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 June 30, 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 August 6, 1998 Registrant had 5,470,000 shares of its Common Stock, $.01
par value, outstanding.
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PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
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Item 1. Financial Statements
Balance Sheets/Liabilities and Shareholder's Equity
as of June 30, 1998 3
Statement of Operations for the three months
ended June 30, 1998. 4
Statement of Cash Flows for the three months
ended June 30, 1998 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Plan
of Operation 7-10
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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FINANCIAL STATEMENTS AND SCHEDULES ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES The
following financial statements and schedules of the registrant and its
consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
- ------ ----------- ------------
(UNAUDITED)
Current assets:
Cash $ 915,852 $ 815,804
Accounts Receivable - affiliate 181,019 181,019
Prepaid insurance 17,828 49,230
---------- ----------
Total current assets 1,114,699 1,046,053
Note receivable-affiliate -0- 146,500
Property and equipment, net 31,177 35,177
---------- ----------
Total assets $1,145,876 $1,227,730
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 24,161 $ 76,107
Income taxes payable 12,000 12,000
Accrued stock compensation 164,634 164,634
---------- ----------
Total current liabilities 200,795 252,741
----------- ----------
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 (5,928,902) (5,898,994)
Treasury stock, at cost, 27,506
shares (82,770) (82,770)
---------- ----------
Total stockholders' equity 927,479 957,387
---------- ----------
Total liabilities and
stockholders' equity $1,145,876 $1,227,730
========== ==========
See accompanying notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Real estate management fee $ -0- 12,000 -0- 24,000
General and administrative
expenses 16,106 48,006 36,908 100,366
-------- -------- -------- --------
Operating loss (16,106) (36,006) (36,908) (76,366)
-------- -------- -------- --------
Other income (expense):
Interest income 3,500 -0- 7,000 25
Interest expense -0- 12,000 -0- 24,000
-------- -------- -------- --------
Net loss (12,606) (48,006) (29,908) (100,341)
======== ======== ======== =========
Net loss per common share $ (0.00) (0.01) (0.01) (0.02)
-------- -------- -------- --------
Weighted average number of
common shares outstanding 5,470,000 5,470,000 5,470,000 5,470,000
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
-------- ---------
Cash flows from operating activities:
Net loss $(29,908) $(100,341)
Adjustments to reconcile net
loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 4,000 6,000
Increase (decrease) in cash due to change in:
Prepaid insurance 31,402 20,000
Accounts payable and accrued expenses (51,946) (37,500)
Accounts receivable - affiliate -0- (24,000)
Loans receivable - affiliate -0- -0-
Note receivable - affiliate 146,500 -0-
-------- --------
Net cash provided by (used in)
operating activities 100,048 (135,841)
Cash flows provided by financing
activities-
Notes payable-affiliated companies -0- 65,000
-------- --------
Decrease in cash 100,048 (70,841)
Cash at beginning of period 815,804 82,572
-------- --------
Cash at end of period $915,852 $ 11,731
======== ========
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) BASIS OF PRESENTATION
The financial information for the three and six-month periods ended
June 30, 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 and six-month periods ended
June 30, 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 earnings per share (EPS) for entities with publicly held common stock.
Statement 128 replaces primary EPS and Fully Diluted EPS with
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 statement 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.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
QUARTER TO QUARTER RESULTS
Revenue from the real estate management fee for the three-month period
ended June 30, 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
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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 $2,054,557. The manner of payment consisted of $1,604,557 in
cash and $450,000 in cancellation of certain indebtedness of Alorex to ATC.
Accordingly, the Company no longer receives the 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, Joseph P.
Donnolo, is 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 those 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
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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 was 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.
General and administrative expenses were $16,106 for the three months
ended June 30, 1998 as compared to $48,006 for the same period in 1997. This
difference results primarily from legal fees incurred in 1997 which were not
incurred in 1998.
Interest expenses were $12,000 for the three months ended June 30, 1997
as compared to no interest expenses for the same period in 1998. Interest
expense was accrued at 8% for the outstanding balance of the note payable-
affiliate during fiscal 1997 (see Part II - Item I - Legal Proceedings).
YEAR TO DATE RESULTS
Revenue from the real estate management fee for the six month period
ended June 30, 1997 was $24,000 as compared to none for the same period in 1998.
As indicated above, following the redemption of the ATC shares, there was no
longer fee income.
General and administrative expenses were $36,908 for the six months
ended June 30, 1998 as compared to $100,366 for the same period in 1997. This
difference results primarily from legal fees incurred in 1997 which were not
incurred in 1998.
9
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Interest expense was $24,000 for the six months ended June 30, 1997 as
compared to no interest expense for the same period in 1998. Interest expense
was accrued at 8% for the outstanding balance of the note payable-affiliate
during fiscal 1997 (see Part II - Item I - Legal Proceedings).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's current ratio, that is, the ratio of
current assets to current liabilities, was 5.55 to 1 as compared to 4.14 to 1 at
December 31, 1997. Cash provided by operating activities for the six months
ended June 30, 1998 was $100,048 as compared to cash used in operating
activities of $135,841 for the same period in 1997. The positive cash flow from
operations for the current six-month period ended June 30, 1998 is primarily due
to the decrease of Note Receivable-Affiliate of $146,500, partially offset by a
net loss of $29,908.
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 or other third party
sources. There can be no assurance as to the availability and terms of such
funding.
10
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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 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.
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Item 2
Changes in Securities.
There were 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.
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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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: August 14, 1998 ADVATEX ASSOCIATES, INC.
(Registrant)
By: /s/ Joseph P. Donnolo
Joseph P. Donnolo
Chairman and Chief Executive Officer
By: /s/ Rohullah F. Lodin
Rohullah F. Lodin
Chief Financial and Chief Accounting Officer
13
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