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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
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 7, 1998 Registrant had 5,397,024 shares of its Common Stock, $.01 par
value, outstanding.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Part I - Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 1998 1997
- ------ ------------ ----------
(unaudited)
Current assets:
Cash $ 941,404 815,804
Accounts Receivable - affiliate 181,019 181,019
Prepaid expenses 27,829 49,230
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Total current assets 1,150,252 1,046,053
Note receivable-affiliate -0- 146,500
Property and equipment, net 33,175 35,177
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Total assets $1,183,427 1,227,730
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 49,106 76,107
Income Taxes - Payable 12,000 12,000
Accrued stock compensation 164,634 164,634
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Total current liabilities 225,740 252,741
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Note payable - automobile 17,602 17,602
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 (5,916,296) (5,898,994)
Treasury stock, at cost, 27,506
shares (82,770) (82,770)
----------- ----------
Total stockholders' equity 940,085 957,387
----------- ---------
Total liabilities and
stockholders' equity $1,183,427 1,227,730
============ ===========
See accompanying notes to condensed consolidated financial statements.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1998 1997
------- ------
Real estate management fee $ -0- 12,000
Less:
General and administrative
expenses 20,802 52,360
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(20,802) (40,360)
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Interest income 3,500 25
Interest expense -0- 12,000
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Net loss (17,302) (52,335)
========== =========
Net loss per common share $ (0.0) (0.01)
---------- ---------
Weighted average number of
common shares outstanding 5,397,024 5,397,024
========== =========
See accompanying notes to condensed consolidated financial statements.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
1998 1997
---------- ---------
Cash flows from operating activities:
Net loss $ (17,302) (52,335)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 2,002 3,000
Increase (decrease) in cash due
to change in:
Prepaid Expenses 21,401 10,000
Accounts payable and accrued expenses (27,001) (58,001)
Accounts receivable - affiliate -0- (12,000)
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Net cash used in operating activities (20,900) (109,336)
Cash flows provided by
financing activities-
Notes payable - affiliated companies -0- 65,000
Notes receivable-affiliated companies 146,500 -0-
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Net cash provided by financing
activities 146,500 65,000
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Increase (decrease) in cash 125,600 (44,336)
Cash at beginning of period 815,804 82,572
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Cash at end of period $ 941,404 38,236
========== =========
See accompanying notes to condensed consolidated financial statements.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1998 and 1997
(1) Basis of Presentation
The financial information for the three-month periods ended March 31, 1998 and
1997 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,
1997 annual report on Form 10-K.
The results of operations for the three-month period ended March 31, 1998 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
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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.
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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 was $12,000 as compared to none for the same period in 1998. 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 received 3% of annual gross
receipts 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%.
On May 5, 1997, the Board of Directors of the Company resolved 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 would be the surviving corporation. This merger was
completed in June 1997.
On July 31, 1997, ATC paid a cash dividend of $98,000 to Alorex in respect of
its ownership of 40% of ATC's common stock as successor to AREC's ownership.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
In addition, on August 1, 1997, pursuant to a certain Redemption Agreement
between ATC and Alorex, the 40% ownership of ATC by Alorex was redeemed by ATC
for $2,054,557. The manner of payment consisted of $1,604,557 in cash and
$450,000 in cancellation of certain indebtedness of Alorex to ATC. The Company
no longer receives certain management fee and other income it received as a
result of its 40% ownership of ATC and has no revenue generating operations at
this time.
At the same time as the redemption of the 40% ownership of ATC, all but one of
the other shareholders of ATC similarly agreed to have their shares redeemed for
the same purchase price per share. The remaining shareholder of ATC is Advanced
Contracting, Inc., a majority shareholder of which is Joseph P. Donnolo, the
President and chairman of the Company. The Company believes that the terms of
the redemption are fair to the Company and the same as that which would have
been obtained in an arm's-length transaction. The valuation of ATC which led to
the pricing of the redemption was based in substantial part on an independent
appraisal of ATC's principal asset, an office building in East Brunswick, New
Jersey. The Company also believes that agreeing to redeem the 40% ownership of
ATC is in the best interest of the Company.
The Company used part of the proceeds from redemption of its 40% ownership of
ATC to pay certain indebtedness. The Company will use the balance of the
proceeds from the sale of investment in affiliated companies to search for other
business opportunities.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
General and administrative expenses were $20,802 for the three months ended
March 31, 1998 as compared to $52,360 for the same period in 1997. The decrease
in general and administrative expenses were as a result of reduced
administrative activities.
Interest expense was $12,000 for the three months ended March 31, 1997 as
compared to none for the same period in 1998. Interest expense was paid at 8%
for the outstanding balance of the note payable-affiliate during fiscal 1997. In
September 1997 the Company repaid this note in full, therefore, no interest
expense accrued during the current period. (see Part II - Item I -Legal
Proceedings).
Interest income was $3,500 for the three months ended March 31, 1998 as compared
to none for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's current ratio, that is, the ratio of current
assets to current liabilities, was 5.09 to 1 as compared to 4.14 to 1 at
December 31, 1997. Cash used in operating activities for the three months ended
March 31, 1998 was $20,900 as compared to $109,336 for the same period in 1997.
The negative cash flow from operations for the current three-month period ended
March 31, 1998 is primarily due to the net loss of $17,302.
The Company has experienced substantial operating losses over the past
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
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 or other third party
sources. There can be no assurance as to the availibility and terms of such
funding.
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
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
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
of $100,000 and issued her a note in the amount of $600,000. This Note was
paid in full on September 15, 1997.
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 submitted for a vote to security holders during the quarter
for which this form 10-Q is filed.
Item 5
Other Information.
No other information reported during the quarter for which this Form 10-Q
quarterly report is filed.
Item 6
Exhibits and Reports on Form 8-K.
a) Except as set forth below exhibits are incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Exhibit Item
- ------- -----
27.1 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter for which this Form 10-Q
quarterly report is filed.
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
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, 1998 ADVATEX ASSOCIATES, INC.
/s/ Joseph P. Donnolo
-----------------------------------
(Registrant)
Joseph P. Donnolo
Chairman and Chief
Executive Officer
-----------------------------------
Rohullah F. Lodin
Chief Financial and Chief
Accounting Officer
Date: May 14, 1998
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ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Exhibit Index
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27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 941,404
<SECURITIES> 0
<RECEIVABLES> 181,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,150,252
<PP&E> 33,175
<DEPRECIATION> 2,002
<TOTAL-ASSETS> 1,183,427
<CURRENT-LIABILITIES> 225,740
<BONDS> 0
0
0
<COMMON> 54,032
<OTHER-SE> 886,053
<TOTAL-LIABILITY-AND-EQUITY> 1,183,427
<SALES> 0
<TOTAL-REVENUES> 3,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,302)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,302)
<EPS-PRIMARY> (0.0)
<EPS-DILUTED> (0.0)
</TABLE>
