<PAGE>
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, 1997
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 October 31, 1997 was 18,445,648.
Transitional Small Business Disclosure Format (Check
one):Yes______No ___X____
</PAGE>
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PROACTIVE TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet 3
September 30, 1997 and June 30, 1997
Condensed Consolidated Statements of
Income for the Three Months
Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6-8
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 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 11
EXHIBIT INDEX 12
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<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's except for outstanding shares)
<CAPTION>
September 30, June 30,
1997 1997
<S> <C> <C>
ASSETS:
Real estate inventories $ 36,574 $ 36,425
Cash and equivalents 155 292
Property and equipment, net 1,016 1,037
Investment in Killearn Properties, Inc. 3,041 2,253
Other Investments 318 242
Other assets 241 250
Notes Receivable 4,856 4,730
_________ _________
TOTAL ASSETS $ 46,201 $ 45,229
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable $ 23,458 $ 23,178
Accounts payable and accrued expenses 2,024 1,908
Income taxes payable 1,890 1,717
Deferred income tax liability 1,232 1,232
Deferred revenue 109 109
Deferred compensation payable 304 387
Customer deposits 344 572
_________ _________
Total Liabilities $ 29,361 $ 29,103
Minority Interest 313 313
Stockholders' Equity:
Common stock - par value $.04 per
share; authorized 60,000,000 shares;
issued 18,445,648 738 726
Paid-in capital 12,285 11,886
Retained earnings 3,504 3,201
_________ _________
Total Stockholders' Equity $ 16,527 $ 15,813
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,201 $ 45,229
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In 000's, except for earnings per share and outstanding shares)
<CAPTION>
Three Months Ended
September 30,
1997 1996
<S> <C> <C>
Net sales $ 2,543 $ 5,881
Cost of sales 1,544 3,692
Selling, general
and administrative expenses 301 409
________ ________
Income from operations 698 1,780
Other Income (deductions):
Interest (expense) (181) (364)
Other income (expense), net ( 26) 105
Minority Interest ( 1) ( 18)
________ ________
Income from continuing operations
before income taxes 490 1,503
Income tax expense (180) (436)
________ ________
Net income before discontinued
operations $ 310 $ 1,067
Discontinued operations:
Loss from operations of Decocrete
Worldwide, less applicable tax
benefit of $5,000 and $25,000,
respectively ( 7) ( 41)
________ ________
Net income $ 303 $ 1,026
======== ========
Earnings per share before
Discontinued operations $ .02 $ .08
Discontinued operations $ .00 $ .00
________ ________
Earnings per share $ .02 $ .08
======== ========
Adjusted shares outstanding
primary and fully diluted 18,234,929 13,229,342
Dividends Paid NONE NONE
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (In 000's)
<CAPTION>
Three Months Ended
September 30
1997 1996
<S> <C> <C>
Net Cash provided by operating activities $ 164 $ ( 770)
_________ ________
Cash Flows from Investing Activities:
Distribution from real estate ventures 0 21
Investment in real estate ventures 5 ( 2)
Purchase of investments in equity securities (1,020) (66)
Purchase of property and equipment 0 0
_________ _________
Net Cash used in investing activities (1,015) (43)
Cash Flows from Financing Activities:
Proceeds from exercise of stock warrants 0 890
Proceeds from issuance of notes payable 2,623 1,616
Repayments of amounts borrowed (1,799) (1,644)
_________ ________
Net Cash provided by financing activities 824 862
_________ ________
Net (Decrease) Increase in Cash
and Cash Equivalents ( 27) 45
_________ ________
Cash and Cash Equivalents, Beginning of Period 182 154
_________ ________
Cash and Cash Equivalents, End of Period $ 155 $ 199
========= ========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
</PAGE>
<PAGE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Form 10-QSB for the Three Months Ended September 30, 1997
(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
acquirer. 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.
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., and notes thereto, as found in Form 8-KA for the
year ended December 31, 1995, the Company's Form 10-KSB for the year
ended June 30, 1997, 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 and Dispositions
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 was to be adjusted in the event the quoted market price of the
shares at December 31, 1996 was less than $3.50 per share.
Subsequently, the Company has amended this Agreement with the final
resolution as to the number of shares issued. On April 3, 1997 the
Company and the Flowers group agreed upon the final number of shares to
be issued for the three corporations known as the Flowers entities. By
mutual agreement between the parties, it was decided that the number of
shares to be paid for the entities would be 4.5 million shares as
follows: Highlands Properties Construction Company, Inc. - 3,200,000
shares; Flowers Properties, Inc. - 800,000 shares; and Barrier Dunes
Development Corporation - 500,000 shares. The purchased corporations
operations principally consist of land development in Middle and South
Georgia, and Cape San Blas, Florida. The land owned by these
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<PAGE>
corporations has been added to the land inventory of the Company. 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, PTE
proposed a transaction with KPI whereby KPI would exchange certain
assets (consisting of the golf course and country club, a newly
constructed inn and certain joint venture interests) 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.
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 PTE 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, Langdon S. Flowers, Jr., and Robert
Maloney, Jr. were named as Directors of KPI. On November 1, 1996,
J.T. Williams, Jr., President, resigned his position and the Board of
Killearn Properties, Inc. (AMEX:KPI) named Mark A. Conner as Chief
Executive Officer. The transaction was completed on November 16, 1996,
at which time, PTE's holdings in KPI were increased to approximately
25.6%.
The Company has continued to make investments in Killearn
Properties, Inc., including acquisitions during the three months ended
September 30, 1997, of an additional 155,426 shares of KPI, in exchange
for approximately $323,000 in cash, $198,000 in promissory notes, and
294,000 shares of Company voting stock, bringing its holdings in KPI to
approximately 45.77%.
Effective February 10, 1996 Decocrete Worldwide, Inc.
("Decocrete"), a newly-formed subsidiary of PTE, operating under the
direction of Capital First, acquired the net assets of Decocrete
International, Inc., a manufacturer of decorative concrete with a plant
located in Tampa, Florida, for an aggregate purchase price of $72,000 in
cash and 20% of the outstanding shares of Decocrete. The acquisition
has been accounted for under the purchase method of accounting.
Identifiable assets acquired approximated the liabilities assumed;
accordingly, the entire purchase price has been attributed to goodwill.
During fiscal 1997 the Company decided to cease operating Decocrete.
Assets have been written down to the amount expected to be realized upon
sale.
</PAGE>
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(3) Debt
In July, 1997, the Company borrowed $250,000 for the purchase of
additional shares of KPI. Further, in September, the Company obtained a
new loan for approximately $870,000, refinanced the above amount
together with an additional $500,000, all of which was collateralized by
288,000 shares of KPI stock.
Also, in July, 1997, the Company refinanced two loans of approximately
$1,750,000, of which approximately $930,000 paid off an obligation to
KPI, and $600,000 paid off an obligation to Capital City Bank. The new
loan carries an annual percentage rate of ten percent and is due and
payable in July 1998.
(4) Earnings Per Share
Primary and fully diluted earnings per share are calculated based on
the following number of weighted average shares of stock outstanding
including stock options as common stock equivalent: The weighted number
of shares outstanding was 18,234,929 for the three month period
presented. This number was achieved after taking the 18,151,918 shares
outstanding as of June 30, 1997 and adding to it the 293,730 shares
issued on September 4, 1997 for 58,746 shares of Killearn Properties,
Inc. common stock from a shareholder
(5) Subsequent Events
On October 1, 1997, the Company received a loan of $270,000 from a
Company which a director has interest. The note is collateralized by
property in Albany, Georgia, and is due November 29, 1997.
The Company, which has a collective ownership interest of 66 2/3% of
the Piney-Z Partnerships, caused Piney-Z, Ltd. partnership to file a
Petition with the City of Tallahassee, Florida to form a Community
Development District ("CDD") under Florida Statutes Chapter 190. On June
11, 1997, the City Commission of the City of Tallahassee (the "City")
established the CDD by Ordinance 97-O-0033AA, under provisions of
Chapter 190 for the purposes of financing and managing the acquisition,
construction, maintenance and operation of a portion of the
infrastructure necessary for community development. The District is
authorized to issue bonds for the purpose of financing, funding,
planning, establishing, operating and maintaining water management,
water supply, sewer and wastewater management, district roads,
street lights and other basic infrastructure projects within or without
the boundaries of the District. Additionally, through an Interlocal
Agreement, dated with the City of Tallahassee, the City has agreed to
pay 57% of the total costs of construction of Conner Boulevard, the
primary thoroughfare through Piney-Z.
On November 3, 1997, the Company purchased approximately 750 acres of
golf course and surrounding land in the Freeport, Florida area for a
total purchase price of $2.6 million. As a result of the transaction,
the Company acquired debt in the amount of approximately $2.2 million,
$2.1 million of which bears interest at the rate of ten per cent (10%)
with interest due semi-annually.
</PAGE>
<PAGE>
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. ("PTE")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 PTE
by Capital First. Accordingly, the historical results of operations and
financial position are those of Capital First and include the accounts
of PTE 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%. On January 1,
1997, the Company discontinued the working operations of Decocrete
Worldwide, Inc. and attempting to sell it to interested buyers in the
Tampa, Florida area. The operating results of Decocrete are included in
the accompanying consolidated financial statements from the date of
acquisition as a discontinued operation.
The effect that the treatment of Decocrete as a discontinued
operation had on the Balance Sheet for September 30, 1997 was a
reduction in total assets and equity of approximately $134,000. The
effect that the treatment had on the Consolidated Statement of Profit or
Loss for the three months ended September 30, 1997 was a loss of
approximately $12,000 due to depreciation and amortization expense with
no sales. Additionally, certain amounts in the September 30, 1996
financial statements and notes to consolidated financial statements have
been reclassified to conform to the September 30, 1997 presentation.
The effect that the treatment had on the Consolidated Statement of
Profit or Loss for the three months ended September 30, 1996 was a
reduction in sales of approximately $119,000, a reduction on cost of
sales of approximately $77,000, a reduction in selling, general and
administrative expenses of $106,000, and an increase to net income
before discontinued operations of $41,000.
QuinStone Industries, Inc., ("QuinStone") a manufacturer of
synthetic building products, became an 82% owned subsidiary of the
Company on September 9, 1996. This transaction was rescinded, however,
on November 16, 1996. Consequently, the June 30, 1997 and September 30,
1997 balance sheets of QuinStone and results of operations are not
included in this report.
On December 31, 1995, Mark A. Conner contributed to Capital First
his 33 1/3% limited partnership interest in Piney-Z Ltd. and Apalachee
Partners, Ltd. (the "Piney-Z Partnerships"). The Piney-Z Partnerships
were formed in October 1995, by Conner, J. T. Williams and Grace Dansby to
develop the "Piney-Z" development, an approximately 400 acre mixed-use
development north of Tallahassee. On May 17, 1996, the Company
purchased Williams' 33 1/3% general partnership. In the acquisition,
</PAGE>
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the Company issued to Williams 200,000 shares of its common stock
(valued at $675,000) and repaid Williams a $25,000 advance he had made
to the Piney-Z Partnerships. As a result of these acquisitions, as of
September 30, 1997, the Company and Capital First had a collective
ownership interest of 66 2/3% of the Piney-Z Partnerships.
Because of the ownership percentage in the partnership (and the fact
that the Company became the sole general partner), the results of the
Piney-Z Partnerships have been consolidated in the Company's financial
statements for the three month periods ended September 30, 1996 and
1997.
Results of Operations
Net sales decreased approximately $3,338,000 (56.76%) during the
current three month period compared to the same period a year ago. Real
estate market conditions continued downward in the southeastern United
States, and specifically in the northern Florida, resulting in a decline
in overall general sales.
Cost of sales, as a percentage of sales, was 60.7% for the current
three month period and 62.8% for the same period a year ago. The gross
profit margin for the current three month period decreased to 27.45% as
compared to 30.27% for the same period a year ago. This decrease in
profit margin on net sales was primarily due to the sale of Piney-Z
commercial property during the three months ended September 30, 1996
which had a gross profit margin of approximately 61%. Profit margins
between 21% and 26% are expected to be maintained assuming no great
fluctuations in the current interest rates.
Selling, general, and administrative ("SG&A") expenses decreased
$108,000, during the three months ended September 30, 1997 as compared
to the three months ended September 30, 1996 as the Company continues to
implement cost improvement policies. SG&A for the three months ended
September 30, 1997 was about 11.83%, increasing almost 5% over the 6.95%
for the three months ended September 30, 1996. Management attributes
this percentage cost increase to a decrease in commercial sales of low
basis property the additional salary of the new CEO with the Company.
Management believes that 11% to 12% SG&A percentage to be fairly
constant with necessary additional professional and other administrative
fees associated with being a public corporation.
Interest expense decreased $183,000 or 50% for the three months
ended September 30, 1997 as compared to the three months ended September
30, 1996. This decrease is primarily due to the refinance of
existing debt at lower interest rates.
Other income was down $131,000 for the three months ended September
30, 1997 to an expense of $26,000 compared to a revenue of $125,000 for
that same period in 1996. This decrease was primarily due to the
amortization of investment in Killearn Properties, Inc.
Liquidity
Management believes that the Company, through the generation of
cash flow from operations and the utilization of unused borrowing
capacity, has sufficient financial resources available to maintain its
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current operations and provide for its current capital expenditure
requirements.
The Company intends to concentrate its future efforts on expanding
the volume of it's real estate business in Tallahassee and implementing
its sales and marketing techniques with the Flowers properties. 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 which will complement its existing
businesses, as well as to search out other areas for residential and
commercial development in other geographic areas.
Financial Condition
Total assets increased a net total of $972,000 from June 30, 1997
to September 30, 1997; Real estate inventories increased $149,000
primarily due to the acquisition of additional single family lots in
Tallahassee. Notes receivable increased $126,000 due primarily to one
receivable from a joint venture for property in Thomasville.
Investments in Killearn Properties increased approximately $788,000 as a
result of the acquisition of additional shares of Killearn Properties,
Inc. (AMEX:KPI), bringing its total investment to 45.78% of the total
issued and outstanding shares of KPI.
Total liabilities increased $288,000 from June 30, 1997 to
September 30, 1997, primarily due to new debt which arose relating to
the purchase of additional shares of Killearn Properties, Inc. stock.
Total Shareholders' equity increased $714,000 during the current
three month period, due primarily to the current quarterly earnings of
$303,000 and additional paid-in capital of approximately $400,000 from
the acquisition of additional KPI shares.
Management hopes to continue its residential development business
in Florida and Georgia, and will continue to look explore other possible
acquisitions to complement its existing businesses.
</PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings The Company and its subsidiaries are
involved from time to time in various claims and legal actions in the
ordinary course of business. In the opinion of management, the Company
and its subsidiaries are not party to any other legal proceedings, the
adverse outcome of which, would have any material adverse effect on its
business, its assets, or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the three months ended September 30, 1997, there were no
matters submitted to a vote of the security holders of the Company.
ITEM 5. Other Information
NONE
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 three months ended September 30, 1997:
(1)July 29, 1997: 8-K/A: On July 29, 1997, the Board of Directors
changed the year end back to June 30. Previously, and as reported on
Form 8-K filed on May 6, 1997, the Board of Directors approved the
change of the fiscal year end from June 30 to April 30.
(2) September 16, 1997, the Company filed Form 8-K regarding its
change in certifying accountants from Coopers & Lybrand, L.L.P. to Jones
and Kolb. The report of Coopers and Lybrand did not contain an adverse
opinion or disclaimer of opinion and was not modified.
(3) September 30, 1997, the Company made minor amendments to the
September 16, 1996 filing on Form 8-K/A.
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, 1997 By: /s/ Mark A. Conner
Mark A. Conner, President
</PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 15
12
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 155,000
<SECURITIES> 3,359,000
<RECEIVABLES> 4,856,000
<ALLOWANCES> 0
<INVENTORY> 36,574,000
<CURRENT-ASSETS> 45,185,000
<PP&E> 1,044,000
<DEPRECIATION> 28,000
<TOTAL-ASSETS> 46,201,000
<CURRENT-LIABILITIES> 29,674,000
<BONDS> 0
0
0
<COMMON> 738,000
<OTHER-SE> 15,789,000
<TOTAL-LIABILITY-AND-EQUITY> 46,201,000
<SALES> 2,543,000
<TOTAL-REVENUES> 2,543,000
<CGS> 1,544,000
<TOTAL-COSTS> 1,544,000
<OTHER-EXPENSES> 274,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,000
<INCOME-PRETAX> 490,000
<INCOME-TAX> 180,000
<INCOME-CONTINUING> 310,000
<DISCONTINUED> 7,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303,000
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
