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, 2000
Commission file number 0-21151
PROFILE TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 91-1418002
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
1077 Northern Blvd., Roslyn, NY 11576
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(Address of principal executive offices) (Zip Code)
516-365-1909
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(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
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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 November 7,
2000.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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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 realize significant growth in its revenues
which, in turn, may lead to profitable operations, the Company must continue to
expand its customer base by utilizing its newly hired marketing personnel in an
effective manner. The Company must also be able to supply and train additional
work crews in sufficient numbers to satisfy the requirements of its customers.
In the opinion of management, significant progress has been made to date in
developing its technologies, gaining credibility with its markets and building
its board of directors without spending inordinate sums to achieve these goals.
RESULTS OF OPERATIONS
Quarter Ended September 30, 2000 Compared to the Quarter Ended September 30,
1999.
The Company had revenues of $246,421 for the quarter ended September 30,
2000 compared to revenues of $140,347 for the quarter ended September 30, 1999.
The loss from operations for the quarter ended September 30, 2000 was $186,854,
compared to a loss from operations of $240,042 for the quarter ended September
30, 1999. The loss from operations in the quarter ended September 30, 2000
decreased by $53,188 from the comparable quarter ended September 30, 1999
primarily because of increased revenues from the Company's North Slope
operations. The operating loss for the quarter ended September 30, 2000 was
offset somewhat by interest income in the amount of $22,164 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 $164,690 for the
quarter ended September 30, 2000 compared to a net loss of $204,322 for the
quarter ended September 30, 1999. Research and development expenses decreased to
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$32,480 for the quarter ended September 30, 2000 compared to $58,636 for the
quarter ended September 30, 1999. General and administrative expenses decreased
slightly to $250,245 for the quarter ended September 30, 2000 from $252,136 for
the quarter ended September 30, 1999.
Management believes that both revenues and expenses of the Company are
likely to increase during the remainder of the fiscal year ending June 30, 2001
compared to the fiscal year ended June 30, 2000 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, 2001 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 $419,851 in the three months
ended September 30, 2000 compared to $325,606 for the three months ended
September 30, 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 third quarter of the year ending June 30, 2001; 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, 2000 were
$1,315,224. At September 30, 2000, the Company had working capital of $1,495,785
and no material long-term commitments or material commitments for capital
expenditures.
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 such equipment for its field crews for the
foreseeable future, until such time as the scope of operations may require
alternate sources of financing such equipment. 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 expenses as
it hires and trains field crews and support personnel related to the successful
receipt of commercial contracts.
The Company anticipates that capital will be expended to develop
infrastructure to support anticipated future growth. As a result, it is expected
that cash will be used in operations and to meet capital expenditure
requirements. The Company expects that accounts receivable and contract work-
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in-progress will continue to increase to the extent revenues rise. Any such
increase that occurs at the same time or a greater rate than increases in
revenue can be expected to reduce cash and cash equivalents. The Company
believes that its current cash and cash equivalents will be sufficient to meet
working capital and capital expenditure requirements through fiscal 2001.
However, additional financing, if needed, may not be available on acceptable
terms, if at all. The ability to grow, implement business strategies and
continue operations may be limited if additional financing is not obtained when
needed.
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PROFILE TECHNOLOGIES, INC.
Condensed Balance Sheets
(unaudited)
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September 30, June 30,
2000 2000
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Assets
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Current assets:
Cash and cash equivalents $ 1,315,224 $ 1,744,032
Accounts receivable 6,800 14,300
Contract work-in-progress 316,200 69,779
Prepaid expenses and other current assets 25,361 46,272
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Total current assets 1,663,585 1,874,383
Equipment, net 230,520 238,999
Patents, net 275,936 294,084
Other assets 9,993 9,993
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Total assets $ 2,180,034 $ 2,417,459
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable - stockholder $ 1,178 $ 1,178
Other accounts payable 25,925 73,660
Accrued liabilities 140,697 165,697
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Total current liabilities 167,800 240,535
Stockholders' equity:
Common stock, $0.001 par value
Authorized 10,000,000 shares; issued
and outstanding 4,285,092 shares at
September 30, 2000 and June 30, 2000 4,285 4,285
Additional paid-in-capital 7,572,998 7,572,998
Accumulated deficit (5,565,049) (5,400,359)
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Total stockholders' equity 2,012,234 2,176,924
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Total liabilities and stockholders'
equity $ 2,180,034 $ 2,417,459
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================================================================================
See accompanying notes to condensed financial statements
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PROFILE TECHNOLOGIES, INC.
Condensed Statements of Operations
(unaudited)
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For the Three months ended
September 30,
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2000 1999
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Revenue $ 246,421 $ 140,347
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Cost of revenue 150,550 69,617
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Gross profit 95,871 70,730
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Research and development 32,480 58,636
Selling, general and administrative 250,245 252,136
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Total operating expenses 282,725 310,772
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Loss from operations (186,854) (240,042)
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Interest income 22,164 35,720
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Net loss $ (164,690) $ (204,322)
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Basic and diluted net loss per share (0.04) (0.05)
Shares used to calculate basic and
diluted net loss per share 4,285,092 4,279,259
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See accompanying notes to condensed financial statements
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<CAPTION>
PROFILE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(unaudited)
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For the Three Months ended
September 30.
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2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net loss $ (164,690) $ (204,322)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 35,584 32,640
Changes in assets and liabilities:
Accounts receivable 7,500 15,106
Contract work-in-progress (246,421) (140,347)
Accounts receivable/payable - stockholder -- (4,133)
Prepaid expenses and other current assets 20,911 (6,658)
Other accounts payable (47,735) (8,001)
Accrued liabilities (25,000) (9,891)
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Net cash used in operating activities (419,851) (325,606)
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Cash flows from investing activities:
Patents -- (1,608)
Purchase of equipment (8,957) (23,213)
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Net cash used in investing activities (8,957) (24,821)
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Net cash flows provided by financing activities - Proceeds
from exercise of common stock purchase warrants -- 5,625
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Decrease in cash and cash equivalents (428,808) (344,802)
Cash and cash equivalents at beginning of the period 1,744,032 3,140,647
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Cash and cash equivalents at end of the period $ 1,315,224 $ 2,795,845
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=========================================================================================
See accompanying notes to condensed financial statements
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PROFILE TECHNOLOGIES, INC.
9/30/00
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, 2000 (filed September 28, 2000). 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, 2000 are options and warrants to acquire 1,331,000 shares of
common stock with a weighted-average exercise price of $4.12 because their
effect would be antidilutive. Excluded from the computation of diluted loss per
share for the three months ended September 30, 1999 are options and warrants to
acquire 1,251,000 shares of common stock with a weighted-average exercise price
of $4.09 because their effect would be antidilutive.
4. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments embedded in other contracts, and for
hedging activities. The Statement requires that entities recognize all these
derivatives at fair value. SFAS 133 also specifies a new method of accounting
for hedging transactions, prescribes the type of items and transactions that may
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be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. The Company adopted SFAS 133 on July 1, 2000. The adoption of this
statement did not have a material impact on the financial statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101") SAB 101 provides guidance on revenue recognition issues. The Company
adopted SAB 101 on July 1, 2000. The adoption of SAB 101 did not have a material
impact on the Company's financial statements.
In March 2000, the FASB issued Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25" ("FIN 44"). This interpretation provides guidance for applying APB Opinion
No. 25 "Accounting for Stock Issued to Employees." The Company adopted FIN 44 on
July 1, 2000. The adoption of FIN 44 did not have a material impact on the
Company's financial statements.
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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
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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 8, 2000 By: /s/ Henry Gemino
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Henry Gemino
Chief Executive Officer
Chief Financial Officer
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