RESOURCES
Revenues for the period from July 1, 1988 (inception) through September 30,
1997, were $512, 189 while expenses were $3,244,843, resulting in a loss from
operations, since inception, of $2,732,654. Net cash used in operating
activities from inception through September 30, 1997 was $1,520,423. Of this
amount, $149,089 was spent in the three month period ended September 30, 1997.
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
not been sufficient to cover expenses. Accordingly, the Company has maintained
adequate liquidity and cash reserves through the private placement and public
offering of its common stock. Such private placements, from inception through
the period ended March 31, 1996, totaled $1,471,567. The Company has not
conducted any private placements of its common stock since that date. 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 and equivalents as of September 30, 1997
increased substantially because of the public offering proceeds. At September
30, 1997, the Company had working capital of $4,696,945 and no material 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 $5,172,000 were
realized by the Company from this public offering. The Company, pending
utilization of the net proceeds in operations, has invested 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.
9
<PAGE>
RESOURCES
As of September 30, 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 as well as space to carry out research and
development activities in Ferndale, Washington. The Company will continue to
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.
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.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
11
<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: November 12, 1997 /s/ G.L. Scott
---------------
G.L. SCOTT
Chief Executive Officer
/s/Henry Gemino
HENRY GEMINO
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 4,742,046
<SECURITIES> 0
<RECEIVABLES> 50,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,822,704
<PP&E> 193,647
<DEPRECIATION> 121,513
<TOTAL-ASSETS> 5,087,405
<CURRENT-LIABILITIES> 125,759
<BONDS> 0
0
0
<COMMON> 4,263
<OTHER-SE> 4,957,383
<TOTAL-LIABILITY-AND-EQUITY> 5,087,405
<SALES> 30,000
<TOTAL-REVENUES> 30,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 221,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (123,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (123,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,905)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
