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: March 31, 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 May 1, 1997 was 18,448,718.
Transitional Small Business Disclosure Format (Check one):Yes ________
No ___X____
PROACTIVE TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1.(a) Introduction 3
Item 1.(b) Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance 4
March 31, 1997
Condensed Consolidated Statements of
Income for the Three Months and Nine Months
Ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows for the Three Months and Nine Months Ended
March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
EXHIBIT INDEX 14
Item 1.(a) Introduction
As previously reported 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. Therefore, this Form 10-QSB
for the three months and nine months ending March 31, 1997 contains
financial information for Capital First for the three months and nine months
ending March 31, 1996.
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's except for outstanding shares)
<CAPTION>
March 31,
1997
<S> <C>
ASSETS:
Real estate inventories $ 37,731
Cash and equivalents 159
Property and equipment, net 1,077
Deferred income taxes 310
Other assets 222
Investments 3,070
Notes Receivable 5,375
___________
TOTAL ASSETS 47,944
=============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable 24,017
Accounts payable and accrued expenses 1,168
Income taxes payable 1,083
Deferred revenue 1,467
Deferred compensation payable 408
Customer deposits 427
______________
Total Liabilities 28,570
Minority Interest 12
Stockholders' Equity:
Common stock - par value
$.04 per share; authorized
60,000,000 shares; issued
18,448,718 738
Paid-in capital 17,085
Retained earnings 1,539
____________
Total Stockholders' Equity 19,374
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 47,944
============
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<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 Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 3,601 $ 4,163 $11,729 $ 17,786
Cost of sales 2,831 3,361 7,878 14,418
Selling, general
and administrative expenses 488 500 1,348 1,798
__________ _________ _______ ______
Income from operations 282 302 2,503 1,570
Other Income (deductions):
Interest (expense) ( 62) (396) (779) (1,712)
Other income (expense), net ( 48) (7) 67 461
Minority Interest 1 7 0 7
__________ ________ ______ ________
Income from
continuing operations
before income taxes 173 (94) 1,791 326
Income tax expense 65 20 539 418
___________ _______ _______ ______
Net income $ 108 $ (114) $ 1,252 $ (92)
========== ============ ========== ==========
Net income per common
and common equivalent
share - primary and
fully diluted $ .01 $ (.01) $ .08 $ (.01)
=========== =========== =========== ==========
Adjusted shares outstanding
primary and fully diluted 16,441,505 8,164,912 15,971,484 11,541,199
Dividends Paid NONE NONE NONE NONE
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (In 000's)
<CAPTION>
Nine Months Ended
March 31
1997 1996
<S> <C> <C>
Net Cash provided by operating activities $ (1,676) $ 2,958
____________ ________
Cash Flows from Investing Activities:
Distribution from real estate ventures 32 0
Investment in real estate ventures (5) 120
Purchase of investments in equity securities (650) (325)
Purchase of property and equipment (794) (1)
____________ _______
Net Cash used in investing activities (1,417) (206)
Cash Flows from Financing Activities:
Proceeds from exercise of stock warrants 1,119 0
Proceeds from issuance of notes payable 4,085 10,399
Repayments of amounts borrowed (2,106) (13,989)
____________ _________
Net Cash provided by (used by) financing
activities 3,098 ( 3,590)
_____________ _________
Net Increase (Decrease) in Cash
and Cash Equivalents 5 (838)
_____________ ____________
Cash and Cash Equivalents, Beginning of Period 154 988
_____________ ____________
Cash and Cash Equivalents, End of Period $ 159 $ 150
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Form 10-QSB for the Three Months and Nine Months Ended March 31, 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, and the Company's Form 10-KSB
for the six months ended June 30, 1996, and Form 10-QSB/A for the three months
ended December 31, 1996 (filed by EDGAR on March 17, 1997). 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 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 (See Subsequent Events). 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
(82%) of the issued and outstanding shares of QuinStone Industries, Inc. In
exchange for 750,000 shares of PTE voting common stock. Additionally, the
Company had agreed to file a registration statement within the next year in
order to register the shares issued under the agreement and was contingently
obligated to issue an additional 225,000 shares of restricted stock if this
registration did not occur. QuinStone Industries is a manufacturer of
synthetic stone and marble fixtures with a plant located in Quincy, Florida.
On November 16, 1996, this transaction was rescinded by the mutual
agreement of the Company and the entities/persons which the QuinStone
Industries stock was originally acquired, thus canceling any and all remaining
obligations to register shares under the original arrangement and terminating
any penalties should registration not occur. Simultaneous with this
rescission, the Company also transferred back 81,700 shares of Killearn
Properties, Inc. (AMEX:KPI) stock to James H. Dahl in exchange for the return
of 326,800 shares of Company stock which shares had been acquired during May
and August 1996 as explained below.
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. In connection with this proposed transaction, PTE
would be required to 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 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, 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. 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 President and
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%.
(3) Debt
As a result of the Flowers acquisitions noted above, the Company assumed
notes payable in the aggregate approximate amount of $7 million, which are
secured by the land, developed lots and buildings owned by the three Flowers
entities.
Further, on January 1, 1997, the Company extended it's $250,000 note to
Langdon S. Flowers, Jr., one of it's directors, for the purpose of paying off
a stock balance margin account used for the acquisition of the initial shares
of Killearn Properties, Inc. (AMEX:KPI). Additionally, the company borrowed
$720,000 for the development land and refinanced a house for $182,300 during
the current three month period.
(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 16,441,505 for the three month period presented, 15,971,484
for the nine month period presented. This number was achieved after the
return of both 750,000 shares of PTE stock to the Company for the rescission
of the QuinStone Industries transaction, and 326,800 shares of PTE stock to
the Company for the rescission of the purchase of 81,700 shares of KPI stock
to James H. Dahl. Additionally, 200,000 shares of the Company's stock was
issued to J. T. Williams, Jr. for his interest in the Piney-Z, Ltd. and
Apalachee Partners, Ltd. Partnerships. The Company issued 10,000 shares to
Daniel D. Dinur and Carol Clark for professional services. Lastly, 2,565,000
shares were issued on the original Flowers acquisition for all of the stock in
the three Flowers entities. The agreement called for additional shares to be
issued in the event the average per share stock price for the last ten trading
days prior to December 31, 1996 was below $3.50 per share. The Company has
come to a final resolution of the total shares in April 1997; see Subsequent
Events for further detail.
(5) Subsequent Events
On November 1, 1996, J. T. Williams, Jr., then president of Killearn
Properties, Inc. (AMEX:KPI), resigned his position and the Board of Directors
of KPI, named Mark A. Conner as President and Chief Executive Officer. The
company closed the transaction with KPI and Williams on November 16. 1996.
On April 3, 1997, the Board of Directors met and appointed four persons to
the remaining five positions available on the company's Board of Directors:
James A. Preiss, the company's CEO, Ben S. Branch, Marshall R. Cassedy, Jr.,
and Langdon S. Flowers, Jr., were all named to the Board of Directors.
Also 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.
On April 21, 1997 the Company's Board of Directors resolved to changed the
Company's fiscal year end from June 30 to April 30.
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.
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 March 31, 1997 balance sheet of QuinStone and results of
operations from are not included in this report.
Results of Operations
Net sales decreased approximately $562,000 (13.5%) during the current
three month period and $6,057,000 (34.1%) during the current nine month period
compared to the same period a year ago. Real estate market conditions were
generally down in the southeastern United States, and specifically in the
northern Florida, both in the first and second quarter, resulting in a decline
in overall general sales.
Cost of sales, as a percentage of sales, was 78.6% for the current three
month period and 80.7% for the same period a year ago. The cost of land sold
for the current nine month period decreased to 67.2% as compared to 81.1% for
the same period a year ago. This increase in profit margin on net sales was
primarily due to the sale of commercial property during the first three months
of this fiscal year which had a gross profit margin of approximately 61%, as
well as several residential lots during the second quarter, both of which
contained an abnormally low basis. Profit margins between 19% and 24% are
expected to be maintained assuming no great fluctuations in the current
interest rates.
Selling, general, and administrative ("SG&A") expenses increased $12,000,
during the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996. Management attributes this cost increase to
the addition of the new CEO with the Company in sales and research.
SG&A decreased $450,000 for the nine months ended March 31, 1997 as compared
to that same period one year ago, primarily due to an SG&A expense of
approximately $740,000 in the first quarter last year attributable to Golden
Eagle Country Club, which is no longer a part of the Company. SG&A for the
nine months ended March 31, 1997 was about 11.5% of sales, fairly constant
with necessary additional professional and other administrative fees
associated with being a public corporation.
Interest expense decreased $334,000 or 84% for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996.
Interest expense for the nine months ended March 31, 1997 decreased $933,000
over the same nine month period in 1996. These decreases are primarily due to
the capitalization of interest due to the development of the raw land
inventory in accordance with Financial Accounting Standards Board Statement 34
relating to interest.
Other income was down $394,000 for the nine months ended March 31,
1997 compared to that same period in 1996. This decrease was primarily due to
a timber sale revenue of approximately $224,000, a gain of $130,000 during a
condominium sale involving the restructure of some Company debt, and several
smaller infrequent occurrences in 1996.
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 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 $19,478,000 from June 30, 1996 to
March 31, 1997; Real estate inventories increased $15,239,000 primarily due
to the Flowers acquisitions which brought $15,000,000 into the land
inventories, developed lots and buildings. Notes receivable increased
$4,258,000 due primarily to the following factors: a $2,500,000 one year note
from the sale of the Piney Z commercial property; approximately $1,300,000 in
notes receivable for the issuance of stock pursuant to warrants to raise
capital; the sale of Keystone Laboratories for $1,500,000 which resulted in a
note receivable of $1,250,000; and approximately $800,000 was acquired as a
part of the Flowers transaction. Investments increased approximately $650,000
as a result of the acquisition of additional shares of Killearn Properties,
Inc. (AMEX:KPI), bringing its total investment to 25.6% of the total issued
and outstanding shares of KPI.
Total liabilities increased $6,532,000 from June 30, 1996 to March 31,
1997, primarily due to the Flowers acquisitions bringing an additional
$7,000,000 in debt less the Company's payment of approximately $2,106,000 on
notes payable.
Total Shareholders' equity increased $13,005,000 during the current nine
month period. 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 its residential development business in
Florida and Georgia state, and will continue to look explore other possible
acquisitions to complement its existing businesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
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.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
The following reports on Form 8-K or Form 8-K/A were prepared and filed
during the quarter ended March 31, 1997:
(1)May 6, 1997: 8-K: On April 21, 1997, the Board of Directors approved the
change of the fiscal year end from June 30 to April 30. The company intends
to file a form 10-KSB for the transition period of July 1, 1996 to April 30,
1997.
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: March 17, 1997 By: /s/ Mark A. Conner
Mark A. Conner, President
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 15
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 159,163
<SECURITIES> 3,069,885
<RECEIVABLES> 5,375,347
<ALLOWANCES> 0
<INVENTORY> 37,731,234
<CURRENT-ASSETS> 43,487,275
<PP&E> 1,077,319
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,944,183
<CURRENT-LIABILITIES> 2,251,032
<BONDS> 24,016,824
0
0
<COMMON> 737,949
<OTHER-SE> 18,636,599
<TOTAL-LIABILITY-AND-EQUITY> 47,944,390
<SALES> 11,728,497
<TOTAL-REVENUES> 11,795,991
<CGS> 7,877,547
<TOTAL-COSTS> 2,127,223
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 778,874
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<INCOME-TAX> 539,183
<INCOME-CONTINUING> 1,252,038
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