ADVATEX ASSOCIATES INC, 10-K405, 1997-03-27

ADVATEX ASSOCIATES INC
10-K405, 1997-03-27
BUSINESS SERVICES, NEC

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
-------------

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [fee required]

For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934

For the transition period from to
----------------- ---------------
Commission file number 0-16450

ADVATEX ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)

Delaware 13-3453420
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

605 West 48th Street New York, NY 10036
--------------------------------------- ---------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 921-0600

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock (par
value)

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 for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K [X]

As of March 12, 1997, Registrant had 5,470,000 shares of its Common Stock
outstanding. The market value of the Common Stock held by non-affiliates of the
Registrant as of that date was $109,400.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Registrant's definitive proxy statement for the 1997 Annual
Meeting, which will be filed within 120 days of December 31, 1996 are
incorporated by reference into Part III.

<PAGE> 2
PART I

ITEM 1. BUSINESS

CORPORATE BACKGROUND AND ACTIVITIES

Advatex Associates, Inc. (the "Company") provides property and construction
management services to commercial office buildings. The Company entered into a
contract with ATC Real Estate and Development Corporation ("ATC") on September
9, 1994, to manage and operate the property known as Turnpike Plaza located at
197 Highway 18, East Brunswick, Middlesex County, New Jersey ("Turnpike
Plaza")on a day to day basis under the direction of ATC. The management fee for
such services is 3% of the annual gross receipts of the property. This agreement
was negotiated as part of the Company's investment of $1,290,000 in return for
40% of the common stock of ATC. The investment was made through the Company's
wholly owned subsidiary, Advatex Real Estate Corporation, which was incorporated
in the state of Delaware on August 18, 1994. ATC, a corporation incorporated in
the state of Delaware on July 13, 1994, was formed by Advatex Real Estate
Corporation and Advanced Contracting Corp., an affiliate of the Company, which
owns 49% of the common stock of ATC. The remaining 11% outstanding stock of ATC
is owned by other related parties. Currently ATC has a 100% ownership interest
in Turnpike Plaza. Turnpike Plaza was purchased by ATC on September 9, 1994 in
consideration of $3,226,000 which consisted of a $2,131,000 payment in cash, a
commitment to repair the parking garage attached to the property at an estimated
cost of $650,000, and assumption of various liabilities, commitments and

<PAGE> 3
closing costs of approximately $445,000.

The Company previously provided asbestos removal and other related abatement
services to commercial office buildings in the New York metropolitan area. In
the second quarter of 1993, the Company's management changed the manner in which
the Company conducts business by ceasing all field operations. At that time the
Company used its client base to generate revenue by collecting fees for
referring asbestos projects to independent companies which entered into
contractual relationships directly with the clients. As of October 1994, such
referral operations were ceased.

A subsidiary of the Company previously named Advatex Associates, Inc., a New
York company, changed its name to Alorex Corp.

BUSINESS OBJECTIVE

The Company intends to provide property and construction management services to
low-cost, functional commercial office buildings by providing on-site support
services and amenities at transportation hubs for the growing market of small to
medium-sized businesses. The Company's goal is to provide property and
construction management services in order to offer office space primarily in the
North Eastern part of the country at competitive rates with flexible lease terms
designed to address the varying needs of each prospective tenant.

<PAGE> 4
INVESTMENT AND OPERATING STRATEGY

The Company intends to focus on providing property and construction management
services to secondary office properties over 100,000 sq.ft., such as ATC's
Turnpike Plaza property. Institutional investors, REIT's and large developers
recently have not demonstrated a significant interest in purchasing smaller
properties in need of significant upgrading. Management believes that these
entities appear to be more interested in high profile properties requiring minor
cosmetic upgrading and having a minimal vacancy rate. The Company will use an
active approach in seeking asset appreciation. As a result of over twenty five
years of experience in construction and general contracting, the Company expects
to add value to its properties by saving substantially on capital and tenant
improvements and providing quality building services economically.

MARKETING PLAN

The Company will market properties it acquires or manages to small and medium
sized businesses and divisions of large corporations that are interested in
obtaining clean, well located office space at competitive rates. The Company
will concentrate on providing the products, services and amenities for these
types of tenants.

The National Federation of Independent Business Survey indicates that over 50%
of all economic activity in the country is generated by companies with under
twenty employees. Another 18% is comprised

<PAGE> 5
of divisions of large multi-national corporations that are cost centers and
operate as independent businesses. The Company will concentrate in providing
affordable office space for small and medium-sized tenants and all of its
properties will be configured to the needs of such tenants. Generally, the
industry standard is that each employee occupies 150 sq.ft. of office space.
Therefore, operations with 20 employees would typically occupy a 3,000 sq.ft.
office unit, which is the average unit size at Turnpike Plaza.

The Company's management believes the demand for small office units has
increased as a result of the steadily increasing numbers of small start-up
businesses. The Company will attempt to set aside 5% of the office space in each
property for such units.

BROKERAGE COMMUNITY

The Company believes it has a strong relationship with the brokerage community
stemming from over 25 years of working directly with property owners and
managers. This relationship is essential to attracting new tenants and to a
lesser extent to retaining existing tenants. The Company's relationship with the
brokerage community has been enhanced by its presentation of the tenant
retention and upgrading program by meeting with tenant representatives on a
quarterly basis and discussing any needs or problems they might have, plus the
introduction of the Flex-Lease (SM) Program (described below).

<PAGE> 6
FLEX-LEASE (SM) PROGRAM

The Flex-Lease program was recently initiated by the Company at Turnpike Plaza.
It enables a tenant to establish an identity at a business address for as long
or short a term as the prospective tenant desires. The tenant can choose to
access any or all of a variety of building services such as secretarial
services, conference facilities, telephone answering services, and short-term
project facilities of shared-executive office space.

BUSINESS RISKS

Certain risks are associated with the Company's business, including cyclical
down turns in the economy and the resultant reduction in demand for office
space. The Company competes in a market with numerous other companies which have
significantly greater resources than the Company. Some of the other risk factors
include an overall market reduction in rents, high purchase prices which could
limit the Company's ability to buy office buildings within its guidelines and an
increase in mortgage interest rates.

INFLATION

Over 75% of ATC's leases contain provisions to pass through to the tenant
charges resulting from increased operating and tax expenses. Such provisions
include clauses enabling the Company to bill a tenant for any operating expense
increase and real estate tax escalation above a specified amount. Such
provisions are designed to lessen the impact of inflation on the Company.

<PAGE> 7
PATENTS AND TRADEMARK

The Company was granted a service mark (SM)for its name and insignia by the U.S.
Patent Office on January 8, 1991. No other patents or proprietary rights are
held by the Company.

INSURANCE AND BONDING

ATC carries commercial and property insurance of $10,000,000. The Company
believes that the coverage is adequate to protect the Company's investment in
ATC. The Company's employees are insured under statutory workers' compensation
insurance maintained by the Company.

SIGNIFICANT TENANT

Most tenants of ATC are small businesses in various markets. During 1996 and
1995 one tenant accounted for 14% of gross leasable area. No other tenant
accounts for more than 7% of gross leasable area of Turnpike Plaza.

EMPLOYEES

As of December 31, 1996, the Company employed 2 persons.

ITEM 2. PROPERTIES AND EQUIPMENT

On April 1, 1995 the Company cancelled its month to month lease of an operating
office in a building located in midtown Manhattan. The Company relocated its
office to another building owned by the

<PAGE> 8
Company's controlling stockholder and chief executive officer Mr. Joseph P.
Donnolo. This space has been leased on a month to month basis at base rent of
$500 per month.

ITEM 3. LEGAL PROCEEDINGS

On June 24, 1993, the Mason Tenders District Council fringe benefit funds,
certain other industry funds and the District Council itself named the Company
and certain other companies with whom the Company did business as defendants in
a suit in the U.S. District Court for Southern District of New York {92 CIV.
3572 (KTD)} under the Employee Retirement Income Security Act ("ERISA") and the
Labor-Management Relation Act. The suit sought recovery in excess of one million
dollars in actual damages and ten million dollars in punitive damages for the
alleged non-payment of union dues, fringe benefit contributions and other
contributions allegedly required by the District Council's collective bargaining
agreement. The suit was settled in a stipulation and order approved and entered
by the court, to which the Company was a party, which called for a payment of
$700,000. The payment of the entire settlement amount was made by Angela
Donnolo, the wife of the controlling stockholder who is the Company's chief
executive officer, releasing the controlling stockholder and the Company from
liability in the lawsuit. In order to reimburse Ms. Donnolo for the payment of
the settlement, the Company made a cash payment to Ms. Donnolo of $100,000 and
issued her a note in the amount of $600,000. The Note has no maturity date and
bears interest at a rate of 8%. The Company has

<PAGE> 9
received representation from Ms. Donnolo that payment on the note will not be
demanded unless the Company has arranged additional and sufficient funding or an
alternate source of capital and in no event will payment be demanded prior to
April 30, 1998.

The Company is currently a party to various other suits and claims arising out
of the conduct of its business. In the opinion of management, based in part on
advice from legal counsel, the ultimate liability resulting from these pending
suits and claims should not have a material adverse effect on the Company's
business or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of stockholders on December 19, 1996. At
this time a majority of stockholders voted for the following two measures:
1) Elected a Board of Directors of three (3) directors.

<TABLE>
<CAPTION>
Votes
-----------------------------------
Candidate For Withheld Abstain
- - -------------------- --------- -------- -------
<S> <C> <C> <C>
Joseph P. Donnolo 4,826,777 11,930 625,067
Frank J. Fitzsimmons 4,826,777 11,930 625,067
James J. Gruba 4,826,777 11,930 625,067
</TABLE>

<PAGE> 10
2) Approved KPMG Peat Marwick LLP as independent auditor for the year ended
December 31, 1996.

<TABLE>
<CAPTION>
Votes
-------------------------------------------
For Against Abstain
--------- ------- -------
<C> <C> <C>
4,835,077 3,630 625,067
</TABLE>
No other items were voted upon.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock was quoted on the National Securities Dealers
Automated Quotation system until July 14, 1992.

On July 14, 1992 the Company stock was delisted from the National Association of
Security Dealers, Inc. as a result of not meeting certain criteria. As such, the
Company's Common Stock is not currently traded on any public market and the
stock price is not readily available.

As of March 10, 1997, there were 238 holders of record of the Company's Common
Stock.

The Company has not paid dividends on its Common Stock. It is management's
present intention not to declare or pay dividends on its Common Stock, but to
retain the earnings for reinvestment in the operations of the Company.

<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial information of
the Company for the fiscal years 1996, 1995, 1994, 1993, and 1992.

The following selected financial data should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Form 10-K. (See Financial Statements and
Supplementary Data).

<PAGE> 12
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In thousands,except per
------------------------
share data amounts)
-------------------

Income Statement Data: 1996 1995 1994 1993 1992
- - ------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Contract revenue and
referral fees............ $ - - 150 4,508 13,473

Cost of contract revenues $ - - - 4,383 12,109

Provision for doubtful
accounts................. $ - - - 170 80

General and administrative
expenses................. $ 368 889 705 1,101 1,783

Restructuring costs....... $ - - - 343 989

Operating loss............ $ (368) (889) (555) (1,488) (1,487)

Other income (expense):

Interest Income.......... $ 0 3 33 28 39

Interest expense......... $ (48) (8) - (28) (60)

Real estate management
fee..................... $ 42 21 6 - -

Other income............. $ 100 100 - - -

Gain on disposal of
automobile............ $ 5 - - - -

Loss before equity in
operations of investee.. $ (269) (773) (516) (1,488) (1,509)
Equity in operation of
investee ............... $ 24 35 (2) - -

Net loss.................. $ (245) (738) (518) (1,488) (1,509)
Net loss per common
share................... $ (.05) (.14) (.10) (.28) (.28)
Weighted average shares
outstanding ............ 5,403 5,403 5,403 5,389 5,311
</TABLE>

<PAGE> 13
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In thousands, except per
-------------------------
share data amounts)
-------------------

Balance Sheet Data: 1996 1995 1994 1993 1992
- - ------------------------- ------- ------ ------ ------ -----

<S> <C> <C> <C> <C> <C>
Working capital.......... $ (553) (208) (42) 1,758 2,784

Total assets............. $ 1,733 1,426 1,929 2,142 6,669

Total liabilities ....... $ 1,452 900 665 360 3,402

Total stockholders' equity $ 281 526 1,264 1,782 3,267

Book value per common share
at year end............ $ .05 .10 .23 .33 .62
</TABLE>

<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996, AS COMPARED WITH YEAR ENDED
DECEMBER 31, 1995.

The Company had no referral fees and contract revenues for fiscal 1996 and 1995.
In the second quarter of 1993, management changed the manner in which the
Company conducts its business by ceasing all field operations. For the first two
quarters of 1994 the Company generated revenue by collecting fees for referring
projects to independent companies which entered into contractual relationships
directly with the clients. The referral fees during the last two quarters of
1994 were minimal and such operations ceased as of October 1994. On September 9,
1994 the Company purchased 40% of the outstanding common stock of ATC Real
Estate and Development Corporation (ATC) through its wholly owned subsidiary,
Advatex Real Estate Corporation. As part of this transaction the Company entered
into a contract with ATC to

<PAGE> 15
manage and operate ATC's property. Under this agreement the Company receives 3%
of annual gross receipts as a management fee.

General and administrative expenses for 1996 were $368,087, as compared to
$889,264 in 1995. In 1995, general and administration expenses included a charge
of $500,000 for the final settlement of a lawsuit described in "Item 3- Legal
Proceedings" and related legal costs.

The operating loss for fiscal 1996 is $368,087 as compared to an operating loss
of $889,264 for fiscal 1995.

Interest expense for 1996 was $48,000 as compared to $8,000 in 1995. The
increase of interest expense for 1996 is a result of accrual of interest on a
note payable issued to the wife of the controlling stockholder of the Company
for the full year as compared to two months in 1995. There is no interest
expense presently recorded for amount due to affiliated companies.

Real estate management fees for 1996 were $42,000 as compared to $20,568 during
fiscal 1995. The Company's management fee is 3% of Turnpike Plaza rental income
therefore, this increase is a direct result of the Turnpike Plaza increased
rental income during fiscal 1996.

Other revenue was $100,000 for both 1996 and 1995. During 1996 and 1995 the
Company provided construction management and financial management to ATC. The
fee for such services was charged to other income.

Gain on disposal of an automobile was $5,229 for fiscal 1996. During fiscal
1996, as a result of an accident, the Company disposed of a vehicle with a net
book value of $10,225. The insurance proceeds were $15,454, which resulted in a
gain of $5,229.

No tax benefit is available for federal income tax purposes since the Company
has used its carryback benefits. Carrybacks are no longer allowed for New York
State and New York City income tax purposes.

<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, the Company's current ratio (current assets to current
liabilities) was 0.33 to 1 as compared to 0.31 to 1 at December 31, 1995. For
the year ended December 31, 1996, the Company experienced a positive cash flow
from operations of $93,099 as compared with a negative cash flow from operations
of $1,095,968 for the prior year. The current year positive cash flow primarily
results from an increase in accounts payable and accrued expenses of $25,565, an
increase in accounts payable-affiliate of $500,000 which was partially off set
by an increase of prepaid insurance of $30,000, an increase in investment in
affiliated company of $23,892 and a net loss of $244,845.

<PAGE> 17
The Company believes it has the ability to finance its immediate operating cash
requirements to the extent necessary based on its investment in ATC and the fact
that the property owned by ATC is not encumbered with any debt.

The Company's immediate goal is to minimize its operating losses. In this
regard, expenses have been reduced to a minimum. However, the Company's long
term goal is to explore and use its resources in a real estate or construction
related business opportunity with long term growth potential.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, together with the report
of auditors thereon are included in Item 14 of this Form

<PAGE> 18
10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None Applicable.

PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY

NAME AGE TITLE AND PERIOD OF SERVICE
- - ------------------------ ---- ----------------------------------------

Joseph P. Donnolo 53 Chairman of The Board and Chief Executive
Officer since 1987.

Frank J. Fitzsimmons 50 Partner, Fitzsimmons & Ringle, P.C.,
Director, Secretary of the Corporation

James J. Gruba 56 President, James J. Gruba and Company
Director of the Corporation

Rohullah F. Lodin 35 Chief Financial Officer and
Chief Accounting Officer since 1992.

Mr. Donnolo has been Chairman of the Board of Directors and Chief Executive
Officer of the Company since its formation in August 1987. Mr. Donnolo is the
founder and controlling shareholder of the Company and its predecessor
companies.

Mr. Fitzsimmons has been counsel to the Company since its formation. Mr.
Fitzsimmons was first elected a director of the Company in 1987 and in April
1989 was elected to act as a non-salaried Corporation Secretary of the Company.
Mr. Fitzsimmons has been a practicing attorney with, and a principal of, the
firm of Fitzsimmons & Ringle,

<PAGE> 19
P.C. in Newark, New Jersey since 1986, and prior thereto was a sole legal
practitioner in Newark, New Jersey. Mr. Fitzsimmons is also a director of Ragon
Corporation, Inc.

Mr. Gruba has been president of James J. Gruba & Co., a private real estate
investment concern since 1989. He was first elected a director of the Company in
1988. Previously, Mr. Gruba has been a Senior Vice President for Westpac Pollack
Government Securities, Inc. Since July 1988. Mr. Gruba has been a Vice President
with Dillon, Read & Co. and since 1986, he has been a Director of Whole Loans at
Morgan Stanley & Co.

Mr. Lodin joined the Company in February 1988 as Corporate Controller. In
September of 1992, Mr. Lodin was promoted to his present position of Chief
Financial Officer and Chief Accounting Officer. Mr. Lodin has been a Director of
IDF International and Haden Wegman since April 15, 1996. Previously Mr. Lodin
had been Controller for P.R.Y. Law Firm from January 1987 until February 1988.
Prior to that, he was an Accounting Manager for Techland System, Inc. from June
1985.

In connection with the Company's 1996 Annual Meeting of Stockholders, the
Company intends to furnish Stockholders with proxy materials which set forth the
information required by Items 10, 11, 12 and 13 of this Part III. Copies of such
material will be duly filed with the Securities and Exchange Commission pursuant
to Rule 14a-6(c) promulgated under the Securities Exchange Act of 1934, as
amended, not

<PAGE> 20
later than 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this
report on Form 10-K:

(1) Consolidated financial statements of the Company for the years
ended December 31, 1996, 1995 and 1994 required to be filed by Item 8 and 14(d)
of Form 10-K. See Index to Consolidated Financial Statements of the Company.

20
<PAGE> 21
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Financial Statements

Index
-----

Page
----

Independent Auditors' Report F - 1

Consolidated Financial Statements:

Consolidated Balance Sheets - December 31, 1996 and 1995 F - 2

Consolidated Statements of Operations - Years ended
December 31, 1996, 1995 and 1994 F - 3

Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1996, 1995 and 1994 F - 4

Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994 F - 5

Notes to Consolidated Financial Statements F - 6

All schedules have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

<PAGE> 22
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Advatex Associates, Inc.:

We have audited the consolidated financial statements of Advatex Associates,
Inc. and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Advatex
Associates, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.

/s/ KPMG Peat Marwick LLP
- - ------------------------------
KPMG Peat Marwick LLP

February 21, 1997
Short Hills, New Jersey

F-1
<PAGE> 23
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 1996 and 1995

<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ----------

<S> <C> <C>
Current assets:
Cash $ 82,572 52,921
Accounts receivable - affiliate 32,018 15,018
Prepaid insurance 30,000 -
Loans receivable - affiliate (note 6) - 24,000
----------- ----------
Total current assets 144,590 91,939

Investment in affiliated company (note 4) 1,347,559 1,323,667
Notes receivable - affiliate (note 6) 146,500 -
Investment (note 6) 37,500 -
Notes receivable (note 6) 12,500 -
Property and equipment, net (note 3) 44,177 10,226
----------- ----------

Total assets $ 1,732,826 1,425,832
=========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses 160,726 135,161
Accrued stock compensation 164,634 164,634
Notes payable - affiliated companies (note 6) 500,000 -
----------- ----------

Total current liabilities 825,360 299,795
----------- ----------

Note payable - automobile 26,274 -
Note payable - affiliate (note 8) 600,000 600,000

Stockholders' equity (note 7):
Common stock, $.01 par value. Authorized
20,000,000 shares; issued 5,403,250
shares 54,032 54,032
Additional paid-in capital 6,885,119 6,885,119
Accumulated deficit (6,575,189) (6,330,344)
Treasury stock, at cost - 6,226 shares (82,770) (82,770)
----------- ----------
Total stockholders' equity 281,192 526,037

Commitments and contingencies (note 8)

Total liabilities and stockholders' ----------- ----------
equity $ 1,732,826 1,425,832
=========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2

<PAGE> 24

ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 1996, 1995 and 1994

1996 1995 1994
----------- --------- ---------

<S> <C> <C> <C>
Real estate management fee (note 4) $ 42,000 20,568 5,550
Other revenue (note 4) 100,000 100,000 -
Contract revenues and referral fees - - 150,492
----------- --------- ---------
142,000 120,568 156,042

Costs and expenses - general and
administrative expenses 368,087 889,264 705,464
----------- --------- ---------

Operating loss (226,087) (768,696) (549,422)

Other income (expense):
Interest income 121 3,152 33,059
Interest expense (48,000) (8,000) -
Gain on disposal of automobile 5,229 - -
----------- --------- ---------
Loss before equity in
operations of
investee (268,737) (773,544) (516,363)

Equity in operations of investee (note 4) 23,892 35,333 (1,666)
----------- --------- ---------

Net loss $ (244,845) (738,211) (518,029)
=========== ========= =========

Loss per common and common share
equivalent $ (.05) (.14) (.10)
=========== ========= =========

Weighted average number of common and
common share equivalents outstanding 5,403,250 5,403,250 5,403,250
=========== ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 25
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
Addi-
tional Accumu- Stock-
Commo paid-in lated Treasury holders'
stock capital deficit stock equity
------- --------- ---------- ------- ----------

<S> <C> <C> <C> <C> <C>
Balance at December 31 1993 $54,032 6,885,119 (5,074,104) (82,770) 1,782,277
Net loss -- -- (518,029) -- (518,029)
------- --------- ---------- ------- ----------
Balance at December 31, 1994 54,032 6,885,119 (5,592,133) (82,770) 1,264,248

Net loss -- -- (738,211) -- (738,211)
------- --------- ---------- ------- ----------
Balance at December 31, 1995 54,032 6,885,119 (6,330,344) (82,770) 526,037

Net loss -- -- (244,845) -- (244,845)
------- --------- ---------- ------- ----------

Balance at December 31, 1996 $54,032 6,885,119 (6,575,189) (82,770) 281,192
======= ========= ========== ======= ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 26

ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ----------

<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(244,845) (738,211) (518,029)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,000 8,000 5,618
Gain on disposal of automobile (5,229) -- --
Equity in operations of investee (23,892) (35,333) 1,666
Increase (decrease) in cash due to changes in:
Contract receivables -- -- 382,567
Accounts receivable - affiliate (17,000) 6,793 (21,811)
Prepaid insurance (30,000) 33,985 (4,500)
Loans receivable - affiliate -- (24,000) --
Other current assets -- 17,796 75,721
Accounts payable and accrued expenses 25,565 (257,498) 197,272
Accounts payable - affiliate -- (107,500) --
---------- ---------- ----------

Net cash (used in) provided by
operating activities (284,401) (1,095,968) 118,504
---------- ---------- ----------

Cash flows from investing activities:
Increase in notes receivable - affiliate (122,500) -- --
Purchase of investment (37,500) -- (1,182,500)
Increase in notes payable - affiliated companies 500,000 -- --
Increase in notes receivable (12,500) -- --
Proceeds from disposal of assets 15,455 -- --
Additions to property and equipment (55,177) -- --
---------- ---------- ----------

Net cash provided by (used in)
investing activities 287,778 -- (1,182,500)
---------- ---------- ----------

Cash flows from financing activities:
Notes payable - affiliate -- 600,000 --
Notes payable - auto 26,274 -- --
---------- ---------- ----------

Net cash provided by financing activities 26,274 600,000 --
---------- ---------- ----------

Increase (decrease) in cash 29,651 (495,968) (1,063,996)

Cash at beginning of year 52,921 548,889 1,612,885
---------- ---------- ----------

Cash at end of year $ 82,572 52,921 548,889
========== ========== ==========

Supplemental disclosure of cash flow information
cash paid during the year for interest $ 8,000 -- --
========== ========== ==========
</TABLE>

Supplemental disclosure of noncash operating and investing activities - during
1996, the Company converted loans receivable - affiliate of $24,000 to a
note receivable.

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 27
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 1996 and 1995

(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Advatex Associates, Inc. (the Company) provided asbestos removal and
other related abatement services. Such services were provided primarily
to commercial office buildings in the New York metropolitan area. During
1993, management discontinued field operations related to asbestos
removal and sought new business opportunities. In September 1994 the
Company purchased a 40% interest in a company that owns and operates a
commercial real estate property (see note 4).

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of certain financial instruments. The carrying amounts of
receivables, accounts payable and accrued expenses approximate fair value
due to the short-term maturity of such instruments.

INCOME TAXES

The Company accounts for income taxes using the asset and liability
method under which deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases.

LOSS PER COMMON AND COMMON SHARE EQUIVALENTS

Loss per common and common share equivalents is computed by dividing net
loss by the weighted average number of common and common share
equivalents outstanding. Common share equivalents relative to outstanding
stock options (see note 7) have not been considered as they are
antidilutive.

F-6
<PAGE> 28
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1), CONTINUED

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. For financial reporting
purposes, automotive vehicles are being depreciated using the
straight-line method over the estimated useful lives of the assets. For
income tax purposes, accelerated methods are used.

INVESTMENT IN AFFILIATED COMPANY

The Company accounts for its 40% ownership interest in the common stock
of an affiliate using the equity method (see note 4).

STOCK OPTION PLAN

Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defines in SFAS No. 123
had been applied. The Company did not grant any stock options in 1995 or
1996, thus the adoption of SFAS No. 123 had no impact on the Company's
consolidated financial position, results of operations or liquidity for
the year ended December 31, 1996.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount of fair value less costs to sell.
Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.

RECLASSIFICATION

The 1995 and 1994 financial statements have been reclassified, where
appropriate, to conform to the 1996 financial statement presentation.

F-7
<PAGE> 29
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) BUSINESS OPERATIONS

The Company has experienced substantial operating losses over the past
several years and has a working capital deficit of $680,770 at December
31, 1996. During 1996, the Company borrowed funds from affiliated
companies to support operations. The Company has sought to minimize
general and administrative expenses, however, losses may continue in
future years which may require the Company to obtain additional funds
from its affiliates. The Company's controlling stockholder is also the
controlling stockholder of Advanced Contracting, Inc. (Advanced). The
Company believes that it will be able to cause its affiliates to support
the financing requirements of the Company for at least the next 12
months. There can be no assurance that the Company will be able to attain
profitable operations.

(3) PROPERTY AND EQUIPMENT, NET

Property and equipment, net at December 31, 1996 and 1995 consists of the
following:

<TABLE>
<CAPTION>
1996 1995
------ ------

<S> <C> <C>
Automotive vehicles 55,177 25,678
Less accumulated depreciation 11,000 15,452
------ ------

44,177 10,226
====== ======
</TABLE>

(4) INVESTMENTS

On September 9, 1994 the Company purchased 40% of the outstanding common
stock of ATC Real Estate and Development Corporation (ATC) through the
Company's wholly - owned subsidiary, Advatex Real Estate Corporation,
which was formed in the State of Delaware on August 18, 1994. The
purchase price of $1,290,000 was paid from cash and cash equivalents held
by the Company, of which $107,500 was paid in January 1995. ATC owns a
100% interest in a property known as Turnpike Plaza located in East
Brunswick, New Jersey. ATC was formed by Advatex Real Estate Corporation
and Advanced, a related entity (see note 6). ATC purchased Turnpike Plaza
on September 9, 1994 for consideration of $3,226,000, which consisted of
a $2,131,000 payment in cash, a commitment to repair the parking garage
attached to the property at an estimated cost of $650,000, and
assumptions of various liabilities, commitments and closing costs
amounting to $445,000. In December 1996, ATC entered into a mortgage loan
commitment with a financial institution to borrow up to $3,750,000. The
loan is to be secured by Turnpike Plaza.

The Company entered into a contract with ATC to manage and operate the
property. The management fee for such services is 3% of the gross
receipts of the property. The income recorded of $42,000, $20,568 and
$5,550 in 1996, 1995 and 1994, respectively, for the management services
provided by the Company is included in real estate management fee on the
consolidated statements of operations.

F-8
<PAGE> 30
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4), CONTINUED

The Company provided construction management and financial management
services to ATC in 1996 and 1995. The income recorded in 1996 and 1995 of
$100,000 for such services provided by the Company is included in other
revenue on the consolidated statements of operations. The Company did not
provide these services for ATC in 1994.

Summarized information for the investment accounted for by the equity
method follows:

<TABLE>
<CAPTION>
1996 1995
---------- ---------

<S> <C> <C>
Current assets $ 235,907 506,260
Property, net 2,823,505 2,726,665
Other assets 504,265 121,559
---------- ---------

$3,563,677 3,354,484
========== =========

Liabilities 549,778 400,316
Total stockholders' equity 3,013,899 2,954,168
---------- ---------

$3,563,677 3,354,484
========== =========

Total net revenue $1,459,625 1,278,356
========== =========

Net income $ 59,731 88,333
========== =========

Company's equity in net income $ 23,892 35,333
========== =========
</TABLE>

(5) INCOME TAXES

As the Company is in a loss carryforward position, no tax benefits were
recorded relative to the losses incurred in 1996, 1995 and 1994.

The tax effects of temporary differences that would give rise to deferred
tax assets at December 31, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>
1996 1995
---------- ---------

<S> <C> <C>
Interest expense disallowance $ 26,450 --
Accrued legal -- 21,380
Net operating loss carryforwards 2,190,970 1,776,000
Contribution carryover 43,180 43,180
Depreciation 3,790 1,940
---------- ---------
Total gross deferred
tax assets 2,264,390 1,842,500

Less valuation allowance 2,264,390 1,842,500
---------- ---------

Net deferred tax asset $ -- --
========== =========
</TABLE>

F-9
<PAGE> 31
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5), CONTINUED

The valuation allowance for deferred tax assets as of January 1, 1996 was
$1,842,500. The net change in the total valuation allowance for the year
ended December 31, 1996 was an increase of $421,892.

The Company has available at December 31, 1996 net operating loss
carryforwards of approximately $5.9 million which expire in the years
2006 to 2011.

(6) RELATED-PARTY TRANSACTIONS

The Company's controlling stockholder owns 49% of ATC (see note 4).
During the first three months of 1995, and for the year 1994, the Company
leased office space at $36,000 per year on a month-to-month basis, and
sublet a portion of it to Advanced at $3,000 per month. For 1996 and the
last nine months of 1995 the Company leased office space provided by the
controlling stockholder at $500 per month.

Legal services are provided to the Company by a firm in which a director
of the Company is a member. Legal fees billed by the firm were
approximately $99,000, $67,000 and $7,000 in 1996, 1995 and 1994,
respectively.

Notes payable - affiliated companies consist of $325,000 due to ATC and
$175,000 due to Advanced at December 31, 1996. There was no amount due to
affiliated companies at December 31, 1995. The notes are due on demand
and bear interest at the rate of 8%. The notes were converted into notes
payable from accounts payable on December 31, 1996. The Company has
received representation from the affiliated companies that payment on the
notes will not be demanded unless the Company has arranged additional and
sufficient funding or an alternate source of capital and in no event will
payment be demanded prior to January 1, 1998.

The notes receivable - affiliate of $146,500 at December 31, 1996, and
the loans receivable - affiliate of $24,000 at December 31, 1995 are due
from Sprint Recycling, Inc. which is owned 100% by the controlling
stockholder of the Company. The note is due on demand and bears interest
at the rate of 8%. The note was converted from loans receivable to a note
receivable on December 31, 1996. The controlling stockholder of the
Company has guaranteed the payment of the note receivable.

The Company has a $37,500 investment at December 31, 1996 in IDF
International, Inc. and subsidiaries (IDF) and a $12,500 note receivable
from IDF. The note is due in 1999. A member of the Company's management
is a member of the Board of Directors of IDF.

Management believes that all of the foregoing arrangements are upon terms
no less favorable to the Company than those which could be obtained from
unrelated third parties.

F-10
<PAGE> 32
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(7) STOCK OPTION AND INCENTIVE PLANS

In June 1988, stockholders approved the Company's 1987 Stock Option Plan,
which provides for the granting of both qualified and non-qualified
options for the purchase of 200,000 shares of common stock. No options
have been granted under this plan.

In September 1988, the Board of Directors (the Board) adopted the 1988
Stock Incentive Plan (1988 Plan). The 1988 Plan provides for the issuance
through September 1998 of 500,000 shares of common stock-based awards in
the form of restricted common share grants and performance common share
awards, as well as qualified and non-qualified options. Stock-based
awards and qualified options may only be granted to employees and
officers, while non-qualified options may be granted to consultants and
others, as well as to employees and officers. The controlling stockholder
is excluded from receiving any awards under the 1988 Plan. Vesting
periods for all grants and awards under the 1988 Plan are determined at
the discretion of the Board, except that incentive options must vest
within a ten-year period from date of grant. The 1988 Plan expires on
September 25, 1998.

At December 31, 1996, 1995 and 1994, the Board had granted 126,500 shares
of restricted stock under the 1988 stock-based awards program. The shares
awarded are in the name of the employees, who have all the rights of a
stockholder, subject to certain restrictions.

At December 31, 1996, 1995 and 1994, Non-qualified Stock Options have
been granted under the 1988 Plan for the purchase of an aggregate of
359,032 shares to officers, employees and consultants of the Company. The
exercise prices for such options are from $.04 to $1.75 per share. No
options were granted or exercised in 1996, 1995 or 1994. At December 31,
1996 and 1995, 276,448 shares are exercisable and 14,468 shares are
available for grant under the 1988 Plan.

The 1990 Stock Option Plan for Outside Directors provides for the
issuance of non-qualified options to purchase shares of common stock to
outside members of the Board. At December 31, 1996 and 1995, 60,000
options are exercisable at an average price of $2.916 per share. The
Company has reserved 100,000 shares for issuance under this plan.

(8) COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under arrangements
accounted for as operating leases. Rent expense (net of sublease income)
charged to operations under such arrangements aggregated approximately
$6,000, $8,800 and $9,000 in 1996, 1995 and 1994, respectively.

The Company had an employment agreement with the controlling stockholder
which expired December 31, 1993. The agreement provided for a base salary
of $100,000 and an annual bonus, not in excess of $500,000. The
controlling stockholder elected to receive compensation in an amount less
than his base salary for the years 1996, 1995 and 1994. The agreement
also contained post-employment noncompete provisions and provided that
the Company maintain term life insurance on the controlling stockholder's
life in the amount of $1,000,000 for the benefit of his designated
beneficiary.

F-11
<PAGE> 33
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(8), CONTINUED

On June 24, 1993, the Mason Tender District Council fringe benefit funds,
certain other industry funds and the District Council itself named the
Company and certain other companies with whom the Company did business as
defendants in a suit in the U.S. District Court for the Southern District
of New York (92 CIV. 3572 (KTD)) under the Employee Retirement Income
Security Act (ERISA) and the Labor-Management Relation Act. The suit
sought recovery in excess of one million dollars in actual damages and
ten million dollars in punitive damages for the alleged nonpayment of
union dues, fringe benefit contributions and other contributions
allegedly required by the District Council's collective bargaining
agreement. The suit was settled in a stipulation and order approved and
entered by the court, to which the Company was a party, which called for
a payment of $700,000. The payment of the entire settlement amount was
made by Angela Donnolo, the wife of the controlling stockholder and chief
executive officer, releasing the controlling stockholder and the Company
from liability in the lawsuit. In order to reimburse Ms. Donnolo for the
payment of the settlement, the Company made a cash payment of $100,000
and issued her a note in the amount of $600,000. The Note has no maturity
date and bears interest at a rate of 8% per annum. The Company has
received representation from Ms. Donnolo that payment on the note will
not be demanded unless the Company has arranged additional and sufficient
funding or an alternate source of capital and in no event will payment be
demanded prior to April 30, 1998.

The Company is currently a party to various other suits and claims
arising out of the conduct of business. In the opinion of management,
based in part on advice from legal counsel, the ultimate liability
resulting from these pending suits and claims (after taking into account
insurance coverage applicable to the events giving rise to such pending
suits and claims) will not have a material adverse effect upon the
consolidated financial position of the Company but may have a material
effect upon future years' consolidated results of operations.
<PAGE> 34
(2) Exhibits
Exhibit Number Description
- - -------------- -----------

3.1 Certificate of Incorporation. Incorporated by reference to Exhibit 3(i)
to the Company's Registration Statement on Form S-18 (No. 33-16793-NY)
(the "Registration Statement").

3.2 By-Laws. Incorporated by reference to Exhibit 3(ii) to the Registration
Statement.

10 Employment agreement between the Company and Joseph P. Donnolo.
Incorporated by reference to Exhibit 10(i) to Amendment No. 1 to the
Registration Statement.

10.1 Agreement and line of credit between the Company and Bank Leumi Trust of
NY, dated January 15, 1993. Incorporated by reference to Exhibit 10.2 to
the Company's 1992 Annual Report on Form 10-K.

10.2 Lease from 1499-1501 Broadway Company of office space of 1501 Broadway,
New York, New York dated August 24, 1987. Incorporated by reference to
Exhibit 10.5 to the Company's 1987 Annual Report on Form 10-K.

10.3 The Amended 1990 Stock Option plan for Outside Directors. Incorporated by
reference to Exhibit 10.3 to the Company's 1990 Annual Report on Form
10-K.

10.4 The Amended 1990 Stock Option plan for outside Directors. Incorporated by
reference to Exhibit 10.4 to the Company's 1990 Annual Report on Form
10-K.

10.5 The Amended 1988 Stock Incentive plan. Incorporated by reference to
Exhibit 10.5 to the Company's 1990 Annual Report on Form 10-K.

10.6 Subsidiaries of the Company. Incorporated by reference to Exhibit 10.6 to
the Company's 1990 Annual Report on Form 10-K.

10.7 Lease from 1499-1501 Broadway Company of office space of 1501 Broadway,
New York, New York, dated April 6, 1992. Incorporated by reference to
Exhibit 10.7 to the Company's 1992 Annual Report on Form 10-K.

10.8 Management agreement, dated September 9, 1994.

23
<PAGE> 35
Upon written request, the Company will provide any exhibit listed above to any
stockholder of the Company at a price not to exceed the cost to the Company of
providing such exhibit.

<PAGE> 36
Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Advatex Associates, Inc.

By: /s/ Rohullah F. Lodin
------------------------
Rohullah F. Lodin
Chief Financial Officer
and Chief Accounting Officer

Dated: March 24, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.

Signatures Title Date
- - ---------- ----- ----

/s/ Joseph P. Donnolo Chairman of the March 24, 1997
- - ------------------------ Board and Chief
Joseph P. Donnolo Executive Officer

/s/ Frank J. Fitzsimmons Director March 24, 1997
- - ------------------------
Frank J. Fitzsimmons

24
<PAGE> 37
EXHIBIT INDEX
-------------

Exhibit Number Description
- - -------------- -----------