<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: March 31, 1999
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.)
3343 Peachtree Road, NE, Suite 530,
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)
(404) 240-4061
(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 ____X______ No ________
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 14, 1999 was 21,268,245.
Transitional Small Business Disclosure Format (Check
one):Yes______No ___X____
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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
March 31, 1999 and June 30, 1998
Condensed Consolidated Statements of
Income for the Three Months and Nine Months
Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 1999 and 1998 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 2. Changes in Securities 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>
March 31, June 30,
1999 1998
<S> <C> <C>
ASSETS:
Real estate inventories $ 13,491 $ 32,960
Cash and equivalents 819 100
Property and equipment, net 788 410
Investment in Killearn Properties, Inc. 594 1,188
Other Investments 2,942 261
Other assets 1,202 175
Notes Receivable 67 3,366
___________ _________
TOTAL ASSETS $ 19,903 $ 38,460
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable $ 9,886 $ 21,849
Accounts payable and accrued expenses 1,137 1,608
Income taxes payable 1,237 1,237
Deferred income tax liability 0 298
Deferred revenue 109 109
Deferred compensation payable 0
Customer deposits 28 125
___________ _________
Total Liabilities $ 12,397 $ 25,226
Minority Interest 0 0
Stockholders' Equity:
Common stock - par value $.04 per
share; authorized 60,000,000 shares;
issued 25,868,245, and 18,445,648, respectively 949 684
Treasury Stock ( 2,103) 0
Paid-in capital 15,102 12,180
Retained earnings ( 6,442) 2,320
__________ _________
Total Stockholders' Equity $ 7,506 $ 13,234
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,903 $ 38,460
========== =========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
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<PAGE>
<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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 6,006 $ 8,346 $ 18,999 $ 12,600
Cost of sales 6,336 7,063 22,699 9,857
Selling, general and
administrative expenses 2,912 490 4,090 1,145
________ ________ _________ ________
(Loss) income from
operations (3,242) 793 ( 7,790) 1,598
Other Income (deductions):
Interest (expense) ( 625) (258) ( 951) (720)
Other income (expense),
net 931 305 158 261
Minority Interest 0 0 0 ( 38)
________ ________ _________ _________
(Loss) income from
continuing operations
before income taxes (2,936) 840 ( 8,583) 1,103
Income tax benefit
(expense) 298 (176) 298 (273)
________ ________ __________ _________
Net (loss) income before
discontinued operations$ (2,638) 664 ( 8,285) 830
Discontinued operations:
Loss from operations
of Decocrete Worldwide,
less applicable tax
benefit of $0 and $0,
respective for 1999, and
$3,000 and $8,000,
respectively for 1998 0 ( 8) 0 (23)
________ _________ __________ _________
Net (loss) income $ (2,638) 656 ( 8,285) $ 807
======== ======== ========== =========
(Loss) earnings per share
before Discontinued
operations $ (0.12) 0.04 ( 0.39) 0.044
Discontinued operations $ 0.00 0.00 0.00 0.00
________ ________ __________ _________
Earnings per share $ (0.12) 0.04 ( 0.39) $ 0.044
======== ======== ========== =========
Adjusted shares
outstanding primary and
fully diluted 21,394,586 18,448,718 21,394,586 18,448,718
Dividends Paid NONE NONE 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>
Nine Months Ended
March 31
1999 1998
<S> <C> <C>
Net Cash provided by operating activities $ 9,291 $ 2,328
--------- --------
Cash Flows from Investing Activities:
Distribution from real estate ventures 0 27
Investment in real estate ventures (2,086) 5
Purchase of investments in equity securities 0 (1,020)
Purchase of property and equipment ( 378) 0
--------- ---------
Net Cash used in investing activities (2,465) ( 988)
Cash Flows from Financing Activities:
Proceeds from exercise of stock warrants 0 0
Proceeds from issuance of notes payable 3,300 5,620
Proceeds from issuance of Common Stock 2,232 0
Purchase of Treasury Stock 325 0
Repayments of amounts borrowed (11,964) (6,989)
--------- --------
Net Cash provided by financing activities (6,107) ( 1,369)
--------- --------
Net increase (decrease) in Cash
and Cash Equivalents 719 ( 29)
--------- --------
Cash and Cash Equivalents, Beginning of Period 100 182
--------- ---------
Cash and Cash Equivalents, End of Period $ 819 $ 153
========= ========
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
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<PAGE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Form 10-QSB for the Three Months and Nine Months Ended March 31, 1999
(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, now known as "Regional Developers, Inc.
(hereinafter "RDI"). As a result of the acquisition, RDI effectively
changed its accounting year end to June 30 from December 31. RDI 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-K/A for the
year ended December 31, 1995, the Company's Form 10-KSB for the year
ended June 30, 1998, and the Company's Form 10-QSB for the six months
ended December 31, 1998 (filed by EDGAR on February 14, 1999). A copy
of such consolidated financial statements and notes thereto may be
obtained by writing to the Company.
(2) Acquisitions and Dispositions
During the quarter ended December 31, 1998, the Company sold to a
former director, various parcels of real estate in exchange for 1,000,000
shares of the Compamny's common stock.
On December 30, 1998, the Company entered into an agreement to acquire
100% of the total issued and outstanding shares of West Side Investors, Inc.,
a Georgia corporation, which owns P & W Stonebridge, LLC, and P & W Hedland,
LLC, which own respectively, the Stonebrdge Vilage Shopping center located
in Dekalb County, Georgia and the Hedland-DeLowe Shopping Center located
in Atlanta, Georgia. Arthur G. Weiss was the President of West Side
Investors, Inc., and, together with his adult children, owned 100% of the
issued and outstanding common stock of West Side Investors, Inc. The
purchase price for West Side Investors, Inc. stock was the
issuance of 3,100,000 shares of the Company's restricted common stock as
follows: Arthur G. Weiss, 1,550,000 shares; Charles G. Weiss 775,000
shares; and Caroline Weiss Kyriopoulos, 775,000 shares. Appraisals of
the properties total $9,130,000. The transaction was completed in
January, 1999. The shopping centers are subject to a $7,886,000
non-recourse equal profit participating mortgage, entitling the lender to
50% of the profit from the shopping centers. The consideration paid was
determined as a result of arms-length negotiations prior to Mr. Weiss
becoming a stockholder, director or officer of the Company.
On or about January 8, 1999, the Company acquired 100% of the total
issued and outstanding shares of PDK Properties, Inc., a Georgia
corporation, which owns 100% of Stratos Inns, LLC, a Georgia limited
liability company located in Atlanta, Georgia. The purchase price for
PDK Properties, Inc. stock was the issuance of 3,600,000 shares of the
Company's restricted common stock to the Lance Children's Trust. The
consideration paid was determined as a result of arms-length negotiations
prior to Mr. Lance becoming a stockholder, director or officer of the
Company.
On January 21, 1999, the Company closed the sale of its wholly-
owned subsidiary, Henry Holdings, Inc., a Florida corporation (the
"Subsidiary") to Mark A. Conner, the Company's former President, in
exchange for 5,000,000 shares of the Company's Common Stock that were
held by Mr. Conner. Under the terms of the Agreement, Mr. Conner was to
receive cash or cash and property with an agreed upon value of not greater
than $2,000,000. On January 21, 1999, the Subsidiary held $700,000 in cash
generated from the sale of certain real estate owned by the Subsidiary
(the "First Real Estate Holdings"). The remaining value of $1,300,000 was
to be generated from the closing of a contract with an unrelated third party
purchaser (the "Purchaser") for the sale of the following real estate
holdings: 38 lots in The Landings at Golden Eagle Phase I; 39 developed lots
in Golden Eagle Units 5 & 7; 40 developed lots in Golden Eagle Unit 8; raw
land for The Landings at Golden Eagle Phase II; raw land for Golden Eagle
Unit 6; and the office building and land located at 7118 Beech Ridge Trail,
Tallahassee, Florida (collectively, the "Second Real Estate Holdings" and,
together with the First Real Estate Holdings, the "Real Estate Holdings").
If the sale of the Second Real Estate Holdings did not close by January 29,
1999, title to the Second Real Estate Holdings was to be transferred to the
Subsidiary. The Real Estate Holdings were subject to approximately
$3,667,500 in mortgage indebtedness, which was to be paid off at closing,
or assumed by Mr. Conner, if the transaction with the Purchasers did not
close. The transaction with the Purchaser closed on January 28,1999. The
Real Estate Holdings had a book value of $6,396,416.33 as of December 31,
1998 and were sold at a contract price of $5,112,902. As a result, the
cash paid for the 5,000,000 shares of Common Stock was $1,570,000.00, with
an additional $200,000 held in escrow to be released upon the fulfillment of
certain continigencies by Mr. Conner. The purchase price for the Real
Estate Holdings was based upon the written offer to purchase that the
Company received from the Purchaser. In connection with this sale, Mr.
Conner resigned his positions with the Company and the Company and Mr.
Conner entered into a Consulting Agreement, an Indemnification Agreement
and a Profit Sharing Agreement, each of which was filed as an exhibit to
the Company's Form 8-K on February 5, 1999 and each of which is incorporated
herein by reference. The Profit Sharing Agreement terminated with no
payments being made to either the Company or Mr. Conner.
On or about January 29, 1999, the Wendell M. Starke Trust purchased
2,500,000 shares of restricted voting common stock for $1,000,000.
The book value per share of the stock as of December 31, 1998 was
approximately $0.35 per share. In connection with the sale of the shares,
the Company entered into a Registration Rights Agreement.
On or about March 18, 1999, the Godley Morris Group, LLC purchased
2,500,000 shares of restricted common stock for $1,000,000. The
book value per share of the stock as of December 31, 1998 was approxiamtely
$0.35 per share. In connection with the sale of the shares, the Company
entered into a Registration Rights Agreement.
(3) Debt
In January 1999, the Company sold its remaining properties in the
Golden Eagle subdivision. The proceeds from the sale of these assets were
used to repay more than $3.8 million in debt, with approximately $3.5
million being paid to its primary lender.
In February 1999, the Company repaid an additional $300,000 of debt
with the proceeds from the sale of two of its subdivisions, Arvah Branch
and Shamrock Plaza.
In March 1999, the Company entered into a new agreement with respect to
its notes payable of $1,254,000 owed to the Hawkins group pursuant to which
the notes were transferred to Killearn, Inc. Pursuant to the agreement,
interest accrues, but is not payable until August 31, 1999, at which time the
entire note, plus accrued interest at 9% is due and owing.
In March 1999, the Company paid off its remaining debt to its former
President and Chairman of $172,000, through the payment of a total of
$97,000 in cash and the transfer of a small piece of property which is
leased by PowerTel Corporation for approximately $12,000 per year.
The Company, through its subsidiary Barrier Dunes Development Corporation
continues to utilize its development line of credit line,which is renewable
annually to finance the construction of townhouses in the Cape San Blas,
Florida area.
During the three months ended March 31, 1999, the Company extended
short term unsecured borrowings and repayments to aid cash flow, from a
private lending source, through one of its former directors, and had a
remaining balance at March 31, 1999 totalling approximately $273,000, which
accrues interest at 7.5% and is secured by a first mortgage on undeveloped
Company land and is due and payable October 31, 1999.
(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 21,394,586 for the three months ended March 31,
1999. This number consists of the 17,389,467 shares outstanding as of
June 30,1998, plus (i.) 88,778 shares issued on September 3, 1998 for an
interestpayment on the Hawkins notes, (ii.) 3,100,000 shares issued in
connection with the acquisition of West Side Investors, Inc.,
(iii) 3,600,000 shares issued in connection with the acquisition of PDK
Properties, Inc., (iv) 2,500,000 shares issued to the William Starke Trust
in exchange for $1,000,000, and (v) 2,500,000 shares issued to the
Godley-Morris Group LLC in exchange for $1,000,000, less 5,000,000 shares
repurchased from Mark Conner on January 21, 1999. The weighted average
shares also include 2,000,000 shares which are the subject of stock options
issued to the executive officers and directors on February 10, 1999.
Subsequent to March 31, 1999, an additional 2,600,000 options were granted
to executive officers and directors.
(5) Subsequent Events
On April 21, 1999, the Board granted an aggregate of 2,400,000 options to
its executive officers and directors. The exercise price of the options
is the average closing price of the Company's common stock for the thirty
(30) trading days immediately preceding April 21 1999. The options vest
and become exercisable on the following schedule:
25% on the first date on which the closing price of the underlying shares
is greater than or equal to $1.00. An additional 25% on the first date on
which the closing price of the underlying shares is greater than or equal to
$1.25. An additional 25% on the first date on which the closing price of the
underlying shares is greater than or equal to $1.50. An additional 25% on
the first date on which the closing price of the underlying shares is greater
than or equal to $1.75.
The options expire on April 21, 2009
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Reform Act of 1995 (the "Act") and is making
the following statements pursuant to the Act in order to do so. Certain
statements under this Item 2 and elsewhere in this report constitute
forward-looking statements within the meaning of Section 21A of the
Securities Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company believes the
expectations reflected in the forward-looking statements and assumptions
upon which forward-looking statements are based are reasonable it can give
no assurance that such expectations and assumptions will prove to have been
correct. Such forward-looking statements are risks and uncertainties,
many of which are beyond the the Company's control, that could cause the
actual results, performance or achievements of the Company, or industry
trends, to differ materially from any future results, performance or
achievements expressed or implied by such forward looking statements.
Given these uncertainties, investors are cautioned not to place undue
reliance on such forward-looking statements and no assurance can be given
that the plans, estimates and expectations reflected in such statements
will be achieved. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the
future may effect, the Company's actual results and could cause the
Company's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company:
a.) Changes in national, international, or regional economic conditions
that can affect the real estate market, which is cyclical in nature, and
highly sensitive to such changes, including, among other factors,levels
of employment and discretionary disposable income,consumer confidence,
available financing, and interest rates.
b.) The imposition of additional costs of compliance on the Company as
a result of changes in environmental, zoning, or other laws and
regulations that govern the acquisition, subdivision, and sale of real
estate.
c.) Risks associated with a large investment in real estate inventory at
any given time time (including risks that real estate inventories will
decline in value due to changing market and economic conditions and that
the development and carrying costs of inventories may exceed those
anticipated).
d.) Risks associated with an inability to locate suitable inventory
for acquisition and development as a residential, or commercial development.
e.) Risks associated with delays in bringing the Company's inventories
to market due to, among other factors, changes in regulations, governing
the Company's operations, adverse weather conditions, or changes in the
availability of development financing on terms acceptable to the Company.
f.) Changes in applicable usury laws or the availability of interest
deductions, or tax loss carry-forwards which the Company, or its predecessors
may have possessed in the past, or other provisions of federal or state tax
law.
g.) Changes on the part of banks or other lending institutions to
extend direct customer lot financing for purchase or development, which
could result in the Company having lower sales and/or the Company receiving
less cash in connection with the sale of its inventory.
h.) The inability of the Company to find external sources of liquidity
on favorable terms to support its operations, acquire, develop and carry
land, and satisfy its debt and other obligations.
i.) The increase in prepayment rates, delinquency rates or default
rates.
j.) Changes in costs to develop inventory for sale and/or selling,
general and administrative expenses exceeding those anticipated.
See the Company's Annual Report on Form 10-KSB for additional
statements concerning important factors, such as demand for products,
manufacturing costs and competition, that could cause actual results to
differ materially from the Company's expectations.
Year 2000 Impact
Year 2000 ("Y2K") issues are expected because many existing computer
programs use two digits instead of four to refer to the calendar year.
It is unknown whether these programs will be able to properly interpret
a year that begins with digits other than "19" (like the year 2000), and
thus cause disruption of business activities. The Company is currently
switching its software, from older programs,which could be affected by
the Y2K problem, to ones that are advertised as "Y2K ready". The Company
currently only utilizes software packages for its accounting and sales
and inventory maintenance. It is anticipated that the costs of implementing
ths new software to the Company will not exceed $2,000. In the unlikely
event all software cannot be converted prior to January 1, 2000, the Company
plans on several back-up measures, including back-up tapes and disks;
hard copies of all essential notes, mortgages, and other financial and sales
information, and cross-checking inventory sheets with sales occurring
during the year to provide secondary back-up of lots and sales in the event
of a Y2K catastrophe. The Stratos Inns division, currently in the
conceptual stage, plans to have Y2K ready software when it begins designing
and construction during the next fiscal quarter. The Company has begun
communications with material suppliers and its primary lenders to determine
if the Company or the suppliers and or lenders are vulnerable due to
failure of being Y2K compliant. There can be no assurance, however, that
the computer systems of other companies on which the company and its systems
rely will be timely modified, or that failure to modify such systems by
another company, or modifications that are incompatiblewith the Company's
systems would not have a material advserse effect on the Company.
Recent Transactions
On December 30, 1998, the Company entered into an agreement to acquire
100% of the total issued and outstanding shares of West Side Investors, Inc.,
a Georgia corporation, which owns P & W Stonebridge, LLC, and P & W Hedland,
LLC, which own respectively, the Stonebrdge Vilage Shopping center located
in Dekalb County, Georgia and the Hedland-DeLowe Shopping Center located
in Atlanta, Georgia. Arthur G. Weiss was the President of West Side
Investors, Inc., and, together with his adult children, owned 100% of the
issued and outstanding common stock of West Side Investors, Inc. The
purchase price for West Side Investors, Inc. stock was the
issuance of 3,100,000 shares of the Company's restricted common stock as
follows: Arthur G. Weiss, 1,550,000 shares; Charles G. Weiss 775,000
shares; and Caroline Weiss Kyriopoulos, 775,000 shares. Appraisals of
the properties total $9,130,000. The transaction was completed in
January, 1999. The shopping centers are subject to a $7,886,000
non-recourse equal profit participating mortgage, entitling the lender to
50% of the profit from the shopping centers. The consideration paid was
determined as a result of arms-length negotiations prior to Mr. Weiss
becoming a stockholder, director or officer of the Company.
On or about January 8, 1999, the Company acquired 100% of the total
issued and outstanding shares of PDK Properties, Inc., a Georgia
corporation, which owns 100% of Stratos Inns, LLC, a Georgia limited
liability company located in Atlanta, Georgia. The purchase price for
PDK Properties, Inc. stock was the issuance of 3,600,000 shares of the
Company's restricted common stock to the Lance Children's Trust. The
consideration paid was determined as a result of arms-length negotiations
prior to Mr. Lance becoming a stockholder, director or officer of the
Company.
On January 21, 1999, the Company closed the sale of its wholly-
owned subsidiary, Henry Holdings, Inc., a Florida corporation (the
"Subsidiary") to Mark A. Conner, the Company's former President, in
exchange for 5,000,000 shares of the Company's Common Stock that were
held by Mr. Conner. Under the terms of the Agreement, Conner was to receive
cash or cash and property with an agreed upon value of not greater than
$2,000,000. On January 21, 1999, the Subsidiary held $700,000 in cash
generated from the sale of certain real estate owned by the Subsidiary
(the "First Real Estate Holdings"). The remaining value of $1,300,000 was
to be generated from the closing of a contract with an unrelated third party
purchaser (the "Purchaser") for the sale of the following real estate
holdings: 38 lots in The Landings at Golden Eagle Phase I; 39 developed lots
in Golden Eagle Units 5 & 7; 40 developed lots in Golden Eagle Unit 8; raw
land for The Landings at Golden Eagle Phase II; raw land for Golden Eagle Unit
6; and the office building and land located at 7118 Beech Ridge Trail,
Tallahassee, Florida (collectively, the "Second Real Estate Holdings" and,
together with the First Real Estate Holdings, the "Real Estate Holdings").
If the sale of the Second Real Estate Holdings did not close by January 29,
1999, title to the Second Real Estate Holdings was to be transferred to the
Subsidiary. The Real Estate Holdings were subject to approximately
$3,667,500 in mortgage indebtedness, which was to be paid off at closing,
or assumed by Mr. Conner, if the transaction with the Purchasers did not
close. The transaction with the Purchaser closed on January 28,1999. The
Real Estate Holdings had a book value of $6,396,416.33 as of December 31,
1998 and were sold at a contract price of $5,112,902. As a result, the
cash paid for the 5,000,000 shares of Common Stock was $1,570,000.00, with
an additional $200,000 held in escrow to be released upon the fulfillment of
certain continigencies by Mr. Conner. The purchase price for the Real
Estate Holdings was based upon the written offer to purchase that the
Company received from the Purchaser. In connection with this sale, Mr.
Conner resigned his positions with the Company and the Company and Mr.
Conner entered into a Consulting Agreement, an Indemnification Agreement
and a Profit Sharing Agreement, each of which was filed as an exhibit to the
Company's Form 8-K on February 5, 1999 and each of which is incorporated
herein by reference. The Profit Sharing Agreement terminated with no
payments being made to either the Company or Mr. Conner.
On or about January 29, 1999, the Wendell M. Starke Trust purchased
2,500,000 shares of restricted voting common stock for $1,000,000.
The book value per share of the stock as of December 31, 1998 was
approximately $0.35 per share. In connection with the sale of the shares,
the Company entered into a Registration Rights Agreement.
On or about March 18, 1999, the Godley Morris Group, LLC purchased
2,500,000 shares of restricted common stock for $1,000,000. The
book value per share of the stock as of December 31, 1998 was approxiamtely
$0.35 per share. In connection with the sale of the shares, the Company
entered into a Registration Rights Agreement.
Results of Operations
Net sales decreased approximately $2,340,000 (28.04%) to $6,006,000
during the current three month period ended March 31, 1999, as compared to
$8,346,000 for the three months ended March 31, 1998. Sales increased
approximately $6,399,000 (50.78%) during the six month period ended December
31, 1998, compared to the same periods a year ago. The decrease in sales
for the current three month period was due to three particular bulk sales
during the three month period a year ago. During that period, the Company
sold its interest in Piney-Z subdivision, its large undeveloped tract holding
in Vero Beach, and the Simpson Mill Development in Stockbridge Georgia.
The increase in the current nine month period over that same period a year
ago is attributed primarily to the large sale during the current three months
of the Company's holdings in Golden Eagle subdivision. Its remaining lots in
Golden Eagle phases 5 and 7, as well as the recently platted Phase 6, and
its sales office, were sold for $5,125,000. Additionally, the Company's
subsidiary, Barrier Dunes Development sold over $500,000 in townhome units
in Cape San Blas, Florida. Real estate conditions that have been slow for
the Company, and the entire the northern Florida region, continued to
recover slightly.
Cost of sales, as a percentage of sales, was 105.49% for the current
three month period and 119.47% for the current nine month period, compared
to 84.63% and 78.23%, respectively, a year ago. The gross margin
for the current three month period decreased to a loss of 53.98% as compared
to a gross profit margin of 6.25% for the same period a year ago. This
decrease in profit margin on net sales was primarily due to the significantly
high basis in the property sold during the current three months. Of greatest
significance was the sale of Golden Eagle inventory at a loss of close to
$1,000,000. These lots, due to the length of time the Company held these
lots, and the capitalization of lots during construction created a basis of
close to $6,000,000, and were sold for $5,125,000. Gross profit margins
("GPM") between 17% and 21% are the goals set by the Company, but these
goals are difficult to maintain in the current marketplace, and assume no
great fluctuations in the current trends, such as interest rates. It is
anticipated that the impact of the West Side Investor's properties will
eventually enhance net income, as the rental income should exceed the costs
of maintaining the shopping center properties.
Selling, general, and administrative ("SG&A") expenses increased
$2,422,000, (494%) to $2,912,000 during the three months ended March 31,
1999 as compared to $490,000 for the three months ended March 31, 1998.
For the current nine month period, SG&A increased $2,945,000, or 257%, over
the nine month period a year ago. A significant amount of the increase is
due to the $253,000 which the Company has spent on its accounting during the
first nine months, additional salaries and costs for its Atlanta office,
unrealized loss of approximately $594,000 on the Killearn Properties, Inc.
(AMEX:KPI) common stock, which was trading at $4.75 per share
at December 31, 1998, and which the Company acquired for $9.50 per share
from the Hawkins group. Additionally, commissions have been reclassified as
an SG&A expense. In prior financial reports, the Company had classified
commissions as a cost of sales. Commissions in the total amount of about
$443,000, for the nine month period ending March 31, 1999, due to increased
sales, also added to the significant change from the periods ended
March 31, 1998. Management believes that SG&A expense to be fairly constant
over the next few quarters with necessary additional professional and other
administrative fees associated with being a public corporation.
Interest expense increased $ 367,000 or 142.25% for the three months
ended March 31, 1999 as compared to $258,000 for the three months ended
March 31, 1998, and $231,000 or 32% for the nine months ended March 31, 1999
from the three months ended March 31, 1998. This increase is primarily due
to the expensing of nearly all of the interest paid by the Company for
the three months and nine months ended March 31, 1999.
Other income increased $ 626,000 for the three months ended March
31, 1999 to $931,000 compared to income of $305,000 for that same period in
1998. This increase was primarily due to the gain on the sale of its bulk
assets held in Stockbridge, Georgia during the current fiscal year.
Financial Condition
Total assets decreased a net total of $18,557,000 from June 30,
1998 to March 31, 1998; Real estate inventories decreased $19,469,000
primarily due to the following: (i) the sale of the Company's remaining
inventory in the Golden Eagle subdivision, which had a basis of approximately
$6,000,000; (ii) the sale of The Glen at Eagle's Landing and The Summit at
Eagle's Landing to Killearn Properties, Inc. for a total of approximately
$4,100,000, (iii) the sale of approximately 260 acres of land in Albany,
Georgia, to a former director, which removed approximately $2,100,000
from the real estate inventory of the Company. Notes receivable decreased
approximately $3,299,000 including the reduction of $619,000 of the
remaining receivable from the sale of a large tract of undeveloped property
near Summerbrooke subdivision in Tallahassee, Florida. The Company received
a total of approximately $252,400 from a vendor who was going out of
business and cancelled the remaining receivable. Additionally, the Company
reclassified about $617,500 in receivables to other assets.
Total liabilities decreased $12,829,000 from June 30, 1998 to March
31, 1999, primarily due to the payment of Company debt to its primary lender
from the bulk sale of property in Albany, Georgia, the sale of 42 lots in the
Summerbrooke subdivision, and from the sale of The Glen at Eagle's Landing
and The Summit at Eagle's Landing. Further, during the current three month
period the Company paid off over $3,500,000 to its primary lender upon
the sale of its remaining inventory in its Golden Eagle subdision.
The deferred income tax liability of $298,000 as of June 30, 1998, was
eliminated at March 31, 1999 due to the Company's loss for the nine
months ended March 31, 1999.
Total shareholders' equity decreased $5,728,000 during the current
nine month period, which reflected the nine month loss of $8,285,000.
Liquidity
Management believes that the Company, through the generation of
cash flow from operations, especially, through its West Side Investors,
Inc. subsidiary and the sale of stock to larger investors, has sufficient
financial resources available to maintain its current operations and
provide for its current capital expenditure requirements.
Management plans to focus the Company in new directions. The Company
intends to focus on achieving a niche for itself in the private aviation
industry. Regarding its real estate division, the Company anticipates that its
acquisition of its income-producing shopping centers will provide additional
cash flow. It intends to focus on the marketing and sale of its existing
inventory.
Management anticipates that most of its available cash flow will
be utilized to develop its private aviation niche.
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 2. Changes in Securities
(c.) In January, 1999, inconnection with the acquisition of West Side
Investors, Inc., a Georgia corporation, which owns P & W Stonebridge, LLC,
and P & W Hedland, LLC, which own respectively, the Stonebridge Village
Shopping center located in Dekalb County, Georgia and the Hedland-DeLowe
Shopping Center located in Atlanta, Georgia, the Company issued
3,100,000 shares of its common stock as follows: Arthur G. Weiss, 1,550,000
shares; Charles G. Weiss 775,000 shares; and Caroline Weiss Kyriopoulos,
775,000 shares.
On or about January 8, 1999, the Company acquired 100% of the total
issued and outstanding shares of PDK Properties, Inc., a Georgia
corporation, which owns 100% of Stratos Inns, LLC, a Georgia limited
liability company located in Atlanta, Georgia. The purchase price for
PDK Properties, Inc. stock was the issuance of 3,600,000 shares of the
Company's restricted common stock to the Lance Children's Trust.
On or about January 29, 1999, the Wendell M. Starke Trust purchased
2,500,000 shares of restricted voting common stock for $1,000,000.
On or about March 18, 1999, the Godley Morris Group, LLC purchased
2,500,000 shares of restricted common stock for $1,000,000.
On January 21, 1999, the Company reacquired 5,000,000 shares of its
stock from the former President and Chairman of the Company, in exchange for
$1,570,000 and an additional $200,000 to be released from escrow upon the
achievement of certain contingencies by the former President.
ITEM 4. Submission of Matters to a Vote of Security Holders
On April 21, 1999, the Company held its Annual Meeting of Shareholders
at which shareholders approved the one item up for vote which was the
election of a Board of Directors consisting of the following five
directors: William B. Astrop, Joel A. Goldberg, C. Beverly Lance, James A.
Verbrugge, and Arthur G. Weiss. Each of the nominees has served as a
director of the Company duringthe immediately preceding twelve month period.
The votes cast were as follows:
Votes for against withheld
William B. Astrop 14,316,125 0 353
Joel A. Goldberg 14,316,125 0 353
C. Beverly Lance 14,316,125 0 353
James A. Verbrugge 14,316,125 0 353
Arthur G. Weiss 14,316,125 0 353
Prior to the 1998 Annual Meeting of Shareholders, James A. Preiss,
Langdon S. Flowers, Jr., Ben S. Branch, PhD, and Robert E. Maloney, Jr.
resigned as directors of the company. Mark A. Conner resigned his positions
as Chairman of the Board, Chief Executive Officer and President of the
Company and resigned as a director of the Company.
ITEM 5. Other Information
On February 10, 1999, the Company granted an aggregate of 2,000,000
options to its executive officers and directors. The exercise price of
the options is $0.4375. The options have now vested and are fully
exercisable. The options terminate on February 10, 2009.
On April 21, 1999, the Board garnted an aggregate of 2,400,000 options
to its executive officers and directors. The exercise price of the options
is the average clsoing price of the Company's closing price of the Company's
common stock for the thirty (30) trading days immediately preceding April
21, 1999. The options vest and become exercisable on the following schedule:
25% on the first date on which the closing price of the underlying shares
is greater than or equal to $1.00. An additional 25% on the first date on
which the closing price of the underlying shares is greater than or equal
to $1.25. An additional 25% on the first date on which the closing price
of the underlying shares is greater than or equal to $1.50. An additional
25% on the first date on which the closing price of the underlying shares
is greater than or equal to $1.75.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits:
(2) Plan of acquisition, reorganization, arrangement, liquidations,
or succession :
(2.1.)Agreement and Plan of Reorganization by and among Proactive
Technologies, Inc., Lance Children's Trust and PDK Properties,
Inc. (filed on Form 8-K by EDGAR on January 25, 1999 and
incorporated herein by reference).
(2.2.)Agreement and Plan of Reorganization by and among Proactive
Technologies, Inc., Arthur Weiss and Kay Weiss and West Side
Investors, Inc. (filed on Form 8-K by EDGAR on January 19,
1999 and incorporated herein by reference).
(3)(i.) Articles of Incorporation
Certificate of Incorporation (As amended and restated as of
February 12, 1999)(filed in Form 10QSB by EDGAR on February 16, 1999 and
incorporated by reference).
(ii.) Bylaws of the Corporation (As amended and restated as of
February 12, 1999)(filed in Form 10QSB by EDGAR on February 16, 1999 and
incorporated by reference).
10.3 Registration Rights Agreement (filed January 29, 1999 on Schedule
13-D by the Wendell M. Starke Trust and incorporated herein by reference.)
10.4 Registration Rights Agreement (filed March 29, 1999 on Schedule 13-G
by the Godley-Morris Group, LLC and incorporated herein by reference.)
27. Financial Data Schedule
(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 March 31, 1999:
(1) January 13, 1999, refiled January 19, 1999, the Company filed Form 8-K
regarding its acquisition of 100% of the issued and outstanding shares
of West Side Investors, Inc., a Georgia corporation, which owns P & W
Stonebridge, LLC, and P & W Hedland, LLC, which own, respectively, the
Stonebridge Village Shopping Center, located in DeKalb County, Georgia,
and the Hedland-DeLowe Shopping Center, located in Atlanta, Georgia, in
exchange for the issuance of a total of 3,100,00 shares of Company
restricted common stock to Mr. Arthur G. Weiss and his family.
Additionally, Mr. Arthur G. Weiss and Mr. James A. Verbrugge were named to
the Board of Directors.
(2) January 25, 1999, the Company filed Form 8-K regarding its acquisition
of 100% of the issued and outstanding shares of PDK Properties, Inc.,
a Georgia corporation, which owns 100% of Stratos Inns, LLC, a Georgia
limited liability company, located in Atlanta, Georgia, in exchange for
the issuance of a total of 3,600,00 shares of Company restricted common
stock to the Lance Children's Trust
(3) February 5, 1999, the Company filed Form 8-K regarding its repurchase
of 5,000,000 shares of common stock in exchange for a total of $1,570,000,
plus an additional $200,000, in the event certain contingencies are
fulfilled by Mr. Conner. In connection therewith Mr. Conner resigned as
President, Chief Executive Officer, and as a director of the Company.
Additionally. the Board named Mr. William B. Astrop to its Board of
Directors, and, Mr. Branch and Mr. Maloney resigned their positions as
directors.
(4) March 19, 1999, the Company filed Form 8-K/A regarding Form 8-K filed
January 19, 1999, and amended Item 2 with regard to the filing of financial
statements of West Side Investors, Inc. not being required under Article
3-05(b) of Regulation S-X of the Securities Act.
Subsequent to the three months ended March 31, 1999, but prior
to the filing of this Form 10-QSB, the following reports on Form 8-K
were prepared and filed:
(1) April 14, 1999, the Company filed Form 8-K/A regarding Form 8-K filed
January 25, 1999, and amended Item 2 with regard to the filing of financial
statements of PDK Properties, Inc. not being required under Article
3-05(b) of Regulation S-X of the Securities Act.
(c) Financial Data Schedule - EX 27
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 15, 1999 By: /s/ Robert E. Maloney, Jr.
Robert E. Maloney, Jr.,
Executive Vice President
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 15
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 819,319
<SECURITIES> 3,536,039
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,490,290
<CURRENT-ASSETS> 1,269,141
<PP&E> 787,971
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,902,760
<CURRENT-LIABILITIES> 12,396,524
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0
<COMMON> 949,306
<OTHER-SE> 6,556,930
<TOTAL-LIABILITY-AND-EQUITY> 19,902,760
<SALES> 17,877,474
<TOTAL-REVENUES> 17,877,474
<CGS> 21,577,852
<TOTAL-COSTS> 25,667,526
<OTHER-EXPENSES> (158,387)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 951,022
<INCOME-PRETAX> (8,582,687)
<INCOME-TAX> 297,739
<INCOME-CONTINUING> (8,284,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,284,948)
<EPS-PRIMARY> (0.39)
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