<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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 N.Y. 10036
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (212) 921-0600
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 filing requirements
for the past 90 days.
Yes X No
--- ---
As of May 6, 1997 Registrant had 5,470,000 shares of its Common Stock, $.01 par
value, outstanding.
<PAGE> 2
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 38,236 82,572
Accounts Receivable - affiliate 44,018 32,018
Prepaid insurance 20,000 30,000
---------- ----------
Total current assets $ 102,254 144,590
Investment in affiliated companies 1,347,559 1,347,559
Note receivable-affiliate 146,500 146,500
Investment 37,500 37,500
Notes receivable 12,500 12,500
Property and equipment, net 41,177 44,177
---------- ----------
Total assets $1,687,490 1,732,826
========== ==========
</TABLE>
(Continued)
<PAGE> 3
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 102,725 160,726
Notes payable-affiliated companies 565,000 500,000
Accrued stock compensation 164,634 164,634
----------- -----------
Total current liabilities 832,359 825,360
----------- -----------
Note payable - automobile 26,274 26,274
Note payable - affiliate 600,000 600,000
Stockholders' equity:
Common stock, $.01 par value
Authorized 20,000,000 shares;
5,403,250 shares issued 54,032 54,032
Additional paid-in capital 6,885,119 6,885,119
Accumulated deficit (6,627,524) (6,575,189)
Treasury stock, at cost, 27,506
shares (82,770) (82,770)
----------- -----------
Total stockholders' equity 228,857 281,192
----------- -----------
Total liabilities and
stockholders' equity $ 1,687,490 1,732,826
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Real estate management fee $ 12,000 10,000
General and administrative
expenses 52,360 55,097
----------- -----------
Operating loss (40,360) (45,097)
----------- -----------
Other income (expense):
Interest income 25 30
Interest expense 12,000 -0-
----------- -----------
Net loss (52,335) (45,067)
=========== ===========
Net loss per common share $ (0.01) (0.01)
----------- -----------
Weighted average number of
common shares outstanding 5,470,000 5,470,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (52,335) (45,067)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 3,000 -0-
Increase (decrease) in cash due to change in:
Prepaid insurance 10,000 -0-
Other current assets -0- (471)
Accounts payable and accrued expenses (58,001) (75,512)
Accounts receivable - affiliate (12,000) (10,000)
Loans receivable - affiliate -0- (72,500)
--------- ---------
Net cash used in operating activities (109,335) (203,550)
Cash flows provided by financing
activities-
Notes payable-affiliated companies 65,000 250,000
Cash flows used in investing activities-
Purchase of machinery and equipment -0- (20,084)
--------- ---------
(Decrease) increase in cash and
cash equivalents (44,336) 26,366
Cash and cash equivalents at
beginning of period 82,572 52,921
--------- ---------
Cash and cash equivalents at
end of period $ 38,236 79,287
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(1) BASIS OF PRESENTATION
The financial information for the three-month periods ended March 31, 1997 and
1996 included herein is unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for the fair presentation of results for
the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and related notes included in the Company's December 31,
1996 annual report on Form 10-K.
The results of operations for the three-month periods ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
(2) FASB STATEMENT NO 128 "EARNINGS PER SHARE"
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.128, "Earnings Per Share",
(Statement 128). Statement 128 supersedes APB Opinion No.15, "Earnings Per
Share", and specifies the computation, presentation, and disclosure requirements
for earning per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces primary EPS
<PAGE> 7
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. Statement
128 also requires dual presentation of Basic and Diluted EPS on the face of the
income statement for entities with complex capital structures and a
reconciliation of the information utilized to calculate Basic EPS to that used
to calculate Diluted EPS.
Statement 128 is effective for financial statements periods ending after
December 15, 1997. Earlier application is not permitted. After adoption, all
prior period EPS is required to be restated to conform with Statement 128.
<PAGE> 8
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue from the real estate management fee for the three-month period ended
March 31, 1997 were $12,000 as compared to $10,000 for the same period in 1996.
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 ("AREC""). As part of this
transaction the Company entered into a contract with ATC to manage and operate
ATC's property. Under this agreement the Company receives 3% of annual gross
receipt as a management fee. On April 11, 1997 ATC entered into a mortgage loan
of $3,750,000 with a financial institution with ATC's property serving as a
collateral. The term of the mortgage is 10 years with amortization of the
principal over 20 years. The interest rate on this mortgage is 8.17%. The
Company has been informed that ATC will determine how the net proceeds of the
mortgage loan will be used in the near future.
General and administrative expenses were $52,360 for the three-months ended
March 31, 1997 as compared to $55,097 for the same period in 1996.
Interest expense was $12,000 for the three-months ended March 31, 1997 as
compared to no interest expense for the same period in 1996. Interest expense is
accrued at 8% for the outstanding balance of the Note payable-affiliate during
fiscal 1997 (see Part II - Item I - Legal Proceedings).
<PAGE> 9
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
The Board of Directors of the Company resolved, on May 5, 1997, to effect a
merger between its two wholly-owned subsidiaries, AREC which owns shares of
common stock of ATC and Alorex Corp., a New York corporation ("Alorex"),
pursuant to which Alorex will be the surviving corporation.
No change in the assets, liabilities or other financial performance of the
Company on a consolidated basis is effected by the merger.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's current ratio, that is, the ratio of current
assets to current liabilities, was 0.12 to 1 as compared to 0.18 to 1 at
December 31, 1996. Cash used in operating activities for the three months ended
March 31, 1997 was $109,335 as compared to cash used in operating activities of
$203,550 for the same period in 1996. The negative cash flow from operations for
the current three-month period ended March 31, 1997 is primarily due to the net
loss of 52,335 and a decrease in accounts payable and accrued expenses of
$58,001, partially offset by a decrease in Prepaid insurance of $10,000.
The note receivable-affiliate of $146,500 at March 31, 1997 due from Sprint
Recycling, Inc. has been guaranteed by the controlling stockholder.
The notes payable-affiliated companies of $565,000 at March 31, 1997 are due on
demand. The Company has received representation from the affiliated companies
that payment on the notes will not be demanded unless the Company
<PAGE> 10
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
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 Company has experienced substantial operating losses over the past several
years. The Company has sought to minimize general and administrative expenses,
however, losses may continue in the future years which may require the Company
to obtain additional funds from its affiliates.
PART II - Other Information
Item 1
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 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
<PAGE> 11
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
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 Mrs. Donnolo of $100,000 and
issued her a note in the amount of $600,000. The Note has no maturity and will
be due no earlier than April 23, 1997 and bears interest at a rate of 8%
annually.
To management's knowledge, there are no other pending or contemplated legal
proceedings against the Company that could be reasonably expected to have a
material adverse effect on the Company's business or financial position.
Item 2
Changes in Securities.
No changes in securities during the quarter for which this Form 10-Q quarterly
report is filed
Item 3
Defaults upon Senior Securities.
N/A.
Item 4
Submission of Matters to a Vote of Security Holders.
No matters have been filed for a vote to security holders.
Item 5
Other Information.
No other information reported during the quarter for which this Form 10-Q
<PAGE> 12
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
quarterly report is filed.
Item 6
Exhibits and Reports on Form 8-K.
a) Exhibits are incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
b) No reports on Form 8-K were filed during the quarter for which this Form 10-Q
quarterly report is filed.
<PAGE> 13
Signatures
Pursuant to the requirements 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.
Date: May 14, 1997 ADVATEX ASSOCIATES, INC.
(Registrant)
/s/ Joseph P. Donnolo
-------------------------------
Joseph P. Donnolo
Chairman and Chief
Executive Officer
/s/ Rohullah F. Lodin
-------------------------------
Rohullah F. Lodin
Chief Financial and Chief
Accounting Officer
Date: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 38,236
<SECURITIES> 0
<RECEIVABLES> 44,018
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,254
<PP&E> 55,177
<DEPRECIATION> 14,000
<TOTAL-ASSETS> 1,687,490
<CURRENT-LIABILITIES> 832,359
<BONDS> 0
0
0
<COMMON> 54,032
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,681,490
<SALES> 12,000
<TOTAL-REVENUES> 12,000
<CGS> 52,360
<TOTAL-COSTS> 52,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (52,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,335)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
