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, 2000
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 May 2, 2000.
Transitional Small Business Disclosure Format
(Check one):
Yes ___ No X
<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
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 $1,016,422 for the nine months ended March 31, 2000. Losses
are expected to continue at least through the year ending June 30, 2000; no
assurances can be given that losses will not continue thereafter.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000 Compared to the Quarter Ended March 31, 1999.
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The Company had revenues of $5,250 for the quarter ended March 31, 2000
compared to revenues of $0 for the quarter ended March 31, 1999. The loss from
operations for the quarter ended March 31, 2000 was $456,317, compared to a loss
from operations of $311,980 for the quarter ended March 31, 1999. The loss from
operations in the quarter ended March 31, 2000 increased by $144,337 over the
comparable quarter ended March 31, 1999 primarily because of increased general
and administrative expenses of $391,486 compared to $229,017 incurred in the
quarter ended March 31, 1999. The operating loss for the quarter ended March 31,
2000 was offset somewhat by interest income in the amount of $32,265
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
$424,052 for the quarter ended March 31, 2000 compared to a net loss of $271,101
for the quarter ended March 31, 1999. Research and development expenses
2
<PAGE>
decreased to $69,096 for the quarter ended March 31, 2000 compared to $82,963
for the quarter ended March 31, 1999. General and administrative expenses
increased by $162,469 for the quarter ended March 31, 2000 from the quarter
ended March 31, 1999 primarily because of increased salary expenses associated
with hiring additional personnel, including a new Vice-President for marketing,
costs associated with opening a new office in upstate New York devoted to data
interpretation and analysis and an increase in travel expenses.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999.
- ------------------------------------------------------------------------------
Revenues decreased to $147,500 for the nine months ended March 31, 2000
compared to $178,910 for the nine months ended March 31, 1999. Revenues in the
nine months ended March 31, 2000 were derived from both commercial contracts and
demonstration projects with large multi-national oil companies. Total costs and
expenses for the nine months ended March 31, 2000 were $1,192,903 compared to
$863,950 for the nine months ended March 31, 1999, an increase of $328,953 or
38%. Research and development expenses decreased slightly to $219,248 from
$229,740 for the nine months ended March 31, 1999, a decrease of $10,492 or
4.6%. General and administrative expenses increased for the nine months ended
March 31, 2000 to $973,655 compared to $634,210 for the nine months ended March
31, 1999, primarily as a result of additional personnel expenses as the Company
focused on hiring and training additional field crew personnel and marketing
personnel.
Management believes that both revenues and expenses of the Company are
likely 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
Net cash used in operating activities totaled $902,279 in the nine months
ended March 31, 2000 compared to $642,302 for the nine months ended March 31,
1999 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 first quarter of
the year ending June 30, 2001; no assurances can be given that operational
activities will generate positive cash flows thereafter.
3
<PAGE>
The Company's cash and cash equivalents as of March 31, 2000 were
$2,158,855. At March 31, 2000, the Company had working capital of $2,113,609 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.
RESOURCES
As of March 31, 2000, 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 did not experience any "Year 2000" computer related problems
nor did any such problems of its customers and suppliers have any impact on the
Company's expenses, business, including data gathering and interpretation, or
its operations. The Company does not believe that it will incur any "Year 2000"
problems in the future and is therefore of the opinion that such problems will
not have any material impact on its future operations and business.
4
<PAGE>
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.
27.1 Financial Data Schedule
(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: May 12, 2000 /s/ G. L. Scott
---------------
G. L. SCOTT
Chief Executive Officer
/s/ Henry Gemino
----------------
HENRY GEMINO
Chief Financial Officer
6
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
Condensed Balance Sheets
(unaudited)
March 31, June 30,
2000 1999
----------- -----------
Assets
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,158,855 $ 3,140,647
Accounts receivable 12,050 15,106
Contract work-in-progress -- 87,750
Prepaid expenses and other current assets 58,434 24,562
----------- -----------
Total current assets 2,229,339 3,268,065
Equipment, net 185,955 140,099
Patents, net 240,982 259,303
Other assets 9,993 9,993
----------- -----------
Total assets $ 2,666,269 $ 3,677,460
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable - stockholder $ 1,178 $ 7,423
Other accounts payable 57,077 25,826
Accrued liabilities 57,475 88,500
----------- -----------
Total current liabilities 115,730 121,749
Stockholders' equity:
Common stock, $0.001 par value. Authorized 10,000,000 shares; issued
and outstanding 4,285,092 shares at March 31, 2000 and
4,275,092 shares at June 30, 1999 4,285 4,275
Additional paid-in-capital 7,572,998 7,561,758
Accumulated deficit (5,026,744) (4,010,322)
----------- -----------
Total stockholders' equity 2,550,539 3,555,711
=========== ===========
Total liabilities and stockholders' equity $ 2,666,269 $ 3,677,460
=========== ===========
See accompanying notes to condensed financial statements.
F-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
Condensed Statements of Operations
(unaudited)
Three months ended Nine months ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 5,250 $ -- $ 147,500 $ 178,910
----------- ----------- ----------- -----------
Cost of revenue 985 -- 71,846 53,085
----------- ----------- ----------- -----------
Gross profit 4,265 -- 75,654 125,825
----------- ----------- ----------- -----------
Research and development 69,096 82,963 219,248 229,740
General and administrative 391,486 229,017 973,655 634,210
----------- ----------- ----------- -----------
Total operating expenses 460,582 311,980 1,192,903 863,950
----------- ----------- ----------- -----------
Loss from operations (456,317) (311,980) (1,117,249) (738,125)
----------- ----------- ----------- -----------
Interest income 32,265 40,879 100,827 142,752
----------- ----------- ----------- -----------
Net loss $ (424,052) $ (271,101) $(1,016,422) $ (595,373)
----------- ----------- ----------- -----------
Basic and diluted net loss per share (0.10) (0.06) (0.24) (0.14)
Shares used to calculate basic and
diluted net loss per share 4,285,092 4,275,092 4,282,314 4,275,092
=========== =========== =========== ===========
See accompanying notes to condensed financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROFILE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(unaudited)
Nine months ended
March 31,
--------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(1,016,422) $ (595,373)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 63,228 74,823
Changes in assets and liabilities:
Accounts receivable 3,056 (30,934)
Contract work-in-progress 87,750 --
Accounts receivable/payable - stockholder (6,245) (21,737)
Prepaid expenses and other current assets (33,872) 27,843
Other accounts payable 31,251 (4,753)
Accrued liabilities (31,025) (92,171)
----------- -----------
Net cash used in operating activities (902,279) (642,302)
----------- -----------
Cash flows from investing activities:
Patents (29,718) (44,383)
Purchase of equipment (61,045) (58,009)
Net cash used in investing activities (90,763) (102,392)
----------- -----------
Net cash flows provided by financing activities - Proceeds
from exercise of common stock purchase warrants 11,250 47,625
----------- -----------
Decrease in cash and cash equivalents (981,792) (697,069)
Cash and cash equivalents at beginning of the period 3,140,647 4,167,951
----------- -----------
Cash and cash equivalents at end of the period $ 2,158,855 $ 3,470,882
=========== ===========
See accompanying notes to condensed financial statements.
F-3
</TABLE>
<PAGE>
PROFILE TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
1. Description of Business
Profile Technologies, Inc. (the "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 10-QSB.
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 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 10-KSB 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 and nine
months ended March 31, 2000 are options and warrants to acquire 1,246,000 shares
of common stock with a weighted-average exercise price of $4.10 because their
effect would be antidilutive. Excluded from the computation of diluted loss per
share for the three and nine months ended March 31, 1999 are options and
warrants to acquire 1,237,508 shares of common stock with a weighted-average
exercise price of $3.99 because their effect would be antidilutive.
4. New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on revenue recognition issues. The
Company anticipates that the adoption of SAB 101 in its next Fiscal Year will
not have a material impact on its financial statements.
F-4
<PAGE>
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 will be effective July 1, 2000. This interpretation
provides guidance for applying APB Opinion No. 25 "Accounting for Stock Issued
to Employees." The Company has not determined the impact, if any, the adoption
of FIN 44 will have on the Company's financial statements.
F-5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,158,855
<SECURITIES> 0
<RECEIVABLES> 12,050
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,229,339
<PP&E> 409,498
<DEPRECIATION> 223,543
<TOTAL-ASSETS> 2,666,269
<CURRENT-LIABILITIES> 115,730
<BONDS> 0
0
0
<COMMON> 4,285
<OTHER-SE> 2,546,254
<TOTAL-LIABILITY-AND-EQUITY> 2,666,269
<SALES> 0
<TOTAL-REVENUES> 5,250
<CGS> 985
<TOTAL-COSTS> 460,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (424,052)
<INCOME-TAX> 0
<INCOME-CONTINUING> (424,052)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424,052)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
