SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934

                           For the fiscal year ended:
                                  June 30, 1997
                             Commission File Number
                                     0-21151

                           PROFILE TECHNOLOGIES, INC.
                   -------------------------------------------
                 (Name of small business issuer in its charter)

              DELAWARE                                       91-1418002
    ------------------------------                       ---------------------
   (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                       Identification Number)

           1077 NORTHERN BLVD.
               ROSLYN, NY                                        11576
   --------------------------------------                       ---------
  (Address of Principal Executive Offices)                      (Zip Code)

Issuer's telephone number: (516) 365-1909
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:

                          Common Stock $.001 Par Value
                          ----------------------------
                            
                                 Title of Class

Check  whether  the issuer  (1) has 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
                                   -----     -----

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.   X
                                      -----

State issuer's revenues for the most recent fiscal year. $50,000.00.
                                                         -----------

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant was $34,039,200,  based on the closing bid and ask prices as reported
by the NASDAQ SmallCap market on September 16, 1997

There were  4,262,600  shares of common stock $.001 par value  outstanding as of
September 16, 1997.

                      Documents incorporated by reference:

Definitive Proxy material for annual shareholder meeting to be held November 14,
1997 filed pursuant to Regulation 14A.

Transitional Small Business Format (check one): Yes      ;  No   X
                                                    -----      -----


<PAGE>



Item 1.  Description of Business.
         ------------------------

Introduction

     The Company was originally  incorporated in Washington in 1988 but has been
a Delaware  corporation  since 1995.  Since its  inception  the Company has been
engaged in the business of  researching  and  developing  a high speed  scanning
process,  which is nondestructive  and noninvasive,  to remotely test buried and
above  ground  pipelines  for  corrosion  and coating  problems.  The  Company's
process,  called a dual pulse propagation analyzer ("PPA") is a patented process
of  analyzing  the  waveforms  of  electrical  impulses  in a way that  extracts
point-to-point pipeline integrity information.  This process involves sending an
electrical  pulse along the pipe being tested from each of two locations  toward
an intersecting location between the two locations. At least one of the modified
pulses is analyzed to determine  whether an anomaly  exists at the  intersecting
location.  This  process is designed to detect  external  corrosion  of pipeline
which occurs under pipe  insulation  without the need for taking the line out of
service,  physically  removing the coating,  and then  visually  inspecting  the
outside of the pipe for  corrosion.  The most common  forms of  corrosion  under
insulation  ("CUI") 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 corrosion protected  pipeline.  Much of this piping 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  set by
regulatory  bodies and the  industry  to  protect  operating  personnel  and the
environment.  While the Company continues to develop and refine its PPA process,
it believes that  development  has progressed to the point where the Company can
now  demonstrate  to potential  customers  that its  technology is  commercially
viable and that it is in a position to fulfill commercial  contracts should they
materialize.

Corrosion Protection

     Virtually all pipeline  systems are required to have some type of corrosion
protection  applied  to extend the useful  life of the  pipeline  and to prevent
pipeline  failures due to corrosion.  The effect of such failures  ranges from a
few drops of a toxic  substance on the surface of the  pipeline to  catastrophic
explosions which result in extensive damage of property and loss of human life.

     Although  there  are  many  special  techniques  used to  protect  pipeline
systems,  two are most  common.  The first is to apply a coating to the pipeline
which  will  keep  the  pipeline  isolated  from  its  environment.  This  is  a
fundamentally  sound  approach,  but it is complicated by the fact that coatings
can become damaged during the installation  process.  Most coatings also degrade
over time so the effectiveness of protection is reduced.


                                        1

<PAGE>

     The second technique,  used to protect  predominantly  buried and submersed
pipelines, is designed to protect bare pipeline or pipeline which has damaged or
missing coating.  This technique is called Cathodic  Protection.  Simply stated,
the  technique  uses the flow of electric  current to polarize  the pipeline and
prevent corrosion. The polarization process attempts to maintain the pipeline at
some negative voltage with respect to an external  reference  voltage,  called a
"half-cell".  That  reference  level is called a  Pipe-to-Soil-Potential  and is
commonly  referred to as a "PSP".  The  polarization  process  basically uses an
electrochemical  process to prevent the pipe from corroding in the ground.  Many
years of experience  and extensive  experimentation  have  generated a PSP level
which is generally  considered to represent  "protected"  pipe. To determine the
effectiveness of the cathodic  protection system, it is necessary to measure the
PSP at sufficient  locations  along the segment of pipeline so that a protection
profile can be viewed.

     A combination of federal,  state, local and industry  jurisdictions combine
to  regulate  corrosion  protection.  For  example,   regulations  covering  the
operation of natural gas transmission systems promulgated by the U.S. Department
of Transportation's Office of Pipeline Safety has required steel pipelines to be
equipped with cathodic protection since the early 1970's. In addition,  the U.S.
Department  of Labor,  operating  through  the  Occupational  Safety  and Health
Administration  ("OSHA") has  jurisdiction  over numerous  plants and facilities
containing  corrosion protected pipeline that, if breached,  could cause serious
bodily  injury or death to on-site  workers.  Finally,  the  American  Petroleum
Institute  ("API") has promulgated a comprehensive  Piping Inspection Code which
requires that extensive corrosion testing be done by all members (which includes
the vast majority of the petroleum and petrochemical industries). As a result of
the  extensive  regulation  and testing  requirements  as described  above,  the
industry  is faced  with the  requirement  to engage in  extensive  testing  for
corrosion.

     In 1993, the API imposed even stricter test standards regarding the problem
of CUI. When pipeline is uninsulated and above ground, external corrosion can be
identified  visually.  The  petroleum  and other  related  industries,  however,
insulate  much of their piping to conserve  energy  and/or to prevent  injury to
personnel from high  temperature  levels on the pipelines.  As soon as piping is
insulated,  a very complex situation is created.  Corrosion can occur underneath
the insulation due to moisture or corrosive products that find their way through
broken  or  poorly  sealed  insulation.  This CUI is very  difficult  to  locate
economically. In the past, testing for this problem had been on a limited sample
basis and relied upon inspection processes that were very cumbersome and costly.

                                        2

<PAGE>



Two  prevalent  testing  methods  used to detect CUI are X-ray and eddy  current
methods,  which are methods of  detecting  defects in pipe by  analyzing  visual
image and decay. After physically  stripping away coating for visual inspection,
depth gauges, ultrasonics and X-ray could then be used to determine the severity
of CUI on questionable pipe.  However,  the stripping of insulation to determine
corrosion is a costly testing method for the industry because it often meant the
assembly of scaffolding  for testing  otherwise  inaccessible  above ground pipe
(particularly  in refineries  and  petrochemical  plants) or an actual dig-up on
below ground pipe. The Company's  technology enables it to test pipe segments in
a refinery  setting as long as one hundred feet to three hundred feet and to use
"cherry pickers" instead of costly  scaffolding.  CUI is also a very complicated
problem  to test for  because  it  cannot be easily  identified  by  statistical
sampling. If, for example, a segment of pipe has a small insulation part removed
every ten feet and is visually inspected using eddy current or x-ray techniques,
there is no  statistical  basis to assume  that the  external  condition  of the
piping  between the  removed  insulation  parts is good or bad.  The API testing
standard  adopted in 1993, in essence,  mandates  either  stripping  even larger
amounts of coating or using an alternate  system that will  identify CUI without
stripping  the  coating  on  suspected  (or  unsuspected)  pipe.  Because of the
enormous cost involved in using the stripping and visual  testing  process,  the
industry is  enthusiastically  searching for an alternate testing system that is
reliable and less costly.  The Company believes that its PPA process provides an
alternate  testing  system  that the  industry  is  looking  for.  However,  the
Company's technology has not yet been commercially accepted for such purpose and
there can be no assurance that such acceptance will be achieved.

The Company's Dual Pulse Propagation Analyzer Process

     The PPA process  extracts  corrosion  related  information from segments of
both  accessible and  inaccessible  pipelines  underneath the entire  insulation
barrier by analyzing the intersection of two electrical current pulses traveling
in opposite directions along the pipeline. This corrosion related information is
extracted without the need for removing the insulation  protecting the pipeline.
The Company  established  by laboratory  and field  testing that the  electrical
response,  called  characteristic  transfer  function (CTF), of two intersecting
pulses traveling along the pipeline is uniquely  defined with location  specific
information  that  relates  to the  integrity  of the  pipeline  at the point of
intersection. Constructive interference occurs when the two current impulses run
into and interfere with each other at the point of  intersection  on a pipeline.
The  CTF is  determined,  not  only by the  nature  and  characteristics  of the
original pulses, but by the physical  characteristics of the pipeline segment in
its environment at the point of intersection.


                                        3

<PAGE>



     The PPA process was  developed to evaluate the  condition  and integrity of
pipelines.  Electro-magnetic pulses are applied at both ends of the pipe segment
being tested.  Under computer control, the timing of the pulses is controlled so
that the intersection point of the two pulses moves sequentially from one end of
the pipe to the other end. A unique CTF is obtained for each intersection  point
of the pipeline segment being tested on some predetermined interval; such as, in
one foot intervals.  When this data is  geophysically  displayed,  it provides a
visual  display of data  related to the  physical  condition of the pipe at each
point of intersection.  Additional  electromagnetic  inspection of the pipeline,
using  an  external  calibrator  developed  by the  Company,  provides  a second
alternative  application of the Company's technology to inspect the questionable
pipe locations found during the PPA process. This alternative application, which
the Company is refining its development of, is used as a verification of the PPA
process.  It is more time  consuming to use and it is doubtful  that it would be
the initial method selected for testing.  This alternative  application involves
the use of an antenna  assembly  to scan the pipe under  analysis in those areas
where suspected anomalies have been located using the PPA process. Thus far, the
Company has used this  alternative  application  as  confirmation  of  potential
anomalies.  The  Company is in the  process  of  evaluating  whether  there is a
sufficient interest in this second alternative  application to justify a second,
separate product for the Company.  Information can also be derived using the PPA
process to determine the condition of the coating and the  effectiveness  of the
existing  corrosion  protection system which is being used to protect each point
of  intersection.  Where there are  indications  of  problems,  closer  interval
inspection can be performed and/or one of the other location specific  processes
used in the industry may be utilized before the insulation is removed to inspect
the pipe condition.

     As simple as the  concept may  appear,  the PPA process is not  intuitively
obvious. The petroleum industry has spent large sums trying to solve the problem
of  finding  corrosion  under   insulation.   Correlating   pipeline   corrosion
information   using  the  Company's   technology   requires  a  combination   of
state-of-the-art instrumentation plus an understanding of the physical phenomena
that are being  measured.  Although the principles of the PPA process are simple
to explain,  management believes that the measurement and analysis of the effect
are pushing the leading edge of technology.

     The Company believes that the principal  advantage to using the PPA is that
it  provides  a method for the  operating  companies  to do a visual  equivalent
inspection on inaccessible pipe without the need to remove insulation.  Research
and development efforts will continue in the development of new applications for
the Company's  technology and to develop new products for the petroleum industry
and other industries.


                                        4

<PAGE>



Patents, Proprietary Technology and Other Intellectual Property

     The Company pursues a policy of generally  obtaining patent protection both
in the United States and abroad for patentable subject matter in its proprietary
technology.  As of June 30, 1997, the Company had four issued U.S. patents, four
issued  foreign  patents,   three  U.S.  patent  applications   pending,   seven
provisional U.S. patent  applications  pending and one patent  application filed
under the patent cooperation treaty which enables the Company to file additional
foreign patent applications in the future.

     The Company's success depends in large part upon its ability to protect its
process and  technology  under United States and  international  patent laws and
other intellectual property laws. U.S. patents have a term of 17 years from date
of issuance or, for more recently filed patent  applications,  20 years from the
filing of such  applications,  and patents in most foreign countries have a term
of 20 years from the  proprietary  filing  date of the patent  application.  The
first U.S. patent was issued in 1990 and the remaining three patents were issued
in 1993.

     The Company  believes  that it owns and has the right to use or license all
proprietary  technology  necessary  to  license  and market  its  process  under
development.  The  Company is not aware of the  issuance  of any  patents or the
filing of any patent  applications  which relate to processes or products  which
utilize the Company's proprietary  technology in a manner which could be similar
to or competitive with the Company's  products or processes.  The Company has no
knowledge  that it is  infringing  any  existing  patent  such  that it would be
prevented  from  marketing or  licensing  products or services  currently  being
developed by the Company.

     The  Company  may  decide  for  business  reasons  to  retain a  patentable
invention  as a trade  secret.  In such  event or if  patent  protection  is not
available,  the Company must rely upon trade  secrets,  internal  knowledge  and
continuing  technological  innovation  to develop and maintain  its  competitive
position.  The Company  employees and  consultants  have access to the Company's
proprietary information and have signed confidentiality agreements.

Research and Development Spending

     During the two most  recent  fiscal  years ended June 30, 1997 and June 30,
1996,  the Company  spent  $272,240  and $239,422  respectively  on research and
development activities. In addition,  certain non-cash expenses were incurred in
connection with research and development activity. See "Management's  Discussion
and Analysis of Financial Condition and Results of Operations".




                                        5

<PAGE>



Development of Business

     Up through the year ended June 30, 1994, all revenues earned by the Company
were derived from research and development contracts with a large public utility
and a  large  independent  natural  gas  company.  These  contracts  focused  on
evaluating  below  ground pipe for  cathodic  protection  and  coating  defects.
However,  by late 1994,  the Company,  as a result of its  activities up to that
point in time, came to the realization  that its technology had the potential to
identify  the  location of actual  corrosion,  as opposed to simply  identifying
locations  which  might  have  insufficient  cathodic  protection  or  defective
coating, and therefore a likelihood of corrosion.  The Company believed that the
identification  of  actual  corrosion  was of  even  greater  importance  to the
petroleum,  petrochemical  and  utility  industries  because  these  industries'
resources  could  be  used  more  efficiently  in  correcting  actual  corrosion
locations.  Once corrosion  locations had been  identified  and  corrected,  the
Company's technology could still be used to identify lack of cathodic protection
and coating defects as part of a preventive maintenance program.

     In early 1995,  the Company  spent three  months at the refinery of a large
multi-national  oil company,  researching  and  developing  test  procedures for
identifying  corrosion  of  above  ground  refinery  pipe as part of a shift  in
emphasis  away from  testing of  underground  pipe for cathodic  protection  and
coating  defects.  An important  factor in this shift in emphasis had to do with
verification.  Potential customers could more easily and less expensively verify
the accuracy and  dependability  of the Company's  technology in an above ground
environment  that doesn't involve time consuming and costly dig ups. The Company
believes  that once  potential  customers  have  satisfied  themselves  that the
technology is accurate and cost  effective,  they would be more likely to expand
the use of the technology to difficult to reach below ground  environments.  The
Company also believes that this shift in emphasis was a significant step forward
because major oil  companies  were willing to provide  detailed data  concerning
pipe  quality and  testing  standards.  Beginning  in 1995,  the  Company  began
conducting  research and  development  activities at the research  facilities of
another large  multinational oil company to develop the Company's  technology to
the point where it could identify corrosion locations.  As part of this process,
numerous  segments  of pipe in various  conditions  ranging  from  excellent  to
extremely  corroded were  assembled in various  configurations  and covered with
insulation.  The Company then used its  technology  to evaluate the various pipe
segments  without prior  knowledge of the condition of the pipe segments.  After
obtaining  data,  the Company  evaluated the results and then submitted a report
which  summarized  its findings.  In late July of 1996,  representatives  of the
Company  traveled  to the  Prudhoe  Bay area of  Alaska  and met with  operating
personnel from three of the largest multi-national oil companies with operations
in the area to discuss the feasibility of conducting a field  demonstration  and


                                        6

<PAGE>



test of the Company's technology on operating pipeline in that area. The Company
subsequently  conducted  a field  demonstration  and  test on a 24 inch  line in
September of 1996 and then  submitted a report  summarizing  its  activities and
findings.  In August of 1997, the Company completed a second field demonstration
using refined  hardware and software  that the Company had  developed  since its
previous field demonstration. The Company has entered into negotiations with one
of these large oil companies  concerning the nature and extent of future testing
and related  activities on a commercial  basis, but there is no assurance that a
commercial contract will be agreed upon.

     The  Company is also  continuing  its  efforts  on testing of below  ground
piping.  Development  of a below ground testing  capability has also  progressed
substantially.  By way of  example,  in  the  early  stages  of  developing  the
Company's technology,  it took almost one full week to collect data on as little
as 5,000 feet of pipe during dual pulse testing.  Analysis of the collected data
often took months. The data collection for the PPA has now been automated to the
point  where the same amount of data that used to take a week to collect can now
be collected in a single day,  depending  upon location and pipe  configuration.
Data   processing   is  not  yet  fully   automated  and  requires  some  manual
interpretation. The Company is now actively marketing such capability; there can
be no assurance,  however,  that such marketing activity will lead to commercial
contracts and achieve market acceptance.

Strategy and Proposed Plan of Operations

     The Company  intends to increase its marketing  activities.  Initially such
marketing  activities  will be  directed at the large  multi-national  petroleum
companies,  petrochemical  companies and utilities that are already aware of the
Company's  technology  and its potential to help solve the testing  requirements
mandated by the API Piping  Inspection  Code,  as well as voluntary  testing for
safety concerns.  The Company believes that the corrosion control specialists in
the petroleum and utilities  industries  constitute a reasonably small community
and the free flow of information  regarding  emerging or new technologies  among
this group is common. Accordingly,  the Company believes that word of mouth will
be an important factor in the Company's  marketing efforts.  The Company will be
providing  service for two levels of testing on above  ground or refinery  pipe.
The first level of testing will be a "global testing", i.e., a screening test to
identify problem areas of corrosion in pipe. The second level of testing will be
a detailed  analysis of the  corrosion in the pipe. If the Company is successful
in entering into testing program agreements, of which there can be no assurance,
the Company intends to hire field technicians in two person crews, who will take
the raw field data generated by the dual PPA process and submit such data to the
Company's  research  and  development  and  processing  facilities  in Ferndale,


                                        7

<PAGE>



Washington for evaluation.  However, in the near term, the Company also believes
that it will be possible to evaluate the  collected  data at the job site in the
field.  The Company  believes it is possible  that each of its field crews could
operate at one  refinery or similar  facility on  virtually a year round  basis.
Pricing of the Company's  services is based upon a dollar amount per linear foot
of pipeline  tested or on a per diem basis,  with  pricing to be based upon many
factors  including  difficulty  of access,  cost of alternate  means of testing,
availability of crews and urgency of immediate testing data and evaluation.  The
actual  pricing  used in any  particular  contract  is based upon  arm's  length
negotiations  with the customer.  Although the Company believes it can price its
services to operate profitably, there can be no assurance of such at the present
time  because  no  prices or costs  have as yet been  established.  The  Company
intends to hire its field technicians  locally from the geographic area near the
facility being tested and does not expect to encounter any difficulty in finding
qualified field technicians for its work crews.

     The Company also intends to increase  its  promotional  budget for industry
journals,  trade shows,  newsletters,  direct mail and seminars. The Company may
also  consider from time to time the  acquisition  of  complimentary  businesses
providing  services to the  petroleum  and  petrochemical  industry,  as well as
expansion into foreign countries.

Competition

     The Company  believes that the  nondestructive  testing  industry is highly
fragmented and comprised of numerous companies, many of whom are larger and have
greater financial resources than does the Company. However, the Company believes
that these competitors are offering  non-destructive  testing services that rely
on technologies  which are different from the technology offered by the Company.
These other  technologies,  including x-ray,  ultrasonic and eddy current,  have
been in  existence  for many years and have  gained wide  acceptance  within the
industry.  In addressing the  requirements of the large national  companies that
would be expected to have an interest  in the  Company's  services,  the Company
expects to compete on the basis of technical  performance,  delivery capability,
service quality and price.

     Substantially  all of the Company's  competitors have, and potential future
competitors could have, substantially greater technical,  financial,  marketing,
and other  resources  than the Company and have,  or could  have,  greater  name
recognition  and  market  acceptance  of their  products  and  technologies.  No
assurance  can be given that the  Company's  competitors  will not  develop  new
technologies or enhancements to existing services or introduce new services that
will offer superior price or performance features. In such case, the Company may
experience  significant price  competition,  which could have a material adverse
effect on gross margins.

                                        8

<PAGE>



Marketplace

     Nondestructive  corrosion  testing  services  are  required  across a broad
market.  Customers  are expected to be generally  the owners of, or  engineering
firms associated with, major  processing  facilities and pipeline  systems.  The
Company's  services are expected to be provided to the  refining,  petrochemical
and pipeline segments of the petroleum  industry and to the utilities  industry,
and demand for these  services is typically  driven by safety and  environmental
considerations.

     The  Company  will  seek to obtain  business  through  ongoing  contractual
relationships  and competitive and sole source bidding.  The Company's  officers
are presently responsible for sales and marketing and will continue to have such
responsibility in the foreseeable future.

     Most  refineries,  petrochemical  plants and other similar  facilities have
ongoing  maintenance  programs  which may require  one or more crews  performing
corrosion control testing on a continuous basis.  Typically,  these services are
provided by an outside contractor under a blanket service agreement, rather than
by the employees of the refineries and plants. The Company expects that if it is
successful in obtaining  contracts  with major oil refineries (of which there is
no assurance), such contracts will be of this type.

     The  Company  also will seek to perform  testing  services  for the utility
industry.  Utilities  have thousands of miles of  underground  gas  transmission
lines that are constantly being monitored and tested for corrosion.

Employees

     The Company  presently has four  employees,  including  Gale D. Burnett and
Henry  Gemino.  In  preparation  for the  hiring  of field  crews,  the  Company
anticipates that it will have three to five additional employees, who will be in
the areas of  administration,  accounting,  marketing,  promotion  and clerical.
Field crews will, in all likelihood,  consist of two field technicians per crew.
The number of crews  employed by the Company at any given time will be dependent
upon the Company's  level of business  activity.  In addition,  the Company will
continue to retain  independent  consultants  to render  advice with  respect to
technical and scientific matters.

Compliance With Environmental Laws

     Because of the nature of the Company's  business,  it does not believe that
the costs and effects of compliance with  environmental  laws,  whether federal,
state or local, would be significant or even material.

                                        9

<PAGE>



Item 2.  Description of Property
         -----------------------

     The Company's executive offices are located at 1077 Northern Blvd., Roslyn,
NY 11576. The Company leases approximately 1,400 sq. feet of office space at the
address from a  non-affiliate.  The rental payment is twenty-two  thousand eight
hundred  dollars  per year  ($1,900  per month) and the term of the lease is two
years with a two year renewal option.

     The  Company's  research and  development  facility is located in Ferndale,
Washington.  The  Company  lease  1,800 sq. feet of space under a one year lease
from a  non-affiliate  at a monthly  rental  rate of $1,400.  The Company has an
option to renew the lease for an additional term of one year.

     The Company does not own any real estate.

     The Company does not invest in, nor does the Company  intend in the future,
to invest in real estate or interests in real estate,  real estate  mortgages or
securities  of  or  interests  in  persons  primarily  engaged  in  real  estate
activities.

Item 3.  Legal Proceedings.
         ------------------

     The Company is not a party to any material pending legal proceedings nor is
any of its property subject to any such legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.
         ----------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the  Company's  fiscal year ended June 30, 1997,  either  through the
solicitation of proxies or otherwise.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.
         ----------------------------------------------------------------------

     The Company's  common stock has been traded on the NASDAQ  SmallCap  market
since it began public  trading in February of 1997,  under the symbol PRTK.  The
following table sets forth the high and low bid prices for the Company's  common
stock, by quarter,  since the  commencement  of public  trading,  as reported by
Nasdaq.

       Quarter Ended           High Bid         Low Bid
       -------------           --------         -------

       March 31, 1997           $ 7.25           $5.75
       June 30, 1997            $10.75           $6.00


                                       10

<PAGE>



     The above prices are believed to be representative  interdealer quotations,
without  retail  markup,  markdown  or other  fees or  commissions,  and may not
represent actual transactions.

     At September  16,  1997,  the bid price of the  Company's  common stock was
$12.00  per share.  On such date the  Company  had 125  holders of record of the
Company's common stock and the Company  estimates that it has  approximately 450
beneficial shareholders.

     The Company has not paid any dividends on its common stock and the Board of
Directors presently intends to continue a policy of retaining earnings,  if any,
for use in the Company's  operations  and to finance  expansion of its business.
The declaration and payment of dividends in the future, of which there can be no
assurance,  will be  determined by the Board of Directors in light of conditions
then existing, including earnings, financial condition, capital requirements and
other factors.  There are no restrictions  that currently  materially  limit the
Company's ability to pay dividends or which the Company reasonably  believes are
likely to limit materially the future payment of dividends on common stock.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.
         -----------------------------------------------------------------------
GENERAL

     The Company is a development  stage  enterprise and has recently  completed
development of its pulse  propagation  analyzer  process and is further refining
the  technology  associated  therewith  to the  point  where  it  believes  that
commercial utilization is now possible. The Company has not, as of yet, obtained
significant  revenues  from its planned  primary  source of revenues  and has no
commercial contracts in place for the use of its product or technology. The goal
of  the  Company  has  been  the  establishment  of  technological   feasibility
associated with services to  electronically  measure  corrosion in piping of all
kinds.  The Company's  product  identifies  areas of corrosion,  areas that lack
cathodic  protection  and areas  that may have  defective  coating on both below
ground and above ground  pipes.  The pulse  propagation  analyzer  consists of a
computer,  software to enhance  collection  and  processing of data, a precision
multi-channel  pulse  generator and a signal  analyzer.  During fiscal 1996, the
Company began to see rapid progress in the development of its technology and its
ability to meet the  expectations  of  potential  customers.  By that time,  the
Company had begun to accelerate its efforts and expend more resources to develop
its  technology  faster.  Thus,  expenses and  purchases of equipment  have been
generally  increasing  at a  faster  pace  than in  prior  periods.  This  trend
accelerated  in  the  fiscal  year  ended  June  30,  1997,  particularly  after
completion of the Company's  initial  public stock offering in February of 1997.
The Company believes that it attained  technological  feasibility of its product
with the  completion  of its research and  development  activity in a controlled


                                       11

<PAGE>



environment  in July of 1996. A field  demonstration  of the  Company's  service
capabilities  utilizing its pulse propagation analyzer process was performed for
two  multinational  oil companies at Prudhoe Bay, Alaska in September of 1996. A
further demonstration using updated and more sophisticated hardware and software
was completed in Prudhoe Bay, Alaska in August of 1997.

     In order for the Company to obtain significant revenues from the use of its
technology,  the Company must establish a sales and marketing  organization that
is effective  and obtains  customers  for its pulse  propagation  analyzer.  The
Company must also be able to supply and train work crews in  sufficient  numbers
to satisfy the  requirements of its customers.  From inception  through June 30,
1997,  the Company has incurred  losses of $2,432,857 and losses are expected to
continue at least through the third quarter of the year ending June 30, 1998; no
assurances can be given that losses will not be incurred thereafter.

     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 and investor base,  without  spending  inordinate sums to
achieve  these  goals.  As of June 30,  1997,  the  Company had been issued four
patents  covering its unique  technology.  An additional ten provisional  patent
applications have been filed, and the Company may file for additional patents in
the future.

RESULTS OF OPERATIONS
---------------------

Years Ended June 30, 1997 and June 30, 1996
-------------------------------------------

     The Company  incurred a net loss from  operations of $1,035,003 in the year
ended June 30, 1997  compared to a net loss from  operations  of $400,853 in the
year  ended  June 30,  1996.  Revenues  for the year  ended  June 30,  1997 were
$50,000,  which  represented  an  increase  of  $12,500,  or 33% as  compared to
revenues  of $37,500  for the year ended June 30,  1996.  Revenues  for the year
ended June 30, 1997 were earned from two major  international  oil companies for
demonstrations of the Company's technology both in the field and in a controlled
setting  at one of such  oil  company's  research  and  development  facilities.
Interest  income  increased  to $97,703  for the year  ended June 30,  1997 from
$5,205 for the year  ended June 30,  1996.  This  increase  is the result of the
Company's  investment of the net proceeds of its public stock  offering in short
term interest bearing accounts and interest bearing instruments.

     Total  expenses for the Company for the year ended June 30, 1997  increased
significantly  over the year ended June 30, 1996.  Total  expenses of $1,182,706
were  recorded  in the year ended June 30, 1997  compared  to total  expenses of
$443,558  for the year ended June 30,  1996.  This  represented  an  increase in
expenses of $739,148 or 167% and is  attributed in large part to the issuance of


                                       12

<PAGE>



common stock purchase warrants to outside  consultants (see below). The increase
is also  attributed  in part  to  increased  expenditures  associated  with  the
research  and  development  involved  in the  preparation  and  filing  of seven
additional provisional patent applications since the completion of the Company's
public stock offering in February of 1997. General and  administrative  expenses
increased  to $351,312  for the year ended June 30, 1997 from  $114,136  for the
year ended June 30,  1996 and  reflects  the  payment of  salaries  and  outside
consulting fees incurred in connection with the Company's field  demonstrations.
Research and development  expenses increased to $272,240 for the year ended June
30, 1997 from  $239,422 for the year ended June 30, 1996, an increase of $32,818
or 14%.

     During the year ended June 30, 1997,  the Board of  Directors  extended the
expiration  date of  certain  common  stock  purchase  warrants  and issued to a
consultant who was involved in research and development  activities new warrants
whose fair market values as of the extension  date or the issuance  date, as the
case may be,  were in  excess  of the  exercise  price,  which  resulted  in the
recognition of  compensation  expenses of $559,154,  compared to $90,000 of such
compensation  expenses in the year ended June 30, 1996.  This noncash  charge to
earnings  increased the expenses  associated  with the operations of the Company
for the year  ended June 30,  1997 by 89.7%  over what would have been  incurred
absent  these  nonrecurring,  noncash  expenses.  Without  giving  effect to the
compensation  expenses  associated  with the  extension  and/or  issuance of its
common  stock  purchase  warrants in both years ended June 30, 1997 and June 30,
1996,  expenses  were  $623,552  in the year ended  June 30,  1997  compared  to
$353,558 in the year ended June 30, 1996, an increase of $269,994 or 76.4%.

     Management  believes  that both  revenues  and  expenses of the Company may
increase  during the fiscal  year  ending  June 30, 1998 if it is able to secure
contracts with customers, of which there is no assurance. The revenues earned by
the Company to date  principally  relate to research and development  activities
that are sponsored by large  multi-national  oil companies and large  utilities.
These  activities  include field  research and  development  at such  companies'
facilities.

     These  activities  are likely to  continue  during the year ending June 30,
1998 and for the  foreseeable  future.  Management  is also  vigorously  working
towards  obtaining  fee for service  contracts,  which are hoped to be the major
source of the  Company's  revenues.  If fee for service  contracts are obtained,
management  expects  its  expenditures  associated  with  personnel  and testing
equipment  will begin to rise.  In addition,  as the Company  begins to actually
provide fee for service work, additional  administrative support activities will
increase together with related expenses.

                                       13

<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

     Revenues  for the period  from July 1, 1988  (inception)  through  June 30,
1997,  were $482,189  while expenses were  $3,023,589,  resulting in a loss from
operations,   since  inception,  of  $2,541,400.  Net  cash  used  in  operating
activities  from inception  through June 30, 1997 was  $1,371,334.  For the year
ended June 30, 1997,  cash used in  operations  was  $451,644.  Thus,  while the
revenues   derived  from   research  and   development   activities   funded  by
multi-national  oil  companies  and  major  utilities  have been  indicative  of
financial support for the Company's efforts to develop its technology, they have
not been sufficient to cover expenses. Accordingly, the Company has historically
maintained adequate liquidity and cash reserves through the private placement of
its common stock. Such offerings,  from inception through March of 1996, totaled
$1,471,567. No private placements have occurred since that date.

     In February 1997 the Company  completed an initial  public  offering of its
common stock which  involved the sale of 1,050,000  shares of common stock at an
offering  price  of $6.00  per  share.  The  Company  derived  net  proceeds  of
$5,171,687 (including the issuance of 50,000 shares of common stock at $6.00 per
share pursuant to a partial exercise of the underwriter's overallotment option).

     The Company has no material long term  commitments or material  commitments
for capital expenditures.  To date, the Company has only obtained small research
and  development or field  demonstration  contracts,  the proceeds of which were
used to defray a portion of the Company's operating costs.

At June 30, 1997 Compared to June 30, 1996.

     At June 30, 1997,  the Company had cash and cash  equivalents of $4,936,600
as compared to the June 30, 1996 cash balance of $212,689.  The principal source
for the increase in cash and cash  equivalents  was the issuance of common stock
in early 1997 pursuant to a public stock  offering in the amount of  $5,171,687,
net of issuance  costs.  At June 30, 1997,  the  Company's  working  capital was
$4,858,223.  As of June 30, 1996,  there was working  capital of  $141,045.  The
Company's  principal  assets  at June  30,  1997,  apart  from the cash and cash
equivalents  mentioned  above,  consisted  of property,  equipment  and patents.
Property and equipment at June 30, 1997,  was $34,941,  up  marginally  over the
balance of property  and  equipment  at June 30, 1996 of $34,443.  Patents had a
balance  of  $189,037,  which  was up 59.7% or  $70,676  over the June 30,  1996
balance  of  $118,361.  Total  assets  as of June 30,  1997 were  $5,236,726  as
compared to $461,606 at June 30, 1996 (an increase of $4,775,120).  The increase
in total assets was  primarily  due to the  Company's  completion of its initial
public offering of common stock.




                                       14

<PAGE>



Item 7.  Financial Statements.






                                       15

<PAGE>


                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)



                          INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------





Independent Auditors' Report.............................................  F-2

Balance Sheet as of June 30, 1997........................................  F-3

Statements of Operations for each of the years in the two-year
period ended June 30, 1997 and for the period from July 1, 1988
(inception) to June 30, 1997 ............................................  F-4

Statement of Stockholders' Equity for each of the years in the
two-year period ended June 30, 1997 and for the period from
July 1, 1988 (inception) to June 30, 1997 ...............................  F-5

Statements of Cash Flows for each of the years in the two-year
period ended June 30, 1997 and for the period from July 1, 1988
(inception) to June 30, 1997 ............................................  F-6

Notes to Financial Statements............................................  F-7



                                       F-1

<PAGE>




                          INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------



The Board of Directors
Profile Technologies, Inc.:


We have audited the accompanying balance sheet of Profile Technologies,  Inc. (a
development stage enterprise) as of June 30, 1997, and the related statements of
operations,  stockholders'  equity,  and cash flows for each of the years in the
two-year  period  ended  June 30,  1997 and for the  period  from  July 1,  1988
(inception) to June 30, 1997. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.
                                                          .
We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. 
                                                          
In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Profile Technologies,  Inc. (a
development  stage  enterprise)  as of June 30,  1997,  and the  results  of its
operations and its cash flows for each of the years in the two-year period ended
June 30, 1997 and for the period July 1, 1988  (inception)  to June 30, 1997, in
conformity with generally accepted accounting principles.



/S/  KPMG Peat Marwick LLP


Seattle, Washington
September 9, 1997



                                      F-2


<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                                 Balance Sheet

                                 June 30, 1997

--------------------------------------------------------------------------------
                                     Assets
                                     ------


Current assets:
  Cash and cash equivalents                                         $ 4,936,600
  Contract work in progress                                              20,000
  Prepaid expenses                                                       52,798
                                                                    -----------
     Total current assets                                             5,009,398

Property and equipment, net                                              34,941
Patents                                                                 189,037
Other assets                                                              3,350
                                                                    -----------
     Total assets                                                   $ 5,236,726
                                                                    ===========
                                                                    


                      Liabilities and Stockholders' Equity
                      ------------------------------------


Current liabilities:
  Accounts payable - stockholder                                          2,500
  Other accounts payable                                                  5,919
  Accrued wages                                                          20,614
  Other accrued liabilities                                             122,142
                                                                    -----------
       Total current liabilities                                        151,175
                                                                    -----------

Stockholders' equity:
  Common stock, $0.001 par value 
   Authorized 10,000,000 shares;
   issued and outstanding 4,262,600 shares                                4,263
  Additional paid-in capital                                          7,514,145
  Deficit accumulated during the development stage                   (2,432,857)
                                                                    -----------
     Total stockholders' equity                                       5,085,551

Commitments
--------------------------------------------------------------------------------
     Total liabilities and stockholders' equity                     $ 5,236,726
================================================================================


See accompanying notes to financial statements.

                                      F-3


<PAGE>
<TABLE>
<CAPTION>


                                       PROFILE TECHNOLOGIES, INC.
                                     (A Development Stage Enterprise)

                                           Statements of Operations

=================================================================================================================

                                                                  Period from
                                                                  July 1, 1988    
                                                                   (inception)
                                                                    through               Years ended June 30
                                                                    June 30,           --------------------------
                                                                      1997               1997              1996
-----------------------------------------------------------------------------------------------------------------

<S>                                                               <C>                 <C>                 <C>
Revenues - testing services and research
    and development fees                                          $   482,189            50,000            37,500
                                                                  -----------------------------------------------

Costs and expenses:
   Research and development                                         1,357,690           272,240           239,422
   General and administrative                                         806,745           351,312           114,136
   Excess of fair market value over excise price
     of extended and assigned existing common
     stock purchase warrants                                          350,000            50,000            90,000
   Fair value of common stock purchase
     warrants granted to consultants                                  509,154           509,154              --
                                                                  -----------------------------------------------
          Total costs and expenses                                  3,023,589         1,182,706           443,558
                                                                  -----------------------------------------------
          Loss from operations                                     (2,541,400)       (1,132,706)         (406,058)

Interest income                                                       108,443            97,703             5,205
Other income                                                              100              --                --
                                                                  -----------------------------------------------
          Net loss                                                $(2,432,857)       (1,035,003)         (400,853)
                                                                  =============================================== 

Net loss per share                                                                  $      0.26              0.11

Weighted average common and common share
   equivalents outstanding                                                            3,933,148         3,664,794
=================================================================================================================


See accompanying notes to financial statements.

                                                            F-4

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                    PROFILE TECHNOLOGIES, INC.
                                                (A Development Stage Enterprise)

                                               Statements of Stockholders' Equity
===================================================================================================================================
                                                                                                               Deficit 
                                                                                                             accumulated     Total
                                                                        Common stock          Additional      during the     stock
                                                                   ----------------------      paid-in       development    holders'
                                                                   Shares         Amount       capital         stage         equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>            <C>             <C>           <C>
Sale at inception (July 1, 1988), $.0005 per share                1,000,000    $      500          --            --             500
Sale of common stock in July, $.0005 per shares                     600,000           300          --            --             300
Sale of common stock in September, $.25 per share                   400,000         1,200        98,800          --         100,000
Net loss                                                               --            --            --         (85,749)      (85,749)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1989                                         2,000,000         2,000        98,800       (85,749)       15,051
Sale of common stock in September, $.25 per share                    80,000            80        19,920          --          20,000
Net loss                                                               --            --            --         (13,683)      (13,683)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1990                                         2,080,000         2,080       118,720       (99,432)       21,368
Sale of common stock in October, $.25 per share                     114,000           114        28,386          --          28,500
Issuance of common stock for services in November,
   $.25 per share                                                    40,000            40         9,960          --          10,000
Net loss                                                               --            --            --         (30,593)      (30,593)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1991                                         2,234,000         2,234       157,066      (130,025)       29,275
Sale of common stock in September, $.625 per share                  296,000           296       184,704          --         185,000
Sale of common stock in May, $1.50 per share                        141,268           141       211,761          --         211,902
Net loss                                                               --            --            --        (267,186)     (267,186)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1992                                         2,671,268         2,671       553,531      (397,211)      158,991
Sale of common stock in January, $1.50 per share                     51,000            51        76,449          --          76,500
Net loss                                                               --            --            --        (132,905)     (132,905)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1993                                         2,722,268         2,722       629,980      (530,116)      102,586
Net loss                                                               --            --            --         (13,503)      (13,503)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1994                                         2,722,268         2,722       629,980      (543,619)       89,083

Repurchases of common stock in October                              (16,000)          (16)      (13,984)         --         (14,000)
Sale of common stock in December, $1.75 per share,
   net of issuance costs of $22,115                                 268,332           269       447,196          --         447,465
Excess of fair value over exercise price of existing
   common stock purchase warrants extended in December                 --            --         210,000          --         210,000
Net loss                                                               --            --            --        (453,382)     (453,382)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1995                                         2,974,600         2,975     1,273,192      (997,001)      279,166
Issuance of common stock for services in
   October, $1.00 per share                                          20,000            20        19,980          --          20,000
Sale of common stock in December-March, $2.00 per
   share, net of issuance costs of $34,600                          218,000           218       401,182          --         401,400
Excess of fair value over exercise price of
   existing common stock purchase warrants
   extended in March                                                   --            --          90,000          --          90,000
Net loss                                                               --            --            --        (400,853)     (400,853)
                                                                  -----------------------------------------------------------------
Balances at June 30, 1996                                         3,212,600         3,213     1,784,354    (1,397,854)      389,713
Fair value of common stock purchase warrants
   granted to consultants                                              --            --         509,154          --         509,154
Excess of fair market value over exercise price of
   existing common stock purchase warrants assigned
   by principal stockholder to others                                  --            --          50,000          --          50,000
Sale of common stock in February-March, $6.00 per share,
    net of issuance costs of $1,128,313                           1,050,000         1,050     5,170,637          --       5,171,687
Net loss                                                               --            --            --      (1,035,003)   (1,035,003)
-----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1997                                         4,262,600    $    4,263     7,514,145    (2,432,857)    5,085,551
===================================================================================================================================
See accompanying notes to financial statements.
                                                              F-5
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                          PROFILE TECHNOLOGIES, INC.
                                       (A Development Stage Enterprise)

                                           Statements of Cash Flows


=====================================================================================================================
                                                                 Period from
                                                                 July 1, 1988
                                                                (inception) 
                                                                   through                   Years ended June 30
                                                                  June 30,            -------------------------------
                                                                    1997                 1997                  1996
---------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
<S>                                                             <C>                   <C>                    <C>      
   Net loss                                                     $(2,432,857)          (1,035,003)            (400,853)
   Adjustments to reconcile net loss to net
    cash used in operating activities:
     Depreciation and amortization                                  117,342               20,822               20,213
     Services received in exchange for common stock                  10,000                 --                   --
     Excess of fair value over exercise price of
       extended and assigned existing common
       stock purchase warrant                                       350,000               50,000               90,000
     Fair value of common stock purchase warrants
       granted to consultants                                       509,154              509,154                 --
     Changes in assets and liabilities:
        Contract work in progress                                   (20,000)             (20,000)              12,500
        Accounts receivable/payable - stockholder                     2,500              (12,154)              24,197
        Prepaid expenses                                            (52,798)             (52,549)                  37
        Other assets                                                 (3,350)              (3,350)                --
        Other accounts payable                                        5,919                1,379                3,916
        Accrued wages                                                20,614               20,614              (11,555)
        Other accrued liabilities                                   122,142               69,443               12,433
                                                                 ----------------------------------------------------
        Net cash used in operating activities                    (1,371,334)            (451,644)            (249,112)
                                                                 ----------------------------------------------------

Cash flows from investing activities:
   Patents                                                         (169,037)             (70,676)             (22,566)
   Purchase of property and equipment                              (148,182)             (21,320)             (12,295)
                                                                 ----------------------------------------------------
        Net cash used in investing activities                      (317,219)             (91,996)             (34,861)
                                                                 ----------------------------------------------------

Cash flows from financing activities:
   Proceeds from issuance of common stock, net
    of issuance costs                                             6,643,254            5,267,551              305,536
   Repurchase of common stock                                       (14,000)                --                   --
   Organization costs                                                (4,101)                --                   --
                                                                -----------------------------------------------------
        Net cash provided by financing activities                 6,625,153            5,267,551              305,536
                                                                -----------------------------------------------------
        Increase in cash and cash equivalents                     4,936,600            4,723,911               21,563

Cash and cash equivalents at beginning of period                       --                212,689              191,126
                                                                -----------------------------------------------------
        Cash and cash equivalents at end of period              $ 4,936,600            4,936,600              212,689
                                                                =====================================================

Supplemental disclosures of noncash financing
   and investing activities - patent costs in
   exchange for common stock                                    $    20,000                 --                 20,000
=====================================================================================================================



See accompanying notes to financial statements.


                                                                    F-6

</TABLE>


<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

                                 June 30, 1997

================================================================================

(1) Nature of Development Stage Activities and Summary of Significant Accounting
    Policies

     (a)  Nature of Development Stage Activities

          Profile  Technologies,  Inc.  (Company),  formerly Pipeline  Profiles,
          Ltd., was incorporated in 1986 and commenced operations in fiscal year
          1989  (inception).  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 believes that the first commercial applications
          of this  process  will likely be in the  refining  and  petro-chemical
          segments of the  industry,  although the  utilities  industry has also
          expressed  interest in the Company's  process.  The  Company's  future
          revenues are currently  dependent upon the market's  acceptance of its
          sole  developed  process.  To date,  the Company has not  obtained any
          commercial  contracts  and there can be no assurance  that the Company
          will  obtain  such  contracts.  As of June 30,  1997,  the  Company is
          considered  to be in the  development  stage  as the  Company  has not
          generated  significant  revenues  from its  research  and  development
          efforts  and  related  service  contracts  with  respect  to the above
          process,  and  operations  have  primarily  been financed  through the
          issuance of common stock.

     (b)  Contract Revenue Recognition

          Earned  revenue  from  research  and  development   service  contracts
          primarily  related to  testing of  industrial  pipeline  integrity  is
          recognized   on  the   percentage-of-completion   method  of  contract
          accounting.   Contract   revenues   earned  are  recorded   using  the
          percentage-of-contract  costs  incurred  to  date to  total  estimated
          contract costs.

          Anticipated  losses on  contracts  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.

     (c)  Research and Development

          Research and development costs are expensed when incurred.

                                                                     (Continued)

                                      F-7



<PAGE>


                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                         Notes to Financial Statements

================================================================================

     (d)  Property and Equipment

          Property and  equipment are stated at cost and are  depreciated  using
          the straight-line method over their estimated useful lives of three to
          seven years.

     (e)  Patents

          Patent  and  related  application  costs will be  amortized  using the
          straight-line method over the shorter of the patents' estimated useful
          lives  or their  legal  lives  (seventeen  years).  Amortization  will
          commence  once  the  Company  has  succeeded  from  development  stage
          activities. The Company assesses the recoverability of this intangible
          asset by  determining  whether the balance  can be  recovered  through
          forecasted  future  operations.  The amount of impairment,  if any, is
          measured  based on  projected  future  results  using a discount  rate
          reflecting the Company's assumed average cost of funds.

     (f)  Deferred Offering Costs

          Deferred  offering costs include costs incurred in connection with the
          initial  public  offering.  Such costs were  capitalized  and  charged
          against additional paid-in capital upon completion of the offering.

     (g)  Income Taxes

          Deferred  income taxes are provided based on the estimated  future tax
          effects of temporary  differences between financial statement carrying
          amounts of existing assets and  liabilities  and their  respective tax
          bases.

          Deferred tax assets and  liabilities  are measured  using  enacted tax
          rates that are  expected  to apply to  taxable  income in the years in
          which those  temporary  differences  are  expected to be  recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is  recognized  in operations in the period that includes
          the enactment date. A valuation allowance is recorded for deferred tax
          assets when it is more likely than not that such  deferred  tax assets
          will not be realized.

     (h)  Major Customers

          As the Company is still in the development stage, all of the Company's
          revenues  were from two and  three  domestic  customers  for the years
          ended June 30, 1997 and 1996, respectively.

     (i)  Cash Equivalents

          The Company considers all short-term  investments with a maturity date
          at purchase of three months or less to be cash equivalents.


                                                                     (Continued)



                                       F-8



<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================


     (j)  Net Loss Per Share

          Net loss per share is computed by  dividing  net loss by the  weighted
          average number of shares of common stock and common stock  equivalents
          outstanding  during each year.  Common stock  equivalents  include all
          warrants  and  stock  options  which  would  have a  dilutive  effect,
          applying the treasury  stock method.  Additionally,  common and common
          equivalent   shares  issued  during  the  twelve  months   immediately
          preceding the date of the Company's  initial public offering have been
          included in the calculation of common and common  equivalent shares as
          if they  were  outstanding  for all  periods  presented  prior  to the
          offering,  including  loss years  where the impact of the  incremental
          shares is antidilutive, using the treasury stock method and an initial
          public offering price of $6 per share.

     (k)  Use of Estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.

     (l)  Patents, Proprietary Technology and Other Intellectual Property

          The Company pursues a policy of generally  obtaining patent protection
          both in the United States and abroad for patentable  subject matter in
          its proprietary  technology.  The Company's success depends in a large
          part upon its ability to protect its  products  and  technology  under
          United  States and  international  patent laws and other  intellectual
          property  laws.  U.S.  patents  have a term of 17 years  from  date of
          issuance and patents in most foreign countries have a term of 20 years
          from the proprietary filing date of the patent application.

          The Company  believes that it owns and has the right to use or license
          all  proprietary  technology  necessary  to  license  and  market  its
          products under  development.  The Company is not aware of the issuance
          of any patents or the filing of any patent  applications  which relate
          to  processes  or products  which  utilize the  Company's  proprietary
          technology in a manner which could be similar to or  competitive  with
          the Company's products or processes. The Company has no knowledge that
          it is  infringing  on any  existing  patent  such  that  it  would  be
          prevented from marketing or licensing  products or services  currently
          being developed by the Company.


                                                                     (Continued)

                                       F-9


<PAGE>


                           PROFILE TECHNOLOGIES, INC.

                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================

     (m)  Concentrations of Credit Risk

          Financial   instruments  which  potentially  subject  the  Company  to
          concentrations of credit risk include cash and cash  equivalents.  The
          Company  regularly invests funds in excess of its immediate needs in a
          money market  account with Citibank  (Account).  Funds invested in the
          Account are uninsured and subject to  investment  risk.  Included with
          cash  and  cash  equivalents  were  amounts  held  in the  Account  of
          $4,825,000  at  June  30,  1997.  Additionally,   at  June  30,  1996,
          approximately $180,000 was included in cash and cash equivalents which
          was held in a separate  money market  account with  Citibank.  Amounts
          held in this money  market  account  are insured up to $100,000 by the
          Federal Depository Insurance Corporation.

     (n)  Product Development Costs

          Product  development  costs are  charged to  operations  as  incurred.
          Statement of Financial Accounting Standards No. 86, Accounting for the
          Costs of Computer Software to be sold,  Leased or Otherwise  Marketed,
          requires   capitalization   of  certain  software   development  costs
          subsequent to the establishment of technological feasibility.

          Based on the  Company's  product  development  process,  technological
          feasibility is established  upon completion of a working model.  Costs
          incurred by the Company  between  completion  of the working model and
          the point at which the product is ready for general  release have been
          insignificant. All product development costs have been expensed.

     (o)  Stock-Based Compensation

          The  Company   adopted  the   provisions  of  Statement  of  Financial
          Accounting  Standards  (SFAS)  No.  123,  Accounting  for  Stock-Based
          Compensation,  during 1997. This statement permits a company to choose
          either a new  fair-value-based  method  or the  Accounting  Principles
          Board (APB) Opinion No. 25,  Accounting for Stock Issued to Employees,
          intrinsic-value-based    method   of   accounting   for    stock-based
          compensation arrangements. SFAS No. 123 requires pro forma disclosures
          of  net   income  and   earnings   per  share   computed   as  if  the
          fair-value-based  method had been applied in financial  statements  of
          companies  that  continue to account for such  arrangements  under APB
          Opinion  No.  25.  The  Company  has  elected  to  continue  to record
          stock-based    compensation    using   the   APB    Opinion   No.   25
          intrinsic-value-based  method and, therefore, the adoption of SFAS No.
          123 has not  impacted the  Company's  financial  position,  results of
          operations, or liquidity.

     (p)  Reclassifications

          Certain  reclassifications  have  been  made to the 1996  balances  to
          conform to the 1997 presentation.


                                                                     (Continued)



                                      F-10



<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                          Notes to Financial Statements


================================================================================


(2) Property and Equipment

     Property and equipment at June 30, 1997 consist of the following:

           Trailer                                  $    11,670
           Equipment                                    136,512
                                                    -----------
                                                        148,182
           Less accumulated depreciation                113,241
                                                    -----------
                                                    $    34,941
                                                    ===========
                                           

     Depreciation  expense totaled $113,241,  $20,822 and $20,213 for the period
     from July 1, 1988  (inception)  through  June 30,  1997 and the years ended
     June 30, 1997 and 1996, respectively.

(3) Services Received in Exchange for Common Stock

     The Company values common stock issued in payment for services  provided to
     the Company  based either on  third-party  billings or the  estimated  fair
     value of the common stock issued.  During fiscal year 1991, two individuals
     (one a board member) each received 20,000 shares of common stock in payment
     for services provided to the Company. These services were valued at $10,000
     based on the estimated fair value of the common stock issued.

     In October 1995, the Company issued 20,000 shares of common stock for legal
     services  provided to the Company  valued at $20,000  based on  third-party
     billings.

(4) Related Parties

     (a)  Accounts Payable - Stockholder

          At June 30,  1997,  the Company  owed $2,500 to a  stockholder  of the
          Company for business expenses.

     (b)  Consulting Services and Wages

          The Company's  policy is to pay wages and  consulting  fees to two key
          individuals on a basis consistent with available cash flows. Wages and
          consulting fees to these  individuals,  Gale Burnett,  President,  and
          Henry Gemino, Executive  Vice-President,  were approximately $879,000,
          $209,000  and  $182,000  for the period from July 1, 1988  (inception)
          through  June 30,  1997 and the years  ended  June 30,  1997 and 1996,
          respectively.  Included  in  accrued  wages are  amounts  owing to the
          president and executive  vice-president totaling approximately $20,000
          at June 30, 1997.



                                                                     (Continued)

                                      F-11


<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================


          Additional consulting fees were paid to a director of the Company, Dr.
          John Kuo, totaling approximately $149,000, $80,000 and $54,000 for the
          period  from July 1, 1988  (inception)  through  June 30, 1997 and the
          years  ended June 30, 1997 and 1996,  respectively.  Included in other
          accrued liabilities are amounts owing to the director totaling $60,829
          at June 30, 1997.

     (c)  Royalty Arrangement

          In July 1988, the primary  technology  rights used by the Company were
          contributed   by  Northwood   Enterprises   Inc.   (NEI),   a  company
          wholly-owned  by  certain  Company   stockholders.   In  exchange  for
          contributing the technology, the Company agreed to pay a royalty of 4%
          of  the  Company's  net  earnings  before  taxes  to  certain  Company
          stockholders.  When the Company becomes profitable,  royalties will be
          due quarterly. In March 1996, an additional 1% was given to a director
          of the Company in exchange for his expertise,  technological  know-how
          and proprietary information and trade secrets.

     (d)  Facilities

          Since 1991, two of the Company's  officers/stockholders  have provided
          the use of their homes for office facilities and research  development
          activity at no additional charge to the Company.

(5) Income Taxes

     Federal  income  taxes  reported  by the  Company  differ  from the  amount
     computed by applying the  statutory  rate due primarily to  limitations  on
     utilizing net operating losses.

     The tax  effect of  temporary  differences  that  give rise to  significant
     portions of Federal  deferred tax assets are  comprised of the following at
     June 30, 1997:

       Deferred tax assets:
          Net operating loss carryforwards              $  507,000
          Stock compensation                               292,000
          Research and experimentation
            credit carryforwards                            57,000
                                                        ----------
                Gross deferred tax assets                  856,000
          Less valuation allowance                         856,000
                                                        ----------
                Net deferred tax assets                 $     --
                                                        ==========

     The net  increase in the  valuation  allowance  for deferred tax assets was
     $436,145  and  $62,008  for  the  years  ended  June  30,  1997  and  1996,
     respectively.  The increases  were primarily due to increases in the amount
     of net operating  loss  carryforwards  that could not be utilized and stock
     compensation.


                                                                     (Continued)



                                      F-12



<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================


     For  Federal  income tax  purposes,  the  Company  has net  operating  loss
     carryforwards  at June 30, 1997 available to offset future Federal  taxable
     income, if any, of approximately  $1,500,000 which begin to expire in 2003.
     In  addition,  the  Company has  research  and  experimentation  tax credit
     carryforwards of approximately $57,000 at June 30, 1997 which are available
     to offset income taxes over an indefinite period.

     The utilization of the tax net operating loss  carryforwards may be limited
     due to  ownership  changes  that have  occurred  as a result of the sale of
     common stock.

(6) Stockholders' Equity

     (a)  Stock Split

               In December 1995, the Company authorized a 2-for-1 stock split of
               the  Company's  common  stock and a change in par value to $.001.
               All share, par value and per share  information has been adjusted
               for all  periods  presented  to reflect  the stock  split and par
               value change.

     (b)  Stock Warrants and Stock-Based Compensation

               The  Company  has  granted  stock   warrants  to  compensate  key
               employees,  consultants  and board  members  for past and  future
               services.   The  stock   warrants   are   generally   exercisable
               immediately  at the date of the grant.  The Company  extended the
               exercise period on certain  warrants to October 2001 from October
               1999  which  resulted  in  compensation  expense in the amount of
               $210,000 in December 1994. The related  warrants were  originally
               granted in November 1991 and September 1993.

               In March 1996,  the Company  extended the exercise  period on all
               stock  warrants to October  2004 which  resulted in  compensation
               expense of $90,000.

               In November  1996,  the  Company  recorded  noncash  compensation
               expense totaling  $559,154 related to warrant  transactions.  The
               Company  issued a warrant to  purchase  285,000  shares of common
               stock to a consultant at an exercise price of $3.50 per share and
               a warrant to its  attorney  to purchase  10,000  shares of common
               stock at an exercise  price of $7.20 per share.  The Company also
               agreed to issue  warrants  to  purchase  25,000  shares of common
               stock with an  exercise  price of $7.20 to each of its two of its
               nonemployee  directors.  In  addition,  the  Company's  principal
               shareholder  agreed to assign  warrants to purchase 50,000 shares
               of common stock at $3.00 per share to other employees,  directors
               and shareholders of the Company.  In connection with the IPO, the
               Company issued  warrants to the  underwriter to purchase  100,000
               shares of common stock at $8.40 per share.

               At June 30,  1997,  warrants  to purchase  1,120,000  shares were
               exercisable at prices ranging from $1.125 to $8.40 per share. The
               date of  expiration  on all warrants is October 31, 2004,  except
               for  the  underwriter  warrants  for  100,000  shares  issued  in
               connection with the IPO which expire February 12, 2002.


                                                                     (Continued)

                                      F-13


<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================


     The following is a summary of warrants outstanding at June 30, 1997:

                                        Warrants outstanding

                                         Weighted-average          Number of
                           Number             remaining             warrants
     Exercise prices      outstanding      contractual life       exercisable
     ---------------------------------------------------------------------------

        $ 1.125             320,000              7.33               320,000
          1.500              40,000              7.33                40,000
          3.000             270,000              7.33               270,000
          3.500             285,000              7.33               285,000
          7.200             105,000              7.33               105,000
          8.400             100,000              4.67               100,000

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
     accounting for warrant grants to employees.  Had compensation  cost for the
     Company's 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:

                                                  Years ended June 30
                                               --------------------------
                                                  1997            1996
                                               --------------------------
       Net loss:
         As reported                           $1,035,003         400,853 
         Pro forma                              1,171,003         800,003

       Net loss per share:
         As reported                           $    .26            .11    
         Pro forma                                  .30            .22


     The  weighted  average  fair  value  per  share of the  warrant,  grants or
     extensions  made during the years  ended June 30, 1997 and 1996,  where the
     fair  value  of the  underlying  stock  equaled  the  exercise  price,  was
     approximately  $1.27 and $0.72,  respectively,  and the number of  warrants
     were 60,000 and 315,000, respectively.

     The  weighted  average  fair  value  per  share of the  warrant,  grants or
     extensions  made during the years  ended June 30, 1997 and 1996,  where the
     exercise  price was  below  the fair  value of the  underlying  stock,  was
     approximately $1.85 and $1.31, respectively and the number of warrants were
     335,000 and 360,000, respectively.

     The fair  value of  warrant  grants is  estimated  using the  Black-Scholes
     option pricing model with the following  weighted average  assumptions used
     for  grants in fiscal  years  1997 and 1996:  expected  volatility  of 50%,
     risk-free  interest  rate of 6%,  expected  lives ranging from three to six
     years;  and a 0% dividend  yield.  The initial effects of applying SFAS No.
     123 may not be  representative  of the  effects  on pro forma net income or
     loss for future years.


                                                                     (Continued)



                                      F-14



<PAGE>

                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                          Notes to Financial Statements

================================================================================


(7) Operating Leases

     During  fiscal  year  1997,  the  Company   entered  into  operating  lease
     agreements that expire at various dates for office facilities in Washington
     State and New York State.  Aggregate  minimum rental  payments on operating
     leases as of June 30, 1997 are as follows:

                 1998                  $  39,600
                 1999                     17,100
                                       ---------
                                       $  56,700
                                       =========        

     Total rent expense  under the  operating  leases was $5,700 during the year
     ended June 30, 1997.

(8) New Accounting Pronouncements

     In February 1997, the Financial  Accounting  Standards  Board (FASB) issued
     SFAS No. 128, Earnings Per Share. This statement  establishes standards for
     the  computation,  presentation and disclosure of earnings per share (EPS),
     replacing  the  presentation  of  currently  required  Primary  EPS  with a
     presentation of Basic EPS. It also requires dual  presentation of Basic EPS
     and  Diluted  EPS on the face of the income  statement  for  entities  with
     complex  capital  structures.  Basic  EPS is based on the  weighted-average
     number of common shares outstanding during the period. Diluted EPS is based
     on the potential  dilution that would occur, upon exercise or conversion of
     securities into common stock using the treasury stock method.  SFAS No. 128
     is effective for financial statements for periods ending after December 15,
     1997,  including interim periods, and earlier application is not permitted.
     When adopted,  the Company will be required to restate its EPS data for all
     prior  periods  presented.  The  Company  does not expect the impact of the
     adoption  of this  statement  to be  material to  previously  reported  EPS
     amounts.

     In February 1997, the FASB issued SFAS No. 129,  Disclosures of Information
     About  Capital  Structure,   which  establishes  standards  for  disclosing
     information  about an entity's capital  structure.  The disclosures are not
     expected  to have a  significant  impact on the  Company.  SFAS No.  129 is
     effective for financial statements ending after December 15, 1997.

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
     which  establishes  standards for reporting  and  displaying  comprehensive
     income and its components (revenues,  expenses, gains and losses) in a full
     set of general purpose financial statements. SFAS No. 130 requires that all
     items that are  required to be  recognized  under  accounting  standards as
     components  of  comprehensive  income be reported in a financial  statement
     that is displayed with the same prominence as other  financial  statements.
     SFAS No. 130 is effective for years  beginning after December 15, 1997. The
     Company  does not  anticipate  a  material  impact  upon  adoption  of this
     standard.



                                                                     (Continued)

                                      F-15


<PAGE>


     In June 1997, the FASB issued SFAS No. 131,  Disclosures  About Segments of
     an Enterprise and Related Information,  which establishes standards for the
     way public business  enterprises are to report  information about operating
     segments in annual financial  statements and requires those  enterprises to
     report selected  information about operating  segments in interim financial
     reports issued to shareholders. It also establishes the related disclosures
     about products and services,  geographic  areas, and major customers.  SFAS
     No. 131 replaces the  "industry  segment"  concept of Financial  Accounting
     Standards  No. 14 with a  "management  approach"  concept  as the basis for
     identifying  reportable  segments.  SFAS No. 131 is effective for financial
     statements for periods  beginning after December 15, 1997. The Company does
     not anticipate a material impact upon adoption of this standard.


                                                                    

                                      F-16

<PAGE>



Item 8.  Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure.
         ----------------------------------------------------------------

     In  November  of 1995 the Company  dismissed  Moss  Adams,  LLP, a regional
accounting firm primarily located in the Pacific Northwest,  and hired KPMG Peat
Marwick LLP, an international  accounting firm. None of the accountant's reports
of Moss Adams on the financial  statements of the Company  contained any adverse
opinion or disclaimer  of opinion,  or were  modified as to  uncertainty,  audit
scope, or accounting principles. The decision to change accountants was approved
by the  Board of  Directors  of the  Company.  At the time the  Company  changed
accountants,  there  were no  disagreements  with  Moss  Adams,  whether  or not
resolved,  on any  matter  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure,  which, if not resolved to
the  satisfaction of Moss Adams,  would have caused Moss Adams to make reference
to the  subject  matter  of the  disagreements  in  connection  with  any of its
reports.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.
        ------------------------------------------------------------------------

     The  Company  will file  with the  Securities  and  Exchange  Commission  a
definitive  Proxy  Statement to be distributed in connection  with the Company's
Annual  Meeting of  Shareholders  to be held on November  14,  1997.  Such Proxy
Statement will be filed with the  Securities  and Exchange  Commission not later
than October 21, 1997. The  information  required by this Item 9 is incorporated
by reference from the Proxy Statement.

Item 10.  Executive Compensation.
          -----------------------

     The information  required by this Item 10 is incorporated by reference from
the Proxy Statement.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.
          ---------------------------------------------------------------

     The information  required by this Item 11 is incorporated by reference from
the Proxy Statement.

Item 12.  Certain Relationships and Related Transactions.
          -----------------------------------------------

     The information  required by this Item 12 is incorporated by reference from
the Proxy Statement.






                                       16

<PAGE>



Item 13.  Exhibits and Reports on Form 8-K.

         (a) Exhibits
                  (3)
                           (i) Articles of Incorporation(1)
                           (ii) Bylaws(2)

                  (10.1) Royalty Agreement(3)
                  (10.2) Assignment of Patent Rights(4)
                  (10.3) Consulting Agreement with Dr. John Kuo(5)
                  (11.1) Earnings Per Share Calculation

         (b) No reports on Form 8-K were filed during the quarter ended June 30,
1997.

     (1) Incorporated by reference to Exhibit 3.1 to the Registration  Statement
on Form  SB-2 of  Profile  Technologies,  Inc.  filed  with the  Securities  and
Exchange Commission on May 10, 1996. (333- 4714-NY)
     (2) Incorporated by reference to Exhibit 3.3 to the Registration  Statement
on Form  SB-2 of  Profile  Technologies,  Inc.  filed  with the  Securities  and
Exchange Commission on May 10, 1996 (333- 4714-NY)
     (3) Incorporated by reference to Exhibit 10.1 to the Registration Statement
on Form  SB-2 of  Profile  Technologies,  Inc.  filed  with the  Securities  and
Exchange Commission on May 10, 1996. (333- 4714-NY)
     (4) Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form  SB-2 of  Profile  Technologies,  Inc.  filed  with the  Securities  and
Exchange Commission on July 31, 1996 (333- 4714-NY)
     (5) Incorporated by reference to Exhibit 10.3 to the Registration Statement
on Form  SB-2 of  Profile  Technologies,  Inc.  filed  with the  Securities  and
Exchange Commission on July 31, 1996. (333- 4714-NY)




                                       17

<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                          PROFILE TECHNOLOGIES, INC.



                                          By: /s/  G.L. Scott
                                              ----------------------------------
                                                   G.L. SCOTT
                                                   Chief Executive Officer


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

Signatures               Title                   Date


/s/G.L. Scott            Chairman, Principal      Sept. 24, 1997
--------------------     Executive Officer,             --
   G.L. SCOTT            Director

/s/Henry Gemino          Executive Vice-          Sept. 24, 1997
--------------------     President, Chief               --
   HENRY GEMINO          Operating Officer,
                         Chief Financial Officer,
                         Principal Accounting
                         Officer, Director


/s/Gale D. Burnett       President, Director      Sept. 24, 1997
--------------------                                    --
   GALE D. BURNETT


/s/Murphy Evans          Director                 Sept. 24, 1997
--------------------                                    --
   MURPHY EVANS


/s/John Tsungfen Kuo     Director, Chief          Sept. 24, 1997
---------------------    Technical Consultant           --
   JOHN TSUNGFEN KUO





                                       18