UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:
March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from __________________ to ________________
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 Number)
2 Park Avenue, Suite 201
Manhasset, New York 11030
------------------------ -----
(Address of Principal (Zip Code)
Executive Office)
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 [ ]
As of April 30, 2004, the number of shares outstanding of the issuer's common
stock, the only class of common equity, were 5,491,661.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
TABLE OF CONTENTS
Description Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) -
At March 31, 2004 and At June 30, 2003......................3
Condensed Statements of Operations (Unaudited) -
Three Months Ended and Nine Months Ended
March 31, 2004 and 2003.....................................4
Condensed Statements of Cash Flows (Unaudited) -
Nine Months Ended March 31, 2004 and 2003...................5
Notes to Condensed Financial Statements (Unaudited)..............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........9
Item 3. Controls and Procedures................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceeding.......................................15
Item 2. Changes in Securities..................................15
Item 3. Defaults Upon Senior Securities........................17
Item 4. Submission of Matters to Vote of Shareholders..........17
Item 5. Other Information......................................17
Item 6. Exhibits and Reports on Form 8-K.......................17
SIGNATURES ..............................................................19
CERTIFICATIONS
2
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements.
PROFILE TECHNOLOGIES, INC.
Condensed Balance Sheets
(unaudited)
March 31, June 30,
Assets 2004 2003
------------ ------------
Current assets:
Cash $ 21,645 $ --
Accounts receivable -- --
Contract work-in-progress -- 11,310
Prepaid expenses and other current assets 20,635 50,733
------------ ------------
Total current assets 42,280 62,043
Equipment, net 71,317 115,332
Patents, net 31,411 61,308
Other Assets 2,415 2,415
------------ ------------
Total assets $ 147,423 $ 241,098
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable to stockholders $ 908,760 $ 641,012
Accounts payable 266,290 189,903
Deferred wages 308,530 146,658
Other accrued liabilities 196,569 201,900
------------ ------------
Total current liabilities 1,680,149 1,179,473
Long term convertible debt net of discount of $104,022
at March 31, 2004 33,478 --
Stockholders' deficit:
Common stock, $0.001 par value. Authorized 15,000,000
shares; issued and outstanding 5,461,661 shares at March
31, 2004 and June 30, 2003 5,462 5,462
Additional paid-in capital 8,473,051 8,349,701
Accumulated deficit (10,044,717) (9,293,538)
------------ ------------
Total stockholders' deficit (1,566,204) (938,375)
------------ ------------
Commitments, contingencies and subsequent events
Total liabilities and stockholders' deficit $ 147,423 $ 241,098
============ ============
See accompanying notes to condensed financial statements
3
PROFILE TECHNOLOGIES, INC.
Condensed Statements of Operations
(unaudited)
For the three months ended For the nine months ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Revenues $ -- $ -- $ 222,579 $ 339,609
Cost of revenues 7,667 56,604 172,171 256,217
----------- ----------- ----------- -----------
Gross profit (loss) (7,667) (56,604) 50,408 83,392
Operating expenses:
Research and development 40,679 45,996 108,545 145,388
General and administrative 212,958 242,695 657,500 688,502
----------- ----------- ----------- -----------
Total operating expenses 253,637 288,691 766,045 833,890
Loss from operations (261,304) (345,295) (715,637) (750,498)
Other income -- -- 1,762 --
Interest income -- -- -- 6
Interest expense 13,851 3,813 37,304 17,701
----------- ----------- ----------- -----------
Net loss $ (275,155) $ (349,108) $ (751,179) $ (768,193)
=========== =========== =========== ===========
Basic and diluted net loss per share
$ (0.05) $ (0.06) $ (0.14) $ (0.14)
Shares used to calculate
basic and diluted net loss
per share 5,461,661 5,461,659 5,461,661 5,432,618
See accompanying notes to condensed financial statements
4
PROFILE TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(unaudited)
For the nine months ended
March 31,
2004 2003
--------- ---------
Cash flows from operating activities:
Net loss $(751,179) $(768,193)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 75,732 124,038
Accreted interest and discount on notes payable and
convertible debt 1,278 10,138
Gain on disposal of fixed assets -- (4,556)
Stock compensation 18,050 4,192
Changes in certain assets and liabilities:
Accounts receivable 11,310 --
Prepaid expenses and other current assets 30,098 (31,271)
Other assets -- 6,643
Accounts payable 76,387 (52,229)
Deferred wages 161,872 213,408
Other accrued liabilities (5,331) 9,604
Net cash used in operating activities (381,783) (488,226)
--------- ---------
Cash flows used in investing activities:
Purchase of equipment (1,820) --
Disposal of fixed assets -- 8,540
--------- ---------
Net cash provided by (used in) investing activities (1,820) 8,540
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of subordinated debt and attached warrants 137,500 105,022
Proceeds from issuance of notes payable to stockholders 267,748 301,150
--------- ---------
Net cash provided by financing activities 405,248 406,172
--------- ---------
Increase (decrease) in cash 21,645 (73,514)
Cash at beginning of the period -- 73,514
Cash at end of the period $ 21,645 $ --
========= =========
Supplementary disclosure of cash flow information:
Note payable converted to common stock $ -- $ 15,000
Issuance of stock and warrants previously subscribed -- 231,250
See accompanying notes to condensed financial statements
5
PROFILE TECHNOLOGIES, INC
March 31, 2004
Notes to Condensed Financial Statements
(Unaudited)
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 accounting principles generally
accepted in the United States of America 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 Company's annual report on form 10-KSB for the year ended June
30, 2003 (filed October 14, 2003). 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. Stock Based Compensation
The Company has elected to follow the measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its employee stock options rather than
the alternative fair value accounting provided for by Statements of Financial
Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock Based
Compensation. Compensation cost for stock options issued to employees is
measured as the excess, if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.
Had compensation cost for the Company's option and warrant awards been
determined consistent with SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
Three months ended Nine months ended
March 31 March 31
------------------------------ --------------------------
2004 2003 2004 2003
----------- ----------- --------- ---------
Net loss:
As reported $ 275,155 $ 349,108 $ 751,179 $ 768,193
Plus: stock-based employee compensation
expense included in reported net loss -- -- -- --
Less: stock based compensation expense
determined under fair value based method for
all employee rewards -- -- 31,600 10,350
----------- ----------- --------- ---------
Net loss $ 275,155 $ 349,108 $ 782,779 $ 778,543
----------- ----------- --------- ---------
Net loss per share
Basic and diluted - as reported $ (0.05) $ (0.06) $ (0.14) $ (0.14)
Basic and diluted - pro forma $ (0.05) $ (0.06) $ (0.14) $ (0.14)
4. 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
6
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, 2004, because their effect would be antidilutive,
are options and warrants to acquire 3,138,818 shares of common stock with a
weighted-average exercise price of $1.69. Excluded also from the computation of
diluted loss per share for the three and nine months ended March 31, 2003,
because their effect would be antidilutive, are options and warrants to acquire
2,853,817 shares of common stock with a weighted-average exercise price of
$2.32. For the three and nine months ended March 31, 2004 and 2003, additional
potential dilutive securities that were excluded from the diluted loss per share
computation are the exchange rights discussed in footnote 5 that could result in
options to acquire up to 223,000 shares of common stock with an exercise price
of $1.00 per share at March 31, 2004 and March 31, 2003.
5. Notes Payable - Stockholders
In April 2002, the Company issued non-interest bearing bridge notes payable
to two officers in the amounts of $15,000 and $7,500, convertible into 21,428
and 10,714 equity units, respectively. Each equity unit is comprised of one
share of common stock accompanied by a detachable five-year warrant to purchase
an additional share of common stock with an exercise price of $1.05. To the
extent that the notes are not converted before maturity, both notes are payable
in full when the Company determines it has sufficient working capital to do so.
The note in the amount of $15,000 was converted to 21,428 equity units described
above in July 2002. On September 29, 2002, the officer owed $7,500 died
unexpectedly from a stroke before converting any part of this loan. As of May
15, 2004, the officer's estate had not converted any part of the $7,500 loan
into equity units.
The Company has entered into various loan agreements with Murphy Evans,
President, a director and stockholder of the Company. On March 6, 2003, the
Company's Board of Directors approved the Loan Amendment and Promissory Note
(the "Amended Evans Loan") between the Company and Murphy Evans. The Amended
Evans Loan aggregates all previous debt and supercedes and replaces all of the
terms of the previous loans with Mr. Evans, including any conversion features.
The Amended Evans Loan bears interest on the aggregate principal balance at a
rate of 5% per annum, payable on June 30 and December 31 of each year, with the
principal balance due and payable in full on December 31, 2003.
Accrued interest and the outstanding principal balance of the Amended Evans
Loan were $40,382 and $792,990, respectively as of March 31, 2004 and $7,199 and
$377,150, respectively as of March 31, 2003. As of March 31, 2004, the accrued
interest and outstanding principal balance were due and payable. Due to
insufficient funds, the Company has not repaid these amounts. Corresponding
interest expense related to the Amended Evans Loan was $9,629 and $27,624 for
the three and nine months ended March 31, 2004, respectively and $3,449 and
$15,000 for the three and nine months ended March 31, 2003, respectively. All
advances from Mr. Evans are convertible into any debt or equity offering by the
Company.
Under the terms of a previous loan with Mr. Evans, the Company cancelled
150,000 warrants with exercise prices ranging from $3.00 per share to $7.50 per
share (old warrants), previously held by Mr. Evans and issued 150,000 five-year
warrants with an exercise price of $1.05 per share and an expiration date of May
13, 2007.
The cancellation of the old warrants is an effective re-pricing and will be
accounted for as a "variable plan" until such time as the warrants are
exercised, expire or are forfeited. Variable plan accounting will result in
intrinsic value associated with the warrants being adjusted to compensation
expense based on each reporting period's ending stock value. As of March 31,
2004, no intrinsic value had been recorded related to these warrants as the
stock price was below the exercise price.
In September 2002, the Company entered into two non-interest bearing bridge
loans in the respective principal amounts of $40,000 and $10,000 (the
"Stockholder Loans") payable to two stockholders of the Company. The terms of
the Stockholder Loans provide for payment at such time as the Company determines
it has sufficient working capital to repay the principal balances of the
Stockholder Loans. The Stockholder Loans are convertible into 57,142 and 14,286
equity units, respectively, at any time prior to re-payment. Each equity unit is
comprised of one share of the Company's common stock, with a detachable 5-year
warrant to purchase one additional share at an exercise price of $1.05 per share
As of May 15, 2004, neither stockholder had converted either Stockholder Loan
into equity units.
On June 19, 2003, the Company entered into a promissory note (the "2003
Gemino Note") in the principal amount of $34,047 with Henry Gemino, the Chief
Executive Officer, Chief Financial Officer, and a director and stockholder of
the Company. The 2003 Gemino Note bears interest at 5% per annum, payable on
each June 30 and December 31 of each year, with the principal balance due and
payable in full on December 31, 2003. During the nine months ended March 31,
2004, Mr. Gemino loaned the Company an additional $24,223. As of March 31, 2004,
accrued interest of $2,068 and the outstanding principal balance of $58,270 were
due and payable. Due to insufficient funds, the Company has not repaid these
amounts. The note is convertible into any debt or equity offering made by the
7
Company. Corresponding interest expense related to the 2003 Gemino Note was $734
and $2,068 for the three and nine months ended March 31, 2004, respectively and
$0 for both the three and nine months ended March 31, 2003.
The following is a summary of notes payable to stockholders as of March 31,
2004.
Amended Evans Loan $792,990
Officer Notes 65,770
Stockholder Notes 50,000
--------
Total $908,760
As of May 15, 2004, the Company has not made the interest payments under
the Amended Evans Loan and the 2003 Gemino Note, which were due and payable on
June 30, 2003 and December 31, 2003 and did not repay the outstanding principal
balance. As of May 15, 2004, neither Mr. Evans nor Mr. Gemino has made any
demand for payment, or exercised any remedies, under these notes.
6. Liquidity and Subsequent Event
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred cumulative losses
of $10,044,717 through March 31, 2004 and had negative working capital of
$1,637,869 as of March 31, 2004. Additionally, the Company has expended a
significant amount of cash in developing its technology and patented processes.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management recognizes that in order to meet the Company's
capital requirements, and continue to operate, additional financing, including
seeking industry-partner investment through joint ventures or other possible
arrangements, will be necessary. The Company is evaluating alternative sources
of financing to improve its cash position and is undertaking efforts to raise
capital. If the Company is unable to raise additional capital or secure
additional revenue contracts and generate positive cash flow, it is unlikely
that the Company will be able to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
To reduce cash outflows, certain of the Company's employees, officers and
directors have agreed to defer a portion of their salaries and consulting fees
from August 2001 until the Company has sufficient resources to pay the amounts
owed or to exchange such amounts into options as described below. At March 31,
2004, the Company has accrued approximately $446,430 related to the deferred
payment of the salaries and consulting fees of which $308,530 is included under
deferred wages and $137,900 in accrued liabilities. On March 18, 2002, the Board
of Directors approved a right whereby for each dollar of deferred salary and
fees as of that approval date, the employee, officer or director could exchange
their deferred amount for an option to purchase two shares of common stock with
a five-year term at an exercise price of $1.00 per share. Deferred salaries and
fees as of March 18, 2002 were $111,500, resulting in the issuance of 223,000
options under the terms mentioned above. No conversions have occurred to date.
As there was no intrinsic value associated with these exchange rights, no
additional compensation cost has been recorded.
On June 19, 2003, the Board of Directors approved the offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
8
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. The Company is required to redeem each Debenture on the 5th
anniversary of the date of the Debenture. The Company may, in its discretion,
redeem any Debenture at any time prior to the mandatory redemption date of the
Debenture by providing not less than 60 days' prior written notice to the holder
of the Debenture.
Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company will issue to an investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants will be exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture.
As of March 31, 2004, the Company had raised $137,500 from the 2003
Offering. Warrants issued in connection with the 2003 Offering were recorded as
paid-in capital at their fair value, estimated at $95,950, based on an option
pricing model with the following assumptions: warrant life of 10 years, risk
free interest rates ranging from 3.74% to 4.45%, volatility of 120%, and a zero
dividend yield. The remaining value of the Debentures results in a beneficial
conversion feature that reduces the book value of the convertible debt to not
less than zero. Accordingly, the Company recorded a $105,300 discount on the
convertible debt issued under the 2003 Offering. The Company amortizes the
discount using the effective interest method over the five-year life of the
Debentures. The Company recorded interest expense related to the Debentures of
$1,186 and $2,903 for the three and nine months ended March 31, 2004,
respectively and $0 for both the three and nine months ended March 31, 2003.
The Board of Directors approved an extension of the 2003 Offering through
May 15, 2004. Subsequent to March 31, 2004, the Company raised an additional
$107,500 from the 2003 Offering. As of May 15, 2004, the Company has raised a
total of $245,000 in the 2003 Offering.
Pending the deployment of the Company's new hardware (as discussed in the
"General" section) and the receipt of new contracts, and in an effort to reduce
its "burn rate" to the lowest practicable level, the Company has furloughed all
of its field crews. If and when revenue- generating contracts are obtained, the
Company may re-hire former crew personnel or may hire and train new crews. The
Company was not obligated to make any severance payments for salaries, health
benefits or accrued vacation and sick time related to the termination of any of
its employees.
7. NASDAQ Delisting
In June 2001, the Company announced that it received a Nasdaq Staff
Determination, indicating that the Company failed to comply with the minimum bid
price and net tangible asset/shareholder equity requirements of the Nasdaq
Marketplace Rules for continued listing set forth in Marketplace Rule
4310(c)(4), and that its securities were, therefore, subject to delisting from
the Nasdaq SmallCap Market. On August 10, 2001, the Nasdaq Stock Market
suspended trading in the Company's common stock. Effective Monday, August 13,
2001, the Company began trading on the Over the Counter Bulletin Board under the
symbol PRTK.
Item 2. Management's Discussion of Financial Condition and
Results of Operations.
General
Since its formation in 1988, Profile Technologies, Inc., a Delaware
corporation (the "Company"), has been engaged in the business of researching and
developing a high speed scanning process, which is nondestructive and
noninvasive, to test remotely buried, encased and insulated pipelines for
corrosion. The Company's electromagnetic wave inspection process, referred to as
the Company's "Inspection EMWSM" or "EMW," is a patented process of analyzing
the waveforms of electrical impulses in a way that extracts point-to-point
information along a segment of pipeline to illustrate the integrity of the
entire pipeline. This process involves sending electrical pulses along the pipe
being tested from two directions toward a varying intersecting point between the
two pulser locations. One or more of the modified pulses is analyzed to
determine whether an anomaly exists at the intersecting location.
The EMW process is designed to detect external corrosion of pipelines which
occurs under pipe insulation and on buried pipes, without the need for taking
the lines out of service, physically removing the insulation or digging up
pipes, and then visually inspecting the outside of the pipe for corrosion. The
Company often can inspect the pipelines by using various access points to the
9
pipelines that already exist for other reasons. Where such access is not already
available, the Company's technology permits the inspection of pipelines with a
minimal amount of disturbance to the coating or insulation on the pipeline. In
addition, the Company's technology permits an inspection of the entire pipeline,
as opposed to other technologies which only conduct inspections at points
selected for the testing. Such "spot inspections" are not necessarily accurate
in indicating the overall condition of a pipe segment.
The most common forms of pipeline corrosion under insulation are localized
corrosion of carbon steel and chloride stress corrosion cracking of stainless
steel. Refineries, chemical plants, utilities, natural gas transmission
companies and the petroleum industry have millions of miles of pipeline, and
much of this pipeline is exposed to harsh and severe environments. As a result,
there is an on-going effort by these industries to ensure that the quality of
the pipe meets standards established by regulatory bodies and the industry to
protect operating personnel and the environment.
In the summer of 1998, the Company completed its first commercial contract
on the North Slope of Alaska, testing approximately 100 road and carribou
crossings on British Petroleum pipelines under a contract with ASCG Inspection,
Inc.
In the summer of 1999, the Company followed up its initial Alaska work
under a contract with another large multi-national oil company to test
approximately 250 below grade pipes. During the summer of 2000, the Company
expanded its Alaska efforts by testing a total of 372 below-ground pipes. In
2001, the Company tested 441 lines in Alaska. In 2002, the Company inspected 364
lines.
Based on estimates provided by its customers, the Company originally
planned to inspect between 400 and 500 below-grade lines in Alaska in the
calendar year 2003. However, based on the Company's final work scopes and the
fact that more than 40 lines could not be tested for physical reasons, the
Company successfully tested 250 below-grade pipes during the calendar year 2003.
In 2003, the Company's Alaska customers completed a five-year program of
inspecting road-crossings and caribou-crossings. It appears that this program
will not be budgeted for during 2004, although it may be restored in future
years. However, the Company's contracts are still in effect and the Company will
continue its efforts to obtain additional work in Alaska.
In anticipation of this possibility, the Company has designed and is now
fabricating new hardware for the testing of direct-buried pipe in the lower-48
states. Field testing of the new hardware should be completed during the quarter
ended June 30, 2004. If the test results confirm the design capabilities, the
Company has agreed to demonstrate those capabilities to a number of eastern U.S.
natural gas pipelines and distributors during the summer of 2004 in an effort to
secure commercial contracts.
On December 15, 2003, the federal Department of Transportation (DOT) issued
regulations under the Pipeline Safety Improvement Act of 2002 requiring
regulated companies to gather baseline integrity data on pipelines in so-called
"high consequence areas" ("HCA's") initially over a ten-year period and then
every seven years thereafter. Based on consultations with industry
representatives, the Company believes that its new buried pipe inspection
hardware will provide these companies with a superior tool for gathering
required baseline integrity data.
There can be no assurance that the new hardware can be successfully tested
and deployed on a commercial basis. However, failure to do so could have a
serious and material effect on the business and financial condition of the
Company.
Pending the deployment of its new hardware and the receipt of new
contracts, and in an effort to reduce its out-of-pocket expenses to the lowest
practicable level, the Company has furloughed all of its field crews. If and
when contracts are obtained, the Company may-re-hire former crew personnel or
may hire and train new crews.
10
Revenues
The Company derives revenue solely from the sale of the EMW inspection
technology service. The Company relies upon several employees, including the
Chief Executive Officer and the Chief Operating Officer for the Company's sales
functions. The Company relies solely upon the employees of the Company to
conduct its sales activities.
During the nine months ended March 31, 2004, all of the Company's revenues
were attributable to two customers. These customers individually accounted for
9% and 91%, and 36% and 64%, of revenues during the nine months ended March 31,
2004 and 2003, respectively.
Marketing
The Company's sales and marketing strategy includes positioning the
Company's EMW technology as the method of choice to detect pipeline corrosion
where the pipelines are either inaccessible to other inspection tools or much
more costly to inspect with tools other than Profile's EMW inspection. As
discussed in the "General" section, upon fabrication and testing of its new
buried pipe inspection hardware, the Company intends to concentrate its 2004
marketing efforts on the pipeline and utility buried pipe inspection markets in
the lower-48 states, particularly in HCA's.
There can be no assurance that the Company will be successful in
concentrating its marketing efforts for the EMW technology on natural gas
utility and pipeline markets.
Critical Accounting Estimates and Policies
The discussion and analysis of financial condition and results of
operations is based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including contract revenue recognition and impairment of long-lived
assets. The Company bases its estimates on historical experience and on various
other assumptions that the Company believes to be reasonable under the
circumstances, the results of which form its basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions, and such variations may be adverse.
The Company recognizes revenue from service contracts using the
percentage-of-completion method of contract accounting. Contract revenues earned
are measured using either the percentage-of-contract costs incurred to date to
total estimated contract costs or, when the contract is based on measurable
units of completion, revenue is based on the completion of such units.
Historically, the majority of the Company's revenue has been recognized based on
the completion of measurable units. Anticipated losses on contracts, if any, are
charged to earnings as soon as such losses can be estimated. Changes in
estimated profits on contracts are recognized during the period in which the
change in estimate is known. The Company records claims for additional
compensation on contracts upon revision of the contract to include the amount to
be received for the additional work performed. Contract costs include all direct
material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools and repairs, and
depreciation costs. Selling, general, and administrative costs are charged to
expense as incurred. Service contracts generally extend no more than six months.
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount which the carrying
amount of the asset exceeds the fair value of the asset.
11
Results of Operations
The Company's operating results depend exclusively on its ability to market
its EMW inspection technology. If the Company is not able to automate completely
the EMW inspection process and fully implement its new technology, the Company
may not be able to obtain future contracts to sell or to license its EMW
technology. Since the Company's revenues are derived solely from the marketing
and sale of its EMW technology, any failure to obtain future contracts will have
a material adverse effect on the business and financial condition of the
Company.
Revenues were $0 for the three months and decreased to $222,579 for the
nine months ended March 31, 2004, compared to $0 for the three months and
$339,609 for the nine months ended March 31, 2003. The Company did not generate
any revenues during the three months ended March 31, 2004 and the corresponding
period in the previous year due to the fact that the Company typically is unable
to work on the North Slope of Alaska during this time period due to adverse
weather conditions. The decrease in revenues for the nine months ended March 31,
2004 compared to the corresponding period in 2003 is attributable to the
decreased overall work scope in Alaska during the summer and fall of 2003
compared with the same period in 2002.
Cost of revenues decreased to $7,667 for the three months and $172,171 for
the nine months ended March 31, 2004, compared to $56,604 for the three months
and $256,217 for the nine months ended March 31, 2003. This decrease during both
the three and nine month periods is due to the decrease in the Company's overall
work scope in Alaska during the summer and fall of 2003 compared with the
corresponding period in 2002. As a result of the decrease in work scope, the
Company furloughed several key employees during the quarter ended March 31, 2004
who were previously spending time on revenue generating contracts.
The Company incurred a gross loss of $7,667 for the three months and a
gross profit of $50,408 for the nine months ended March 31, 2004, compared to a
gross loss of $56,604 for the three months and gross profit of $83,392 for the
nine months ended March 31, 2003. The decrease in gross loss for the three
months ended March 31, 2004 is due to a decrease in contract related travel and
equipment expenses. Additionally, the Company did not have any employees working
on revenue generating contracts during this period. The decrease in gross profit
for the nine months ended March 31, 2004, as compared to the same period in the
prior year is primarily due to a lower overall work scope in Alaska during the
summer of 2003.
Research and development expenses decreased to $40,679 for the three months
and $108,545 for the nine months ended March 31, 2004, compared to $45,996 for
the three months and $145,388 for the nine months ended March 31, 2003. The
decrease for both the three and nine month periods ended March 31, 2004 compared
to the same periods ended March 31, 2003 is attributable to the fact that
certain employees spent less time on research and development activities and
more time on general and administrative activities when not working on revenue
generating contracts during these periods.
General and administrative expenses decreased to $212,958 for the three
months and $657,500 for the nine months ended March 31, 2004, compared to
$242,695 for the three months and $688,502 for the nine months ended March 31,
2003. General and administrative costs decreased for the three months ended
March 31, 2004 due to certain equipment and patents being fully amortized during
the current period. Additionally, there was a general decrease in fees paid for
consulting and salary related expenditures as a result of insufficient cash
resources and the lay off of certain employees. General and administrative costs
remained relatively consistent for the nine months ended March 31, 2004,
compared to the same period in the prior year because the Company's cost
structure includes a significant amount of fixed costs.
Loss from operations decreased to $261,304 for the three months and
$715,637 for the nine months ended March 31, 2004, compared to $345,295 for the
three months and $750,498 for the nine months ended March 31, 2003. The decrease
for both the three and nine months ended March 31, 2004 compared to the same
periods in the prior year is primarily due to a decrease in fees paid for
consulting and a general decrease in salary related expenses. Due to
insufficient cash resources, the Company has had to restrict expenditures
related to both research and development and general and administrative
activities. Additionally, the Company furloughed several key employees during
the quarter ended March 31, 2004.
12
Interest expense increased to $13,851 for the three months and $37,304 for
the nine months ended March 31, 2004, compared to $3,813 for the three months
and $17,701 for the nine months ended March 31, 2003. The increase during the
three and nine month periods ended March 31, 2004 is a result of the interest
accrued in relation to the notes payable to stockholders described in Note 4
above as well as accreted interest on the convertible debentures as described in
Note 5 above.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred cumulative losses
of $10,044,717 through March 31, 2004, and had negative working capital of
$1,637,869 as of March 31, 2004. Additionally, the Company has expended a
significant amount of cash in developing its technology and patented processes.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management recognizes that in order to meet the Company's
capital requirements, and continue to operate, additional financing, including
seeking industry-partner investment through joint ventures or other possible
arrangements, will be necessary. The Company is evaluating alternative sources
of financing to improve its cash position and is undertaking efforts to raise
capital. If the Company is unable to raise additional capital or secure
additional revenue contracts and generate positive cash flow, it is unlikely
that the Company will be able to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
To reduce cash outflows, certain of the Company's employees, officers and
directors have agreed to defer a portion of their salaries and consulting fees
from August 2001 until the Company has sufficient resources to pay the amounts
owed or to exchange such amounts into options as described below. At March 31,
2004, the Company has accrued approximately $446,430 related to the deferred
payment of the salaries and consulting fees of which $308,530 is included under
deferred wages and $137,900 in accrued liabilities. On March 18, 2002, the Board
of Directors approved a right whereby for each dollar of deferred salary and
fees as of that approval date, the employee, officer or director could exchange
their deferred amount for an option to purchase two shares of common stock with
a five-year term at an exercise price of $1.00 per share. Deferred salaries and
fees as of March 18, 2002 were $111,500, resulting in the issuance of 223,000
options under the terms mentioned above. No conversions have occurred to date.
As there was no intrinsic value associated with these exchange rights, no
additional compensation cost has been recorded.
On June 19, 2003, the Board of Directors approved the offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. The Company is required to redeem each Debenture on the 5th
anniversary of the date of the Debenture. The Company may, in its discretion,
redeem any Debenture at any time prior to the mandatory redemption date of the
Debenture by providing no less than 60 days' prior written notice to the holder
of the Debenture.
Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company will issue to an investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants will be exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture.
As of March 31, 2004, the Company had raised $137,500 from the 2003
Offering. Warrants issued in connection with the 2003 Offering were recorded as
paid-in capital at their fair value, estimated at $95,950, based on an option
pricing model with the following assumptions: warrant life of 10 years, risk
free interest rate of 4.45%, volatility of 120%, and a zero dividend yield. The
remaining value of the Debentures results in a beneficial conversion feature
that reduces the book value of the convertible debt to not less than zero.
Accordingly, the Company recorded a $105,300 discount on the convertible debt
issued under the 2003 Offering. The Company amortizes the discount using the
effective interest method over the five-year life of the Debentures. The Company
recorded interest expense related to the Debentures of $1,186 and $2,903 for the
three and nine months ended March 31, 2004, respectively and $0 for both the
three and nine months ended March 31, 2003.
13
The Board of Directors approved an extension of the 2003 Offering through
May 15, 2004. Subsequent to March 31, 2004, the Company raised an additional
$107,500 from the 2003 Offering. As of May 15, 2004, the Company has raised a
total of $245,000 in the 2003 Offering.
The Company's contractual obligations consist of commitments under deferred
salaries and fees and repayment of loans payable to certain officers, directors
and stockholders. The Company does not have any contractual obligations related
to its operating leases. However, the Company expects to continue to incur costs
on leased properties, as the Company has extended such leases in the past or
will use alternate facilities. As of March 31, 2004, deferred salary and
consulting fees were equal to $446,430. The salaries and fees will continue to
be deferred until the Company has sufficient resources to pay the amounts owed,
or the employees, officers, or directors exchange such amounts as described
above.
As of March 31, 2004, the Company had outstanding loans payable to certain
officers, directors and stockholders with principal amounts, in the aggregate,
equal to $908,760. The terms of the various notes are described below under
"Part II, Item 2, Changes in Securities."
Capital will be expended to support operations until the Company can
generate sufficient cash flows from operations. In order for the Company to
generate cash flows from operations, the Company must generate additional
revenue generating contracts. Management is currently directing the Company's
activities towards obtaining additional service contracts, which, if obtained,
will necessitate the Company attracting, hiring, training and outfitting
qualified technicians. If additional service contracts are obtained, it will
also necessitate additional field test equipment purchases in order to provide
the services. 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 equipment. The Company
expects that if additional contracts are secured, and revenues increase, working
capital requirements will increase. 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. Additionally, the Company anticipates that cash will be
used to meet capital expenditure requirements necessary to develop
infrastructure to support future growth. There can be no assurance that the
Company will be able to secure additional revenue generating contracts to
provide sufficient cash.
Pending the deployment of the Company's new hardware (as discussed in the
"General" section above) and the receipt of new contracts, and in an effort to
reduce its expenses to the lowest practicable level, the Company has furloughed
all of its field crews. If and when revenue- generating contracts are obtained,
the Company will re-hire former crew personnel or may hire and train new crews.
The Company was not obligated to make any severance payments for salaries,
health benefits or accrued vacation and sick time related to the termination of
any of its employees.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains "forward-looking statements."
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's projected future results, future plans, objectives or
goals or future conditions or events are also forward looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are subject to the risks and uncertainties that could cause actual results of
operations, financial condition, acquisitions, financing transactions,
operations, expenditures, expansion and other events to differ materially from
those expressed or implied in such forward-looking statements. Any such
forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond the Company's control.
The forward-looking statements contained in this report are based on
current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will obtain
or have access to adequate financing to continue its operations, that the
Company will market and provide products and services on a timely basis, that
14
there will be no material adverse competitive or technological change with
respect to the Company's business, demand for the Company's products and
services will significantly increase, that the Company will be able to secure
additional fee-for-services or licensing contracts, that the Company's executive
officers will remain employed as such by the Company, that the Company's
forecast accurately anticipate market demand, and that there will be no material
adverse change in the Company's operations, business or governmental regulation
affecting the Company or its customers. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported. The Company's executive officers, including
the Company's Chief Executive Officer, who also serves as Chief Financial
Officer, and the Chief Operating Officer, are responsible for establishing and
maintaining disclosure controls and procedures for the Company. These executives
have designed such controls to ensure that all material information related to
the Company is made known to them by others within the organization. As of March
31, 2004, the Company's Chief Executive Officer and Chief Operating Officer
completed an evaluation of the Company's disclosure controls and procedures, and
such evaluation has provided them with reasonable assurance that the Company's
disclosure controls and procedures are effective in alerting them in a timely
manner to material information required to be included in the Company's periodic
filings with the SEC. They did not discover any significant deficiencies or
material weaknesses within the controls and procedures that require
modification. There were no changes in the Company's internal control over
financial reporting identified in connection with the Company's evaluation that
occurred during the fiscal quarter ended March 31, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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.
On March 18, 2002, the Board of Directors approved an offering of 1,000,000
shares of the Company's common stock at a price of $0.70 per share, with
attached warrants (the "2002 Offering"). Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $1.05 per share until
April 4, 2007. The Company did not incur or pay any commissions with respect to
offers and sales of securities under the 2002 Offering. The 2002 Offering
terminated on December 31, 2002. As of December 31, 2002, the Company had raised
a total of $336,273 from the 2002 Offering. All of the investors were accredited
investors. The 2002 Offering is exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act").
In April 2002, the Company issued non-interest bearing bridge notes payable
to two officers in the amounts of $15,000 and $7,500, convertible into 21,428
and 10,714 equity units, respectively. Each equity unit is comprised of one
share of common stock accompanied by a detachable five-year warrant to purchase
an additional share of common stock with an exercise price of $1.05. These notes
are exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. To the extent that the notes are not converted before maturity, both
notes are payable in full when the Company determines it has sufficient working
capital to do so. The note in the amount of $15,000 was converted to 21,428
equity units described above in July 2002. On September 29, 2002, the officer
15
owed $7,500 died unexpectedly from a stroke before converting any part of this
loan. As of May 15, 2004, the officer's estate had not converted any part of the
$7,500 loan into equity units.
The Company has entered into various loan agreements with Murphy Evans,
President, a director and stockholder of the Company. On March 6, 2003, the
Company's Board of Directors approved the Loan Amendment and Promissory Note
(the "Amended Evans Loan") between the Company and Murphy Evans. The Amended
Evans Loan aggregates all previous debt and supercedes and replaces all of the
terms of the previous loans with Mr. Evans, including any conversion features.
The Amended Evans Loan bears interest on the aggregate principal balance at a
rate of 5% per annum, payable on June 30 and December 31 of each year, with the
principal balance due and payable in full on December 31, 2003. The Amended
Evans Loan is exempt from registration under Section 4(2) of the Securities Act.
As of March 31, 2004, accrued interest of $40,382 and the outstanding
principal balance of $792,990 were due and payable. Due to insufficient funds,
the Company has not repaid these amounts. Corresponding interest expense related
to the Amended Evans Loan was $9,629 and $27,624 for the three and nine months
ended March 31, 2004, respectively and $3,449 and $15,000 for the three and nine
months ended March 31, 2003, respectively. All advances from Mr. Evans are
convertible into any debt or equity offering by the Company.
Under the terms of a previous loan with Mr. Evans, the Company cancelled
150,000 warrants with exercise prices ranging from $3.00 per share to $7.50 per
share (old warrants), previously held by Mr. Evans and issued 150,000 five-year
warrants with an exercise price of $1.05 per share and an expiration date of May
13, 2007.
The cancellation of the old warrants is an effective re-pricing and will be
accounted for as a "variable plan" until such time as the warrants are
exercised, expire or are forfeited. Variable plan accounting will result in
intrinsic value associated with the warrants being adjusted to compensation
expense based on each reporting period's ending stock value. As of March 31,
2004, no intrinsic value had been recorded related to these warrants as the
stock price was below the exercise price.
As of May 15, 2004, the Company has not made the interest payments due on
June 30 and December 31, 2003 and did not repay the outstanding principal
balance. As of May 15, 2004, Mr. Evans has not made any demand for payment, or
exercised any of his remedies, under the Amended Evans Loan.
In September 2002, the Company entered into two non-interest bearing bridge
loans in the respective principal amounts of $40,000 and $10,000 (the
"Stockholder Loans") payable to two stockholders of the Company. The terms of
the Stockholder Loans provide for payment at such time as the Company determines
it has sufficient working capital to repay the principal balances of the
Stockholder Loans. The Stockholder Loans are convertible into 57,142 and 14,286
equity units, respectively, at any time prior to re-payment. Each equity unit is
comprised of one share of the Company's common stock, with a detachable 5-year
warrant to purchase one additional share at an exercise price of $1.05 per
share. The Stockholder Loans are exempt from registration under Section 4(2) of
the Securities Act. As of May 15, 2004, neither stockholder had converted either
Stockholder Loan into equity units.
On June 19, 2003, the Board of Directors approved a promissory note (the
"2003 Gemino Note") in the principal amount of $34,047 payable to Henry E.
Gemino, the Chief Executive Officer, Chief Financial Officer and a director and
stockholder of the Company. The 2003 Gemino Note bears interest at the rate of
5% per annum, payable on each June 30 and December 31 of each year. The
outstanding balance under the 2003 Gemino Note was due and payable in full on
December 31, 2003. During the nine months ended March 31, 2004, Mr. Gemino loand
the Company an additional $24,223. The 2003 Gemino Note is exempt from
registration under Section 4(2) of the Securities Act. As of March 31, 2004,
accrued interest of $2,068 and the outstanding principal balance of $58,270 were
due and payable. As of May 15, 2004, the Company had not made the interest
payments due on June 30, 2003 or December 31, 2003 and has not repaid the
outstanding balance due and payable on December 31, 2003. Mr. Gemino has not
made any demand for payment, or exercised any of his remedies under the 2003
Gemino Note.
On June 19, 2003, the Board of Directors approved the offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. The Company is required to redeem each Debenture on the 5th
16
anniversary of the date of the Debenture. The Company may, in its discretion,
redeem any Debenture at any time prior to the mandatory redemption date of the
Debenture by providing no less than 60 days' prior written notice to the holder
of the Debenture.
Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company will issue to an investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants will be exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture. The 2003 Offering is exempt
from registration under Section 4(2) of the Securities Act.
As of March 31, 2004, the Company had raised $137,500 from the 2003
Offering. The Board of Directors approved an extension of the 2003 Offering
through May 15, 2004. Subsequent to March 31, 2004, the Company raised an
additional $107,500 from the 2003 Offering. As of May 15, 2004, the Company has
raised a total of $245,000 in the 2003 Offering.
Item 3. Defaults Upon Senior Securities.
On March 6, 2003, the Board of Directors approved the terms of the Amended
Evans Loan between the Company and Murphy Evans. See "Part II, Item 2, Changes
in Securities." The Amended Evans Loan amends and supersedes the indebtedness
under all previous loans between Mr. Evans and the Company by aggregating the
debt under all of these loans by Mr. Evans into one promissory note bearing
interest on the aggregate principal balance at a rate of 5% per annum, payable
on June 30 and December 31 of each year. The outstanding balance under the
Amended Evans Loan was due and payable in full on December 31, 2003. On June 19,
2003, the Board of Directors approved the 2003 Gemino Note, the terms of which
are described above in Item 2, "Changes in Securities."
As of March 31, 2004, the outstanding principal balance of the Amended
Evans Loan was equal to $792,990. As of May 15, 2004, the Company has not made
the interest payments in the amount of $13,061 and $17,692 which were due and
payable to Mr. Evans on June 30, 2003 and December 31, 2003, respectively. As of
March 31, 2004, the Company's total arrearage under the Amended Evans Loan with
respect to accrued interest payments was equal to $40,382. As of May 15, 2004,
Mr. Evans has not made any demand for payment, or exercised any of his remedies,
under the Amended Evans Loan.
As of March 31, 2004, the outstanding principal balance of the 2003 Gemino
Note was equal to $58,270. As of May 15, 2004, the Company has not made the
interest payments in the amount of $0 and $1,334 which were due and payable to
Mr. Gemino on June 30, 2003 and December 31, 2003, respectively. As of March 31,
2004, the Company's total arrearage on the 2003 Gemino Note with respect to
accrued interest payments was equal to $2,068. As of May 15, 2004, Mr. Gemino
has not made any demand for payment, or exercised any of his remedies, under the
2003 Gemino Note.
Item 4. Submission of Matters to a Vote of Shareholders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 3i Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement
on Form SB-2 filed with the Commission on May 10,
1996)
17
Exhibit 3ii Bylaws of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement on
Form SB-2 filed with the Commission on May 10, 1996)
Exhibit 31.1 Certification of Henry E. Gemino, as Chief Executive
Officer and Chief Financial Officer of the Company,
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Exhibit 31.2 Certification of Philip L. Jones, as Chief Operating
Officer of the Company, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification under Section 906 of the Sarbanes-Oxley
Act of 2002 by Henry E. Gemino, as Chief Executive
Officer and Chief Financial Officer of the Company.
Exhibit 32.2 Certification under Section 906 of the Sarbanes-Oxley
Act of 2002 by Philip L. Jones, as Chief Operating
Officer of the Company.
(b) Reports on Form 8-K
None.
18
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 15, 2004 /s/ Henry E. Gemino
-------------------------------------------
Henry E. Gemino
Chief Executive Officer and
Chief Financial Officer
19