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, 1999
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 (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 be
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 4,285,092 shares of common stock outstanding on October 27,
1999.
Transitional Small Business Disclosure Format
(Check one):
Yes ___ No _X_
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<CAPTION>
PROFILE TECHNOLOGIES, INC.
Condensed Balance Sheets
- -------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
- -------------------------------------------------------------------------------------------
(unaudited)
Assets
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,795,845 3,140,647
Accounts receivable -- 15,106
Contract work-in-progress 228,097 87,750
Prepaid expenses 23,170 24,562
Other current assets 8,050 --
-------------------------------
Total current assets 3,055,162 3,268,065
Equipment, net 146,163 140,099
Patents, net 245,420 259,303
Other assets 9,993 9,993
-------------------------------
Total assets $ 3,456,738 3,677,460
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Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable - stockholder $ 3,290 7,423
Other accounts payable 17,825 25,826
Accrued liabilities 78,609 88,500
-------------------------------
Total current liabilities 99,724 121,749
-------------------------------
Stockholders' equity:
Common stock, $0.001 par value
Authorized 10,000,000 shares; issued
and outstanding 4,280,092 shares at
September 30, 1999 and 4,275,092 shares
at June 30, 1999 4,280 4,275
Additional paid-in capital 7,567,378 7,561,758
Accumulated deficit (4,214,644) (4,010,322)
-------------------------------
Total stockholders' equity 3,357,014 3,555,711
-------------------------------
Total liabilities and
stockholders' equity $ 3,456,738 3,677,460
--------------------------------
See accompanying notes to condensed financial statements
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PROFILE TECHNOLOGIES, INC.
Condensed Statements of Operations
(unaudited)
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Three months ended
September 30,
------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------
Revenues $ 140,347 138,985
------------------------------
Cost of revenues 69,617 42,211
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Gross profit 70,730 96,774
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Research and development 58,636 68,850
General and administrative 252,136 168,950
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Total costs and expenses 310,772 237,800
------------------------------
Loss from operations (240,042) (141,026)
------------------------------
Interest income 35,720 54,265
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Net loss $ (204,322) (86,761)
------------------------------
Basic and diluted net loss per share $ (0.05) (0.02)
Shares used to calculate basic and diluted
net loss per share 4,279,259 4,269,430
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See accompanying notes to condensed financial statements
2
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PROFILE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(unaudited)
- --------------------------------------------------------------------------------------------
Three months ended
September 30,
---------------------------
1999 1998
- --------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (204,322) (86,761)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 32,640 21,316
Changes in assets and liabilities:
Accounts receivable 15,106 (48,155)
Contract work-in-progress (140,347) --
Accounts receivable/payable - stockholder (4,133) (13,313)
Prepaid expenses 1,392 8,423
Other current assets (8,050) --
Other accounts payable (8,001) (7,885)
Accrued liabilities (9,891) 17,989
-------------------------
Net cash used in operating activities (325,606) (108,386)
-------------------------
Cash flows from investing activities:
Patents (1,608) (49,572)
Purchase of equipment (23,213) (20,958)
--------------------------
Net cash used in investing activities (24,821) (70,530)
--------------------------
Cash flows from financing activities:
Proceeds from exercise of common stock purchase warrants 5,625 47,625
--------------------------
Net cash provided by financing activities 5,625 47,625
--------------------------
Decrease in cash and cash equivalents (344,802) (131,291)
Cash and cash equivalents at beginning of period 3,140,647 4,167,951
--------------------------
Cash and cash equivalents at end of period $ 2,795,845 4,036,660
--------------------------
- --------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements
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PROFILE TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
1. Description of Business
Profile Technologies, Inc. (Company) is in the business of developing and
commercializing potential processes for the nondestructive, noninvasive testing
of both above ground and buried pipelines for the effectiveness of pipeline
cathodic protecting systems and coating integrity. The Company's future revenues
are currently dependent upon the market's acceptance of its sole developed
process.
2. Basis of Presentation
The unaudited interim condensed financial statements and related notes of the
Company have been prepared pursuant to the instructions to Form 10QSB.
Accordingly, certain information and footnote disclosures normally included in
the 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 annual report on form 10KSB for the year ended June 30, 1999 (filed
September 24, 1999). The information furnished reflects, in the opinion of
management, all adjustments, consisting of only normal recurring items,
necessary for fair presentation of the results of the interim periods presented.
Interim results are not necessarily indicative of results for a full year.
3. Net Loss Per Share
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. Diluted loss
per share is computed by dividing the net loss by the weighted average number of
common and dilutive common equivalent shares outstanding during the period. As
the Company had a net loss attributable to common shareholders in each of the
periods presented, basic and diluted net loss per share are the same.
Excluded from the computation of diluted loss per share for the three months
ended September 30, 1999 are warrants and options to acquire 1,251,000 shares of
common stock with a weighted-average exercise price of $4.09 because their
effect would be antidilutive. Excluded from the computation of diluted loss per
share for the three months ended September 30, 1998 are warrants to acquire
1,140,000 shares of common stock with a weighted-average exercise price of $3.59
because their effect would be antidilutive.
4
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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
development of its pulse propagation analyzer process and the further refinement
of the technology associated therewith have progressed to the point where it is
now being utilized commercially. The Company has begun to obtain revenues from
its commercial activities but has not yet reached profitability. There can be no
assurance that the Company will obtain commercial contracts in the future that
would produce operating revenues sufficient to attain profitability. The
Company's process identifies electromagnetic anomalies that may be indicative of
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.
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. For the two-year period ended June
30, 1999, the Company incurred net losses of $ 1,577,465 and experienced a
further net loss of $204,322 for the quarter ended September 30, 1999. Losses
are expected to continue at least through the second quarter of the year ending
June 30, 2000; no assurances can be given that losses will not continue
thereafter.
RESULTS OF OPERATIONS
Quarter Ended September 30, 1999 Compared to the Quarter Ended September 30,
1998.
- --------------------------------------------------------------------------------
The Company had revenues of $140,347 for the quarter ended September 30,
1999 compared to revenues of $138,985 for the quarter ended September 30, 1998.
The loss from operations for the quarter ended September 30, 1999 was $240,042
compared to a loss from operations of $141,026 for the quarter ended September
30, 1998. The loss from operations in the quarter ended September 30, 1999
increased by $99,016 over the comparable quarter ended September 30, 1998
primarily because of increased general and administrative expenses of $252,136
compared to $168,950 incurred in the quarter ended September 30, 1998. The
operating loss for the quarter ended September 30, 1999 was offset somewhat by
interest income in the amount of $35,720 representing interest earned from
proceeds of the Company's public stock offering which was completed in February
of 1997. This resulted in a net loss of $204,322 for the quarter ended September
30, 1999 compared to a net loss of $86,761 for the quarter ended September 30,
1998. Research and development expenses decreased slightly to $58,636 for the
quarter ended September 30, 1999 compared to $68,850 for the quarter ended
5
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September 30, 1998. General and administrative expenses increased by $83,186 for
the quarter ended September 30, 1999 from the quarter ended September 30, 1998
primarily because of increased salary expenses associated with hiring additional
personnel, including a new President, costs associated with opening a new office
in upstate New York devoted to data interpretation and analysis and an increase
in travel expenses.
Management believes that both revenues and expenses of the Company are
likely to continue to increase during the remainder of the fiscal year ending
June 30, 2000 compared to the fiscal year ended June 30, 1999 if it is able to
secure additional contracts with customers, of which there is no assurance. The
revenues earned by the Company to date have often included 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 and are likely to continue during the
year ending June 30, 2000 and for the foreseeable future. Management is also
working towards obtaining additional fee for service contracts that are expected
to be the major source of the Company's revenues. If such contracts are
obtained, management expects that 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 on a larger scale, additional
administrative support activities will increase together with related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed work on its first commercial contracts during the
year ended June 30, 1999 when it emerged from development stage activities. Net
cash used in operating activities totaled $325,606 in the three months ended
September 30, 1999 compared to $108,386 for the three months ended September 30,
1998 and the Company expects that additional operating activities will result in
cash outflows in the near term while the Company pursues additional commercial
contracts, marketing activities, and research and development. Cash outflows
from operations are expected to continue at least through the second quarter of
the year ending June 30, 2000; no assurances can be given that operational
activities will generate positive cash flows thereafter.
The Company's cash and cash equivalents as of September 30, 1999 were
$2,795,845. At September 30, 1999, the Company had working capital of $2,955,438
and no material long-term commitments or material commitments for capital
expenditures.
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 additional commercial
contracts, and the expenses associated with the hiring and training of such
field crews, the Company does not have any plans for significant capital or
operating expenditures above its current level.
6
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RESOURCES
As of September 30, 1999 the Company did not have any material commitments
for capital expenditures. However, management is currently directing the
Company's activities towards obtaining additional fee for service contracts,
which will necessitate the Company attracting, hiring, training and outfitting
qualified technicians. The Company's intention is to purchase field 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
additional 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 gain widespread commercial acceptance within any particular time
frame, or at all. The Company will incur additional personnel expenses as it
hires and trains field crews and support personnel related to the successful
receipt of commercial contracts.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex since virtually
every company's computer operation will be affected in some way. The Company's
computer programs which process its field data as well as operation and
financing transactions were designed and developed without considering the
impact of the upcoming change in century. Nevertheless, as a result of the
Company's analysis of its computer programs and operations, the Company believes
that "Year 2000" problems will not seriously impact or have a material adverse
effect on the Company's expenses, business, including data gathering and
interpretation, or its operations.
It is possible, however, that "Year 2000" problems incurred by the
customers or suppliers of the Company could have a negative impact on future
operations and financial performance of the Company, although the Company has
not been able to specifically identify any such problems among its suppliers.
The Company believes that it will not be dependent upon any single supplier for
its equipment or machinery in the year 2000, and therefore has made a
determination not to contact its primary suppliers to determine if they are
developing plans to address processing transactions which may impact the Company
in the year 2000. However, there can be no assurance that Year 2000 problems
will not occur with respect to the Company's computer systems. Furthermore, the
Year 2000 problem may impact other entities with which the Company transacts
business and the Company cannot predict the effect of the Year 2000 problem on
such entities or the resulting effect on the Company.
7
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The Company has completed an audit of its internal systems and believes
these systems are Year 2000 compliant. The Company does not rely on any
non-compliant third party software and therefore third party non-compliance will
not materially adversely affect its business operations. The Company has
upgraded its software and hardware to the latest year 2000 compliant platform
and tested its software in the new platform. In case the Company's computerized
information system fails, it will rely on its manual information system, which
is comprised of original hand written or typed records, to process its
transactions such as accounts receivable, accounts payable, delivery schedules
and invoicing. The manual system will be very time consuming and labor
intensive, therefore additional staff might be required if the Company has to
use the manual system in the worst case scenario. The Company believes that
additional staff can be hired and trained within a reasonable time frame to meet
its requirements in case its information system failed.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending or threatened legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
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.
8
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27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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 5, 1999 /s/ G. L. Scott
-------------------------------------
G. L. SCOTT
Chief Executive Officer
/s/ Henry Gemino
-------------------------------------
HENRY GEMINO
Chief Financial Officer
9
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 2,795,845
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,055,162
<PP&E> 371,666
<DEPRECIATION> 225,503
<TOTAL-ASSETS> 3,456,738
<CURRENT-LIABILITIES> 99,724
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0
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<COMMON> 4,280
<OTHER-SE> 3,352,734
<TOTAL-LIABILITY-AND-EQUITY> 3,456,738
<SALES> 0
<TOTAL-REVENUES> 140,347
<CGS> 69,617
<TOTAL-COSTS> 310,772
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (204,322)
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