SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------

                                   FORM 10-KSB

                                ----------------

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

                           For the fiscal year ended:
                                  June 30, 2003

                             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)

         2 Park Avenue, Suite 201
               MANHASSET, NY                               11030
           (Address of Principal                         (Zip Code)
             Executive Offices)

                                ----------------

                    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. $350,919.

<PAGE>

     The aggregate market value of the voting stock held by non-affiliates of
the registrant was $1,708,653, computed by reference to the price at which the
common stock last sold or the average bid and ask price as reported by the
NASDAQ Over the Counter Bulletin Board on October 9, 2003.

     There were 5,461,659 shares of common stock, $.001 par value, outstanding
as of October 9, 2003.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for its annual shareholder meeting to be
held on December 15, 2003 to be filed pursuant to Regulation 14A.

     Transitional Small Business Format (check one): Yes [_] No [X]


<PAGE>

                                Table of Contents

--------------------------------------------------------------------------------

Description                                                          Page Number

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                                     PART I
                                     ------

ITEM 1        DESCRIPTION OF BUSINESS..........................................3

ITEM 2        DESCRIPTION OF PROPERTIES.......................................11

ITEM 3        LEGAL PROCEEDINGS...............................................11

ITEM 4        SUBMISSION OF MATTERS TO VOTE
              OF SECURITY HOLDERS.............................................11

                                     PART II
                                     -------

ITEM 5        MARKET FOR COMMON EQUITY AND
              RELATED STOCKHOLDER MATTERS.....................................11

ITEM 6        MANAGEMENT'S DISCUSSION AND ANALYSIS
              OR PLAN OF OPERATION............................................16

ITEM 7        FINANCIAL STATEMENTS............................................25

ITEM 8        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................44

ITEM 8A       CONTROLS AND PROCEDURES.........................................44

                                    PART III
                                    --------

ITEM 9        DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
              AND CONTROL PERSONS - COMPLIANCE WITH
              SECTION 16(A) OF THE EXCHANGE ACT...............................44

ITEM 10       EXECUTIVE COMPENSATION..........................................45

ITEM 11       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
              OWNERS AND MANAGEMENT...........................................45

ITEM 12       CERTAIN RELATIONSHIPS AND RELATED
              TRANSACTIONS....................................................46

ITEM 13       EXHIBITS AND REPORTS ON FORM 8-K................................46

SIGNATURES    ................................................................48


                                       i
<PAGE>

                                    EXHIBITS

EXHIBIT 23.1    CONSENT OF INDEPENDENT AUDITORS...............................49

EXHIBIT 31.1    CERTIFICATION - HENRY E. GEMINO...............................50

EXHIBIT 31.2    CERTIFICATION - PHILIP L. JONES...............................52

EXHIBIT 32.1    CERTIFICATION UNDER SECTION
                 906 OF THE SARBANES-OXLEY
                 ACT OF 2002 - HENRY E. GEMINO................................54

EXHIBIT 32.2    CERTIFICATION UNDER SECTION
                 906 OF THE SARBANES-OXLEY
                 ACT OF 2002 - PHILIP L. JONES................................55

EXHIBIT 99.1    PRESS RELEASE DATED JUNE 25, 2003.............................56








                                       ii
<PAGE>

                    Preliminary Note Regarding Certain Risks
                         and Forward-Looking Statements
                    ----------------------------------------

     This Annual Report on Form 10-KSB contains "forward-looking statements."
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's projected future results, future plans, objectives or
goals or future conditions or events are also forward-looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are subject to the risks and uncertainties that could cause actual results of
operations, financial condition, acquisitions, financing transactions,
operations, expenditures, expansion and other events to differ materially from
those expressed or implied in such forward-looking statements. Any such
forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond the Company's control.

     The forward-looking statements contained in this report are based on
current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will obtain
or have access to adequate financing for each successive phase of its growth,
that the Company will market and provide products and services on a timely
basis, that there will be no material adverse competitive or technological
change with respect to the Company's business, demand for the Company's products
and services will significantly increase, that the Company's executive officers
will remain employed as such by the Company, that the Company's forecast
accurately anticipate market demand, and that there will be no material adverse
change in the Company's operations, business or governmental regulation
affecting the Company or its customers. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements.

                                       2
<PAGE>

                                     PART I

Item 1. Description of Business.

Introduction

     Since its formation in 1988, Profile Technologies, Inc., a Delaware
corporation (the "Company"), has been engaged in the business of researching and
developing a high speed scanning process, which is nondestructive and
noninvasive, to test remotely buried, encased and insulated pipelines for
corrosion. The Company's electromagnetic wave inspection process, referred to as
the Company's "Inspection EMW(SM)" or "EMW," is a patented process of analyzing
the waveforms of electrical impulses in a way that extracts point-to-point
information along a segment of pipeline to illustrate the integrity of the
entire pipeline. This process involves sending electrical pulses along the pipe
being tested from two directions toward a varying intersecting point between the
two pulser locations. One or more of the modified pulses is analyzed to
determine whether an anomaly exists at the intersecting location.

     The EMW process is designed to detect external corrosion of pipelines which
occurs under pipe insulation and on buried pipes, without the need for taking
the lines out of service, physically removing the insulation or digging up
pipes, and then visually inspecting the outside of the pipe for corrosion. The
Company often can inspect the pipelines by using various access points to the
pipelines that already exist for other reasons. Where such access is not already
available, the Company's technology permits the inspection of pipelines with a
minimal amount of disturbance to the coating or insulation on the pipeline. In
addition, the Company's technology permits an inspection of the entire pipeline,
as opposed to other technologies which only conduct inspections at points
selected for the testing. Such "spot inspections" are not necessarily accurate
in indicating the overall condition of a pipe segment.

     The most common forms of pipeline corrosion under insulation are localized
corrosion of carbon steel and chloride stress corrosion cracking of stainless
steel. Refineries, chemical plants, utilities, natural gas transmission
companies and the petroleum industry have millions of miles of pipeline, and
much of this pipeline is exposed to harsh and severe environments. As a result,
there is an on-going effort by these industries to ensure that the quality of
the pipe meets standards established by regulatory bodies and the industry to
protect operating personnel and the environment.

     In the summer of 1998, the Company completed its first commercial contract
on the North Slope of Alaska, testing approximately 100 road and carribou
crossings on British Petroleum pipelines under a contract with ASCG Inspection,
Inc.

     In the summer of 1999, the Company followed up its initial Alaska work
under a contract with another large multi-national oil company to test
approximately 250 below grade pipes. During the summer of 2000, the Company
expanded its Alaska efforts by testing a total of 372 below-ground pipes. In
2001, the Company tested 441 lines in Alaska. In 2002, the Company inspected 364
lines.

                                       3
<PAGE>

     Based on estimates provided by its customers, the Company originally
planned to inspect between 400 and 500 below-grade lines in Alaska in 2003. The
Company now anticipates that it will inspect 250 below-grade pipes this year,
based on its final work scopes and the fact that in excess of 40 lines could not
be tested for various physical reasons. Once its below-grade work is completed,
the Company will begin a program of testing above-grade, insulated pipes for one
of its Alaska customers in an effort to be included in that customer's 2004
above-grade inspection budget. The Company's out-of-pocket costs of this
qualification testing, estimated to take approximately five days, will be
reimbursed. Although the Company is confident it can provided greater value to
its customer than companies offering competing inspection technologies for
above-grade work, there can be no assurance that the Company will be able to
secure any contracts to perform above-grade, insulated pipe inspections during
2003 or at any time in the future. Nevertheless, because above-grade work can
continue as late as December, the Company will continue to seek such work on a
commercial basis for 2003.

     In January 2002, the Company retained Dr. Charles Frost, President of Pulse
Power Physics, Inc., to assist in the improvement of the Company's hardware,
software and its testing and data interpretation methods. These improvements,
which are ongoing, are described in some detail in Management's Discussion and
Analysis in Item 6 below.

     The Company's data interpretation process has been largely automated, and
the Company hopes to be able to complete this automation in the near future. The
Company's business model and strategy is heavily dependent on its ability to
automate the date interpretation process and fully implement its technology. If
the Company is unable to automate the data interpretation process and fully
implement its technology, the Company may not be able to secure additional
fee-for-service contracts or implement a licensing and joint venture business
model. As a result, such failure may have a material adverse effect on the
business and financial condition of the Company.


Pipeline Corrosion

     Corrosion of pipelines can impose significant financial and regulatory
burdens on companies as well as result in serious safety issues. Federal, state,
local and industry jurisdictions regulate corrosion protection. The U.S.
Department of Labor, operating through the Occupational Safety and Health
Administration, has jurisdiction over numerous plants and facilities containing
corrosion protected pipelines that, if breached, could cause serious bodily
injury or death to on-site workers. The U.S. Department of Transportation has
jurisdiction over intrastate natural gas and hazardous liquids pipelines.
Counterpart state agencies have jurisdiction over interstate natural gas and
hazardous liquids pipelines. In addition, the American Petroleum Institute has
promulgated a comprehensive Piping Inspection Code which requires that extensive
corrosion testing be completed by all members (which includes the vast majority
of the petroleum and petrochemical industries). As a result of extensive
regulation and testing requirements, the industry is required to engage in
extensive testing for corrosion.

     In 1993, the American Petroleum Institute imposed even stricter testing
standards regarding the problem of corrosion under the insulation on pipelines.
When pipeline is uninsulated and above ground, external corrosion can be
identified visually. The petroleum and other related industries, however,

                                       4
<PAGE>

insulate much of their piping to conserve energy and 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 corrosion under insulated pipelines is
very difficult and costly to locate. In the past, testing for this problem had
been completed on a limited sample basis and relied upon inspection processes
that were very cumbersome and costly.

     Two prevalent testing methods used to detect corrosion under insulated
pipelines are X-ray and eddy current methods, which are methods of detecting
defects in pipe by analyzing visual images and decay. After physically stripping
away coating for visual inspection, depth gauges, ultrasonics and X-ray are then
used to determine the severity of corrosion on questionable pipe. However, the
stripping of insulation to determine corrosion is a costly testing method for
the industry because it often involves 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 above-grade insulated pipe segments in a refinery
setting using "cherry pickers" instead of costly scaffolding.

     Corrosion under insulated pipelines presents a very complicated testing
problem because corrosion 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 whether the external condition of the piping
between the removed insulation parts is good or bad. The American Petroleum
Institute testing standard adopted in 1993, in essence, mandates either
stripping even larger amounts of coating or using an alternate system that will
identify corrosion under the insulation without stripping the coating on
suspected and unsuspected pipe. Because of the enormous cost involved in using
the stripping and visual testing process, the Company believes that the industry
will be receptive to an alternate testing system that is reliable and less
costly.

     The Company believes that its EMW process provides an alternate testing
system that could be widely accepted by the industry. However, while the Company
has obtained some commercial contracts and prospects for expanded commercial
contracts in the future appear favorable, there can be no assurance that such
acceptance will continue to grow or that competitors will not develop newer and
better technologies in the future.


The Company's EMW Inspection Technology

     The Company has developed two basic EMW inspection techniques, namely, Dual
Pulse or Pulse Propagation Analyzer and Single-Pulse or Calibration Mark Z. For
above-grade piping, the Company uses the Single-Pulse technique to determine the
condition of a given pipe segment. For direct buried pipe, the Company intends
to use both methods. However, the Company must obtain additional funding in
order to design, fabricate and test new hardware and software for this
application before the Company can resume marketing in the direct buried pipe
inspection area.

     The Company's two basic techniques provide an assessment of the overall
integrity of the pipe in question and the location and classification of
electromagnetic anomalies which, in most instances, are related to external
corrosion.

                                       5
<PAGE>

The Single-Pulse Technique

     The Single-Pulse Technique process requires fixing the source location on
one end of the pipe segment in question and stepping the receiver generally at
an equal incremental distances from the source across the segment. From the
characteristics of the electromagnetic waves as a result of wave propagation,
attenuation, and dispersion, the Company determines whether electromagnetic
anomalies exist, as in the case of the Dual-Pulse techniques.

     The Company believes that its single pulse technology has two significant
competitive advantages in the inspection of encased and insulated pipes. First,
its technology can inspect certain pipelines that are inaccessible to other
testing methods. Second, the Company's technology requires only minimal access
to the surface of any given pipe and, therefore, has a much lower of site
preparation than competing technologies.


The Dual-Pulse Technique

     The Dual Pulse Technique 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. Through laboratory and field testing, the
Company established that the electrical response, the 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.

     The Dual Pulse 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. Information can also be
derived using the EMW 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 these concepts may appear, the Company believes that the EMW
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 EMW
process are simple to explain, management believes that the EMW measurement and
analysis are at the leading edge of inspection technology, particularly given
the recent technological improvements described in Management's Discussion and
Analysis set forth in Item 6 below. The Company will continue its research and
development efforts of new applications for the Company's technology and to
develop new products for the petroleum industry and other industries.

                                       6
<PAGE>

Sales and Marketing

     The Company's sales and marketing strategy includes positioning the
Company's EMW inspection as the method of choice to detect pipeline corrosion
where the pipelines are either inaccessible to other inspection tools or much
more costly to inspect with tools other than the Company's EMW inspection. These
facilities are found commonly in refinery and chemical plants (such as
insulated, overhead pipes), natural gas distribution systems (such as pipes
buried in city streets), and natural gas transmission systems (such as road,
bridge and stream crossings and concrete-encased pipes). The Company intends to
emphasize the reliability of its testing method, the flexibility of the method's
application and its cost effectiveness.

     The Company relies upon several employees, including the Chief Executive
Officer, the Chief Operating Officer, the Vice President--Field Operations and a
part-time employee, for the Company's sales functions. The Company has
historically concentrated its marketing efforts on the integrated oil company
market in Alaska. In fiscal 2003, 100% of the Company's revenues were
attributable to work performed in Alaska.

     However, due to the improvements in its technology described in
Management's Discussion and Analysis set forth in Item 6 below, the Company
believes that it is in a position to pursue aggressively opportunities to
inspect above-grade, insulated pipe and below-grade, encased pipes, not only in
Alaska, but in the lower-48 U.S. states and Canada as well. Exploitation of
these opportunities may, in some cases, entail partnering with other inspection
companies. Although the Company anticipates that it will continue to perform
inspection services in Alaska and obtain additional contracts throughout the
rest of the United States and Canada, there can be no assurance that the Company
will be able to secure revenue from these potential contracts.

     The Company believes that the natural gas distribution and transmission
industry also presents a significant opportunity for marketing the Company's
technology. There are millions of miles of metal pipelines, including older pipe
beneath paved city streets, that are difficult to inspect. New government laws
and regulations may require that many more of these pipelines be tested in
compressed time frames, particularly in so-called "high consequence areas"
(e.g., populated areas). Before resuming an aggressive pursuit of this market
segment, the Company plans to first retool its buried-pipe equipment and
techniques as described in Management's Discussion and Analysis set forth in
Item 6 below.


Patents, Intellectual Property and Licensing

     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, 2003, the Company had ten issued U.S. patents, six
issued foreign patents, seven U.S. patent applications pending, and ten foreign
patents pending.

     The Company's success depends in large part upon its ability to protect its
processes and technologies 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

                                       7
<PAGE>

Company's first U.S. patent was issued in 1990; three patents were issued in
1993; one patent was issued in 1998; two patents were issued in 2000; two
patents were issued in 2001; and one patent was issued in 2002. In addition, the
Company filed one provisional patent application in May, 2003, which is still
pending. There can be no assurance that the United States Patent and Trademark
Office will grant to the Company the patents requested. If the Company is unable
to obtain approval for all such patent applications, the Company's operations
and financial condition may be adversely affected.

     The Company believes that it owns and has the right to use or license all
proprietary technology necessary to license and market its EMW(SM) 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 on 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. However,
even inadvertent disclosure of such trade secrets without a promise of
confidentiality could destroy trade secret protection. There can be no assurance
that inadvertent disclosures might not occur. If the Company's proprietary
information is disclosed to competitors, it may have a material adverse effect
on the Company's business.


Competition

     Although a number of inspection technologies have been developed to aid in
ascertaining the condition of piping throughout the pipeline corrosion control
industry, information needed to determine the integrity of these critical
systems is often difficult and costly to acquire. The Company has numerous
indirect competitors, but the Company believes that its inspection services have
significant competitive advantages over other services provided by competitors.

     There are several competitors offering established inspection techniques
that compete with the Company's EMW inspection technology, including infrared
scanning, radiography, Incotest and ultrasound. The three manufacturers who
offer guided wave ultrasonics constitute the Company's most direct competitors.
Unlike the EMW technology, guided wave ultrasonics use a special class of
ultrasonic waves which provide volumetric inspection of piping to detect both
internal and external corrosion of pipeline. However, this method typically
requires more pipe preparation than the Company's EMW process, and the waves are
attenuated by some common pipe conditions that do not affect EMW.

     The Company's EMW process can be distinguished from the products and
services offered by other competitors. Although widely used in the pipeline
corrosion industry, infrared scanning does not reliably locate corrosion on
insulated pipes and does not detect any level of corrosion on below-grade
piping. In addition, although radiography and radioscopy are widely used in the
industry in which the Company competes, this technology can only be used in the
particular location tested. Likewise, the "Incotest" technology is a relatively
new inspection method which calculates the average wall thickness of an area of
pipeline.

                                       8
<PAGE>

     The Company's EMW inspection service is designed to help pipeline operators
quickly and less expensively screen buried, insulated, or hard to-access piping
for external corrosion. Although its technology does not provide pipeline and
plant operators with all the data they will require to manage and remediate
corrosion, when used as a "front-end" screening tool in combination with one or
more spot inspection tools, it can dramatically lower the cost of acquiring all
of the data necessary to manage corrosion risks to their piping systems. There
can be no assurances, however, that the Company's competitors will not develop
newer, more efficient and less costly technologies.


Employees

     The Company presently has nine employees, two of which are part-time.

     If the Company is not successful in implementing a licensing and joint
venture business model and continues to implement a fee-for-service model, then
the Company anticipates it will need to secure additional commercial contracts
to make the Company financially viable, and the Company will be required to hire
and train additional field crews. 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.


Executive Officers of the Company

     In addition to Murphy Evans and Henry Gemino, who also serve as directors,
the following constitute the executive officers of the Company:

                                          Positions Held and Principal
           Name          Age          Occupations During the Past 5 Years
           ----          ---          -----------------------------------

     Philip L. Jones     61     Mr. Jones has served as the Chief Operating
                                Officer for the Company during the past three
                                years. Previous to his employment with the
                                Company, he provided energy consulting services
                                to certain utility companies for a period of one
                                year. Prior to that time, Mr. Jones held various
                                executive positions with Consolidated Natural
                                Gas Company before retiring in April 2000.

     Joseph Galbraith    54     During the past six years, Mr. Galbraith has
                                served as the Vice President - Field Operations
                                for the Company.


                                       9
<PAGE>

Customers

     For the fiscal year ended June 30, 2003, the Company had two customers in
Alaska that accounted for 100 percent of the Company's revenues. The loss of the
Alaska customers or the Company's failure to broaden the base of customers in
fiscal year 2004 could have a material adverse effect on the financial condition
and ultimate profitability of the Company.


Supplier Relationships

     The Company relies upon several relationships for the supply of equipment
and services relating to the components of the Company's EMW technology
inspection equipment. Criteria for choosing suppliers includes the quality and
performance of the product for the intended purpose and pricing. The Company now
purchases its pulse generators and other equipment from a single supplier.
However, there are alternative suppliers for all of the elements required for
the production of the EMW Inspection Equipment.


Government Regulation

     Natural gas and hazardous liquids pipelines are extensively regulated. The
Department of Transportation's Office of Pipeline Safety, and state public
utility commissions applying federal regulations, monitor operator compliance
with corrosion monitoring and other pipeline safety-related regulatory
requirements. Recent pipeline safety incidents (a gasoline pipeline explosion in
Washington and a natural gas transmission line explosion in New Mexico) have
prompted renewed interest in pipeline safety in Congress. In December 2002, the
President signed the Pipeline Safety Improvement Act. This legislation requires
more active corrosion monitoring than is currently required and could generate
significant interest in the Company's technology by natural gas transmission and
hazardous liquids pipeline operators. In addition, there may be opportunities to
demonstrate the technology, in light of this legislation, to industry and
government pipeline safety advisory groups. However, this legislation and any
promulgated regulations could impose legal obligations and liabilities on the
Company or otherwise subject it to additional regulation. Any such regulations
under the new legislation could mandate testing methods other than that provided
by the Company's technology. As a result, any such regulation could have a
material adverse effect on the Company.


Research and Development Expenditures

     During the last six years, the Company has developed and improved its
capability to detect EMW anomalies related to pipeline corrosion under
insulation or on buried pipeline. Recently, using new hardware and software
developed by consultants and the Company's personnel, the Company has extended
its testing distances for encased buried pipe and above-grade insulated pipe.
The Company is attempting to extend its corrosion detection range for buried
pipe to distances greater than 300-feet as well by implementing certain
technology improvements that are specifically related to buried conditions.
There can be no assurances that the Company will be able to finance new hardware
and software to test buried pipe, successfully fabricate and test it, or be able
to widely market, license and/or support such technology.

                                       10
<PAGE>

     During the two most recent fiscal years ended June 30, 2003 and June 30,
2002, the Company spent $173,795 and $394,005, respectively, on research and
development activities. This decrease was due to a reduction in the number of
the Company's employees, and certain employees spending less time on research
and development and more time on revenue generating contracts. The Company's
field operation system for commercialization consists of all of the hardware and
software for data acquisition, data processing, data analysis and
interpretation.

     The Company's research and development efforts are focused on continuing to
improve the EMW system's efficiency, reliability and accuracy. During the next
fiscal year, the Company anticipates that it will continue to incur significant
research and development expenses to redevelop its buried-pipe product. Its
current estimate for this project is approximately $500,000.

     If the Company is unable to raise sufficient funds from operations, or
obtain additional debt or equity financing, the Company may not be able to
generate the funds for the research and development necessary to improve the EMW
technology. The Company's inability to generate sufficient cash and to invest in
the required research and development expenditures could have a material adverse
effect of the business and operations of the Company.


Item 2. Description of Property.

     The Company's executive offices are located at 2 Park Avenue, Suite 201,
Manhasset, NY 11030. The Company leases on a month-to-month basis approximately
500 square feet of office space from a non-affiliate. The rental payment is
$785.00 per month.

     The Company's research and development facility is located in Ferndale,
Washington. The Company leases 1,800 square feet of space from a non-affiliate
at a monthly cost of approximately $2,080 per month, pursuant to a lease that
expires on January 31, 2004.

     The Company does not own any real estate.


Item 3. Legal Proceedings.

     None.

Item 4. Submission of Matter to Vote of Security Holders.

     None.


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

     The Company's common stock traded on the NASDAQ SmallCap market from the
date it began to be publicly traded in February, 1997 until August 10, 2001
under the symbol PRTK. On August 13, 2001, the Company's common stock was
delisted from the NASDAQ Small Cap market and began trading on the Over the
Counter Bulletin Board (the "OTCBB") under the same symbol. The Company's common
stock continues to be traded on the OTCBB.

                                       11
<PAGE>

     The following table sets forth the high and low closing sale prices for the
Company's common stock for the past two fiscal years as reported by NASDAQ and
OTCBB. The quotations reflect inter-dealer prices, with retail mark-up,
mark-down or commissions, and may not represent actual transactions.

                                                       Range of
                                                      Sale Prices
                                                      -----------
                                                   High          Low
                                                   -----        -----
          Fiscal Year 2003
               First Quarter                       $0.55        $0.36
               Second Quarter                      $0.40        $0.20
               Third Quarter                       $0.50        $0.25
               Fourth Quarter                      $0.51        $0.15

          Fiscal Year 2002
               First Quarter                       $1.45        $0.25
               Second Quarter                      $1.45        $0.31
               Third Quarter                       $1.40        $0.65
               Fourth Quarter                      $1.15        $0.40


Holders

     As of October 9, 2003, the Company had approximately 942 holders of record
of the Company's common stock.


Dividends

     The payment of dividends by the Company is within the discretion of its
Board of Directors and depends in part upon the Company's earnings, capital
requirements, debt covenants and financial condition. Since its inception, the
Company has not paid any dividends on its common stock and does not anticipate
paying such dividends in the foreseeable future. The Company intends to retain
earnings, if any, to finance its operations.

Recent Sales of Unregistered Securities

     On March 18, 2002, the Board of Directors approved an offering of 1,000,000
shares of the Company's common stock at a price of $0.70 per share, with
attached warrants (the "2002 Offering"). Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $1.05 per share until
April 4, 2007. The Company did not incur or pay any commissions with respect to
offers and sales of securities under the 2002 Offering. The 2002 Offering
terminated on December 31, 2002. As of December 31, 2002, the Company had raised
a total of $403,200 from the 2002 Offering. All of the investors were accredited
investors. The 2002 Offering is exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act").

                                       12
<PAGE>

     In April 2002, the Company issued a non-interest bearing bridge loan in the
principal amount of $15,000 (the "Gemino Loan") payable to Henry Gemino, the
Chief Executive Officer, Chief Financial Officer and a director and stockholder
of the Company. The terms of the Gemino Loan provided for payment at such time
as the Company determined that it had sufficient working capital to repay the
principal balance of the Gemino Loan and for the conversion into 21,428 equity
units. Each equity unit was comprised of one share of the Company's common
stock, with a detached 5-year warrant to purchase one additional share of the
Company's common stock at an exercise price of $1.05 per share. The Gemino Loan
is exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The Gemino Loan was converted into the 21,428 equity units in 2002.

     In April 2002, the Company issued a non-interest bearing bridge loan in the
principal amount of $7,500 (the "Scott Loan") payable to G.L. Scott, the former
Chairman of the Board of Directors and stockholder of the Company. The Scott
Loan is payable at such time as the Company determines that it has sufficient
working capital to repay the principal balance of the Scott Loan and is
convertible into 10,714 equity units at any time prior to payment. Each equity
unit is comprised of one share of the Company's common stock, with a detached
5-year warrant to purchase one additional share at an exercise price of $1.05
per share. The Scott Loan is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof. On September 29, 2002, Mr. Scott died
unexpectedly from a stroke before converting any part of this loan. As of
September 26, 2003, Mr. Scott's estate had not converted any part of the Scott
Loan into equity units.

     On May 9, 2002, the Company entered into a $150,000 bridge loan agreement
with Murphy Evans, the President and a director and stockholder of the Company
(the "Evans Loan"). The Company's Board of Directors approved the terms of the
Evans Loan. The Evans Loan is exempt from registration under Section 4(2) of the
Securities Act.

     Mr. Evans had loaned the Company $126,000, pursuant to the Evans Loan.
Under the terms of the Evans Loan, once Mr. Evans loaned the Company $125,000,
the Company cancelled 150,000 warrants held by Mr. Evans, with exercise prices
ranging from $3.00 per share to $7.50 per share, and issued to Mr. Evans 150,000
five-year warrants with an exercise price of $1.05 per share. If the Company had
raised $400,000 pursuant to the 2002 Offering within 90 days of May 9, 2002, the
entire loan amount would have been converted into the Company's common stock in
accordance with the terms of the 2002 Offering. However, the Company raised only
$346,250, not $400,000, under the 2002 Offering within 90 days of May 9, 2002.
As a result, under the terms of the Evans Loan, the Company would have been
obligated to commence making monthly loan payments to Mr. Evans in the amount of
$25,000 per month, with interest accruing at 6% per annum on the unpaid
principal balance of the Evans Loan. On March 6, 2003, the Evans Loan was
replaced and superseded by the Amended Evans Loan as described below. As of
March 6, 2003, Mr. Evans made no demand for payment under the Evans Loan, and no
repayments of the Evans Loan had been made by the Company.

     During 2002, the Company also entered into certain non-interest bearing
bridge loans in the aggregate amount of $56,500 (the "Subsequent Evans Loan")
payable to Murphy Evans, the President and a director and shareholder of the
Company. The terms of the Subsequent Evans Loan provided for payment at such
time as the Company determined it had sufficient working capital to repay the

                                       13
<PAGE>

principal balance of the Subsequent Evans Loan which was convertible into 81,428
equity units at any time prior to payment. Each equity unit was comprised of one
share of the Company's common stock, with a detached 5-year warrant to purchase
one additional share at an exercise price of $1.05 per share. The Subsequent
Evans Loan is exempt from registration under Section 4(2) of the Securities Act.
On March 6, 2003, the Subsequent Evans Loan was replaced and superseded by the
Amended Evans Loan as described below. As of March 6, 2003, no repayments of the
Subsequent Evans Loan had been made by the Company.

     During fiscal year 2003, Murphy Evans also loaned $194,650 to the Company
(collectively, the "Non-Convertible Evans Loan"). This loan agreement provided
for payment at such time as the Company determined it had sufficient working
capital to repay the Non-Convertible Evans Loan. Interest was to accrue on the
Non-Convertible Evans Loan at a rate of 5% per annum. The Non-Convertible Evans
Loan is exempt from registration under Section 4(2) of the Securities Act. On
March 6, 2003, the Non-Convertible Evans Loan was replaced and superseded by the
Amended Evans Loan as described below. As of March 6, 2003, no repayments of the
Evans Loan had been made by the Company.

     On March 6, 2003, the Company's Board of Directors approved the Loan
Amendment and Promissory Note (the "Amended Evans Loan") between the Company and
Murphy Evans. The Amended Evans Loan amends and supersedes the indebtedness
under the Evans Loan, Subsequent Evans Loan and Non-Convertible Evans Loan by
aggregating the debt under all of these loans by Mr. Evans into one promissory
note bearing interest on the aggregate principal balance at a rate of 5% per
annum, payable on June 30 and December 31 of each year. The outstanding balance
under the Amended Evans Loan is due and payable in full on December 31, 2003.
The Amended Evans Loan superseded and replaced all of the terms under the Evans
Loan, Subsequent Evans Loan and Non-Convertible Evans Loan, including the
conversion feature under the Subsequent Evans Loan.

     In addition, the terms of the Amended Evans Loan will apply to all future
loans that may be made to the Company by Murphy Evans. Due to the necessity by
the Company to obtain additional financing in the future to sustain the
Company's operations, the Board of Directors approved the terms of the Amended
Evans Loan. From March 6, 2003 through June 30, 2003, Murphy Evans loaned the
company an additional $172,315 under the Amended Evans Loan. The Amended Evans
Loan is exempt from registration under Section 4(2) of the Securities Act. As of
June 30, 2003, the outstanding principal balance of the Amended Evans Loan was
equal to $549,465. As of September 29, 2003, the Company has not made the
interest payment due on June 30, 2003 under the Amended Evans Loan. As of
September 29, 2003, Mr. Evans has not made any demand for payment, or exercised
any of his remedies, under the Amended Evans Loan.

     During the twelve months ended June 30, 2003, the Company entered into two
non-interest bearing bridge loans in the respective principal amounts of $40,000
and $10,000 (the "Shareholder Loans") payable to two shareholders of the
Company. The terms of the Shareholder Loans provide for payment at such time as
the Company determines it has sufficient working capital to repay the principal
balances of the Shareholder Loans. The Shareholder Loans are convertible into
57,142 and 14,286 equity units, respectively, at any time prior to payment. Each
equity unit is comprised of one share of the Company's common stock, with a
detached 5-year warrant to purchase one additional share at an exercise price of
$1.05 per share. The Shareholder Loans are exempt from registration under
Section 4(2) of the Securities Act. As of September 26, 2003, neither
shareholder had converted either Shareholder Loan into equity units.

                                       14
<PAGE>

     On June 19, 2003, the Board of Directors approved a promissory note (the
"2003 Gemino Note") in the principal amount of $34,047 payable to Henry E.
Gemino, the Chief Executive Officer, Chief Financial Officer and a director and
stockholder of the Company. The 2003 Gemino Note bears interest at the rate of
5% per annum, payable on each June 30 and December 31 of each year. The 2003
Gemino Note evidences the Company's obligation to repay Mr. Gemino certain
amounts advanced by Mr. Gemino to pay certain expenses of the Company. The
outstanding balance under the 2003 Gemino Note is due and payable in full on
December 31, 2003. The 2003 Gemino Note is exempt from registration under
Section 4(2) of the Securities Act. As of June 30, 2003, the outstanding
principal balance of the 2003 Gemino Note was equal to $34,047. As of September
29, 2003, the Company has not made the interest payment due on June 30, 2003
under the 2003 Gemino Note. As of September 29, 2003, Mr. Gemino has not made
any demand for payment, or exercised any of his remedies, under the 2003 Gemino
Note.

     On June 19, 2003, the Board of Directors approved an offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. The Company is required to redeem each Debenture on the fifth
anniversary of the date of the Debenture. The Company may, in its discretion,
redeem any Debenture at any time prior to the mandatory redemption date of the
Debenture by providing no less than 60 days' prior written notice to the holder
of the Debenture.

     Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company will issue to an investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. For example, if an investor executes a Debenture in the
principal amount of $100,000, the Company will issue to such investor 200,000
Warrants. The Warrants will be exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture. The 2003 Offering is exempt
from registration under Section 4(2) of the Securities Act. As of June 30, 2003,
the Company had not received any funds from the 2003 Offering. As of September
26, 2003, the Company had raised $25,000 from the 2003 Offering.

     The Company currently requires additional cash to sustain existing
operations and to meet current obligations (including those described in Item 6,
Management's Discussion and Analysis) and the Company's ongoing capital
requirements. The continuation of the Company's operations is dependent in the
short term upon its ability to obtain additional financing and to secure
additional contracts, and, in the long term, to generate sufficient cash flow to
meet its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability.

     Capital will be expended to support operations until the Company can
generate sufficient cash flows from operations. In order for the Company to
generate cash flows from operations, the Company must generate additional
revenue generating contracts. Management is currently directing the Company's
activities towards obtaining additional service contracts, which, if obtained,
will necessitate the Company attracting, hiring, training and outfitting
qualified technicians. If additional service contracts are obtained, it will
also necessitate additional field test equipment purchases in order to provide
the services. The Company's intention is to purchase such equipment for its
field crews for the foreseeable future, until such time as the scope of
operations may require alternate sources of financing equipment. The Company
expects that if additional contracts are secured, and revenues increase, working
capital requirements will increase. There can be no assurance that the Company's

                                       15
<PAGE>

EMW process will gain widespread commercial acceptance within any particular
time frame, or at all. The Company will incur additional expenses as it hires
and trains field crews and support personnel related to the successful receipt
of commercial contracts. Additionally, the Company anticipates that cash will be
used to meet capital expenditure requirements necessary to develop
infrastructure to support future growth. There can be no assurance that the
Company will be able to secure additional revenue generating contracts to
provide sufficient cash.


Item 6. Management's Discussion and Analysis or Plan of Operation

Overview

     In January 2002, the Company, through consultants and the Company's
employees, began to implement its business strategy of improving its hardware,
software and data acquisition procedures. In July 2002, the Company deployed
this new hardware and software technology in Alaska. During the summer of 2002,
the Company used the new technology to test over 300 lines. The Company's data
interpretation process has been largely automated, and the Company hopes to be
able to complete this automation in the near future. The Company's business
model and strategy is heavily dependent on its ability to automate the data
interpretation process and fully implement its new technology. If the Company is
unable to automate the process and fully implement its technology, the Company
may not be able to implement a licensing and joint venture business model and
may not be able to secure additional contracts. As a result, such failure may
have a material adverse effect on the business and financial condition of the
Company.

Revenue

     The Company derives revenue solely from the sale of the EMW inspection
technology service. The Company relies upon several employees, including the
Chief Executive Officer, the Chief Operating Officer and the Vice
President--Field Operations, for the Company's sales functions. The Company
relies solely upon the employees of the Company to conduct its sales activities.

     In fiscal year 2003, all of the Company's sales were attributable to two
customers. These customers, with projects located in Alaska, accounted for 100%
of the Company's net sales in fiscal 2003. During the fiscal years ended June
30, 2003 and June 30, 2002, these customers individually accounted for 63% and
37%, and 37% and 51%, respectively, of the Company's revenue.

     During 2003, the Company originally had planned to inspect between 400 and
500 below-grade lines in Alaska. However, based on the most recent estimates of
work scope provided by its customers, the Company anticipates that it will
inspect between 250 to 300 below-grade pipes this year. In addition, certain
customers of the Company have requested that the Company begin a program of
testing above-grade, insulated pipes after it completes the below-grade
inspections. The Company cannot estimate the number of above-grade pipes that
can be tested before the end of the calendar year primarily because of the
unpredictability of the weather on the North Slope. Moreover, the Company has
yet to receive a written work scope for such testing. As a result, there can be
no assurance that the Company will be able to secure any contracts to perform
above-grade, insulated pipe inspections during 2003 or at any time in the
future.

                                       16
<PAGE>

Marketing

     The Company's sales and marketing strategy includes positioning the
Company's EMW technology as the method of choice to detect pipeline corrosion
where the pipelines are either inaccessible to other inspection tools or much
more costly to inspect with tools other than Profile's EMW inspection. Pending
completion of designed improvements to its buried pipe inspection equipment and
procedures, the Company intends to concentrate its marketing efforts on
above-grade insulated pipe such as is common in refineries and chemical plants
and on encased road and stream crossings.

     The Company is seeking industry and other funding to redevelop its buried
pipe product; however, there can be no assurance that such funding will be
obtained. Until such funding is obtained and the necessary, new hardware and
software is fabricated and tested, the Company will be unable to pursue the
utility and other buried pipe market segments.


Critical Accounting Estimates and Policies

     The discussion and analysis of financial condition and results of
operations is based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including contract revenue recognition and impairment of long-lived
assets. The Company bases its estimates on historical experience and on various
other assumptions that the Company believes to be reasonable under the
circumstances, the results of which form its basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions and conditions, and such variations may be adverse.

     The Company recognizes revenue from service contracts using the
percentage-of-completion method of contract accounting. Contract revenues earned
are measured using either the percentage-of-contract costs incurred to date to
total estimated contract costs or, when the contract is based on measurable
units of completion, revenue is based on the completion of such units.
Anticipated losses on contracts, if any, are charged to earnings as soon as such
losses can be estimated. Changes in estimated profits on contracts are
recognized during the period in which the change in estimate is known. The
Company records claims for additional compensation on contracts upon revision of
the contract to include the amount to be received for the additional work
performed. Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools and repairs, and depreciation costs. Selling, general, and
administrative costs are charged to expense as incurred. Service contracts
generally extend no more than six months.

     The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount which the carrying
amount of the asset exceeds the fair value of the asset.

                                       17
<PAGE>

Results of Operations

     The Company's operating results depend exclusively on its ability to market
its EMW inspection technology services. If the Company is not able to automate
completely the EMW inspection process and fully implement its new technology,
the Company may not be able to obtain future contracts to sell or license its
EMW technology. Since the Company's revenues are derived solely from sales of
its EMW technology, any failure to obtain future contracts will have a material
adverse effect on the business and financial condition of the Company.

     Revenues for the year ended June 30, 2003 were $350,919, which represented
a decrease of $58,394, or 14% as compared to revenues of $409,313 for the year
ended June 30, 2002. This decrease was due to the inspection of fewer lines by
the Company in Alaska. Revenues for the year ended June 30, 2003 were derived
predominantly from work performed on the North Slope of Alaska.

     Cost of revenue decreased 10% to $321,212 for the year ended June 30, 2003
compared to $356,910 for the year ended June 30, 2002. The Company believes that
the decrease in the cost of revenue for the year ended June 30, 2003 was a
result of a reduction in the number of the Company's employees available to work
on customer projects and greater operational and production efficiencies in the
Company's technology and business as compared to the year ended June 30, 2002.

     Gross profit decreased to $29,707 for the year ended June 30, 2003 from
profit of $52,403 for the year ended June 30, 2002. The decrease in gross profit
for the year ended June 30, 2003 as compared to the previous year resulted
primarily from fewer lines being inspected during fiscal year 2003.

     Research and development expenses for the year ended June 30, 2003
decreased 56% to $173,795 from $394,005 for the year ended June 30, 2002, a
decrease of $220,210. The decrease in the Company's research and development
expenses was due to lower salaries and a reduction in the number of the
Company's employees. In addition, the Company substantially completed a major
research and development project to improve the Company's hardware and software
in the second half of the fiscal year 2002.

     General and administrative expenses decreased 7.5% to $941,893 for the year
ended June 30, 2003, from $1,018,124 for the year ended June 30, 2002. The
decrease is primarily due to a reduction in discretionary expenditures,
including a reduction in the number of the Company's employees and the closing
of two of the Company's offices during the fiscal year ended June 30, 2002.

     Loss from operations decreased 20.1% to $1,085,981 for the year ended June
30, 2003 compared to $1,359,726 for the year ended June 30, 2002. This decrease
is due to a reduction in operating expenses as discussed above. As a result of
the Company's cost structure, which includes a significant amount of fixed
costs, fluctuations in revenue will significantly impact the Company's gross
margin and loss from operations.

                                       18
<PAGE>

     Interest income decreased to $6 for the year ended June 30, 2003 down from
$1,007 for the year ended June 30, 2002. 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. The Company included $6,754 in other income for the year ended June
30, 2003 related to a gain on disposal of an asset.

     Interest expense was $25,374 for the fiscal year ended June 30, 2003
compared with $4,862 for the fiscal year ended June 30, 2002. This increase in
interest expense resulted from the issuance of notes payable by the Company to
certain officers of the Company, as described in Item 5, Market for Common
Equity and Related Stockholder Matters, Sales of Unregistered Securities, and
from finance charges of $2,175 incurred in the ordinary course of the Company's
business.

     Net loss decreased 19% to $1,104,595 for the year ended June 30, 2003,
compared to $1,363,581 for the year ended June 30, 2002.


New Accounting Pronouncements

     In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company was required to adopt SFAS No.
143 on January 1, 2003. The adoption of SFAS No. 143 did not have an effect on
the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 did not have an effect on the Company's
financial statements.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 did not have an effect on the Company's financial
statements.

                                       19
<PAGE>

     In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
did not have an impact on the Company's financial statements.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.

Liquidity and Capital Resources

     The Company has an accumulated deficit of $9,293,538 at June 30, 2003 and
had negative working capital of $1,117,430 as of June 30, 2003. During the
twelve months ended June 30, 2003, the Company used $694,738 of cash in
operating activities primarily as a result of net losses offset by depreciation,
amortization and increased accrued liabilities. Net cash provided by investing
activities was $8,690 for the year ended June 30, 2003. The Company's cash and
cash equivalents as of June 30, 2003 were $0. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management
recognizes that in order to meet the Company's capital requirements and continue
to operate, additional financing will be necessary. Cash provided by financing
activities was $612,534 primarily from note payable to related parties.

     The Company is evaluating alternative sources of financing, including
seeking industry-partner investment through joint venture or other possible
arrangements, to improve its cash position and is also undertaking efforts to
raise capital from more conventional sources. Further, the Company is making
on-going efforts to reduce its on-going expense requirements including payroll.
If the Company is unable to raise additional capital or secure additional
revenue contracts and generate positive cash flow, the Company will be unable to
continue as a going concern. No adjustments have been made to the financial
statements due to this uncertainty.

     Capital will be expended to support operations until the Company can
generate sufficient cash flows from operations. In order for the Company to
generate cash flows from operations, the Company must generate additional
revenue generating contracts. Management is currently directing the Company's
activities towards obtaining additional service contracts, which, if obtained,
will necessitate the Company attracting, hiring, training and outfitting
qualified technicians. If additional service contracts are obtained, it will
also necessitate additional field test equipment purchases in order to provide
the services. The Company's intention is to purchase such equipment for its
field crews for the foreseeable future, until such time as the scope of

                                       20
<PAGE>

operations may require alternate sources of financing equipment. The Company
expects that if additional contracts are secured, and revenues increase, working
capital requirements will increase. There can be no assurance that the Company's
process will gain widespread commercial acceptance within any particular time
frame, or at all. The Company will incur additional expenses as it hires and
trains field crews and support personnel related to the successful receipt of
commercial contracts. Additionally, the Company anticipates that cash will be
used to meet capital expenditure requirements necessary to develop
infrastructure to support future growth. There can be no assurance that the
Company will be able to secure additional revenue generating contracts to
provide sufficient cash.

     The Company's contractual obligations consist of commitments under
operating leases, deferred salary and fees, and repayment of loans payable to
certain officers, directors and stockholders. Future minimum rental payments on
the operating leases are less than $11,874 for the remainder of the calendar
year 2003, although the Company expects to continue to incur costs on leased
properties, as the Company has extended such leases in the past or may use
alternate facilities. On February 26, 2003, the Company extended its Ferndale,
Washington office lease through January 31, 2004.

     As of June 30, 2003, deferred salary and fees amounted to $255,658, and the
salaries and fees will continue to be deferred until the Company has sufficient
resources to pay the amounts owed, or the employees, officers, or directors
exchange such amounts as described below. On March 18, 2002, the Board of
Directors approved a right under which any such employee, officer or director
could exchange each dollar of his or her deferred salary or fees for an option
to purchase two shares of the Company's common stock which may be exercised over
a five-year term at an exercise price of $1.00 per share. As of June 30, 2003,
no conversions have occurred.

     As of June 30, 2003, the Company had outstanding loans payable to certain
officers, directors and stockholders with principal amounts, in the aggregate,
equal to $641,012. The terms of the loans are described below.

     In April 2002, the Company issued a non-interest bearing bridge loan in the
principal amount of $15,000 (the "Gemino Loan") payable to Henry Gemino, the
Chief Executive Officer, Chief Financial Officer and a director and stockholder
of the Company. The terms of the Gemino Loan provided for payment at such time
as the Company determined that it had sufficient working capital to repay the
principal balance of the Gemino Loan and for the conversion into 21,428 equity
units. Each equity unit was comprised of one share of the Company's common
stock, with a detached 5-year warrant to purchase one additional share of the
Company's common stock at an exercise price of $1.05 per share. The Gemino Loan
was converted into the 21,428 equity units in 2002.

     In April 2002, the Company issued a non-interest bearing bridge loan in the
principal amount of $7,500 (the "Scott Loan") payable to G.L. Scott, the former
Chairman of the Board of Directors and stockholder of the Company. The Scott
Loan is payable at such time as the Company determines that it has sufficient
working capital to repay the principal balance of the Scott Loan and is
convertible into 10,714 equity units at any time prior to payment. Each equity
unit is comprised of one share of the Company's common stock, with a detached
5-year warrant to purchase one additional share at an exercise price of $1.05
per share. On September 29, 2002, Mr. Scott died unexpectedly from a stroke
before converting any part of this loan. As of September 26, 2003, Mr. Scott's
estate had not converted any part of the Scott Loan into equity units.

                                       21
<PAGE>

     On May 9, 2002, the Company entered into a $150,000 bridge loan agreement
with Murphy Evans, the President and a director and stockholder of the Company
(the "Evans Loan"). The Company's Board of Directors approved the terms of the
Evans Loan. Mr. Evans had loaned the Company $126,000, pursuant to the Evans
Loan. Under the terms of the Evans Loan, once Mr. Evans loaned the Company
$125,000, the Company cancelled 150,000 warrants held by Mr. Evans, with
exercise prices ranging from $3.00 per share to $7.50 per share, and issued to
Mr. Evans 150,000 five-year warrants with an exercise price of $1.05 per share.
If the Company had raised $400,000 pursuant to the 2002 Offering within 90 days
of May 9, 2002, the entire loan amount would have been converted into the
Company's common stock in accordance with the terms of the 2002 Offering.
However, the Company raised only $346,250, not $400,000, under the 2002 Offering
within 90 days of May 9, 2002. As a result, under the terms of the Evans Loan,
the Company would have been obligated to commence making monthly loan payments
to Mr. Evans in the amount of $25,000 per month, with interest accruing at 6%
per annum on the unpaid principal balance of the Evans Loan. On March 6, 2003,
the Evans Loan was replaced and superseded by the Amended Evans Loan as
described below. As of March 6, 2003, Mr. Evans made no demand for payment under
the Evans Loan, and no repayments of the Evans Loan had been made by the
Company.

     During 2002, the Company also entered into certain non-interest bearing
bridge loans in the aggregate amount of $56,500 (the "Subsequent Evans Loan")
payable to Murphy Evans, the President and a director and shareholder of the
Company. The terms of the Subsequent Evans Loan provided for payment at such
time as the Company determined it had sufficient working capital to repay the
principal balance of the Subsequent Evans Loan which was convertible into 81,428
equity units at any time prior to payment. Each equity unit was comprised of one
share of the Company's common stock, with a detached 5-year warrant to purchase
one additional share at an exercise price of $1.05 per share. On March 6, 2003,
the Subsequent Evans Loan was replaced and superseded by the Amended Evans Loan
as described below. As of March 6, 2003, no repayments of the Subsequent Evans
Loan had been made by the Company.

     During fiscal year 2003, Murphy Evans also loaned $194,650 to the Company
(collectively, the "Non-Convertible Evans Loan"). This loan agreement provided
for payment at such time as the Company determined it had sufficient working
capital to repay the Non-Convertible Evans Loan. Interest was to accrue on the
Non-Convertible Evans Loan at a rate of 5% per annum. On March 6, 2003, the
Non-Convertible Evans Loan was replaced and superseded by the Amended Evans Loan
as described below. As of March 6, 2003, no repayments of the Evans Loan had
been made by the Company.

     On March 6, 2003, the Company's Board of Directors approved the Loan
Amendment and Promissory Note (the "Amended Evans Loan") between the Company and
Murphy Evans. The Amended Evans Loan amends and supersedes the indebtedness
under the Evans Loan, Subsequent Evans Loan and Non-Convertible Evans Loan by
aggregating the debt under all of these loans by Mr. Evans into one promissory
note bearing interest on the aggregate principal balance at a rate of 5% per
annum, payable on June 30 and December 31 of each year. The outstanding balance
under the Amended Evans Loan is due and payable in full on December 31, 2003.
The Amended Evans Loan superseded and replaced all of the terms under the Evans
Loan, Subsequent Evans Loan and Non-Convertible Evans Loan, including the
conversion feature under the Subsequent Evans Loan.

     In addition, the terms of the Amended Evans Loan will apply to all future
loans that may be made to the Company by Murphy Evans. Due to the necessity by
the Company to obtain additional financing in the future to sustain the
Company's operations, the Board of Directors approved the terms of the Amended

                                       22
<PAGE>

Evans Loan. During the twelve months ended June 30, 2003, Murphy Evans loaned
the Company and additional $172,315 under the Amended Evans Loan. As of June 30,
2003, the outstanding principal balance of the Amended Evans Loan was equal to
$549,465. As of September 26, 2003, the Company has not made the interest
payment due on June 30, 2003, under the Amended Evans Loan. As of September 29,
2003, Mr. Evans has not made any demand for payment, or exercised any of his
remedies, under the Amended Evans Loan.

     During the twelve months ended June 30, 2003, the Company entered into two
non-interest bearing bridge loans in the respective principal amounts of $40,000
and $10,000 (the "Shareholder Loans") payable to two shareholders of the
Company. The terms of the Shareholder Loans provide for payment at such time as
the Company determines it has sufficient working capital to repay the principal
balances of the Shareholder Loans. The Shareholder Loans are convertible into
57,142 and 14,286 equity units, respectively, at any time prior to payment. Each
equity unit is comprised of one share of the Company's common stock, with a
detached 5-year warrant to purchase one additional share at an exercise price of
$1.05 per share. As of September 30, 2003, neither shareholder had converted
either Shareholder Loan into equity units.

     On June 19, 2003, the Board of Directors approved a promissory note (the
"2003 Gemino Note") in the principal amount of $34,047 payable to Henry E.
Gemino, the Chief Executive Officer, Chief Financial Officer and a director and
stockholder of the Company. The 2003 Gemino Note bears interest at the rate of
5% per annum, payable on each June 30 and December 31 of each year. The 2003
Gemino Note evidences the Company's obligation to repay Mr. Gemino certain
amounts advanced by Mr. Gemino to pay certain expenses of the Company. The
outstanding balance under the 2003 Gemino Note is due and payable in full on
December 31, 2003. As of June 30, 2003, the outstanding principal balance of the
2003 Gemino Note was equal to $34,047. As of September 29, 2003, the Company has
not made the interest payment due on June 30, 2003 under the 2003 Gemino Note.
As of September 29, 2003, Mr. Gemino has not made any demand for payment, or
exercised any of his remedies, under the 2003 Gemino Note.

     On March 18, 2002, the Board of Directors approved an offering of 1,000,000
shares of the Company's common stock at a price of $0.70 per share, with
attached warrants (the "2002 Offering"). Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $1.05 per share until
April 4, 2007. The Company did not incur or pay any commissions with respect to
offers and sales of securities under the 2002 Offering. The 2002 Offering
terminated on December 31, 2002. As of December 31, 2002, the Company had raised
a total of $403,200 from the 2002 Offering.

     On June 19, 2003, the Board of Directors approved an offering (the "2003
Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. The Company is required to redeem each Debenture on the fifth
anniversary of the date of the Debenture. The Company may, in its discretion,
redeem any Debenture at any time prior to the mandatory redemption date of the
Debenture by providing no less than 60 days' prior written notice to the holder
of the Debenture.

     Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company will issue to an investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. For example, if an investor executes a Debenture in the

                                       23
<PAGE>

principal amount of $100,000, the Company will issue to such investor 200,000
Warrants. The Warrants will be exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture. As of June 30, 2003, the
Company had not received any funds from the 2003 Offering. As of September 26,
2003, the Company had raised $25,000 from the 2003 Offering.

     On September 25, 2002, the Company received notice from one of its Alaska
customers that the results of a blind test on large diameter above-grade pipe
were not satisfactory. Specifically, the customer indicated that, although the
Company located all areas of corrosion, the severity of the anomalies reported
did not march the severity of corrosion found on the pipe. As a result, the
customer canceled approximately two weeks of remaining work for one of the
Company's crews, resulting in the loss of approximately $47,000 in expected, but
not accrued, revenue.

     The results that caused the customer the most concern were derived from
data that was inadvertently taken by the Company using a faulty piece of
grounding equipment. In the report provided to the customer, the Company
identified the grounding problem and recommended that the pipe should be
re-tested prior to verification.

     The Company completed and submitted a detailed, written explanation of the
equipment problem to the customer, including the steps already taken by the
Company to preclude the recurrence of the problem. The Company was included in
its customer's inspection plans for 2003, and the Company is hopeful that it
will be included in the customer's inspection plans for 2004, although there can
be no assurance that the customer will engage the Company to provide inspection
services at any time in the future.

     The Company currently requires additional cash to sustain existing
operations and to meet current obligations (including those described in this
Item 6, Management's Discussion and Analysis) and the Company's ongoing capital
requirements. The continuation of the Company's operations is dependent in the
short term upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability.









                                       24
<PAGE>

Item 7. Financial Statements


                           Profile Technologies, Inc.

                              Financial Statements

                             June 30, 2003 and 2002

                   (With Independent Auditors' Report Thereon)
                           PROFILE TECHNOLOGIES, INC.



                                Table of Contents



                                                                            Page

Independent Auditors' Report                                                 26

Balance Sheet                                                                27

Statements of Operations                                                     28

Statements of Stockholders' Equity (Deficit)                                 29

Statements of Cash Flows                                                     30

Notes to Financial Statements                                                31







                                       25
<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, 2003, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
two-year period ended June 30, 2003. 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 auditing standards generally
accepted in the United States of America. 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, 2003, and the results of its operations and its cash flows for
each of the years in the two-year period ended June 30, 2003, in conformity with
accounting principles generally accepted in the United States of America.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 7 to the
financial statements, the Company has incurred net losses since inception and
has a working capital deficit at June 30, 2003 that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 7. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

                                                     /s/ KPMG LLP
                                                     ------------
                                                     KPMG LLP

Seattle, Washington
October 10, 2003


                                       26
<PAGE>
<TABLE>
<CAPTION>

                                 PROFILE TECHNOLOGIES, INC.
                                        Balance Sheet
                                        June 30, 2003

                                           Assets
Current assets:
<S>                                                                              <C>
                 Cash and cash equivalents                                       $      --
                 Contract work-in-progress                                            11,310
                 Prepaid expenses and other current assets                            50,733
                                                                                 -----------
                                           Total current assets                       62,043
                                                                                 -----------
Equipment, at cost                                                                   583,097
                 Less accumulated depreciation                                       467,765
                                                                                 -----------
                                           Net equipment                             115,332
                                                                                 -----------
Patents, net of accumulated amortization of $361,678                                  61,308
Other assets                                                                           2,415
                                                                                 -----------
                                           Total assets                          $   241,098
                                                                                 ===========
                           Liabilities and Stockholders' Deficit
Current liabilities:
                 Notes payable to stockholders                                   $   641,012
                 Accounts payable                                                    189,903
                 Accrued liabilities                                                 348,558
                                                                                 -----------
                                           Total current liabilities               1,179,473
                                                                                 -----------
                                           Total liabilities                       1,179,473
                                                                                 -----------
Stockholders' equity (deficit):
                 Common stock, $0.001 par value. Authorized 10,000,000 shares;
                           issued and outstanding 5,461,659 shares                     5,462
                 Additional paid-in capital                                        8,349,701
                 Accumulated deficit                                              (9,293,538)
                                                                                 -----------
                                           Total stockholders' deficit              (938,375)

Commitments, contingencies, and subsequent events
                                                                                 -----------
                                           Total liabilities and stockholders'
                                           deficit                               $   241,098
                                                                                 ===========

See accompanying notes to financial statements.

                                             27
<PAGE>

                                PROFILE TECHNOLOGIES, INC.
                                 Statements of Operations
                            Years ended June 30, 2003 and 2002

                                                                    2003           2002
                                                                -----------    -----------
Revenues                                                        $   350,919        409,313
Cost of revenues                                                    321,212        356,910
                                                                -----------    -----------
                         Gross profit                                29,707         52,403
                                                                -----------    -----------
Costs and expenses:
             Research and development                               173,795        394,005
             General and administrative                             941,893      1,018,124
                                                                -----------    -----------
                         Total costs and expenses                 1,115,688      1,412,129
                                                                -----------    -----------
                         Loss from operations                    (1,085,981)    (1,359,726)
Interest and other income                                             6,760          1,007

Interest expense                                                    (25,374)        (4,862)
                                                                -----------    -----------
                         Net loss                               $(1,104,595)    (1,363,581)
                                                                ===========    ===========
Basic and diluted net loss per share                            $     (0.20)         (0.28)
Shares used to calculate basic and diluted net loss per share     5,439,858      4,805,044


See accompanying notes to financial statements.

                                            28
<PAGE>

                                         PROFILE TECHNOLOGIES, INC.
                                Statements of Stockholders' Equity (Deficit)
                                     Years ended June 30, 2003 and 2002


                                                                                                     Total
                                                   Common stock         Additional                stockholders'
                                              -----------------------    paid-in    Accumulated     equity
                                                Shares       Amount      capital      deficit      (deficit)
                                              ----------   ----------   ----------   ----------    ----------
Balances at June 30, 2001                      4,285,092   $    4,285    7,585,830   (6,825,362)      764,753

Issuance of common stock, net
   of issuance cost of $40,242                   672,000          672      362,286         --         362,958

Issuance of common stock in satisfaction of
   accounts payable                                2,750            3        5,497         --           5,500

Issuance of common stock purchase
   warrants for services                            --           --         14,725         --          14,725

Issuance of common stock purchase warrants
   as a discount on a note
   payable to stockholder                           --           --         15,000         --          15,000

Net loss                                            --           --           --     (1,363,581)   (1,363,581)
                                              ----------   ----------   ----------   ----------    ----------
Balances at June 30, 2002                      4,959,842        4,960    7,983,338   (8,188,943)     (200,645)

Issuance of common stock                         480,388          481      335,791         --         336,272

Issuance of common stock in connection with
   loan conversion                                21,429           21       14,979         --          15,000

Issuance of common stock purchase
   warrants and options for services                --           --         15,593         --          15,593

Net loss                                            --           --           --     (1,104,595)   (1,104,595)
                                              ----------   ----------   ----------   ----------    ----------
Balances at June 30, 2003                     $5,461,659   $    5,462    8,349,701   (9,293,538)     (938,375)
                                              ==========   ==========   ==========   ==========    ==========


See accompanying notes to financial statements.

                                                     29
<PAGE>

                                  PROFILE TECHNOLOGIES, INC.
                                   Statements of Cash Flows
                              Years ended June 30, 2003 and 2002

                                                                        2003           2002
                                                                    -----------    -----------
Cash flows from operating activities:
     Net loss                                                       $(1,104,595)    (1,363,581)
     Adjustments to reconcile net loss to net cash used in
          operating activities:
                    Depreciation and amortization                       163,675        166,615
                    Accreted interest on notes payable                   10,139          4,862
                    Stock compensation                                   15,593         14,725
                    Gain on asset disposal                               (6,754)          --
     Changes in Assets and Liabilities:
                    Accounts receivable                                    --           32,129
                    Contract work-in-progress                           (11,310)        17,850
                    Prepaid expenses and other current assets           (10,330)        (8,434)
                    Other assets                                          7,743            850
                    Accounts payable - stockholder                         --           (3,262)
                    Other accounts payable                                5,744        137,135
                    Accrued liabilities                                 235,358         91,689
                                                                    -----------    -----------
                                          Net cash used by
                                          operating activities         (694,737)      (909,422)
                                                                    -----------    -----------
Cash flows from investing activities:
     Proceeds from asset disposal                                         8,690         65,830
                                                                    -----------    -----------
                                          Net cash provided by
                                          (used in) investing
                                          activities                      8,690        (65,830)
                                                                    -----------    -----------
Cash flows from financing activities:
     Proceeds from issuance of common stock and warrants, net           105,022        362,958
     Proceeds from issuance of notes payable and related warrants
          to stockholders                                               507,511        148,500
     Proceeds from subscriptions for common stock and warrants             --          231,250
                                                                    -----------    -----------
                                          Net cash provided by
                                          financing activities          612,533        742,708
                                                                    -----------    -----------
                                          Decrease in cash and
                                          cash equivalents              (73,514)      (232,544)

Cash and cash equivalents at beginning of year                           73,514        306,058
                                                                    -----------    -----------
Cash and cash equivalents at end of year                            $      --           73,514
                                                                    ===========    ===========
Non-cash transactions:
     Issuance of stock previously subscribed                            231,250           --
     Conversion of note payable to stock and warrants                    15,000           --


See accompanying notes to financial statements.

                                              30
</TABLE>
<PAGE>

                           Profile Technologies, Inc.
                          Notes to Financial Statements
                             June 30, 2003 and 2002

(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 1988. The Company is 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 multinational oil companies.

     (b)  Contract Revenue Recognition

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

          Anticipated losses on contracts, if any, are charged to earnings as
          soon as such losses can be estimated. Changes in estimated profits on
          contracts are recognized during the period in which the change in
          estimate is known.

          Cost of revenues include contract costs incurred to date as well as
          any idle time incurred by personnel scheduled to work on customer
          contracts.

          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)  Allowance for Doubtful Accounts

          The Company estimates an allowance for doubtful accounts based on the
          credit worthiness of its customers as well as general economic
          conditions. Consequently, an adverse change in those factors could
          affect the Company's estimate of its allowance for doubtful accounts.
          Account balances are considered past due based on contractual terms
          and are charged off against the allowance after all means of
          collection have been exhausted, and the potential for recovery is
          considered remote.

     (d)  Research and Development

          Research and development costs are expensed when incurred.

     (e)  Equipment

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

                                       31
<PAGE>

                           Profile Technologies, Inc.
                          Notes to Financial Statements
                             June 30, 2003 and 2002

     (f)  Patents

          Patent and related application costs are amortized using the
          straight-line method over their estimated useful lives of
          approximately four to six years. Amortization expense was $84,592 in
          2003 and 2002 and is expected to be $61,308 in 2004.

     (g)  Income Taxes

          Income taxes are accounted for under the asset and liability method.
          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases and operating loss and tax credit
          carryforwards. Deferred tax assets and liabilities are measured using
          enacted tax rates 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 income 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

          All of the Company's revenues were from two and six customers for the
          years ended June 30, 2003 and 2002, respectively.

          Information related to the Company's customers accounting for greater
          than 10% of revenues follows:

                                                     Year ended
                                                   June 30, 2003
                                                      Revenues
                                                      --------
                      Customer A                        37%
                      Customer B                        63%

                                                     Year ended
                                                   June 30, 2002
                                                      Revenues
                                                      --------
                      Customer A                        37%
                      Customer B                        51%


          In addition, Customer A accounted for 100% of contract
          work-in-progress balance at June 30, 2003. The loss of Customer A or
          Customer B or the Company's failure to broaden the base of customers
          in 2003, could have a material adverse effect on the Company.

     (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.

     (j)  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.

                                       32
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

          Excluded from the computation of diluted loss per share, because their
          effect would be antidilutive, are warrants and options to acquire
          2,913,817 shares of common stock with a weighted average exercise
          price of $2.28 for the year ended June 30, 2003, and warrants and
          options to acquire 2,297,000 shares of common stock with a weighted
          average price of $2.63 for the year ended June 30, 2002. Additional
          potential dilutive securities that were excluded from the diluted loss
          per share computation are the exchange rights discussed in footnote 7
          that could result in options with an exercise price of $1.00 to
          acquire up to 511,316 shares of common stock for the year ended June
          30, 2003 and 223,000 shares for the year ended June 30, 2002.

     (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 of America 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 of America 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.

     (m)  Financial Instruments and Concentrations of Credit Risk

          At June 30, 2003, the Company has the following financial instruments:
          notes payable to stockholders, contract work-in-progress, accounts
          payable and accrued expenses. The carrying value of these instruments
          approximate fair value based on their liquidity and based on their
          short-term nature. Credit is extended to customers based on an
          evaluation of their financial condition. The Company does not require
          any collateral. The Company regularly invests funds in excess of its
          immediate needs in money market mutual funds. These funds are
          generally uninsured and subject to investment risk. There were no
          amounts held in such funds at June 30, 2003.

                                       33
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     (n)  Stock-Based Compensation

          The Company has elected to follow the measurement principles of
          Accounting Principles Board Opinion No. 25, Accounting for Stock
          Issued to Employees, and related interpretations in accounting for its
          employee stock options rather than the alternative fair value
          accounting provided for by Statements of Financial Accounting
          Standards No. 123 (SFAS No. 123), Accounting for Stock Based
          Compensation. Compensation cost for stock options issued to employees
          is measured as the excess, if any, of the fair market price of the
          Company's stock at the date of grant over the amount an employee must
          pay to acquire the stock. Had compensation cost for the Company's
          option and warrant awards been determined consistent with SFAS No.
          123, the Company's net loss would have been increased to the pro forma
          amounts indicated below:
<TABLE>
<CAPTION>
                                                                              Years ended June 30
                                                                         --------------------------
                                                                             2003           2002
                                                                         -----------    -----------
          <S>                                                            <C>              <C>
          Net loss:
               As reported                                               $ 1,104,595      1,363,581
               Plus: stock-based employee compensation expense
                  included in reported net loss                               15,593         10,125
               Less: stock based compensation expense determined under
                  fair value based method for all employee rewards            10,800        110,500
                                                                         -----------    -----------
                           Net Loss                                      $ 1,109,388      1,263,206
                                                                         ===========    ===========
          Net loss per share:
               Basic and diluted--as reported                            $     (0.20)         (0.26)
               Basic and diluted--pro forma                                    (0.20)         (0.30)
</TABLE>

          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 2003: expected volatility of 120%,
          risk-free interest rate of 3.28%, expected lives of 5 years, and a 0%
          dividend yield. The weighted average assumptions used for grants in
          2002: expected volatility of 120%, risk free interest rate of 5.25%,
          expected lives of 5 years, and a 0% dividend yield.

          The Company recognizes compensation cost, if any, related to fixed
          employee awards on an accelerated basis over the applicable vesting
          period using the methodology described in FASB Interpretation No. 28,
          Accounting for Stock Appreciation Rights and Other Variable Stock
          Option or Award Plans.

     (o)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
          Of

          Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
          for the Impairment or Disposal of Long-Lived Assets, provides a single
          accounting model for long-lived assets to be disposed of. SFAS No. 144
          also changes the criteria for classifying an asset as held for sale;

                                       34
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

          and broadens the scope of businesses to be disposed of that qualify
          for reporting as discontinued operations and changes the timing of
          recognizing losses on such operations. The Company adopted SFAS No.
          144 on January 1, 2002. The adoption of SFAS No. 144 did not affect
          the Company's financial statements.

          In accordance with SFAS No. 144, long-lived assets, such as equipment,
          and purchased intangibles subject to amortization, are reviewed for
          impairment whenever events or changes in circumstances indicate that
          the carrying amount of an asset may not be recoverable. Recoverability
          of assets to be held and used is measured by a comparison of the
          carrying amount of an asset to estimated undiscounted future cash
          flows expected to be generated by the asset. If the carrying amount of
          an asset exceeds its estimated future cash flows, an impairment charge
          is recognized by the amount by which the carrying amount of the asset
          exceeds the fair value of the asset. Assets to be disposed of would be
          separately presented in the balance sheet and reported at the lower of
          the carrying amount or fair value less costs to sell, and are no
          longer depreciated.

          Prior to the adoption of SFAS No. 144, the Company accounted for
          long-lived assets in accordance with SFAS No. 121, Accounting for
          Impairment of Long-Lived Assets and for Long-Lived Assets to be
          Disposed Of.

     (p)  Segment Reporting

          The Company has one operating segment. Revenues consist almost
          entirely of fees generated from providing testing services. Expenses
          incurred to date are reported according to their expense category.

          The Company's customers are located in the United States and various
          foreign countries, however, no revenue has been generated from
          contracts with customers in foreign countries in 2003 or 2002.

     (q)  New Accounting Pronouncements

          In June 2001, FASB issued SFAS No. 143, Accounting for Asset
          Retirement Obligations. SFAS No. 143 requires the Company to record
          the fair value of an asset retirement obligation as a liability in the
          period in which it incurs a legal obligation associated with the
          retirement of tangible long-lived assets that result from the
          acquisition, construction, development, and/or normal use of the
          assets. The Company also records a corresponding asset that is
          depreciated over the life of the asset. Subsequent to the initial
          measurement of the asset retirement obligation, the obligation will be
          adjusted at the end of each period to reflect the passage of time and
          changes in the estimated future cash flows underlying the obligation.
          The Company was required to adopt SFAS No. 143 on July 1, 2002. The
          adoption of SFAS No. 143 did not have an effect on the Company's
          financial statements.

                                       35
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

          In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
          Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
          Technical Corrections. SFAS No. 145 amends existing guidance on
          reporting gains and losses on the extinguishment of debt to prohibit
          the classification of the gain or loss as extraordinary, as the use of
          such extinguishments have become part of the risk management strategy
          of many companies. SFAS No. 145 also amends SFAS No. 13 to require
          sale-leaseback accounting for certain lease modifications that have
          economic effects similar to sale-leaseback transactions. The
          provisions of the Statement related to the rescission of Statement No.
          4 is applied in fiscal years beginning after May 15, 2002. Earlier
          application of these provisions is encouraged. The provisions of the
          Statement related to Statement No. 13 were effective for transactions
          occurring after May 15, 2002, with early application encouraged. The
          adoption of SFAS No. 145 did not have an effect on the Company's
          financial statements.

          In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
          Associated with Exit or Disposal Activities. SFAS No. 146 addresses
          financial accounting and reporting for costs associated with exit or
          disposal activities and nullifies Emerging Issues Task Force (EITF)
          Issue 94-3, Liability Recognition for Certain Employee Termination
          Benefits and Other Costs to Exit an Activity. The provisions of this
          Statement are effective for exit or disposal activities that are
          initiated after December 31, 2002, with early application encouraged.
          The adoption of SFAS No. 146 did not have an effect on the Company's
          financial statements.

          In November 2002, the FASB issued Interpretation No. 45, Guarantor's
          Accounting and Disclosure Requirements for Guarantees, Including
          Indirect Guarantees of Indebtedness to Others, an interpretation of
          FASB Statements No. 5, 57 and 107 and a rescission of FASB
          Interpretation No. 34. This Interpretation elaborates on the
          disclosures to be made by a guarantor in its interim and annual
          financial statements about its obligations under guarantees issued.
          The Interpretation also clarifies that a guarantor is required to
          recognize, at inception of a guarantee, a liability for the fair value
          of the obligation undertaken. The initial recognition and measurement
          provisions of the Interpretation are applicable to guarantees issued
          or modified after December 31, 2002 and are not expected to have an
          effect on the Company's financial statements. The disclosure
          requirements are effective for financial statements of interim or
          annual periods ending after December 15, 2002.

          In December 2002, the FASB issued SFAS No. 148, Accounting for
          Stock-Based Compensation - Transition and Disclosure, an amendment of
          FASB Statement No. 123. This Statement amends FASB Statement No. 123,
          Accounting for Stock-Based Compensation, to provide alternative
          methods of transition for a voluntary change to the fair value method
          of accounting for stock-based employee compensation. In addition, this
          Statement amends the disclosure requirements of Statement No. 123 to
          require prominent disclosures in both annual and interim financial
          statements. Certain of the disclosure modifications are required for
          fiscal years ending after December 15, 2002 and are included in the
          notes to these consolidated financial statements.

                                       36
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

(2)  Related Parties

     (a)  Notes Payable - Stockholders

          On May 9, 2002, the Company entered into a bridge loan of up to
          $150,000 with Murphy Evans, President and a director of the Company.
          Mr. Evans has currently loaned the Company $126,000 pursuant to this
          bridge loan. Pursuant to the terms of the loan, once Mr. Evans loaned
          the Company $125,000, the Company cancelled 150,000 warrants with
          exercise prices ranging from $3.00 per share to $7.50 per share (old
          warrants), previously held by Mr. Evans, with and issued to Mr. Evans
          150,000 five-year warrants with an exercise price of $1.05.

          The cancellation of the old warrants is an effective re-pricing and
          will be accounted for as a "variable plan" until such time as the
          warrants are exercised, expire or are forfeited. Variable plan
          accounting will result in intrinsic value associated with the warrants
          being adjusted to compensation expense based on each reporting
          period's ending stock value. As of June 30, 2003, no intrinsic value
          had been recorded related to these warrants as the stock price was
          below the exercise price.

          As a result of the cancellation and re-issuance of the warrants with a
          reduced exercise price, the Company recorded an additional $15,000
          discount on notes payable and an increase in additional paid in
          capital based on the difference between the fair value of the old
          warrants and the fair value of the new warrants. The fair value of the
          old and new warrants on the day of cancellation and issuance was based
          on an option pricing model with the following assumptions: warrant
          lives ranging from 5 to 5.5 years, risk free interest rates of 5.25%,
          volatility of 120% and a zero dividend yield. Corresponding interest
          expense related to the note was $10,139 for the twelve months ended
          June 30, 2003.

          The original note provided for interest of 6% per annum on the unpaid
          balance. Effective January 1, 2003, the Company and Mr. Evans entered
          into an agreement under which this note and all other past and future
          advances from Mr. Evans carry an interest rate of 5% per annum,
          interest is payable on June 30 and December 31 of each year, and the
          notes mature on December 31, 2003. Under the terms of this agreement,
          Mr. Evans loaned the Company an additional $423,465 in 2003. As of
          September 30, 2003, the June 30, 2003 interest payment had not been
          made and Mr. Evans had made no demand for payment. All advances from
          Mr. Evans are convertible into any debt or equity offering by the
          Company.

          In 2002, the Company issued non-interest bearing bridge notes payable
          to two officers in the amounts of $15,000 and $7,500, convertible into
          21,428 and 10,714 equity units, respectively. Each equity unit is
          comprised of one share of common stock accompanied by a detachable
          five-year warrant to purchase an additional share of common stock with
          an exercise price of $1.05. To the extent that the notes are not
          converted before maturity, both notes are payable in full when the
          Company determines it has sufficient working capital to do so. The
          note in the amount of $15,000 was converted to 21,428 equity units
          described above in 2003.

          In 2003, the Company obtained $50,000 in non-interest bearing bridge
          notes payable to two stockholders of the Company, convertible into
          71,428 equity units. Each equity unit is comprised of one share of
          common stock accompanied by a detachable five-year warrant to purchase
          an additional share of common stock with an exercise price of $1.05.
          To the extent that the notes are not converted before maturity, the
          loans are payable in full when the Company determines it has
          sufficient working capital to do so.

                                       37
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

          In addition, in 2003, the Company obtained $34,047 from the officer of
          the Company. The note accrues interest at 5% and is due and payable on
          December 31, 2003. The note is convertible into any debt or equity
          offering made from time to time by the Company.

          The following is a summary of notes payable to stockholders as of June
          30, 2003.

                      Evans                        549,645
                      Officer Notes                 41,547
                      Other Stockholder Notes       50,000
                                                    ------

                                                  $641,012
                                                  ========

     (b)  Consulting Services and Wages

          Consulting fees were paid in 2002 to a director of the Company, Dr.
          John Kuo, totaling approximately $60,000.

     (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. No amounts
          are payable under these arrangements.

(3)  Income Taxes

     Federal income taxes reported by the Company differ from the amount
     computed by applying the statutory rate due primarily to an increase in the
     valuation allowance for 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, 2003:

           Deferred tax assets:
                Net operating loss carryforwards        $ 2,847,000
                Stock compensation                          306,000
                Research and experimentation credit         141,000
                   carryforwards
                                                        -----------
                            Gross deferred tax assets     3,294,000
           Less valuation allowance                      (3,294,000)
                                                        -----------
                            Net deferred tax assets     $      --
                                                        ===========

                                       38
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     The net increase in the valuation allowance for deferred tax assets was
     $385,000 and $475,000 for 2003 and 2002, respectively. The increases were
     primarily due to net operating loss carryforwards, the realization of which
     was uncertain.

     For federal income tax purposes, the Company has net operating loss
     carryforwards at June 30, 2003 available to offset future federal taxable
     income, if any, of approximately $8,373,529 which began to expire in 2003.
     In addition, the Company has research and experimentation tax credit
     carryforwards of approximately $141,000 at June 30, 2003 which are
     available to offset federal income taxes and began to expire in 2003.

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

     The effects of state income taxes were insignificant for 2003 and 2002.

(4)  Sale of Common Stock and Common Stock Purchase Warrants

     During the year ended June 30, 2002, the Company issued 672,000 shares of
     common stock and an equal number of warrants in connection with the sale of
     common stock. The warrants are exercisable at $1.00 per share until
     September 2006. Each share of common stock and warrant was sold for a total
     of $0.60. The total proceeds from sale of these securities, net of issuance
     costs, amounted to $362,958. Directors and related parties to the directors
     purchased a total of approximately 307,500 shares of common stock.
     Additionally, the Company issued 2,750 shares of common stock for the
     payment of rent.

     During the year ended June 30, 2003, the Company issued 480,386 shares of
     common stock, at a price of $0.70 per share, with an equal number of
     attached warrants. Each warrant entitles the holder to purchase one share
     of common stock at an exercise price of $1.05 per share until April 4,
     2007. The total proceeds from sale of these securities amounted to
     $336,272. As discussed in note 2(a), the note from officer in the amount of
     $15,000 was converted to 21,428 shares of common stock and an equal number
     of attached warrants described above in 2003.

(5)  Stockholders' Equity

     (a)  Stock Option Plan

     The Company has granted stock options to compensate key employees,
     consultants, and board members for past and future services. During 1999,
     the Company adopted a stock option plan (Plan). The Plan provides for both
     incentive and nonqualified 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.


                                       39
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     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, 2001          370,000      130,000        6.13
     Grants                           (135,000)     135,000        1.00
                                      --------      -------
     Balance at June 30, 2002          235,000      265,000        3.52
     Grants                           (100,000)     100,000        0.55
                                      --------      -------
     Balance at June 30, 2003          135,000      365,000        2.70
                                      ========      =======


     The following is a summary of stock options outstanding at June 30, 2003:

                               Options outstanding          Options exercisable
                      -----------------------------------  ---------------------
                                    Weighted
                                     average    Weighted                Weighted
                                    remaining    average                 average
                         Number    contractual   exercise    Number     exercise
     Exercise prices  outstanding  life (years)   price    exercisable    price
     ---------------  -----------  ------------   -----    -----------    -----
      $ 0.50 - 1.00     235,000       3.96        $ 0.81     235,000     $ 0.81
        2.00              5,000       2.67          2.00       5,000       2.00
        4.00             35,000       2.38          4.00      35,000       4.00
        5.00             25,000       4.33          5.00      25,000       5.00
        6.50             40,000       4.33          6.50      40,000       6.50
        10.50            25,000       4.33         10.50      25,000      10.50
                        -------                              -------
      $ 0.50 - 10.50    365,000       3.88          2.70     365,000       2.70
                        =======                              =======


     The Company applies APB Opinion No. 25 and related interpretations in
     accounting for option grants to employees.

     During 2003, the Company recorded stock compensation expense totaling
     $11,400 for the fair market value of 60,000 options granted to
     third-parties in exchange for services. The options were valued using the
     Black-Scholes option pricing model and the assumptions listed below.

     The weighted average fair value per share of the option grants made during
     the year ended June 30, 2003 was $0.24. The weighted average fair value of
     the warrant and option grants made during the year ended June 30, 2002 was
     $0.85.

     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 2003: expected volatility of 120%, risk free
     interest rate of 3.28%, expected lives of five years, and a 0% dividend
     yield. The weighted average assumptions used for grants in 2002: expected
     volatility of 120%, risk free interest rate of 5.25%, expected lives of 5
     years, and a 0% dividend yield.

                                       40
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     (b)  Warrants

     The Company has granted warrants to compensate key employees, consultants,
     and board members for past and future services, and as incentives during
     placements of stock.

     A summary of warrant-related activity follows:

                                               Number of           Weighted
                                              shares under         average
                                                warrants        exercise price
                                               ----------           -----
     Outstanding at June 30, 2001               1,300,000           $4.02

     Grants                                       882,000            1.01
                                                -------------------------
     Cancellations                               (150,000)           6.67
                                                ---------
     Outstanding at June 30, 2002               2,032,000            2.52

     Grants                                       516,817            1.04
     Exercises                                       --               --
                                                -------------------------
     Outstanding at June 30, 2003               2,548,817            2.22
                                                =========

     The following is a summary of warrants outstanding, all of which are
     exercisable at June 30, 2003:

                                                Weighted
                                                 average
                                                remaining        Weighted
                                  Number     contractual life     average
     Exercise prices           outstanding       (years)       exercise price
     ---------------           -----------       -------       --------------
      $0.55                        15,000          4.48            $ 0.55
       1.00 - 1.50              1,728,817          3.77              1.05
       3.00 - 3.50                530,000          4.33              3.27
       6.00                       100,000          0.33              6.00
       7.20                        65,000          4.33              7.20
       8.40                        90,000          4.33              8.40
       13.50                       20,000          4.33             13.50
                                ---------
       0.55 - 13.50             2,548,817          3.79              2.22
                                =========

     During 2003, the Company recorded expense related to warrants totaling
     $4,193 for the fair market value of 10,000 warrants granted to
     third-parties in exchange for services. The warrants were valued using the
     Black-Scholes option pricing model and the assumptions listed below.

     During 2002, the Company recorded stock compensation expense totaling
     $14,725 for the fair market value of 60,000 warrants granted to a third
     party in exchange for services. The warrants were valued using the
     Black-Scholes option pricing model and the assumptions listed below.

                                       41
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     The weighted average fair value per share of the warrant grants made during
     the year ended June 30, 2003 was $0.21. The weighted average fair value of
     the warrant and option grants made during the year ended June 30, 2002 was
     $0.85.

     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 2003: expected volatility of 120%, risk free
     interest rate of 3.28%, expected lives of five years, and a 0% dividend
     yield. The weighted average assumptions used for grants in 2002: expected
     volatility of 120%, risk free interest rate of 5.25%, expected lives of 5
     years, and a 0% dividend yield.

(6)  Operating Leases

     The Company leases office facilities in various states under operating
     lease agreements that expire during 2004. Future minimum rental payments as
     of June 30, 2003 on operating leases are $11,874 for 2004.

     Total rent expense under operating leases with third parties was $35,297
     and $86,786 during 2003 and 2002, respectively. Rent expense incurred under
     an operating lease with a related party was $0 and $1,250 during 2003 and
     2002, respectively.

(7)  Liquidity

     The Company's financial statements have been prepared assuming the Company
     will continue as a going concern. The Company has incurred cumulative
     losses of $9,293,538 through June 30, 2003 and had negative working capital
     of $1,117,430 as of June 30, 2003. These conditions raise substantial doubt
     about its ability to continue as a going concern.

     Additionally, the Company has expended a significant amount of cash in
     developing its technology and patented processes. Management recognizes
     that in order to meet the Company's capital requirements, additional
     financing will be necessary. The Company is evaluating alternative sources
     of financing to improve its cash position and is undertaking efforts to
     raise capital. If the Company is unable to raise additional capital or
     secure additional revenue contracts and generate positive cash flow, there
     can be no assurance that the Company will be able to continue as a going
     concern. The financial statements do not include any adjustments that might
     result from the outcome of this uncertainty.

     To reduce cash outflows, certain of the Company's employees, officers and
     directors have agreed to defer a portion of their salaries and consulting
     fees from August 2001 until the Company has sufficient resources to pay the
     amounts owed or to exchange such amounts into options as described below.
     The Company accrued approximately $255,658 and $111,500 at June 30, 2003
     and 2002, respectively, related to the deferred payment of the salaries and
     consulting fees which is included under accrued liabilities. On March 18,
     2002, the Board of Directors approved a right whereby for each dollar of
     deferred salary and fees, the employee, officer or director could exchange
     their deferred amount for an option to purchase two shares of common stock
     with a five-year term at an exercise price of $1.00 per share. No
     conversions have occurred to date. As there was no intrinsic value
     associated with these exchange rights, no additional compensation cost has
     been recorded.

     On June 19, 2003, the Board of Directors approved the offering of
     $1,000,000 in convertible debentures. The Debentures are convertible into
     that number of shares of the Company's common stock equal to the amount of
     the converted indebtedness divided by $0.50 per share. The Debentures bear

                                       42
<PAGE>

                           Profile Technologies, Inc.
                         Notes to Financial Statements
                             June 30, 2003 and 2002

     interest at a rate of 5% per annum, payable quarterly. The Company is
     required to redeem each Debenture on the 5th anniversary of the date of the
     Debenture. The Company may, in its discretion, redeem any Debenture at any
     time prior to the mandatory redemption date of the Debenture by providing
     no less than 60 days' prior written notice to the holder of the Debenture.

     Upon the purchase of, and for each $0.50 of the Debenture's principal
     amount, the Company will issue to an investor a warrant (the "Warrant") to
     purchase one (1) share of the Company's common stock at an exercise price
     of $0.75 per share. For example, if an investor executes a Debenture in the
     principal amount of $100,000, the Company will issue to such investor
     200,000 Warrants. The Warrants will be exercisable at any time prior to the
     5th anniversary date of the redemption of the Debenture. As of June 30,
     2003, the Company had not received any funds from this offering.

     As of September 26, 2003, the Company had raised $25,000 from this
     offering.

(8)  NASDAQ Delisting

     In June 2001, the Company announced that it received a NASDAQ Staff
     Determination indicating that the Company failed to comply with the minimum
     bid price and net tangible asset/shareholder equity requirements of the
     NASDAQ Marketplace Rules for continued listing set forth in Marketplace
     Rule 4310(c)(4), and that its securities were, therefore, subject to
     delisting from the NASDAQ SmallCap Market. On August 10, 2001, the NASDAQ
     Stock Market suspended trading in the Company's common stock. Effective
     Monday, August 13, 2001, the Company began trading on the Over the Counter
     Bulletin Board under the symbol PRTK.















                                       43
<PAGE>

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None.

Item 8A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms. The Company's executive officers, including the
Company's Chief Executive Officer, who also serves as Chief Financial Officer,
and the Chief Operating Officer, are responsible for establishing and
maintaining disclosure controls and procedures for the Company. These executives
have designed such controls to ensure that all material information related to
the Company is made known to them by others within the organization. As of June
30, 2003, the Company's Chief Executive Officer and Chief Operating Officer
completed an evaluation of the Company's disclosure controls and procedures and
have determined that such disclosure controls and procedures are functioning
properly and effectively. They did not discover any significant deficiencies or
material weaknesses within the controls and procedures that require
modification. There were no changes in the Company's internal control over
financial reporting identified in connection with the Company's evaluation that
occurred during the Company's fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                    PART III


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

     The information regarding directors contained under the caption "Proposal
One: Election of Directors" in the Company's Proxy Statement for the 2003 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission prior to October 28, 2003, is incorporated herein by reference.

     The information regarding executive officers who are not directors is set
forth in Item 1 of this Report under the caption "Executive Officers of the
Company."

     The information regarding reports required under Section 16(a) of the
Securities Exchange Act of 1934, as amended, contained under the caption
"Section 16(a) Beneficial Ownership Report Compliance" in the Company's Proxy
Statement for the 2003 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission prior to October 28, 2003, is
incorporated herein by reference.

                                       44
<PAGE>

Item 10. Executive Compensation

     The information contained under the caption "Executive Compensation" in the
Company's Proxy Statement for the 2003 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission prior to October 28,
2003, is incorporated herein by reference.


Item 11. Security Ownership of Certain Beneficial Owners and Management

     The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 2003
Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission prior to October 28, 2003, is incorporated herein by
reference.

Securities Authorized for Issuance Under Equity Compensation Plans.
-------------------------------------------------------------------

     The following table sets forth information concerning equity compensation
plans, including individual compensation arrangements, under which the Company
is authorized to issue equity securities.

<TABLE>
<CAPTION>

                                                                               Number of
                                                                               securities
                                                                               remaining
                                                                             available for
                                          Number of                         future issuance
                                       securities to be  Weighted-average     under equity
                                         issued upon      exercise price      compensation
                                         exercise of      of outstanding    plans (excluding
                                         outstanding         options,          securities
                                      options, warrants    warrants and       reflected in
                                          and rights          rights          column (a))
     -------------------------------- ------------------- ----------------  ----------------
                                             (a)                (b)               (c)
     -------------------------------- ------------------- ----------------  ----------------
<S>                                        <C>                 <C>              <C>
       Equity compensation plans           365,000             $2.70            135,000
     approved by security holders

     -------------------------------- ------------------- ----------------  ----------------

     Equity compensation plans not  1,195,000(1),(2),3),(4)    $3.70             N/A(5)
     approved by security holders

     -------------------------------- ------------------- ----------------  ----------------

                 Total                    1,560,000            $3.46            135,000

     -------------------------------- ------------------- ----------------  ----------------
</TABLE>

(1)  Consists of various grants of compensatory warrants, all of which were
     issued prior to the adoption of the Company's 1999 Stock Plan, which was
     recommended by the Board of Directors in October, 1998 and approved by the
     shareholders on November 16, 1998, except for the warrants issued to R.F.
     Lafferty & Co., Scott Meaker, and Dr. Charles Frost, as described in
     Footnote 2 below, and none of whom are officers or directors of the
     Company.

(2)  Consists of the following individual grants of compensatory warrants: (A)
     in March, 1996 and November, 1996, to Gale D. Burnett, compensatory
     warrants to purchase 210,000 shares at exercise prices ranging from $1.25
     to $3.00 per share (of which 50,000 warrants at an exercise price of $3.00
     per share were transferred to Henry Gemino in November, 1996), (B) in
     March, 1996, to Henry E. Gemino, compensatory warrants to purchase 250,000
     shares at exercise prices ranging from $1.25 to $3.00 per share, (C) in
     March, 1996 and November, 1996, to Allen Reeves, compensatory warrants to
     purchase 130,000 shares at exercise prices ranging from $1.25 to $7.20 per

                                       45
<PAGE>

     share, of which 15,000 shares have been exercised (at an exercise price of
     $1.25 per share), (D) in March, 1996 and November, 1996, to G. L. Scott,
     compensatory warrants to purchase 70,000 shares at exercise prices ranging
     from $1.25 to $7.20 per share, (E) in March, 1996 and November, 1996, to
     Dr. John T. Kuo, compensatory warrants to purchase 350,000 shares at
     exercise prices ranging from $3.00 to $7.20 per share, (F) in February,
     1998, to Joseph Galbraith, compensatory warrants to purchase 20,000 shares
     at an exercise price of $13.50 per share, (G) in November, 2000, to R.H.
     Lafferty & Co., compensatory warrants to purchase 100,000 shares at an
     exercise price of $6.50 per share, (H) in January, 2002, to Scott Meaker,
     compensatory warrants to purchase 50,000 shares at an exercise price of
     $1.00 per share, and (I) in March, 2002 and May, 2002, to Dr. Charles
     Frost, compensatory warrants to purchase 15,000 shares at an exercise price
     of $1.00 per share.

(3)  All of the compensatory warrants have fully vested, and none of the
     warrants that were issued to officers and directors of the Company will
     terminate if any such officer or director ceases to be employed by or to
     serve as a director of the Company. All of the warrants issued prior to
     February 12, 1997 are due to expire on October 31, 2004. The warrants
     issued: (A) to Joseph Galbraith on February 26, 1998, are due to expire on
     October 31, 2004, (B) to R.F. Lafferty & Co. on November 30, 2000, are due
     to expire on October 31, 2003, (C) to Scott Meaker on January 28, 2002, are
     due to expire on January 2, 2007, and (D) to Dr. Charles Frost, Marcy 6,
     2002 and May 13, 2002, are due to expire on February 15, 2005.

(4)  All of the compensatory warrants issued to the individuals as set forth in
     Footnote 2 above were issued by the Company in exchange for services
     provided by such individuals as executive officers and directors of the
     Company, except as follows: (i) the warrants issued to Allen Reeves as
     described in Footnote 2 above were issued in exchange for legal services
     provided to the Company by Mr. Reeves; and (ii) the compensatory warrants
     issued to R.F. Lafferty & Co., Scott Meaker and Dr. Frost, as described in
     Footnote 2, were issued in exchange for consulting services provided to the
     Company.

(5)  All of the equity compensation plans aggregated as explained in Footnote 2
     above represent individual compensation arrangements approved separately by
     the Board of Directors and are not part of any written or formal plan under
     which the Company will be obligated to issue equity compensation in the
     future.


Item 12. Certain Relationships and Related Transactions

     The information contained under the caption "Transactions with Affiliates"
in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission prior to October
28, 2003, is incorporated herein by reference.


Item 13. Exhibits and Reports on Form 8-K

(a)  Exhibits.              The following exhibits were filed with or
                            incorporated by reference into this report.

     Exhibit No.            Description of Exhibit
     -----------            ----------------------

     Exhibit 3.1            Articles of Incorporation (incorporated by reference
                            to Exhibit 3.1 to the Company's Registration
                            Statement on Form SB-2 filed with the Commission on
                            May 10, 1996).

                                       46
<PAGE>

     Exhibit No.            Description of Exhibit
     -----------            ----------------------

     Exhibit 3.2            Bylaws of the Company (incorporated by reference to
                            Exhibit 3.3 to the Company's Registration Statement
                            on Form SB-2 filed with the Commission on May 10,
                            1996).

     Exhibit 10.1           Service Agreement dated as of August 16, 2001
                            between Profile Technologies, Inc. and BP
                            Exploration(Alaska) Inc. (incorporated by reference
                            to Exhibit 10.1 to the Company's Annual Report on
                            Form 10-KSB filed with the Commission on September
                            28, 2001).

     Exhibit 10.2           Loan Agreement dated March 6, 2003, by and between
                            the Company and Murphy Evans (incorporated by
                            reference to Exhibit 4.1 to the Company's Quarterly
                            Report on Form 10-QSB filed with the Commission on
                            May 15, 2003).

     Exhibit 23.1           Consent of Independent Auditors.

     Exhibit 31.1           Certification of Henry E. Gemino, as Chief Executive
                            Officer and Chief Financial Officer of the Company,
                            pursuant to Section 302 of the Sarbanes-Oxley Act of
                            2002.

     Exhibit 31.2           Certification of Philip L. Jones, as Chief Operating
                            Officer of the Company, pursuant to Section 302 of
                            the Sarbanes-Oxley Act of 2002.

     Exhibit 32.1           Certification under Section 906 of the
                            Sarbanes-Oxley Act of 2002 by Henry E. Gemino, as
                            Chief Executive Officer and Chief Financial Officer
                            of the Company.

     Exhibit 32.2           Certification under Section 906 of the
                            Sarbanes-Oxley Act of 2002 by Philip L. Jones, as
                            Chief Operating Officer of the Company.

     Exhibit 99.1           Press Release dated June 25, 2003.

(b)    Reports on Form 8-K. The Company did not file a Form 8-K during the last
       quarter of its fiscal year 2003.



                                       47
<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/ Henry E. Gemino
                                         --------------------------------------
                                         Henry E. Gemino
                                         Chief Executive Officer
                                         and Chief Financial Officer


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

Signature                            Title                Date
---------                            -----                ----

/s/ Charles Christenson              Director             October 14, 2003
-----------------------
Charles Christenson


/s/ Murphy Evans                     Director             October 14, 2003
----------------
Murphy Evans


/s/ Henry E. Gemino                  Director             October 14, 2003
-------------------
Henry E. Gemino


/s/ William A. Krivskey              Director             October 14, 2003
-----------------------
William A. Krivskey


/s/ John Tsungfen Kuo                Director             October 14, 2003
---------------------
John Tsungfen Kuo





                                       48