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, 1999

                             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. $283,632.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $22,437,000, based on the closing bid and ask prices as reported
by the NASDAQ SmallCap market on September 22, 1999.

There were 4,280,092 shares of common stock $.001 par value outstanding as of
September 7, 1999.

                      Documents incorporated by reference:

Definitive Proxy material for annual shareholder meeting to be held November 15,
1999 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. 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, the technology has evolved to the point where it is
now being used in the field on a commercial basis by large multi-national oil
companies. In the summer of 1998, the Company completed its first commercial
contract on the North Slope of Alaska, testing approximately 100 road and
caribou crossings on British Petroleum pipelines under a contract with ASCG
Inspection, Inc. The contract was completed ahead of schedule and under budget.
In the summer of 1999, the Company followed up its initial North Slope work with
a much larger contract with another large multi-national oil company to test
approximately 250 below grade pipes. Discussions are currently underway to
significantly expand the work scope of the Company's contract to include above
grade pipes as well as those below grade. In addition, discussions are underway
with a large east coast public utility to begin a demonstration project to test
below grade natural gas lines located in an urban setting. There can be no
assurance, however, that these discussions will lead to additional commercial
contracts.

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 that result in extensive damage of property and loss of human life.

                                       2

<PAGE>


     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
that 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.

     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
that 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.

                                       3

<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 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, while the Company has obtained some
commercial contracts and prospects for expanded commercial contracts in the
future appear good, there can be no assurance that such acceptance will continue
to grow.

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.

     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

                                       4

<PAGE>

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. 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 that 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.

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, 1999, the Company had five issued U.S. patents, four
issued foreign patents, nine U.S. patent applications pending, seven foreign
patent applications pending and three patent applications 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, three patents were issued in 1993 and one
patent was issued in 1998.

     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

                                       5

<PAGE>

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's 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, 1999 and June 30,
1998, the Company spent $314,571 and $312,620 respectively on research and
development activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

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 below ground 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

                                       6

<PAGE>

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
that 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
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. These field demonstrations resulted in the Company
obtaining its first commercial contract in the summer of 1998 to test 100 road
and caribou crossings on the North Slope of Alaska. In the summer of 1999, the
Company entered into a larger contract with another multi-national oil company
to test 250 underground pipes. As a result of this work, the Company is now
currently in discussions to expand the work scope of this contract to include
above grade pipes on a significantly larger scale.

Marketing Strategy

     The Company intends to increase its marketing activities. Such marketing
activities are being 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 has been,
and will continue to be, an important factor in the Company's marketing efforts.
With respect to the refinery market, the Company expects to provide 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. 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 currently
based upon a dollar amount per linear foot of pipeline tested or on a per diem
basis, with pricing based upon many factors including difficulty of access, cost

                                       7

<PAGE>

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. The Company has not
encountered 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
have either entered into commercial contracts with the Company or shown an
interest in the Company's services, the Company has competed and will in the
future 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.

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.

     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.

                                       8

<PAGE>


     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 ten employees. It is anticipated that if
additional commercial contracts are secured, additional field crews will be
hired and trained. The number of crews employed by the Company at any given time
is 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.



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). The lease expires in approximately
one year and has a one year renewal option.

     The Company's research and development facility is located in Ferndale,
Washington. The Company leased 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 is
currently leasing the facility on a month to month lease, but the lease has now
expired and the Company is negotiating an extension of the lease.

     The Company has recently leased approximately 1,650 sq. feet of office
space from a non-affiliate that it uses for data analysis and interpretation in
Pearl River, New York. The lease is for one year and the monthly rental payment
is approximately $3,300. The Company also reimburses its President for rent and
secretarial expenses incurred by him on behalf of the Company in Laurinburg,
North Carolina in the amount of $1,500 per month under an informal, oral
agreement.

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<PAGE>


     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, 1999, 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, for each of the last two fiscal years as reported by Nasdaq.

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

       September 30, 1997            $12.25          $6.25
       December 31, 1997             $12.25          $11.00
       March 31, 1998                $21.00          $10.00
       June 30, 1998                 $19.50          $14.00

       September 30, 1998            $19.00          $11.75
       December 31, 1998             $16.75          $ 3.00
       March 31, 1999                $11.25          $ 8.00
       June 30, 1999                 $10.00          $ 7.125

     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.

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<PAGE>


     At September 7, 1999, the bid price of the Company's common stock was $8.25
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 700 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 has emerged from a development stage enterprise and is now
primarily focused upon expanding its commercial operations. The goal of the
Company has continued to be the establishment of profitable commercial
operations associated with services designed to electronically measure corrosion
in various kinds of piping. The Company's product identifies areas of corrosion
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 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.
This work led to an initial commercial contract to test 100 road and caribou
crossings, which was completed in July of 1998. As a result of this initial
activity, the Company is now in the process of completing a contract on the
North Slope that entails a scope of work 250% greater than the contract
completed in 1998.

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<PAGE>


     In order for the Company to continue to realize significant growth in its
revenues which, in turn, may lead to profitable operations, the Company must
continue to expand its customer base by utilizing its newly hired marketing
personnel in an effective manner. The Company must also be able to supply and
train additional work crews in sufficient numbers to satisfy the requirements of
its customers.

     In the opinion of management, significant progress has been made to date in
developing its technologies, gaining credibility with its markets and building
its board of directors and investor base, without spending inordinate sums to
achieve these goals.

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

Years Ended June 30, 1999 and June 30, 1998
-------------------------------------------

     The Company incurred a net loss of $864,638 in the year ended June 30, 1999
compared to a net loss of $712,827 in the year ended June 30, 1998. Revenues for
the year ended June 30, 1999 were $283,632, which represented an increase of
$238,632, or 530% as compared to revenues of $45,000 for the year ended June 30,
1998. This revenue increase is primarily the result of expanded commercial
operations on the North Slope of Alaska. Interest income decreased to $180,234
for the year ended June 30, 1999 from $246,706 for the year ended June 30, 1998.
This decrease was the result of declining cash and cash equivalent balances
during the year as the Company used such resources to sustain its commercial
operations and research and development activities.

     Total operating expenses for the Company for the year ended June 30, 1999
increased significantly over the year ended June 30, 1998. Total operating
expenses of $1,238,070 were recorded in the year ended June 30, 1999 compared to
total operating expenses of $991,181 for the year ended June 30, 1998. This
represents an increase in operating expenses of $246,889 or 25%. The increase in
operating expenses for the year ended June 30, 1999 is attributed almost
entirely to increased expenditures associated with general and administrative
costs, which increased to $923,499 for the year ended June 30, 1999 from
$678,561 for the year ended June 30, 1998 and reflects the payment of salaries
associated with an increase in personnel, including the hiring of a
Vice-President in charge of marketing and additional field crew personnel.
Additional expenses were incurred in acquiring added office space that is used
for data interpretation. Research and development expenses increased slightly to
$314,571 for the year ended June 30, 1999 from $312,620 for the year ended June
30, 1998 and reflects the Company's continued emphasis on refining and expanding
the capability of the Company's technology.

     Management believes that both revenues and expenses of the Company will
increase substantially during the fiscal year ending June 30, 2000 if it is able
to secure additional commercial contracts with customers, of which there is no
assurance. Until the fiscal year ended June 30, 1998, the revenues earned by the
Company were principally related to research and development activities that

                                       12

<PAGE>

were sponsored by large multi-national oil companies and large utilities. These
activities included field research and development at such companies'
facilities. However, in the fiscal year ended June 30, 1999, most of the
Company's revenues were derived from commercial contracts on the North Slope of
Alaska. The Company believes that much of its anticipated future revenues will
also be derived from commercial contracts, although demonstration projects are
expected to provide significant revenues.

     If additional commercial contracts are obtained, management expects its
expenditures associated with field personnel and testing equipment will continue
to rise. In addition, administrative support activities will increase together
with related expenses.


LIQUIDITY AND CAPITAL RESOURCES

     Revenues from operations for the year ended June 30, 1999 were $283,632.
This compares with revenues from operation of $45,000 for the year ended June
30, 1998. Net cash used in operating activities for the year ended June 30, 1999
was $886,754, an increase of $249,433 or 39% over the amount of cash used in
operations of $637,321 for the year ended June 30, 1998. Net cash used in
investing activities rose to $188,175 for the year ended June 30, 1999 compared
to $131,328 for the year ended June 30, 1998, an increase of $56,847 or 43%.
Working capital (current assets minus current liabilities) was $3,146,316 at
June 30, 1999 compared to working capital of $4,051,984 at June 30, 1998. At
June 30, 1999, the Company had cash and cash equivalents on hand of $3,140,647
and other current assets of $127,418. Current liabilities at June 30, 1999 were
$121,749. Management believes that its liquidity and capital resources are
adequate to conduct its planned operations at present and reasonably anticipated
future levels.


RESOURCES

     As of June 30, 1999 the Company did not have any material commitments for
capital expenditures. However, management is currently directing the Company's
activities towards obtaining additional fee for service contracts, which will
necessitate the Company attracting, hiring, training and outfitting qualified
technicians. The Company's intention is to purchase such equipment for its field
crews for the foreseeable future, until such time as the scope of the operations
may require alternate sources of financing such equipment. The timing of these
events is dependent upon the Company's ability to obtain additional fee for
service contracts, which is dependent upon the Company's continuing ability to
demonstrate the effectiveness of its technology. The Company believes that its
cash position is sufficient to satisfy its operating needs for at least the next
twelve months. Management believes it is well on the way to reaching these
milestones, but there can be no assurance that the Company's process will gain
widespread commercial acceptance within any particular time frame, or at all.
The Company will incur additional personnel expenses as it hires and trains
field crews and support personnel related to the successful receipt of
commercial contracts.

                                       13

<PAGE>


YEAR 2000 COMPLIANCE

     The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex since virtually
every company's computer operation will be affected in some way. The Company's
computer programs which process its field data as well as operation and
financing transactions were designed and developed without considering the
impact of the upcoming change in century. Nevertheless, as a result of the
Company's analysis of its computer programs and operations, the Company believes
that "Year 2000" problems will not seriously impact or have a material adverse
effect on the Company's expenses, business, including data gathering and
interpretation, or its operations. The Company has not incurred significant
costs in remediation efforts nor does it anticipate significant future costs
associated with "Year 2000" compliance.

     It is possible, however, that "Year 2000" problems incurred by
customers or suppliers of the Company could have a negative impact on future
operations and financial performance of the Company, although the Company has
not been able to specifically identify any such problems among its suppliers.
The Company believes that it will not be dependent upon any single supplier for
its equipment or machinery in the year 2000, and has therefore made a
determination not to contact its primary suppliers to determine if they are
developing plans to address processing transactions which may impact the Company
in the year 2000. However, there can be no assurance that Year 2000 problems
will not occur with respect to the Company's computer systems. Furthermore, the
Year 2000 problem may impact other entities with which the Company transacts
business and the Company cannot predict the effect of the Year 2000 problem on
such entities or the resulting effect on the Company. The Company has not yet
developed a contingency plan to operate in the event that any non-compliant
customer or supplier systems that have a material impact on the Company are
not remedied by January 1, 2000 and has determined, based upon an assessment of
the related risks, that development of a contingency plan is not necessary at
this time. As a result, if preventative and/or corrective actions by the Company
or those entities with which the Company does business are not made in a timely
manner, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition and results of operations.

                                       14


<PAGE>



Item 7.  Financial Statements.
         ---------------------





                                       15

<PAGE>


                           PROFILE TECHNOLOGIES, INC.


                                Table of Contents



                                                                Page
                                                                ----

Independent Auditors' Report                                     F-1

Balance Sheet                                                    F-2

Statements of Operations                                         F-3

Statements of Stockholders' Equity                               F-4

Statements of Cash Flows                                         F-5

Notes to Financial Statements                                    F-6





<PAGE>



                          Independent Auditors' Report



The Board of Directors
Profile Technologies, Inc.:


We have audited the accompanying balance sheet of Profile Technologies, Inc. as
of June 30, 1999, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the two year period then ended.
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 audits 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. as
of June 30, 1999, and the results of its operations and its cash flows for each
of the years in the two year period then ended, in conformity with generally
accepted accounting principles.








Seattle, Washington
September 10, 1999


                                      F-1


<PAGE>
                           PROFILE TECHNOLOGIES, INC.

                                  Balance Sheet

                                  June 30, 1999


                                     Assets

Current assets:
    Cash and cash equivalents                                   $ 3,140,647
    Accounts receivable                                              15,106
    Contract work-in-progress                                        87,750
    Prepaid expenses                                                 24,562
                                                                -----------

                    Total current assets                          3,268,065

Equipment, net                                                      140,099
Patents, net of accumulated amortization of $48,966                 259,303
Other assets                                                          9,993
                                                                -----------

                    Total assets                                $ 3,677,460
                                                                ===========


Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable - stockholder                              $     7,423
    Other accounts payable                                           25,826
    Accrued liabilities                                              88,500
                                                                -----------

                    Total current liabilities                       121,749
                                                                -----------

Stockholders' equity:
    Common stock, $0.001 par value.  Authorized
       10,000,000 shares; issued and outstanding
       4,275,092 shares                                               4,275
    Additional paid-in capital                                    7,561,758
    Accumulated deficit                                          (4,010,322)
                                                                -----------

                    Total stockholders' equity                    3,555,711
                                                                -----------

Commitments
                                                                -----------

                    Total liabilities and stockholders' equity  $ 3,677,460
                                                                ===========


See accompanying notes to financial statements.

                                      F-2
<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                            Statements of Operations

                       Years ended June 30, 1999 and 1998

                                                      1999              1998
                                                  -----------       -----------
Revenues                                          $   283,632            45,000
Cost of revenues                                       90,434            13,352
                                                  -----------       -----------

         Gross profit                                 193,198            31,648
                                                  -----------       -----------

Research and development                              314,571           312,620
General and administrative                            923,499           678,561
                                                  -----------       -----------

         Total costs and expenses                   1,238,070           991,181
                                                  -----------       -----------

         Loss from operations                      (1,044,872)         (959,533)

Interest income                                       180,234           246,706
                                                  -----------       -----------

         Net loss                                 $  (864,638)         (712,827)
                                                  ===========       ===========

Basic and diluted net loss
   per share                                      $      0.20              0.17
                                                  ===========       ===========

Shares used to calculate basic and
   diluted net loss per share                       4,273,676         4,262,600
                                                  ===========       ===========




See accompanying notes to financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                                          PROFILE TECHNOLOGIES, INC.

                                     Statements of Stockholders' Equity

                                     Years ended June 30, 1999 and 1998



                                                Common stock                Additional                             Total
                                      -----------------------------          paid-in         Accumulated        stockholders'
                                         Shares            Amount            capital           deficit            equity
                                      -----------        ----------         ---------        ----------          ---------

<S>                                    <C>              <C>                <C>              <C>                 <C>
Balances at June 30, 1997               4,262,600        $    4,263         7,514,145        (2,432,857)         5,085,551
Net loss                                     --                --                --            (712,827)          (712,827)
                                      -----------        ----------        ----------        ----------         ----------

Balances at June 30, 1998               4,262,600             4,263         7,514,145        (3,145,684)         4,372,724

Exercise of common stock
 purchase warrants                         12,492                12            47,613              --               47,625
Net loss                                     --                --                --            (864,638)          (864,638)
                                      -----------        ----------        ----------        ----------         ----------

Balances at June 30, 1999               4,275,092        $    4,275         7,561,758        (4,010,322)         3,555,711
                                      ===========        ==========        ==========        ==========         ==========




See accompanying notes to financial statements.

                                                        F-4


<PAGE>

                                        PROFILE TECHNOLOGIES, INC.

                                        Statements of Cash Flows

                                   Years ended June 30, 1999 and 1998


                                                                              1999                      1998
                                                                           -----------                ---------
Cash flows from operating activities:
    Net loss                                                               $  (864,638)                (712,827)
    Adjustments to reconcile net loss to
       net cash used in operating activities:
          Depreciation and amortization                                        105,983                   38,096
          Accounts receivable                                                  (15,106)                    --
          Contract work in progress                                            (87,750)                  20,000
          Prepaid expenses                                                      35,083                   (6,847)
          Other assets                                                          (6,463)                    (180)
          Accounts payable - stockholder                                       (14,314)                  19,237
          Other accounts payable                                                 6,273                   13,634
          Accrued wages                                                           --                    (20,614)
          Other accrued liabilities                                            (45,822)                  12,180
                                                                           -----------              -----------

                    Net cash used in operating activities                     (886,754)                (637,321)
                                                                           -----------              -----------

Cash flows from investing activities:
    Patents                                                                   (104,232)                 (15,000)
    Purchase of equipment                                                      (83,943)                (116,328)
                                                                           -----------              -----------

                    Net cash used in investing activities                     (188,175)                (131,328)
                                                                           -----------              -----------

Cash flows from financing activities - proceeds from
    exercise of common stock purchase warrants                                  47,625                     --
                                                                           -----------              -----------

                    Decrease in cash and cash equivalents                   (1,027,304)                (768,649)

Cash and cash equivalents at beginning of period                             4,167,951                4,936,600
                                                                           ===========              ===========
Cash and cash equivalents at end of period                                 $ 3,140,647                4,167,951
                                                                           ===========              ===========

See accompanying notes to financial statements.


                                                   F-5
</TABLE>

<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


(1) Nature of Business and Summary of Significant Accounting Policies

     (a) Nature of Business

          Profile Technologies, Inc. (Company), was incorporated in 1986 and
          commenced operations in fiscal year 1989. The Company is in the
          business of developing and commercializing potential processes for the
          nondestructive, noninvasive testing of both above ground and buried
          pipelines for the effectiveness of pipeline cathodic protecting
          systems and coating integrity. The Company's marketing and development
          efforts have primarily been focused towards large muti-national oil
          companies. In July 1998, the Company commenced work on its initial
          commercial contract for corrosion inspection services of pipeline at
          approximately one hundred road and caribou crossings in Alaska. As of
          June 30, 1998, the Company was considered to be in the development
          stage as the Company had not generated significant revenues from its
          research and development efforts and related service contracts with
          respect to the above process, and operations had primarily been
          financed through the issuance of common stock. As a result of the
          commencement of principal operations in July 1998, the Company is no
          longer considered to be in the development stage and therefore no
          longer presents results of operations and cash flows for the period
          from inception.

     (b) Contract Revenue Recognition

          Revenue from service contracts primarily relates to testing of
          industrial pipeline integrity and is recognized on the
          percentage-of-completion method of contract accounting. Contract
          revenues earned are measured using either the percentage-of-contract
          costs incurred to date to total estimated contract costs, or when the
          contract is based on measurable units of completion, revenue is based
          on the completion of such units.

          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.

     (d) Equipment

          Equipment is stated at cost and is depreciated using the straight-line
          method over estimated useful lives of three to seven years.

                                                                     (Continued)

                                      F-6

<PAGE>


                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


     (e) Patents

          Patent and related application costs are amortized using the
          straight-line method over their estimated useful lives of
          approximately 4-6 years. Amortization commenced on July 1, 1998 when
          the Company emerged from the development stage. 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) 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.

     (g) Major Customers

          All of the Company's revenues were from five and two customers,
          respectively, for the years ended June 30, 1999 and 1998. Accounts
          receivable and contract work-in-progress at June 30, 1999 were from
          two and one customer, respectively.

     (h) Cash Equivalents

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

     (i) Net Loss Per Share

          Basic earnings per share is computed using the weighted average number
          of common shares outstanding during the period. Diluted earnings per
          share is computed using the weighted average number of common and
          dilutive common equivalent shares outstanding during the period. As
          the Company had a net loss in each of the periods presented, basic and
          diluted net loss per share is the same.

          Excluded from the computation of diluted loss per share for 1999 are
          warrants and options to acquire 1,256,000 shares of common stock with
          a weighted average exercise price of $4.08 because their effect would
          be antidilutive. Excluded from the computation of diluted loss per
          share for 1998 are warrants to acquire 1,140,000 shares of common
          stock with a weighted average exercise price of $3.59 because their
          effect would be antidilutive.

                                                                     (Continued)
                                      F-7

<PAGE>


                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


     (j) 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.

     (k) 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.

     (l) Financial Instruments and Concentrations of Credit Risk

          Financial instruments which potentially subject the Company to
          concentrations of credit risk include cash, cash equivalents, accounts
          receivable, contract work-in-progress, accounts payable and accrued
          liabilities. The fair value of these instruments approximates their
          financial statements carrying amount. The Company regularly invests
          funds in excess of its immediate needs in money market accounts with
          Citibank (Accounts). Funds invested in these Accounts are uninsured
          and subject to investment risk. Included with cash and cash
          equivalents were amounts held in the Accounts totaling $3,091,703 at
          June 30, 1999. Amounts held in these Accounts are insured up to
          $100,000 by the Federal Depository Insurance Corporation.

     (m) Software Developed for Internal Use

          On July 1, 1998, the Company adopted Statement of Position (SOP) No.
          98-1, Accounting for the Costs of Computer Software Developed or
          Obtained for Internal Use, which requires capitalization of certain
          software development costs for software developed for internal use.
          The adoption of SOP No. 98-1 did not have a material impact on the
          Company.

                                                                     (Continued)
                                       F-8

<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


     (n) Stock-Based Compensation

          The Company accounts for its stock-based compensation arrangement in
          accordance with provisions of Accounting Principles Board (APB)
          Opinion No. 25, Accounting for Stock Issued to Employees, and related
          interpretations. As such, compensation expense under fixed plans would
          be recorded on the date of grant only if the fair value of the
          underlying stock at the date of grant exceeded the exercise price.
          SFAS No. 123, Accounting for Stock-Based Compensation, requires
          entities that continue to apply the provisions of APB Opinion No. 25
          for transactions with employees to provide pro forma net income and
          pro forma earnings per share disclosures for employee stock option
          grants made in 1995 and future years as if the fair-value-based method
          defined in SFAS No. 123 had been applied to these transactions.

     (o) Reclassifications

          Certain reclassifications have been made to the 1998 amounts to
          conform to the 1999 presentation.

     (p) Segment Reporting

          The Company operates in one business segment. Revenues consist almost
          entirely of fees generated from providing testing services. Expenses
          incurred to date are reported according to their expense category. No
          further segment segregation is considered meaningful at this time.

          The Company's customers are located in the United States and various
          foreign countries. Revenues by geographic region are as follows:

                                             Years ending June 30,
                                     -----------------------------------
                                         1999                   1998
                                     ------------            -----------

               United States         $    243,707                 45,000
               Saudi Arabia                39,925                     --
                                     ------------            -----------

                                     $    283,632                 45,000
                                     ============            ===========

(2) Equipment

          Equipment, net at June 30, 1999 consists of the following:



              Equipment                                     348,453
              Less accumulated depreciation                 208,354
                                                        -----------

                                                        $   140,099
                                                        ===========

                                                                     (Continued)

                                      F-9

<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


(3) Related Parties


     (a) Accounts Payable - Stockholder

          At June 30, 1999, the Company owed $7,423 to a stockholder of the
          Company for business expenses.

     (b) Consulting Services and Wages

          Consulting fees were paid to a stockholder of the Company, Dr. John
          Kuo, totaling approximately $120,000 and $118,000 for the years ended
          June 30, 1999 and 1998, respectively.

     (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% royalty arrangement was
          awarded 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.

(4) Income Taxes

     Federal income taxes reported by the Company differ from the amount
     computed by applying the statutory rate due primarily to the valuation
     allowance on deferred tax assets.

     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, 1999:

         Deferred tax assets:
         Net operating loss carryforwards                       $  1,065,000
         Stock compensation                                          292,000
         Research and experimentation credit carryforwards           103,000
                                                                ------------

                       Gross deferred tax assets                   1,460,000

         Less valuation allowance                                  1,460,000
                                                                ------------

                       Net deferred tax assets                  $      --
                                                                ============

                                                                     (Continued)

                                      F-10

<PAGE>

                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


     The net increase in the valuation allowance for deferred tax assets was
     $351,000 and $253,000 for the years ended June 30, 1999 and 1998,
     respectively. The increases were primarily due to increases in the amount
     of net operating loss carryforwards that could not be utilized.

     For Federal income tax purposes, the Company has net operating loss
     carryforwards at June 30, 1999 available to offset future Federal taxable
     income, if any, of approximately $3,130,000 which begin to expire in 2003.
     In addition, the Company has research and experimentation tax credit
     carryforwards of approximately $103,000 at June 30, 1999 which are
     available to offset income taxes and begin to expire in 2003.

     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.

(5) Stock-Based Compensation

     The Company has granted stock options and warrants to compensate key
     employees, consultants and board members for past and future services.
     During fiscal year 1999, the Company adopted a stock option plan (Plan).
     The Plan provides for both incentive and non-qualified stock options to be
     granted to employees, officers, directors and consultants. The Company has
     reserved 500,000 shares of common stock for option grants under the Plan.
     The stock options and warrants are generally exercisable at the date of the
     grant.

     A summary of warrant related activity follows:

                                                 Warrants outstanding
                                              ------------------------------
                                                Number      Weighted average
                                              of shares      exercise price
                                              ---------      --------------

            Balance at June 30, 1997          1,120,000       $     3.41
            Grants                               20,000            13.50
                                              ---------       ----------

            Balance at June 30, 1998          1,140,000             3.59
            Grants                               85,000             7.50
            Exercises                           (15,000)            3.81
                                              =========       ==========

            Balance at June 30, 1999          1,210,000       $     3.84
                                              =========       ==========

                                                                     (Continued)

                                      F-11


<PAGE>


                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998


     The following is a summary of warrants outstanding at June 30, 1999:

<TABLE>
<CAPTION>

                                 Warrants outstanding                  Warrants exercisable
                     -----------------------------------------     -----------------------------

                                  Weighted-average   Weighted-                        Weighted-
                                     remaining       average        Number of         average
   Exercise             Number      contractual      exercise        warrants         exercise
     prices          outstanding        life           price        exercisable         price
---------------      -----------   ---------------  -----------   ---------------    -----------
<S>                   <C>              <C>           <C>             <C>             <C>
$   1.125-1.500        355,000          5.33          $  1.17         355,000         $    1.17
    3.000-3.500        555,000          5.33             3.26         555,000              3.26
    7.200-7.500        190,000          5.33             7.33         147,500              7.29
        8.400           90,000          3.67             8.40          90,000              8.40
       13.500           20,000          5.33            13.50          20,000             13.50
---------------      ---------         -----          -------       ---------         ---------

$  1.125-13.500      1,210,000          5.20          $  3.84       1,167,500         $    3.70
======== ======      =========          ====          =======       =========         =========


     A summary of stock option-related activity follows:

                                                                  Options outstanding
                                                           -----------------------------------
                                            Shares                               Weighted
                                         available for        Number of          average
                                             grant             shares         exercise price
                                        ================   ================   ================

      Balance at June 30, 1998                    --                 --        $        --
      Plan introduction                      500,000                 --                 --
      Grants                                 (46,000)            46,000                10.34
                                        ----------------   ----------------   ----------------

      Balance at June 30, 1999               454,000             46,000        $       10.34
                                        ================   ================   ================
</TABLE>


     At June 30, 1999, the exercise prices of the outstanding options ranged
     between $10.00 and $10.50 per share with a weighted average remaining life
     of 5.33 years. At June 30, 1999, 33,500 options were exercisable at a
     weighted average exercise price of $10.46.

                                                                     (Continued)
                                     F-12

<PAGE>




                           PROFILE TECHNOLOGIES, INC.

                          Notes to Financial Statements

                             June 30, 1999 and 1998



     The Company applies APB Opinion No. 25 and related interpretations in
     accounting for option and warrant grants to employees. Had compensation
     cost for the Company's option and warrant awards been determined consistent
     with SFAS No. 123, the Company's net loss would have been increased to the
     pro forma amounts indicated below:

                                                  Years ended June 30
                                            ---------------------------------
                                                 1999                 1998
                                            --------------          ---------
             Net loss:
                 As reported                $      864,638            712,827
                 Pro forma                       1,297,229            800,827

             Net loss per share:
                 As reported                $      .20                  .17
                 Pro forma                         .30                  .19


     The weighted average fair value per share of the warrant grants made during
     the year ended June 30, 1999, where the fair value of the underlying stock
     equaled the exercise price, was approximately $3.68 and the number of
     warrants was 82,000.

     The weighted average fair value per share of the warrant grants made during
     the year ended June 30, 1998, where the exercise price was above the fair
     value of the underlying stock was $4.40, and the number of warrants was
     20,000.

     The weighted average fair value per share of the option grants made during
     the year ended June 30, 1999, where the fair value of the underlying stock
     equaled the exercise price was $5.07, and the number of options was 46,000.

     The fair value of option and warrant grants is estimated using the
     Black-Scholes option pricing model with the following weighted average
     assumptions used for grants in fiscal year 1999: expected volatility of
     50%, risk-free interest rate of 4.7%, expected lives of five years, and a
     0% dividend yield. The weighted average assumptions used for grants in
     fiscal year 1998 are as follows: expected volatility of 50%, risk-free
     interest rate of 6%, expected lives of five years, and a 0% dividend yield.

(6) Operating Leases

     The Company leases office facilities in various states under operating
     lease agreements that expire during fiscal year 2000. Aggregate future
     minimum rental payments on operating leases are $35,541 for fiscal year
     2000.

     Total rent expense under operating leases was $59,600 and $39,600 during
     the years ended June 30, 1999 and 1998, respectively.


                                      F-13
<PAGE>

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

         None

                                    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 (the "Proxy Statement") to be distributed in
connection with the Company's Annual Meeting of Shareholders to be held on
November 15, 1999. Such Proxy Statement will be filed with the Securities and
Exchange Commission not later than October 20, 1999. 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.

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)
         (23.1)  Consent of Independent Certified Public Accountants
         (27.1)  Financial Data Schedule


                                       16
<PAGE>



     (b) No reports on Form 8-K were filed during the quarter ended June 30,
1999.

     (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 on September 23, 1999.


                                        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            Co-Chairman, Principal                Sept. 23, 1999
--------------------       Executive Officer,
     G.L. SCOTT            Director

/s/  Henry Gemino          Co-Chairman, Executive Vice-          Sept. 23, 1999
--------------------       President, Chief Operating
     HENRY GEMINO          Officer,  Chief Financial Officer,
                           Principal Accounting Officer, Director

/s/  Murphy Evans          President, Director                   Sept. 23, 1999
--------------------
     MURPHY EVANS


/s/  Gale D. Burnett       Vice-Chairman, Director               Sept. 23, 1999
--------------------
     GALE D. BURNETT


/s/  John Tsungfen Kuo     Vice-Chairman, Director, Chief        Sept. 23, 1999
----------------------     Technical Consultant
     JOHN TSUNGFEN KUO

/s   Allen G. Reeves       Director                              Sept. 23, 1999
----------------------
     ALLEN G. REEVES

/s/ Charles Christenson    Director                              Sept. 23, 1999
-----------------------
    CHARLES CHRISTENSON


                                       18