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 DECEMBER 31, 1996
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., Manhasset, 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 4,212,600 shares of common stock issued and outstanding on March
10, 1997.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
----- -----
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<CAPTION>
Item 1. Financial Statements
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Condensed Balance Sheets
======================================================================================
December 31, June 30,
1996 1996
- - --------------------------------------------------------------------------------------
Assets (unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 25,077 212,689
Contract work in progress 30,000 --
Prepaid expenses 530 249
----------------------
Total current assets 55,607 212,938
Property and equipment, net 24,487 34,443
Patents 118,813 118,361
Deferred offering costs 127,499 95,864
----------------------
$326,406 461,606
======================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable - stockholder 2,500 14,654
Accounts payable 2,535 4,540
Accrued liabilities 63,673 52,699
Accrued wages 15,750 --
----------------------
Total current liabilities 84,458 71,893
----------------------
Stockholders' equity:
Common stock, $0.001 par value
Authorized 10,000,000 shares; issued 3,213 3,213
and outstanding 3,212,600 shares at
December 31, 1996 and June 30,1996
Additional paid-in capital 2,343,508 1,784,354
Deficit accumulated during the development stage (2,104,773) (1,397,854)
-----------------------
Total stockholders' equity 241,948 389,713
- - ------------------------------------------------------------------------------------
$326,406 461,606
====================================================================================
See accompanying notes to condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Condensed Statements of Operations
(unaudited)
- - -----------------------------------------------------------------------------------------------------------------------------------
Period from
July 1, 1988
(inception) Three months ended Six months ended
through December 31 December 31
December 31, --------------------- -------------------
1996 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues - testing services and research and $ 462,189 - 21,500 30,000 37,500
development fees
-------------------------------------------------------------------------------
Costs and expenses:
Research and development 1,203,616 51,573 39,233 118,166 84,267
General and administrative 516,374 34,811 37,018 60,941 60,874
Excess of fair market value over exercise 350,000 50,000 - 50,000 -
price of extended and assigned
existing common stock purchase
warrants
Fair value of common stock purchase 509,154 509,154 - 509,154 -
warrants granted to consultants
-------------------------------------------------------------------------------
Total costs and expenses 2,579,144 645,538 76,251 738,261 145,141
-------------------------------------------------------------------------------
Loss from operations (2,116,955) (645,538) (54,751) (708,261) (107,641)
-------------------------------------------------------------------------------
Interest income 12,082 287 940 1,342 2,055
Other income 100 - - - -
-------------------------------------------------------------------------------
Net loss $ (2,104,773) (645,251) (53,811) (706,919) (105,586)
-------------------------------------------------------------------------------
Net loss per share $ (.17) (.01) (.19) (.03)
==========================================================
Weighted average common and common share 3,756,350 3,693,683 3,756,350 3,687,017
equivalents outstanding
===================================================================================================================================
See accompanying notes to condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
(Formerly Pipeline Profiles, Ltd.)
(A Development Stage Enterprise)
Statements of Stockholders' Equity
- - -----------------------------------------------------------------------------------------------------------------------------------
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 share 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, 268,332 269 447,196 -- 447,465
net of issuance costs of $22,115
Excess of fair value over exercise price of existing -- -- 210,000 -- 210,000
common stock purchase warrants extended in December
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, 20,000 20 19,980 -- 20,000
$1.00 per share
Sale of common stock in December-March, $2.00 per 218,000 218 401,182 -- 401,400
share, net of issuance costs of $34,600
Excess of fair value over exercise price of existing -- -- 90,000 -- 90,000
common purchase warrants extended in March
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 -- -- 509,154 -- 509,154
to consultants (unaudited)
Excess of fair market value over exercise price of -- -- 50,000 -- 50,000
existing common stock purchase warrants assigned
by principal stockholder to others (unaudited)
Net loss (unaudited) -- -- -- (706,919) (706,919)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 (unaudited) 3,212,600 $ 3,213 2,343,508 (2,104,773) 241,948
===================================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
<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
December 31, Six months ended
December 31
-------------------------------
1996 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,104,773) (706,919) (105,586)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 106,821 10,301 10,495
Services received in exchange for common stock 10,000 - -
Excess of fair value over exercise price of extended and assigned 350,000 50,000 -
existing common stock purchase warrants
Fair value of common stock purchase warrents granted to 509,154 509,154 -
consultants
Changes in assets and liabilities:
Contract work in progress (30,000) (30,000) (12,500)
Accounts receivable - stockholder 2,500 (12,154) -
Prepaid expenses (530) (281) (1,504)
Accounts payable 2,535 (2,005) (624)
Accrued liabilities 63,673 10,974 (21,558)
Accrued wages 15,750 15,750 (11,555)
----------------------------------------------------
Net cash used in operating activities (1,074,870) (155,180) (142,832)
----------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,471,567 - 180,000
Repurchase of common stock (14,000) - -
Deferred IPO costs (127,499) (31,635) (35,516)
Organization costs (4,101) - -
----------------------------------------------------
Net cash provided by (used in) financing activities 1,325,967 (31,635) 144,484
----------------------------------------------------
Cash flows from investing activities:
Patents (98,813) (452) -
Purchase of property and equipment (127,207) (345) (1,798)
----------------------------------------------------
Net cash used in investing activities (226,020) (797) (1,798)
----------------------------------------------------
Increase (decrease) in cash and cash equivalents 25,077 (187,612) (146)
Cash and cash equivalents at beginning of period - 212,689 191,126
----------------------------------------------------
Cash and cash equivalents at end of period 25,077 25,077 190,980
----------------------------------------------------
Supplemental disclosure of noncash investing activities - patent costs in $ 20,000 - 20,000
exchange for common stock
===================================================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
<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 of 1933 in February 1997.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring items, necessary for a
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, common and common equivalent shares issued during the
twelve months immediately preceding the anticipated 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 an initial public
offering price of $6 per share.
(3) Event Subsequent to December 31, 1996 - Financing
On February 18, 1996, the Company closed an initial public offering of
1,000,000 shares of its common stock at a price of $6 per share. Net
proceeds to the Company were approximately $5,150,000.
<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 and purchases of equipment 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 December
31, 1996, the Company incurred losses of $2,104,773 and losses are expected to
continue at least through the third quarter of the year ending June 30, 1997; no
assurances can be given that losses will not continue thereafter.
RESULTS OF OPERATIONS
Quarter Ended December 31, 1996 Compared to the Quarter Ended December 31, 1995
- - -------------------------------------------------------------------------------
The Company has no revenues for the quarter ended December 31, 1996
compared to $21,500 in revenues for the quarter ended December 31, 1995. The
loss from operations for the quarter ended December 31, 1996 was $645,538
compared to a loss from operations of $54,751 for the quarter ended December 31,
1995. Of the operating loss of $645,538 for the quarter ended December 31, 1996,
$559,154, or 86.6%, of such loss was attributed to noncash, nonrecurring
expenses associated with the issuance of new common stock purchase warrants to
certain officers, directors or certain outside consultants or to the extension
of already issued and outstanding common stock purchase warrants. Research and
development expenses increased to $51,573 for the quarter ended December 31,
1996 compared to $39,233 for the quarter ended December 31, 1995. This is
2
<PAGE>
indicative of increased expenses associated with an increase in research and
development activity. General and administrative expenses decreased slightly to
$34,811 for the quarter ended December 31, 1996 from $37,018 for the quarter
ended December 31, 1995.
Six Months Ended December 31, 1996 Compared to Six Month Ended December 31,
1995.
- - --------------------------------------------------------------------------------
Revenues decreased slightly to $30,000 for the six months ended December
31, 1996 from $37,500 for the six months ended December 31, 1995. Revenues in
both six 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 six months ended December 31, 1996 were $738,261 compared
to total costs and expenses of $145,141 for the quarter ended December 31, 1995.
Of the total costs and expenses for the quarter ended December 31, 1996,
$559,154, or 75.7% 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 six months ended
December 31, 1996 were $179,107 compared to $145,141 for the six months ended
December 31, 1995. This represents an increase of $33,966 or 23.4%. Research and
development expenses increased to $118,166 for the six months ended December 31,
1996 from $84,267 for the six months ended December 31, 1995, an increase of
$33,899 or 40.2%. 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 were generally flat for the six months ended December
31, 1996 ($60,941) compared to the six months ended December 31, 1995 ($60,874).
Management believes that both revenues and expenses of the Company may
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 December 31,
1996, were $462,189 while expenses were $2,579,144, resulting in a loss from
operations, since inception, of $2,116,955. Net cash used in operating
activities from inception through December 31, 1996 was $1,074,870. Of this
amount, $80,649 was spent in the three month period ended December 31, 1996. For
the six months ended December 31, 1996, cash used in operations was $155,180.
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 of its common
stock.
3
<PAGE>
Such offerings, from inception through the period ended December 31, 1996,
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. Cash flow from investing activity through December
31, 1996 was minimal because of a lack of cash assets. The Company has generally
been able to maintain a positive working capital position in between common
stock offerings through prudent expense control. At December 31, 1996, the
Company had negative working capital of $(28,851) 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. Net
offering proceeds of approximately $5,150,000 were realized by the Company from
this public offering. Cash flow from investing activities is expected to
increase substantially because the Company, pending utilization of the net
proceeds in operations, 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 December 31, 1996 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.
4
<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
5
<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: March 24, 1997 /s/ G.L. SCOTT
---------------------------------
G.L. SCOTT
Chief Executive Officer
/s/ HENRY GEMINO
---------------------------------
HENRY GEMINO
Secretary-Treasurer
Chief Financial Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,077
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,607
<PP&E> 127,207
<DEPRECIATION> 102,720
<TOTAL-ASSETS> 326,406
<CURRENT-LIABILITIES> 84,458
<BONDS> 0
0
0
<COMMON> 3,213
<OTHER-SE> 238,735
<TOTAL-LIABILITY-AND-EQUITY> 326,406
<SALES> 0
<TOTAL-REVENUES> 30,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 738,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (708,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> (706,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (706,919)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
