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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 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, 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:
.01 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]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of March 13,
1998, Registrant had 5,397,024 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 $328,200.
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, 1997 are
incorporated by reference into Part III.
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PART I : ITEM 1. BUSINESS
CORPORATE BACKGROUND AND ACTIVITIES
Advatex Associates, Inc. (the "Company") has been inactive since July 31, 1997
and is assessing various business opportunities. Prior to July 31, 1997, the
Company provided 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 was 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 (AREC),
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% of
the outstanding stock of ATC was 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 closing costs of approximately $445,000.
On April 11, 1997 ATC entered into a mortgage loan of $3,750,000 with a
financial institution, with ATC's property (Turnpike Plaza) 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.
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 $2,054,556. The manner of payment consisted of $1,604,556 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
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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 Alorex's 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. the majority shareholder of which is Joseph P.
Donnolo, the President and chairman of the Company. The Company believes that
the terms of the redemption were 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 ATC's principal asset, an office building in
East Brunswick, New Jersey was conducted by an independent appraiser. The
Company also believes that agreeing to redeem the 40% ownership of ATC was in
the best interest of the Company.
The Company used part of the proceeds from the redemption of its 40% ownership
of ATC to pay certain indebtedness. The Company will use the balance of the
proceeds to search for other business opportunities.
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.
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.
EMPLOYEE
The Company currently has no employees.
ITEM 2. PROPERTIES AND EQUIPMENT
On April 1, 1995 the Company canceled 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 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
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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. This Note was paid in full on September 15, 1997.
The Company is currently a party to various other legal matters arising out of
the conduct of the 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 operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held no annual meeting of stockholders since December 19, 1996, nor
has any matter been submitted to a vote of security holders since such date.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock was quoted on the National Association of Securities
Dealers Automated Quotation System until July 14, 1992.
On July 14, 1992 the Company stock was delisted from the National Association of
Securities 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 17, 1998, there were 237 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 future operations of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information of
the Company for the fiscal years 1997, 1996, 1995, 1994, and 1993.
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).
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Year Ended December 31,
(In thousands,except per
share data amounts)
Income Statement Data: 1997 1996 1995 1994 1993
- ---------------------- ---- ---- ---- ---- ----
Real estate management
fee.....................$ 24 42 21 6 -
Other revenue.............$ - 100 100 - -
Contract revenue and
referral fees...........$ - - - 150 4,508
Cost of contract revenues $ - - - - 4,383
Provision for doubtful
accounts................$ - - - - 170
General and administrative
expenses................$ 274 368 889 705 1,101
Restructuring costs.......$ - - - - 343
Operating loss............$ (250) (226) (768) (549) (1,488)
Other income (expense):
Interest Income.........$ 115 - 3 33 28
Interest expense........$ (43) (48) (8) - (28)
Gain on disposal of
automobile............$ - 5 - - -
Gain on sale of
investments...........$ 866 - - - -
Income (Loss) before
equity in operations
of investee............$ 688 (269) (773) (516) (1,488)
Equity in operation of
investee ...............$ - 24 35 (2) -
Income (loss) before
provision for taxes.... $ 688 (245) (738) (518) (1,488)
Provision for income
taxes...................$ 12 - - - -
Net income (loss).........$ 676 (245) (738) (518) (1,488)
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Year Ended December 31,
(In thousands, except per
share data amounts)
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
Net income (loss) per
common share.............$ .13 (.05) (.14) (.10) (.28)
Weighted average shares
outstanding ............. 5,397 5,397 5,397 5,397 5,397
Balance Sheet Data:
Working capital............$ 793 (681) (208) (42) 1,758
Total assets...............$ 1,227 1,733 1,426 1,929 2,142
Total liabilities..........$ 270 1,452 900 665 360
Total stockholders' equity.$ 957 281 526 1,264 1,782
Book value per common share
at year end..............$ .18 .05 .10 .23 .33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1996.
Real estate management fees for 1997 were $24,000 as compared to $42,000 during
fiscal 1996. The Company's management fee was 3% of the Turnpike Plaza rental
income. This decrease is a direct result of the Company's redemption of the 40%
ownership of ATC. The Company has not received management fees since August 1,
1997.
Other revenue was $100,000 for 1996 as compared to no other revenue for 1997.
The Company provided construction management and financial management to ATC
during 1996. During 1997 such services were not provided by the Company to ATC.
The Company had no contract revenues or referral fees for fiscal 1997 and 1996.
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.
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The operating loss for fiscal 1997 is $250,256 as compared to an operating loss
of $226,087 for fiscal 1996.
Interest expense for 1997 was $42,301 as compared to $48,000 in 1996. The
interest expense for 1997 and 1996 is a result of the accrual of interest on a
note payable issued to the wife of the controlling stockholder of the Company.
This note was repaid in full in August 1997. (See Note 8c of Notes to
Consolidated Financial Statements).
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
the gain.
Gain on sale of investments was $865,997 for fiscal 1997. In August 1997, ATC
redeemed the 1,200 shares (40% ownership) held by the Company for aggregate
proceeds of $2,054,556. The gain recognized in this transaction was $706,997.
The Company also sold its 209,000 shares of IDF International Inc., a New York
corporation. The proceeds of $209,000 from such sale resulted in a gain of
$159,000
During 1997, the Company realized $114,755 of interest and dividend income due
to the funds it received from the aforementioned proceeds and its investment in
ATC.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1995.
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 credited to other income.
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 manage and operate ATC's property. Under this
agreement the Company receives 3% of annual gross receipts as a management fee.
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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 was $226,087 as compared to an operating loss
of $768,696 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 the 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.
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
the gain.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's current ratio (current assets to current
liabilities) was 4.13 to 1 as compared to 0.18 to 1 at December 31, 1996. For
the year ended December 31, 1997, the Company experienced a negative cash flow
from operations of $421,652 as compared with a negative cash flow from
operations of $284,401 for the prior year. During the current year, the Company
generated cash flow from investing activities, aggregating a net of
approximately $1,164,000 which resulted primarily from the redemption of its
investment. (See Note 4 of Note to Consolidated Financial Statements).
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 although, there can
be no assurance that the Company can achieve this goal.
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 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The accounting firm of KPMG Peat Marwick LLP (the "Former Accountants") served
as the Company's independent auditors for the years ended December 31, 1996 and
1995. On December 3, 1997, the Former Accountants was dismissed by the Company
and Lazar Levine & Felix LLP was appointed as the Company's new independent
auditors. Former Accountants report on the Company's financial statements for
the years ended December 31, 1996 and 1995, did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. During this period there was no
disagreement with Former Accountants on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure,
which disagreement, if not resolved to Former Accountants satisfaction, would
have caused Former
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Accountants to make reference to the subject matter of the disagreement in
connection with its report. The dismissal was not as a result of any
disagreements during the registrant's two most recent fiscal years or any
subsequent interim period concerning accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. The dismissal
was as a result of the efforts and desires of the Company to reduce the costs
associated with preparing its annual audited financial statements.
The Former Accountants' report on the financial statements for either
of the past two years never contained an adverse opinion or a disclaimer of
opinion, nor was qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to dismiss the Former Accountants was
recommended and approved by the Board of Directors of the Company. There was
never any authorization of the Former Accountants by the Company to fully
respond to inquiries of successor accountants concerning the subject matter of
any disagreement as provided for in Item 304 of Regulation S-K, because no such
disagreements ever took place. However, such authorization, should it have been
relevant, would have been given.
There were, in addition, in compliance with Regulation S-K Item
304(a)(1)(iv), never any disagreements with the former accountant on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if there were any, if not
resolved to the satisfaction of the former accountants, would have caused it to
make reference to the subject matter of the disagreements in connection with its
report.
During the Company's two most recent fiscal years and any subsequent
interim period preceding such dismissal there were never any disagreements, nor
any audit or similar committee of the board of directors or Board of Directors
discussions regarding the following :
1) The Former Accountants having advised the Company that the
internal controls necessary for the Company to develop reliable financial
statements do not exist;
2) the Former Accountants having advised the Company that
information has come to the Former Accountants' attention that has led it to no
longer be able to rely on management's representations, or that has made it
unwilling to be associated with the financial statements prepared by management;
3) (a) the Former Accountants having advised the Company of
the need to expand significantly the scope of its audit, or that information has
come to the Former Accountants' attention during the time period covered by Item
304(a)(1)(iv) of Regulation S-K, that if further investigated may (i) materially
impact the fairness or reliability of either: a previously issued audit report
or the underlying financial statements, or the financial statements issued or to
be issued covering the fiscal period(s) subsequent to the date of the most
recent financial statements covered by an audit report (including information
that may prevent it from rendering an unqualified audit report on those
financial statements), or (ii) cause it to be unwilling to rely on management's
representations or be associated with the Company's financial statements, and
(b) due to the Former Accountants' dismissal, the Former Accountants did not so
expand the scope of its audit or conduct such further investigation; and
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4) (a) the Former Accountants having advised the Company that
information has come to the Former Accountant's attention that it has concluded
materially impacts the fairness or reliability of either (i) a previously issued
audit report or the underlying financial statements, or (ii) the financial
statements issued or to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered by an audit report
(including information that, unless resolved to the accountant's satisfaction,
would prevent it from rendering an unqualified audit report on those financial
statements), and (b) due to the Former Accountants' dismissal, the issue has not
been resolved to the Former Accountants' satisfaction prior to its dismissal.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE TITLE AND PERIOD OF SERVICE
Joseph P. Donnolo 54 Chairman of The Board and
Chief Executive Officer since 1987.
Frank J. Fitzsimmons 51 Partner, Fitzsimmons & Ringle, P.C.,
Director, Secretary of the Corporation
since 1987.
James J. Gruba 57 President, James J. Gruba and Company
Director of the Corporation since 1987.
Rohullah F. Lodin 36 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 general 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 Corporate Secretary of the
Company. Mr. Fitzsimmons has been a practicing attorney with, and a principal
of, the firm of Fitzsimmons & Ringle, 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
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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 was a Director of IDF
International, Inc. and Hayden Wegman, Inc. from April 15, 1996 until August
1997. 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.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included in a definitive proxy statement
filed within 120 days after the end of the Registrant's fiscal year, which proxy
statement is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included in a definitive proxy statement
filed within 120 days after the end of the Registrant's fiscal year, which proxy
statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company has in the past and may in the future enter into certain
transactions with affiliates of the Company. It is anticipated that such
transactions will be entered into at a fair market value for the transaction.
Additional information regarding these transactions can be found in Item 1.
Business, Item 8. Financial Statements and Supplementary Data, "Note 6.
Related-party transactions" and in Item 7. Management's Discussion and Analysis
of Financial Condition and Result of Operations.
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, 1997, 1996 and 1995 required to be filed by Item 8 and 14(d)
of Form 10-K. See Index to Consolidated Financial Statements of the Company.
(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.
10.3 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.
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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.
10.8 Management agreement, dated September 9, 1994.
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.
(b) On December 3, 1997 a Form 8-K was filed reporting a change to the
registrant's certifying accountant.
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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
By:/s/Joseph P. Donnolo
Joseph P. Donnolo
Chief Executive Officer
Dated: March 27, 1998
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 27, 1998
Joseph P. Donnolo Board and Chief
Executive Officer
/s/ Frank J. Fitzsimmons Director March 27, 1998
- ------------------------
Frank J. Fitzsimmons
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INDEX TO FINANCIAL STATEMENTS
PAGE(S)
Independent Auditors' Report - Current Auditor F - 2
Independent Auditors' Report - Prior Auditor F - 3
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1997 and 1996 F - 4
Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995 F - 5
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 1997, 1996 and 1995 F - 6
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995 F - 7
Notes to Financial Statements F - 8
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advatex Associates, Inc.
We have audited the consolidated balance sheet of Advatex Associates, Inc. and
subsidiaries as of December 31, 1997 and the consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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, 1997 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
March 10, 1998
F - 2
<PAGE>
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 insofar as they relate
to December 31, 1996 and the two year period ended December 31, 1996. 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 the results of
their operations and their cash flows for each of the years in the two year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
February 21, 1997
Short Hills, New Jersey
F - 3
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- ASSETS -
1997 1996
---------- ----------
CURRENT ASSETS:
Cash $ 815,804 $ 82,572
Accounts receivable - affiliate 181,019 32,018
Prepaid expenses and other current assets 49,230 30,000
---------- ----------
TOTAL CURRENT ASSETS 1,046,053 144,590
---------- ----------
PROPERTY AND EQUIPMENT, NET (NOTES 2F AND 3) 35,177 44,177
---------- ----------
OTHER ASSETS:
Investment in affiliated company (Notes 2g and 4) - 1,347,559
Note receivable - affiliate (Note 6d) 146,500 146,500
Investment (Note 6e) - 37,500
Notes receivable (Note 6e) - 12,500
---------- ----------
$1,227,730 $1,732,826
---------- ----------
---------- ----------
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 76,107 $ 160,726
Accrued stock compensation 164,634 164,634
Notes payable - affiliated companies (Note 6c) - 500,000
Income taxes payable (Notes 2d and 5) 12,000 -
---------- ----------
TOTAL CURRENT LIABILITIES 252,741 825,360
---------- ----------
LONG-TERM LIABILITIES:
Note payable - automobile 17,602 26,274
Note payable - affiliate (Note 8c) - 600,000
---------- ----------
17,602 626,274
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY (NOTE 7):
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 (5,898,994) (6,575,189)
Treasury stock, at cost - 6,226 shares (82,770) (82,770)
---------- ----------
957,387 281,192
---------- ----------
$1,227,730 $1,732,826
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
REVENUES:
Real estate management fees (Note 4) $ 24,000 $ 42,000 $ 20,568
Other revenue (Note 4) - 100,000 100,000
---------- ---------- ----------
24,000 142,000 120,568
COSTS AND EXPENSES:
General and administrative expenses 274,256 368,087 889,264
---------- ---------- ----------
LOSS FROM OPERATIONS (250,256) (226,087) (768,696)
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and dividend income (Note 4) 114,755 121 3,152
Interest expense (42,301) (48,000) (8,000)
Gain on disposal of fixed assets - 5,229 -
Gain on sale of investments
(Notes 4 and 6e) 865,997 - -
---------- ---------- ----------
938,451 (42,650) (4,848)
---------- ---------- ----------
INCOME (LOSS) BEFORE EQUITY IN OPERATIONS
OF INVESTEE 688,195 (268,737) (773,544)
Equity in operations of investee (Note 4) - 23,892 35,333
---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES 688,195 (244,845) (738,211)
Provision for income taxes
(Notes 2d and 5) 12,000 - -
---------- ---------- ----------
NET INCOME (LOSS) $ 676,195 $ (244,845) $ (738,211)
---------- ---------- ----------
---------- ---------- ----------
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
(NOTE 2E) $.13 $(.05) $(.14)
==== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 5,397,024 5,397,024 5,397,024
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $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
Net income - - 676,195 - 676,195
------- ---------- ----------- -------- ----------
BALANCE AT DECEMBER 31, 1997 $54,032 $6,885,119 $(5,898,994) $(82,770) $ 957,387
------- ---------- ----------- -------- ----------
------- ---------- ----------- -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 676,195 $(244,845) $ (738,211)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 9,000 11,000 8,000
Gain on disposal of fixed assets - (5,229) -
Gain on sale of investments (865,997) - -
Equity in operations of investee - (23,892) (35,333)
Increase (decrease) in cash due to changes in:
Accounts receivable - affiliate (149,001) (17,000) 6,793
Prepaid expenses (19,230) (30,000) 33,985
Loans receivable - affiliate - - (24,000)
Other current assets - - 17,796
Accounts payable and accrued expenses (84,619) 25,565 (257,498)
Accounts payable - affiliate - - (107,500)
Income taxes payable 12,000 - -
---------- --------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (421,652) (284,401) (1,095,968)
---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable - affiliate - (122,500) -
Purchase of investment - (37,500) -
Increase in notes payable - affiliated companies - 500,000 -
Increase (decrease) in notes receivable 12,500 (12,500) -
Proceeds from disposal of assets - 15,455 -
Proceeds from sale of investments 2,251,056 - -
Notes repaid to affiliate (500,000) - -
Additions to property and equipment - (55,177) -
---------- --------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,763,556 287,778 -
---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable - affiliate (600,000) - 600,000
Notes payable - auto (8,672) 26,274 -
---------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (608,672) 26,274 600,000
---------- --------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 733,232 29,651 (495,968)
Cash and cash equivalents at beginning of year 82,572 52,921 548,889
---------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 815,804 $ 82,572 $ 52,921
---------- --------- -----------
---------- --------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(i) Cash paid during the year for:
Taxes $ - $ - $ -
Interest 90,301 8,000 -
(ii) During 1996, the Company converted loans receivable - affiliate of $24,000
to a note receivable.
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Through 1992, 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
regarding sale of this investment). The Company has been
inactive since July 31, 1997 and is assessing various business
opportunities.
The Company has experienced substantial operating losses over
the past several years and had a working capital deficit of
$680,770 at December 31, 1996. During 1996, the Company
borrowed funds from affiliated companies to support operations
and the Company has sought to minimize general and
administrative expenses. The Company's controlling shareholder
is also the controlling shareholder of Advanced Contracting,
Inc. ("Advanced"). During 1997, the Company sold certain of its
investments (see Notes 4 and 6) and as of December 31, 1997,
had cash of $815,804 and working capital of $793,312. The
Company repaid all affiliated loans in 1997 and believes that
it has enough cash to support its financing requirements for at
least the next 12 months. There can be no assurance that the
Company will be able to attain profitable operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its two wholly-owned subsidiaries. In June
1997, the two subsidiaries, Advatex Real Estate Corp. and
Alorex Corp., merged with Alorex Corp. being the surviving
corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(B) 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.
(C) FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments,"
requires disclosures 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.
F - 8
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(D) 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 statements
carrying amounts of existing assets and liabilities and their
respective tax bases.
(E) EARNINGS (LOSS) PER SHARE:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS
128), which has changed the method of calculating earnings per
share. SFAS 128 requires the presentation of "basic" and
"diluted" earnings (loss) per share on the face of the income
statement. Prior period loss per share data has been restated
in accordance with Statement 128. The income (loss) per common
share is computed by dividing net income (loss) by the weighted
average number of common shares and common equivalent shares
outstanding during each period.
(F) 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.
(G) 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 regarding sale of this investment).
(H) 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
defined in SFAS No. 123 has been applied. The Company did not
grant any stock options in 1995, 1996 or 1997, thus the
adoption of SFAS No. 123 had no impact on the Company's
consolidated financial position, results of operations or
liquidity for those years.
F - 9
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(I) RECLASSIFICATION:
The 1996 and 1995 financial statements have been reclassified,
where appropriate, to conform to the 1997 financial statement
presentation.
NOTE 3 - PROPERTY AND EQUIPMENT, NET:
Property and equipment, net at December 31, 1997 and 1996
consists of the following:
1997 1996
--------- ---------
Automotive vehicles $55,177 $55,177
Less: accumulated depreciation 20,000 11,000
------- -------
$35,177 $44,177
======= =======
NOTE 4 - INVESTMENTS:
On September 9, 1994, the Company purchased 40% (1,200 shares)
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 Notes 1 and 6). ATC purchased Turnpike
Plaza on September 9, 1994 for consideration 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 was secured by Turnpike
Plaza.
The Company entered into a contract with ATC to manage and
operate the property. The management fee for such services was
3% of the gross receipts of the property. The income reported
of $24,000, $42,000 and $20,568 in 1997, 1996 and 1995,
respectively, for the management services provided by the
Company is included in real estate management fees on the
consolidated statements of operations.
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 each year for such
services provided by the Company is included in other revenue
on the consolidated statements of operations.
F - 10
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 4 - INVESTMENTS (CONTINUED):
Summarized information for the investment accounted for by the
equity method follows:
1996 1995
------------- ------------
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 shareholders' 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
========== ==========
In July 1997, the Company received a cash dividend of $98,000
from ATC. In August 1997, ATC redeemed the 1,200 shares held by
the Company for aggregate proceeds of $2,054,556. The gain
recognized in this transaction was $706,997, which included the
Company's equity in net income for the period from January 1,
1997 through August 1997.
NOTE 5 - INCOME TAXES:
As the Company is in a loss carryforward position, no tax
benefits were recorded relative to the losses incurred in 1996
and 1995. The provision for income taxes for 1997 consists of
the following:
CURRENT:
Federal - net of benefit of net
operating loss carryforward $12,000
State and local -
-------
$12,000
=======
The tax effects of temporary differences that would give rise
to deferred tax assets at December 31, 1997 and 1996 are
presented below:
1997 1996
----------- -----------
Interest expense disallowance $ - $ 26,450
Net operating loss carryforwards 1,900,000 2,190,970
Contribution carryover 43,180 43,180
Depreciation 1,815 3,790
---------- -----------
Total gross deferred tax assets 1,944,995 2,264,390
Less valuation allowance 1,944,995 2,264,390
---------- -----------
NET DEFERRED TAX ASSET $ - $ -
========== ===========
F - 11
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 5 - INCOME TAXES (CONTINUED):
The Company has available operating loss carryforwards for
federal tax purposes of approximately $5,000,000. These losses
expire in various years beginning in 2006 and may result in
deferred tax assets. The Company has recognized this asset but
has provided a 100% valuation allowance since there is no
assurance that the Company will be able to utilize this asset
in the near future. This allowance will be evaluated at the end
of each year, considering both positive and negative evidence
concerning the realizability of the asset, and will be adjusted
accordingly.
NOTE 6 - RELATED PARTY TRANSACTIONS:
(A) The Company's controlling shareholder owns 49% of ATC (see Note
4). Through March 1995, the Company leased office space at
$36,000 per year on a month-to-month basis, and sublet it to
Advanced at $3,000 per month. Effective April 1995 the Company
is leasing office space provided by the controlling shareholder
at $500 per month.
(B) 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 $11,321, $99,000 and $67,000 in 1997,
1996 and 1995, respectively.
(C) Notes payable - affiliated companies consist of $325,000 due to
ATC and $175,000 due to Advanced at December 31, 1996. The
notes were due on demand and bear interest at the rate of 8%
per annum. The notes were converted into notes payable from
accounts payable on December 31, 1996. The Company had received
representation from the affiliated companies that payment on
the notes would not be demanded unless the Company arranged
additional and sufficient funding or an alternate source of
capital and in no event will payment be demanded prior to
January 1, 1998. In August 1997, these notes were repaid in
full.
(D) The note receivable - affiliate of $146,500 at December 31,
1997 and 1996, is due from Sprint Recycling, Inc. which is
owned 100% by the controlling shareholder of the Company. The
note is due on demand and bears interest at the rate of 8% per
annum. The note was converted from loans receivable to a note
receivable on December 31, 1996. The controlling shareholder of
the Company guaranteed the payment of the note receivable. In
January 1998, subsequent to the balance sheet date, the Company
received full payment of this note.
(E) The Company had 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 was due in 1999. A member of
the Company's management is a member of the Board of Directors
of IDF. During 1997, payment of this note was received and the
Company sold this investment recognizing a gain of $159,000.
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 - 12
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 7 - STOCK OPTION AND INCENTIVE PLANS:
In June 1988, shareholders 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 shareholder 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
10-year period from date of grant. The 1988 Plan expires on
September 25, 1998.
At December 31, 1997, 1996 and 1995, 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 shareholder, subject to
certain restrictions.
At December 31, 1997, 1996 and 1995, 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 range from $.04 to $1.75 per share. No options were
granted or exercised in 1997, 1996 and 1995. At December 31,
1997 and 1996, 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,
1997 and 1996, 60,000 options are exercisable at an average
price of $2.916 per share. The Company has reserved 100,000
shares for issuance under the plan.
See also Note 2h.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(A) 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, $6,000 and $8,800
in 1997, 1996 and 1995, respectively.
F - 13
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(B) The Company had an employment agreement with the controlling
shareholder 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 shareholder elected to
receive compensation in an amount less than his base salary for
the years subsequent to the expiration date. The agreement also
contained post-employment non-compete provisions and provided
that the Company maintains term life insurance on the
controlling shareholder's life in the amount of $1,000,000 for
the benefit of his designated beneficiary.
(C) 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 $1 million dollars in
actual damages and $10 million dollars in punitive damages for
the alleged non-payment of union dues, fringe benefit
contributions and other contributions allegedly required by
the District Counsel'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 shareholder and chief executive officer, releasing
the controlling shareholder 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 had
no maturity date and interest was calculated at a rate of 8%
per annum. The Company had received representation from Ms.
Donnolo that payment on the note would not be demanded unless
the Company had arranged additional and sufficient funding or
an alternate source of capital and in no event would payment
be demanded prior to April 30, 1998. In September 1997, the
Company repaid this note in full.
(D) The Company is currently a party to various other legal matters
arising out of the conduct of the 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.
F - 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended December 31, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 815,804
<SECURITIES> 0
<RECEIVABLES> 181,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,046,053
<PP&E> 55,177
<DEPRECIATION> 20,000
<TOTAL-ASSETS> 1,227,730
<CURRENT-LIABILITIES> 252,741
<BONDS> 17,602
54,032
0
<COMMON> 0
<OTHER-SE> 903,355
<TOTAL-LIABILITY-AND-EQUITY> 1,227,730
<SALES> 24,000
<TOTAL-REVENUES> 24,000
<CGS> 0
<TOTAL-COSTS> 274,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,301
<INCOME-PRETAX> 688,195
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 676,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676,195
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
