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: September 30, 1996
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 November 13, 1996 was
14,803,018.
Transitional Small Business Disclosure Format (Check one):
Yes ________ No ___X____
Page 1
PROACTIVE TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Introduction 3
Item 1. Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets 4
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of
Income for the Three Months
Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
EXHIBIT INDEX 14
Page 2
Introduction
As reported on Form 10-QSB on October 15, 1996 and on Form 8-K filed
on February 12, 1996 (conforming copy filed on EDGAR on October 6, 1996),
and Form 8-K/A filed (electronically) on October 10, 1996, on February 12,
1996, Proactive Technologies, Inc. ("PTE") acquired 100% of the issued and
outstanding common stock of Capital First Holdings, Inc. ("Capital First").
In connection with the preparation and audit of PTE's financial statements
for the fiscal year ending June 30, 1996, it was determined that such a
transaction was a reverse acquisition, and would be treated, for financial
reporting purposes, as the acquisition of PTE by Capital First. Under this
treatment as a reverse acquisition, the historical information is that of
Capital First. To be consistent with the reporting of the Form 10-KSB as a
reverse acquisition, this Form 10-QSB for the three months ending September
30, 1996 contains financial information for Capital First for the three
months ending September 30, 1995 since comparisons to the three months ending
September 30, 1995 reported in Form 10-QSB filed May 17, 1996 (conforming
copy filed on EDGAR on October 12, 1996) are not applicable.
Page 3
<TABLE>
ITEM I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000's)
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
ASSETS:
Real estate inventories $36,185 $22,491
Cash and equivalents 585 271
Property and equipment, net 1,757 1,338
Deferred income taxes 294 284
Other assets 3,411 251
Investments 2,983 2,714
Notes Receivable 4,790 1,117
______________ _____________
TOTAL ASSETS 50,005 28,466
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable $ 23,543 $17,709
Accounts payable and accrued expenses 966 1,108
Income taxes payable 1,486 1,099
Deferred revenue 1,467 824
Deferred compensation payable 439 559
Customer deposits 768 740
______________ ____________
Total Liabilities $ 28,669 22,039
Minority Interest $ 51 59
Stockholders' Equity:
Common stock - par value $.04
per share; authorized 60,000,000
shares; issued 14,803,018 $ 674 496
Paid-in capital 19,045 5,317
Retained earnings 1,566 555
________ ______
Total Stockholders' Equity 21,285 6,368
________ _____
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 50,005 $ 28,466
======= ======
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
Page 4
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(000's) except for per share and number of shares information
<CAPTION>
Three Months Ended
September 30
1996 1995
<S> <C> <C>
Net sales $ 6,109 $ 7,331
Cost of sales 3,822 6,087
Selling, general and administrative
expenses 586 999
____________ __________
Income from operations 1,701 245
Other Income (deductions):
Interest (expense) (365) (927)
Other income, net 107 (69)
Minority Interest (21) 0
____________ ___________
Income (loss) from continuing operations
before income taxes 1,422 (751)
_____________ __________
Income tax expense 411 0
_____________ __________
Net income (loss) $ 1,011 $ (751)
============= ============
Net income (loss) per common and
common equivalent share -
primary and fully diluted $ .07 (.06)
============= ============
Adjusted shares outstanding
primary and fully diluted 14,306,142 10,739,405
============= ============
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
Page 5
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three months ended
September 30
1996 1995
(000's)
<S> <C> <C>
Net Cash (used in) provided by
operating activities $ (480) $ 1,362
__________ ________
Cash Flows from Investing Activities
Distribution from real estate ventures 21 0
Investment in real estate ventures 2 0
Purchase of investments in equity securities (66) 0
Purchase of property and equipment (294) (1)
Acquisitions of businesses net of cash 84 0
__________ ________
Net Cash used in investing activities (253) (1)
__________ ________
Cash Flows from Financing Activities:
Proceeds from exercise of stock warrants 890 0
Proceeds from issuance of notes payable 1,616 2,101
Repayments of amounts borrowed (1,644) (3,466)
__________ _________
Net Cash provided by (used by)
financing activities 862 (1,365)
__________ _________
Net Increase (Decrease) in Cash
and Cash Equivalents 129 (4)
__________ _________
Cash and Cash Equivalents, Beginning of Period 154 179
__________ _________
Cash and Cash Equivalents, End of Period $ 283 $ 175
========== =========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
Page 6
Notes to Condensed Consolidated Financial Statements
(1) Basis of Financial Presentation
On February 12, 1996, Proactive Technologies, Inc. ("PTE" or the
"Company") acquired 100% of the outstanding common stock of Capital First
Holdings, Inc. ("Capital First") in a reverse acquisition in which Capital
First's sole shareholder acquired voting control of the Company. The
acquisition was accomplished through the issuance of approximately 8,559,000
shares of PTE stock which represented approximately 80% of the voting stock
of PTE immediately after the transaction. For accounting purposes, the
acquisition has been treated as a recapitalization of Capital First with
Capital First as the acquiror. The historical financial statements prior to
February 12, 1996 are those of Capital First. As a result of the
acquisition, Capital First effectively changed its accounting year end to
June 30 from December 31. Capital First is a developer of residential
subdivisions with its principal operations in Tallahassee, Florida. Pro
forma financial information is not provided since the continuing operations
Capital First acquired from PTEK (i.e., Keystone Laboratories, Inc.) are
insignificant.
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 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 period presented. The accompanying consolidated financial
statements and related notes should be read in conjunction with the audited
financial statements of Capital First Holdings, Inc. (the "Company"), and
notes thereto, as found in Form 8-KA for the year ended December 31, 1995,
and the Company's Form 10-KSB for the six months ended June 30, 1996. A
copy of such consolidated financial statements and notes thereto may be
obtained by writing to the Company.
(2) Acquisitions
Effective August 12, 1996, the Company acquired all of the voting
common stock of Flowers Properties, Inc., Highland Properties, Construction
Company, Inc., and Barrier Dunes Development Corporation in exchange for
approximately 2,565,000 shares of PTE common stock with a stated value of
$3.50 per share. Under the agreement, the number of shares may be adjusted
in the event the quoted market price of the shares at December 31, 1996 is
less than $3.50 per share and a final audited reconciliation of a current
net asset value of at least $8,977,500 exists. The Company is required to
issue such additional shares as necessary for the aggregate value of the
total shares to approximate the original purchase price. The purchased
corporations operations principally consist of land development in Middle
and South Georgia, and Cape San Blas, Florida. The land owned by these
corporations has been added to the land inventory of the Company. This
acquisition will be accounted for under the purchase method of accounting.
Effective September 16, 1996, the Company acquired eighty two per cent
Page 7
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(continued)
(82%) of the issued and outstanding shares of QuinStone Industries, Inc. In
exchange for 750,000 shares of PTEK voting common stock. Additionally, the
Company has agreed to file a registration statement within the next year in
order to register the shares issued under the agreement and is contingently
obligated to issue an additional 225,000 shares of restricted stock should
this registration not occur. QuinStone Industries is a manufacturer of
synthetic stone and marble fixtures with a plant located in Quincy, Florida.
This acquisition will be accounted for under the purchase method of
accounting.
During April, 1996, the Company acquired for investment purposes
approximately 8.1% of the issued and outstanding shares of Killearn
Properties, Inc.(AMEX "KPI"). KPI is in the business of real estate
development in the Stockbridge, Georgia area. The Company filed its Schedule
13D regarding this event on April 25, 1996. In May 1996, PTEK proposed a
transaction with KPI whereby KPI would exchange certain assets (consisting
of a golf course and country club, a newly constructed inn and certain
joint venture interests, which would be placed in a newly formed wholly-
owned subsidiary of KPI) to KPI's then Chairman of the Board and Chief
Executive Officer, for his approximate 42% ownership interest in KPI, or
551,321 shares of KPI voting common stock. In connection with this proposed
transaction, PTEK would loan KPI $2 million dollars, which would be used to
facilitate the transfer of the assets. During August 1996, PTE acquired
approximately 85,950 additional shares of KPI stock, increasing its
ownership interest in KPI to approximately 22%. On July 29, 1996, PTE
proposed to KPI's Board of Directors that PTEK be retained to provide sales
personnel and sales training techniques in order to improve the sales of
residential lots. In addition, PTE proposed that KPI's board include two
additional representatives of PTE. On July 31, 1996, KPI's Board of
Directors approved the transaction and the PTE proposals, and an agreement
was entered into on August 2, 1996 between KPI and KPI's Chairman. The
split-off transaction was voted upon and approved at KPI's shareholders'
meeting held on September 30, 1996. At the Board meeting following the
shareholders' meeting, Mark A. Conner was named Chairman of the Board of
KPI. Additionally, Mark A. Conner, President of the Company, was elected to
the KPI Board of Directors, and Langdon S. Flowers, Jr., and Robert E.
Maloney, Jr. were named as Directors of KPI. After completion of the
proposed split-off and the return of the 551,321 to KPI's treasury, PTE's
holdings in KPI will be increased to approximately 35%.
(3) Debt
As a result of the Flowers acquisitions noted above, the Company assumed
notes payable in the approximate aggregate amount of $7,000,000, which are
secured by the land owned by the three Flowers entities.
Further, on August 20, 1996, the Company borrowed $875,000 from lenders
to finance the acquisition of some land in Tallahassee, which the Company
intends to develop.
Page 8
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(continued)
(4) Subsequent Events
On November 1, 1996, J.T. Williams, Jr., President of Killearn
Properties, Inc. (AMEX: KPI)resigned his position as President and the KPI
Board named Mark A. Conner as President and Chief Executive Officer. The
Company anticipates the closing of the transaction with KPI and Williams to
be on November 16, 1996, or shortly thereafter.
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On February 12, 1996, Proactive Technologies, Inc. ("PTEK")acquired
100% of the outstanding common stock of Capital First Holdings, Inc.
("Capital First") in a reverse acquisition in which Capital First's sole
shareholder acquired voting control of the Company. For financial reporting
purposes, the transaction is treated as the acquisition of PTEK by Capital
First. Accordingly, the historical results of operations and financial
position are those of Capital First and include the accounts of PTEK from
February 12, 1996. As a result of the acquisition, Capital First
effectively changed its accounting year end to June 30 from December 31.
Worldwide, a manufacturer of decorative concrete, became an 80% owned
subsidiary of the Company on February 10, 1996. On September 30, 1996, the
Company purchased 15% of the remaining Worldwide stock from Garat Oates,
bringing its ownership percentage to 95%. Included in this report is the
September 30, 1996 Balance Sheet of Worldwide and the results of operations
from July 1, 1996 to September 30, 1996. Sixty percent of the net income
(loss) is included in the Company's results of operations with
the remaining forty percent allocated to Worldwide's minority shareholders.
QuinStone Industries, Inc., ("QuinStone") a manufacturer of synthetic
building products, became an 82% owned subsidiary of the Company on
September 9, 1996. Included in this report is the September 30, 1996
balance Sheet of QuinStone and the results of operations from September 9,
1996 to September 30, 1996.
Results of Operations
Three months ended September 30, 1996 compared to three months ended
September 30, 1995.
Net sales decreased $1,222,000, or 16.67% from the first three months
of 1995 to the first three months of 1996. This decrease is due to several
factors. First, sales of approximately $550,000 from the Golden Eagle
Country Club for membership fees, restaurant sales, and other income were
included in the September 30, 1995 figures. The Country Club was sold
in October of 1995 and is no longer an asset of the Company. Further,
September 30, 1995 figures contained condominium sales of $1,500,000 from a
project which has sold out.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
continued
Cost of Sales decreased $2,265,000, or 37.2%, during the three month
period ended September 30, 1996, over the same period in 1995, which was due
primarily to a gross profit margin of approximately 61% with regard to the
sale of the commercial property in the Piney Z for $3,500,000. The
Company has a 67% ownership in Piney Z, which translates to $2,345,000 in
revenue with a basis of $900,000. Lots sales profit margins remained
fairly constant at 20% to 21% between the three month periods ending
September 30, 1996 and 1995. Said profit margin between 19% and 21% is
expected to be maintained assuming no great fluctuations in the current
interest rates.
Selling, general, and administrative ("SG&A") expenses decreased
$413,000, during the three months ended September 30, 1996 as compared to
the three months ended September 30, 1995. Management attributes this cost
decrease to two primary factors: First, for the three months ended September
30, 1995, Golden Eagle Country Club, no longer a part of the Company, had
SG&A expenses of approximately $740,000. Remaining SG&A expense was about
3.6% of sales. SG&A for the three months ended September 30, 1996 were
about 9.6%, fairly constant with necessary additional professional and other
administrative fees associated with being a public corporation.
Interest expense decreased $562,000 or 60.6%, primarily due to the
reduction in overall debt, and the acquisition of new debt which is now
capitalized.
Other income was up $176,000 at September 30, 1996 from September 30,
1995. This increase includes $80,000 in utility rebates from the City of
Tallahassee. Also, During the three months ended September 30, 1995, the
Company recorded an approximate $63,000 loss from the sale of Northhampton
Office Park in August 1995.
Liquidity
The Company believes that, for the foreseeable future, funds from the
Company's operations will be sufficient to support its current operations.
As a result of the acquisitions by Capital First and of Worldwide and
QuinStone, along with the sale of Keystone, 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 Capital First in Tallahassee and Vero
Beach, Florida areas and of developing the businesses of Worldwide and
QuinStone. The Company's investment in Killearn Properties, Inc. will allow
the Company to expand into the Atlanta area. The Company is continuing to
explore other possible acquisitions in construction-related industries which
will complement its existing businesses, as well as to search out other
areas for residential and commercial development in other areas.
Financial Condition
Total assets increased a net total of $21,539,000 from December 31,
1995 to September 30, 1996; Real estate inventories increased $13,694,000
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
continued
primarily due to the Flowers acquisitions which brought $ 15,000,000 into
the land inventories. Notes receivable increased $3,673,000 from $1,117,000
at June 30, 1996 to $4,790,000 at September 30, 1996. The bulk of this
increase is due primarily the following factors: a $1,500,000 one year note
from the sale of the Piney Z commercial property; approximately $1,300,000
in subscriptions receivable for the issuance of stock pursuant to warrants
to raise capital; and approximately $800,000 was acquired onto the books of
the Company from the Flowers transaction. Other assets increased greater
than $3,000,000, due to the addition of QuinStone Industries, including
approximately $2,750,000 in goodwill. Investments increased approximately
$269,000 as a result of the acquisition of additional shares of Killearn
Properties, Inc. (AMEX:KPI), bringing its total investment to 21.9% of the
total issued and outstanding shares of KPI.
Total liabilities increased $5,834,000 from June 30, 1996 to September
30, 1996, primarily due to the following factors: The Flowers acquisitions
brought an additional $7,000,000 in notes payable to the books of the
Company; a net decrease of approximately $1,600,000 in notes payable as a
result of payment on overall debt; a net increase in income taxes payable of
$387,000 to $1,486,000 at September 30, 1996 from $1,099,000 at June 30,
1996; Deferred Compensation payable decreased $120,000 to $439,000 at
September 30, 1996 from $559,000 at June 30, 1996 due to a distribution.
Total Shareholders' equity increased $14,917,000 to $21,285,000 at
September 30, 1996 from $6,368,000 at June 30, 1996. The increase was due
primarily to the increase in paid in capital as a result of the issuance of
common stock upon exercise of warrants as well as the Flowers acquisition
Management hopes to continue to grow this business as well as its
manufacturing division through its acquisitions of Decocrete and QuinStone,
and will continue to look explore other possible acquisitions to complement
its existing businesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 4. Submission of Matters to a Vote of Security Holders
On February 12, 1996 in a Consent to Action in lieu of a special
meeting of shareholders of Proactive Technologies, Inc., the holders of a
majority of shares of voting stock agreed to elect the following directors
of the corporation: Mark A. Conner, Chairman of the Board, Joel C. Holt, and
Robert Maloney. The directors then elected Mark A. Conner President and
Chief Executive Officer of the Company. Joel C. Holt subsequently resigned
his position as a Board of Director.
Page 11
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 or Form 8-K/A were prepared and
filed during the quarter ended September 30, 1996:
(1) September 26, 1996: 8-K: The Company engaged Coopers & Lybrand LLP,of
Atlanta, Georgia as its new certifying accountant. The engagement was due
to the change of the Company's management as a result of the acquisition of
Capital First Holdings, Inc. (See Form 8-K filed on February 12, 1996) and
the relocation of the Company from Tulsa, Oklahoma to Tallahassee, Florida.
The report of the former accountant, Guest & Co., P.C. of Tulsa, Oklahoma,
who did the report accompanying the Company's financial statements for the
fiscal years ended June 30, 1995 and June 30, 1994 did not contain any
adverse opinion or disclaimer of opinion. The Decision of the Company to
engage new certifying accountants was approved by the Company's Board of
Directors. The Company is not aware of any unresolved disagreements with
Guest & Company, P.C., with regard to any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
(2) September 30, 1996 - 8-K/A: The Company filed audited financial
statements for Capital First Holdings, Inc. for its fiscal year ended
December 31, 1995 after the reverse acquisition of Capital First (See Form
8-K filed on February 12, 1996)
Page 12
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: November 14, 1996 By: /s/ Mark A. Conner
--------------------
Mark A. Conner, President,
and Chief Executive Officer
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: November 14, 1996 By: /s/ Mark A. Conner
--------------------------
Mark A. Conner, President,
and Chief Executive Officer
Page 13
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 15
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 585,205
<SECURITIES> 303,542
<RECEIVABLES> 4,790,359
<ALLOWANCES> 0
<INVENTORY> 36,184,677
<CURRENT-ASSETS> 41,560,241
<PP&E> 1,757,478
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,005,000
<CURRENT-LIABILITIES> 5,948,726
<BONDS> 22,771,432
<COMMON> 674,017
0
0
<OTHER-SE> 20,610,984
<TOTAL-LIABILITY-AND-EQUITY> 50,005,000
<SALES> 6,109,152
<TOTAL-REVENUES> 6,109,152
<CGS> 3,822,019
<TOTAL-COSTS> 4,861,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365,205
<INCOME-PRETAX> 1,422,966
<INCOME-TAX> 411,985
<INCOME-CONTINUING> 1,010,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .059
<EPS-DILUTED> .059
</TABLE>
