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, 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 April 30, 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
September 30, 1995 and June 30, 1995
Condensed Consolidated Statements of
Income for the Three Months
Ended September 30, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
September 30, 1995 and 1994 6-7
Condensed Consolidated Statement of Changes in
Stockholders' Equity
September 30, 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 12-13
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
September 30 June 30
1995 1995
(Unaudited) (Audited)
ASSETS:
Current Assets:
Cash and equivalents $ 89,262 $ 98,911
Marketable equity securities, net
233,629 559,005
Accounts receivable, net 89,229 110,081
Due from employees 3,325 4,625
Prepaid expenses 8,679 7,454
Deferred income tax asset, net
386,536 266,460
______________ ______________
Total Current Assets 810,660 1,046,536
Property and equipment, net 416,070 426,208
Deferred income tax asset, net 280,000 280,000
Other assets, net 11,163 10,763
______________ _______________
TOTAL ASSETS $ 1,517,893 $ 1,763,507
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 June 30
1995 1995
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable $ 200,000 $ 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 169,840 219,103
Accrued expenses 154,643 117,596
Accrued salaries 179,461 179,461
Due to related parties 158,511 102,044
______________ _______________
Total Current Liabilities 953,065 908,814
Long term debt 100,369 105,407
Obligations under capital leases
33,922 47,801
______________ ________________
Total Liabilities 1,087,356 1,062,022
Stockholders' Equity:
Common stock 88,217 88,217
Capital in excess of par value
27,989,381 27,989,381
Accumulated deficit ( 27,647,061) ( 27,376,113)
_______________ ________________
Total Stockholders' Equity 430,537 701,485
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,517,893 $ 1,763,507
See Accompanying Notes to Condensed Consolidated Financial Statements
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30
1995 1994
Net sales $ 357,436 $ 405,883
Cost of sales 78,509 82,507
Selling, general and administrative expenses
326,646 205,745
Income (loss) from operations (47,719) 117,631
Other Income (deductions)
Interest expense (15,971) (6,298)
Interest income 3,808 5,418
Loss on sale of assets ------- (964)
Unrealized gain (loss) on
marketable equity securities
(325,376) 71,403
Other income ------ 75,000
Income (loss) before income taxes
(385,258) 262,190
Income tax (expense) benefit
114,310 (29,276)
Net income (loss) $(270,948) $ 232,914
Net income (loss)
per share $ (.123) $ .113
Weighted average number of
shares outstanding 2,205,427 2,061,083
See Accompanying Notes to Condensed Consolidated Financial Statements
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in Cash
(UNAUDITED)
Three months ended
September 30
1995 1994
Cash Flows From Operating Activities:
Net Income (Loss) $ (270,948) $ 232,914
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 22,500 22,901
Loss on sale of investments ------- 961
Unrealized loss (gain) on marketable
equity securities 325,376 (71,403)
Deferred tax (benefit) expense
( 120,076) 29,276
Decrease (increase) in accounts receivable
20,852 (22,274)
(Increase) decrease in prepaid expenses
( 1,225) 6,758
(Increase) decrease in other assets
( 400) 6
Decrease in accounts payable
(49,263) (67,502)
Increase (decrease) in accrued expenses
37,047 (91,301)
Increase in due to related parties
56,467 ------
Net Cash provided by Operating Activities
20,330 40,336
Cash Flows from Investing Activities:
Purchases of property and equipment
------ (51,645)
Purchases of investments ------ (152,544)
Capitalized software expenditures
(12,362) (171,762)
Proceeds from sale of investments
------ 40,517
Net Cash Used in Investing Activities
(12,362) (335,434)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock
------ 138,438
Repayment of obligations under
capital leases (13,879) (15,779)
Principal payment on long-term debt
( 5,038) ------
Loan to employees 1,300 ( 1,450)
Net Cash (Used) in provided by
financing activities (17,617) 121,209
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(UNAUDITED)
(Continued)
Net Decrease in Cash and Equivalents
( 9,649) (173,889)
Cash and Cash Equivalents, Beginning of Period
98,911 611,038
Cash and Cash Equivalents, End of Period
$89,262 $437,149
Supplemental Disclosure of Cash Flow
Information:
Cash Payments of:
Interest $ 6,330 $ 6,298
Income Taxes $ ------ $ ------
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
Net Loss for
the Three Months
ended September 30,1995
(270,948) (270,948)
Total as of
September 30,1995
2,205,427 $ 88,217 $27,989,381 ($27,647,061) $ 430,537
See Accompanying Notes to Condensed Consolidated Financial Statements
PROACTIVE 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
ound 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
period are not indicative of the results to be expected for the full year.
(2)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 in for all periods presented.
- - 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"
on 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. 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'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.
- - 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
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
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
September 30, 1995
(Unaudited)
Current Assets $ 25,211,315
Property and Equipment 1,360,775
Other Assets 291,163
_____________
TOTAL ASSETS $ 26,863,253
Current Liabilities $ 4,223,421
Non-current liabilities 18,095,930
Stockholders' Equity 4,543,902
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $ 26,863,253
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.
Three Months
Ended Year Ended
September 30, June 30
1995 1995
(Unaudited) (Unaudited)
Revenues $ 7,221,453 $ 31,727,791
Net Income (Loss) $66,383 ($3,055,009)
Net Income (Loss) per share
$ 0.01 ($ 0.29)
Weighted Average Number of Shares
10,764,504 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 AN RESULTS
OF OPERATIONS
The Company has two subsidiaries for the periods included in this report;
they are 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. For the periods
included in this report, PSI was developing computer software for business
management and project management. As mentioned above, as a result of the
confirmation by the C ourt of the Equity Holders' Plan of Reorganization
on November 21, 1995, PSI is no longer a subsidiary of the Company.
However, since it was a subsidiary of the Company as of the end of the
Company's first fiscal quarter, PSI will be included in the discussion below.
Results of Operations
Three months ended September 30, 1995 compared to three months ended
September 30, 1994.
Operating revenues were $ 357,436 for the three months ended September 30,
1995, as compared to $ 405,883 for the three months ended September 30, 1994.
Operating revenues were primarily 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 three 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 quarter.
Cost of sales decreased to $78,509 for the three months ended September 30,
1995 from $82,507 for the three months ended September 30, 1994. This
decrease for the three month period is due primarily to a decreased volume
of laboratory tests being performed by KLI.
Selling, general and administrative expenses increased to $326,646 for the
three months ended September 30, 1995 from $205,745 for the three months
ended September 30, 1994. This increase was due primarily to legal and
accounting fees related to the bankruptcy proceeding and all expenses of PSI
being accounted for as general expenses whereas in the three months ended
September 30, 1994, a percentage of these costs were capitalized as software
costs.
Other income and deductions decreased to a loss of $337,539 for the three
months ended September 30, 1995 compared to a gain of $144,559 for the three
months ended September 30, 1994. This decrease was primarily attributable
to the following two factors. In the three months ended September 1994 a
total of $75,000 in other income was of a non-recurring nature. Also at
September 30, 1995 , the Company recorded an unrealized loss on marketable
equity securities of $325,376 compared to an unrealized gain of
book value of the marketable equity securities to the market value for each
reporting period.
Financial Condition
The primary source of working capital currently available to the Company is
generated from the operations of KLI. For the three months ended
September 30, 1995, the Company experienced a net decrease in cash of
$ 9,649 which is primarily attributable to capitalized software
expenditures, payment on capital lease and debt obligations.
Total assets decreased $245,614 from June 30, 1995 to September 30, 1995
primarily due to the decrease of $325,376 in the value of marketable
equity securities offset by the increase of $120,076 in the deferred
income tax asset.
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. It is believed that the proceeds from the exercise of
warrants issued in the bankruptcy plan will produce sufficient cash flow to
pay the Company's creditors under the bankruptcy plan. PSI, a developmental
company with operating expenses and no income, has been a cash drain
on the Company's resources. Therefore, the divestiture of PSI pursuant to
the bankruptcy plan should improve the 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 businesse
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
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. The information contained in that
discussion therein is incorporated herein by reference.
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 September 30, 1995:
(1) September 13, 1995: 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.
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,
Chief Executive Officer and
Chief Financial 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,
Chief Executive
Officer, and Chief Financial Officer
