FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended: December 31, 1995
Commission File Number: 1-8662
PROACTIVE TECHNOLOGIES, INC.
(formerly KEYSTONE MEDICAL CORPORATION)
(Exact name of registrant as specified in its charter)
Delaware 23-2265039
(State of Incorporation) (I.R.S. Employer ID No.)
7118 Beech Ridge Trail,
Tallahassee, Florida 32312
(Address of principal executive offices) (Zip Code)
(904) 668-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that registrant was to require such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes X No ____
The number of shares outstanding of registrant's common stock, par
value $.04 per share, as of May 10, 1996 was 11,562,712.
Transitional Small Business Disclosure Format (Check one)
Yes No X
PROACTIVE TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3-4
December 31, 1995 and June 30, 1995
Condensed Consolidated Statements of
Income for the Three Months and Six Months
Ended December 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 31, 1995 and 1994 6-7
Condensed Consolidated Statement of Changes in
Stockholders' Equity
December 31, 1995 and June 30, 1995 8
Notes to Condensed Consolidated Financial
Statements 9-11
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12-14
PART II OTHER INFORMATION
Item 1.Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15-16
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 June 30
1995 1995
(Unaudited) (Audited)
ASSETS:
Current Assets:
Cash and equivalents $71,023 $98,911
Marketable equity securities, net
284,224 559,005
Accounts receivable, net 72,514 110,081
Due from employees 3,175 4,625
Prepaid expenses 9,830 7,454
Deferred income tax asset, net
349,899 266,460
______________ ______________
Total Current Assets 790,665 1,046,536
Property and equipment, net
236,188 426,208
Deferred income tax asset, net
280,000 280,000
Other assets, net 8,836 10,763
______________ _______________
TOTAL ASSETS $1,315,689 $1,763,507
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 June 30
1995 1995
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable $-------- $200,000
Current portion of long term debt
21,010 21,010
Current portion of obligations
under capital leases 69,600 69,600
Accounts payable 51,987 219,103
Accrued expenses 104,581 117,596
Accrued salaries 13,481 179,461
Due to related parties 55,644 102,044
______________ _______________
Total Current Liabilities
316,303 908,814
Long term debt 95,190 105,407
Obligations under capital leases
16,947 47,801
______________ ________________
Total Liabilities 428,440 1,062,022
Stockholders Equity:
Common stock 81,137 88,217
Capital in excess of par value
28,582,215 27,989,381
Accumulated deficit (27,776,103) (27,376,113)
_______________ ________________
Total Stockholders' Equity 887,249 701,485
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,315,689 $ 1,763,507
See Accompanying Notes to Condensed Consolidated Financial Statements
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Six Months
Ended Ended
December 31, December 31,
1995 1994 1995 1994
Net Sales $325,963 $579,133 $683,399 $985,016
Cost of sales 63,850 69,296 141,359 151,803
Selling, general and administrative expenses
378,296 417,946 658,429 623,691
Income (loss) from operations
(115,183) 91,891 (116,389) 209,522
Other Income (deductions)
Interest expense
(10,633) (6,123) (26,604) (12,421)
Interest income
1,869 4,377 5,677 9,795
Loss on sale of assets
- - - 75,000
Income (loss) from continuing operations before income taxes
(69,724) 159,175 (408,469) 421,365
Income tax (expense) benefit
(35,917) (24,459) 78,393 (53,735)
Net income (loss) from continuing operations
(105,641) 134,716 (330,076) 367,630
Loss from operations of discontinued
Proactive Solutions, Inc.
(23,401) - (69,914) -
Net income (loss)
(129,042) 134,716 (399,990) 367,630
Net income (loss) per share
(.059) .063 (.182) .175
Weighted average number of shares outstanding
2,201,807 2,128,486 2,203,617 2,094,610
See Accompanying Notes to Condensed Consolidated Financial
Statements
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in Cash
(UNAUDITED)
Six months ended
December 31
1995 1994
Cash Flows From Operating Activities:
Net Income (Loss) $(399,990) $367,630
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 45,000 48,481
Loss on sale of assets 964
Loss on sale of marketable equity securities
46,922
Unrealized loss (gain) on marketable
equity securities 224,231 (140,433)
Current expenses paid with common stock
49,750 -----
Deferred tax (benefit) expense
( 83,439) 53,735
Decrease (increase) in accounts receivable
37,567 (19,248)
(Increase) decrease in prepaid expenses
( 3,631) 6,758
(Increase) decrease in other assets
( 400) 43
Decrease in accounts payable ( 41,879) (60,466)
Increase (decrease) in accrued expenses
44,883 ( 59,062)
Increase in accrued salaries 13,481 ------
Increase in due to related parties
95,100 ------
Net Cash provided by Operating Activities
27,595 198,402
Cash Flows from Investing Activities:
Purchases of property and equipment
------ (69,050)
Purchases of marketable equity securities
( 10,906) (324,410)
Capitalized software expenditures
( 12,362) (502,517)
Cash to discontinued operations
( 6,977) -----
Proceeds from sale of investments
14,533 44,139
Net Cash used in investing activities
( 15,712) (851,838)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock
----- 532,000
Repayment of obligations under capital leases
( 30,854) ( 31,750)
Principal payment on long-term debt
( 10,217) -----
Loan to employees 1,300 4,550
Net Cash (used in) provided by
financing activities ( 39,771) 504,800
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(UNAUDITED)
(Continued)
Six months ended
December 31
1995 1994
Net Decrease in Cash and Cash Equivalents
( 27,888) (148,636)
Cash and Cash Equivalents, Beginning of Period
98,911 611,038
Cash and Cash Equivalents, End of Period
$ 71,023 $ 462,402
Supplemental Disclosure of Cash Flow
Information:
Cash Payments of:
Interest
$ 12,550 $ 12,421
Income Taxes
$ ------ $ ------
Non-cash investing and financing activities:
Reacquire common stock in exchange for
assets and liabilities of Proactive
Solutions, Inc. 279,754 -----
Cancel common stock received
15,000 -----
Issue stock in payment of debt
306,000 -----
See Accompanying Notes to Condensed Consolidated Financial Statements
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
Capital In
Excess of Total
Common Stock Par Accumulated Stockholders'
Shares Amount Value Deficit Equity
Balance
June 30, 1994
2,055,288 $ 82,211 $27,317,250 ($23,511,876) $ 3,887,585
Exercise of Common
Stock options
150,139 6,006 672,131 678,137
Net Loss for Year - - (3,864,237) (3,864,237)
Balance
June 30, 1995
2,205,427 88,217 27,989,381 (27,376,113) 701,485
Common stock
issued for debt
extinguishment
198,000 7,920 298,080 306,000
Reacquired and canceled
stock from dissolution of
Proactive Solutions, Inc.
( 375,000) (15,000) 294,754 279,754
Net Loss for
the Six Months
ended December 31,
1995 (399,990 ) (399,990 )
Total as of
December 31,1995
2,028,427 $ 81,137 $28,582,215 ($27,776,103) $887,249
See Accompanying Notes to Condensed Consolidated Financial
StatementsPROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1)Basis of Financial Presentation
The accompanying unaudited consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
The accompanying consolidated financial statements and related notes
should be read in conjunction with the audited financial statements of
Proactive Technologies, Inc. (the "Company"), and notes thereto, as
found in Form 10-KSB for the fiscal year ended June 30, 1995. A copy
of such consolidated financial statements and notes thereto may be
obtained by writing to the Company. The information furnished
reflects, in the opinion of management, all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the
results of the interim periods presented. The results of operations
for the interim periods are not indicative of the results to be
expected for the full year.
(2)Chapter 11 Bankruptcy
As was reported on Form 8-K which was filed on September 13, 1995, the
Company, along with two operating subsidiaries, Keystone Laboratories,
Inc. ("KLI") and Proactive Solutions, Inc. ("PSI"), was voluntarily
placed under the protection of the United States Bankruptcy Court for
the Northern District of Oklahoma (the "Court") on September 1, 1995,
under Chapter 11 of the United States Bankruptcy Code. On November
21, 1995, the Court confirmed the Equity Security Holders' Plan of
Reorganization (the "Plan"), one result of which is PSI is no longer a
subsidiary of the Company. The Company transferred all assets and
liabilities of PSI to the former shareholders of PSI in exchange for
the return of the original shares of the Company issued upon the
acquisition of PSI. The Company canceled these returned shares in
December of 1995. In connection with the confirmation of the Plan, the
Court dissolved the order administratively consolidating the Company's
Chapter 11 proceeding with the Chapter 11 proceeding of PSI.
Under the Plan, primarily all the Company's creditors will be paid in
full within six months of the effective date of the Plan. Some of
these creditors were paid in December of 1995 with the issuance of the
Company's common stock. The remaining creditors were paid in January
of 1996. Under the Plan, the Company will be authorized to issue a
total of sixty million (60,000,000) shares of common stock. In
addition, certain classes of current stockholders of the Company will
receive warrants entitling them to purchase shares of the Company's
common stock at a price of $.50 per share ($2.00 per share after the
reverse stock split) for a period of six months in exchange for the
release of their respective shareholder claims against the Company.
Finally, the Company's remaining operating subsidiary, KLI, whose
separate Chapter 11 bankruptcy petition was dismissed without
prejudice by the Court on September 25, 1995, continues to operate its
forensic urine drug screening and confirmatory testing laboratory in
Asheville, North Carolina.
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(continued)
(3) Subsequent Events
- Reverse Stock Split
A one for four reverse stock split of the Company's common stock was
approved through written consent by the holders of 51.28% of the
outstanding shares of the Company and became effective January 31,
1996. This decreases the number of issued and outstanding shares of
common stock by 75%, and will increase the par value of each such
share from $0.01 to $0.04. All references in the accompanying
consolidated financial statements to the number of common shares, par
value per share and other per share information have been restated to
give retroactive effect to the one for four reverse stock split for
all periods presented.
- Acquisitions
On February 10, 1996, the Company entered into an agreement to
incorporate a wholly-owned subsidiary called Decocrete Worldwide, Inc.
("Worldwide") for the purpose of purchasing the net assets of
Decocrete International, Inc. ("International") for the purchase price
of $72,000 plus twenty percent (20%) of the common stock of Worldwide.
Subsequent to the acquisition, International is to be dissolved with
its remaining assets (the purchase price paid by Worldwide) being
distributed to its shareholders. The net after-tax profits of
Worldwide are to be allocated as follows: sixty percent (60%) to the
Company and forty percent (40%) to Worldwide's minority shareholders.
Next, as reported on Form 8-K which was filed on February 22, 1996, on
February 12, 1996, the Company acquired all of the issued and
outstanding shares of common stock of Capital First Holdings, Inc. and
its subsidiaries ("Capital") from Mark A. Conner in exchange for a
total of 8,559,077 (approximately eighty percent (80%)) of the issued
and outstanding shares of common stock of the Company. In connection
with the acquisition of Capital which was accounted for as a purchase
transaction, the number of shares of the Company's common stock issued
as consideration could be increased by a maximum of 5,827,250 shares
depending on the total amount of proceeds received through the
exercise of warrants for the purchase of the Company's common stock
discussed above. Finally in connection with this acquisition, Mr.
Conner was also elected Chairman of the Board and President and Chief
Executive Officer of the Company pursuant to a five year employment
agreement.
Capital is a real estate developer in Florida which designs and
develops single-family subdivisions for residential lots and
condominiums principally in the Tallahassee, Leon County and Vero
Beach areas. For the twelve (12) month period ended December 31,
1995, Capital generated approximately $31,826,000 in revenues and
approximately $2,589,000 in net income before tax. As of December 31,
1995, Capital owned approximately $22,972,000 in total assets. The
results of the operations of Capital will be included with the results
of the Company beginning February 12, 1996.
The Consolidated pro forma Condensed Balance Sheet which follows
assumes that the acquisition of Worldwide and Capital had occurred as
of September 30, 1995.
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(continued)
December 31, 1995
(Unaudited)
Current Assets $21,741,515
Property and Equipment 1,257,958
Other Assets 1,338,128
___________________
TOTAL ASSETS $24,337,601
Current Liabilities $3,765,976
Non-current liabilities 15,214,778
Stockholders' Equity 5,356,847
___________________
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $24,337,601
The consolidated pro forma condensed income statement which follows
assumes that the acquisition
of Worldwide and Capital had occurred at the beginning of each period
presented. The calculations include adjustments for depreciation,
amortization and interest. The weighted number of shares assumes that
the reverse stock split has occurred and the 8,559,077 shares have
been issued to Mark A. Conner.
Six Months Year
Ended Ended
December 31, June 30,
1995 1995
(Unaudited) (Unaudited)
Revenues $ 16,984,542 $ 31,727,791
Net Income (Loss) $ 1,915,753 ($ 3,055,009)
Net Income (Loss) per share
$.18 ($0.29)
Weighted Average Number of Shares
10,762,694 10,704,544
The pro forma statements presented above are not necessarily
indicative of what actually would have occurred if the acquisitions
had been in effect for the entire periods presented. In addition they
are not intended to be a projection of future results.
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company had two subsidiaries for the periods included in this
report; Keystone Laboratories, Inc. ("KLI") and Proactive Solutions,
Inc. ("PSI"). KLI is a wholly-owned subsidiary of the
Company and operates a urine drug screening laboratory in Asheville,
North Carolina. Approximately 90% of the Company's drug testing
customers are located in the mid-South region and many of them are in
the textiles and furniture manufacturing industries.
PSI, based in Tulsa, Oklahoma, is a company still in the product
development stage which has yet to actually commence operations. As
mentioned above, as a result of the confirmation by the Court of the
Equity Holders' Plan of Reorganization on November 21, 1995, PSI is no
longer a subsidiary of the Company. For the periods included in this
report, PSI was developing computer software for business management
and project management and the resulting losses from these endeavors
were recorded as losses from discontinued operations for the three
months and six months ended December 31, 1995.
Results of Operations
Six months and three months ended December 31, 1995 compared to six
months and three months ended December 31, 1994.
Operating revenues were $683,399 for the six months ended December 31,
1995 as compared to $985,016 for the same period in fiscal year 1995.
Operating revenues were $ 325,963 for the three months ended December
31, 1995, as compared to $ 579,133 for the same period in fiscal year
1995. Operating revenues were generated by KLI, whose operating
revenues are cyclical in nature; KLI normally experiences higher sales
volumes in the first and fourth fiscal quarters. Prices for KLI's
services have remained stable during the first six months of fiscal
1996 and vary on a customer basis depending upon such factors as the
number of tests received to process, who does the physical collection
of the specimens, and how many samples are shipped to KLI in one
batch. The reduction in revenues is attributable to a reduction in
the number of samples processed during the six months and the three
months ended December 31, 1995.
Cost of sales decreased to $141,359 for the six months ended December
31, 1995 from $151,803 for the six months ended December 31, 1994.
Cost of sales decreased to $62,850 for the three months ended December
31, 1995 from $69,296 for the three months ended December 31, 1994.
The decreases for the six month and three month periods are due
primarily to a decreased volume of laboratory tests being performed by
KLI.
Selling, general and administrative expenses increased to $658,429 for
the six months ended December 31, 1995 from $623,691 for the same
period in fiscal 1995. This increase was due primarily to legal and
accounting fees related to the bankruptcy proceeding during the first
quarter of fiscal 1996 offset by a reclassification of PSI expenses to
discontinued operations. Selling, general and administrative expenses
decreased to $378,296 for the three months ended December 31, 1995 as
compared to $417,946 for the same period in fiscal 1995. This
decrease was primarily due to PSI expenses being reported as
discontinued operations.
Other income and deductions decreased to a loss of $292,080 for the
six months ended December 31, 1995 compared to a gain of $211,843 for
the six months ended December 31, 1994. This decrease was primarily
attributable to the following three factors. In the six months ended
December 31, 1994 $75,000 in other income was of a non-recurring
nature. At December 31, 1995 the Company recorded an unrealized loss
on marketable equity securities of $224,231 compared to an unrealized
gain of $140,433 at December 31,1994. These unrealized gains and
losses are attributable to an adjustment of the book value of the
marketable equity securities to the market value for each reporting
period. Also, for the six months ended December 31, 1995 the Company
had a realized loss on the sale of marketable equity securities of
$46,922. Other income and deductions decreased to income of $45,459
for the three months ended December 31, 1995 from income of $67,284
for the same period in fiscal 1995. The decrease was due primarily to
the unrealized gain on marketable securities of $101,145 offset by a
realized loss on marketable securities of $46,922 for three months
ended December 31, 1995 and compared to an unrealized gain on
marketable equity securities of $69,030 for the same period in fiscal
1995.
Financial Condition
The primary source of working capital currently available to the
Company is generated from the operations of KLI. For the six months
ended December 31, 1995, the Company experienced a net decrease in
cash of $ 27,888 which is primarily attributable to capitalized
software expenditures and purchases of marketable equity securities.
Total assets decreased $447,818 from June 30, 1995 to December 31,
1995 primarily due to the following factors: a decrease of $274,781 in
the value of marketable equity securities which consisted of a
$224,232 reduction in market value and a $50,549 reduction due to
sales of securities offset by purchases; and an increase of $83,439 in
the deferred income tax asset and all the assets of PSI in the amount
of $168,091 were transferred back to the original PSI shareholders.
The total liabilities decreased $633,582 from June 30, 1995 to
December 31, 1995. The decrease was primarily due to all of the
liabilities of PSI in the amount of $447,846 being transferred back to
the original PSI shareholders and $256,250 of debt being paid off by
the issuance of common stock.
Liquidity
The Company believes that, for the foreseeable future, funds from the
operations of KLI will be sufficient to support its current
operations. KLI plans to continue to follow its policy of generating
cash flows from its internal operations without the necessity of
borrowing funds from external sources. The proceeds from the exercise
of warrants issued in the bankruptcy plan should produce sufficient
cash flow to pay the Company's remaining creditors under the
bankruptcy plan. PSI, being a developmental company with operating
expenses and no income, has been a cash drain on the Company's
resources. Therefore the divestiture of PSI in November 1995,
pursuant to the bankruptcy plan, should improve the
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Company's cash outlook.
As a result of the acquisitions of Capital and Worldwide (See Footnote
2 - Acquisitions) along with the continued operations of KLI, it is
anticipated that the overall sales and net income of the Company will
increase significantly in the near future. The Company intends to
concentrate its future efforts on expanding the volume of business of
KLI and developing the business of Capital and Worldwide. The Company
is continuing to explore other possible acquisitions which will
complement its existing businesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As was discussed above in ITEM 2 of the Notes to the financial
statements, on September 1, 1995, the Company along with its two
subsidiaries at the time, KLI and PSI, voluntarily filed for
protection under Chapter 11 of the United States Bankruptcy Code with
the United States Bankruptcy Court for the Northern District of
Oklahoma. On November 21, 1995 the court confirmed the Equity
Security Holders' Plan of Reorganization. The information contained
in that discussion therein is incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
The bankruptcy court ordered that a summary of the Disclosure
Statement and Plan of Reorganization, along with a ballot for voting
be mailed to all shareholders; there were 8,221,285 shares voted to
accept the Plan, and 1,080 shares voted to reject the Plan.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
The following reports on Form 8-K were prepared and filed during the
quarter ended December 31, 1995:
(1) November 21, 1995: The Company announced it had entered into a
definitive agreement with Capital First Holdings, Inc. and that it had
recently filed its preliminary application for listing on the American
Stock Exchange. The Company announced that it, along with KLI and
PSI, had filed a petition under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Oklahoma on September 1, 1995 (as previously reported on
Form 8-K filed September 13, 1995), and that the Court had confirmed
the Equity Security Holders' Plan of Reorganization on November 21,
1995.
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROACTIVE TECHNOLOGIES, INC.
(Registrant)
Date: May ____, 1996
By: /s/ Mark A. Conner
Mark A. Conner, President,
and Chief Executive Officer
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROACTIVE TECHNOLOGIES, INC.
(Registrant)
Date: May ___, 1996
By:__________________________________
Mark A. Conner, President,
and Chief Executive Officer
