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 September 30, 1999
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 November 10, 1999 Registrant had 5,375,744 shares of its Common Stock,
$.01 par value, outstanding.
<PAGE>
Part I - Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
------------ -------------
(unaudited)
Assets
Current assets:
Cash $ 864,327 883,581
Accounts Receivable - affiliate 181,019 181,019
Prepaid insurance 24,951 12,991
---------- ----------
Total current assets 1,070,297 1,077,591
Property and equipment, net 24,177 27,177
---------- ----------
Total assets $1,094,474 1,104,768
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 17,015 39,996
Income taxes payable - 6,287
Accrued stock compensation 164,634 164,634
---------- ----------
Total current liabilities 181,649 210,917
---------- ----------
Note payable - automobile 13,102 13,102
---------- ----------
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 (5,956,658) (5,975,632)
Treasury stock, at cost, 27,506
shares (82,770) (82,770)
---------- ----------
Total stockholders' equity 899,723 880,749
---------- ----------
Total liabilities and
stockholders' equity $1,094,474 1,104,768
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
General and administrative 17,026 35,314 21,026 72,223
expenses --------- --------- --------- ---------
Operating loss (17,026) (35,314) (21,026) (72,223)
Interest income 12,000 3,500 40,000 10,500
Net income (loss) (5,026) (31,814) 18,974 (61,723)
========= ========= ========= =========
Net loss per common share $ 0.00 (0.01) 0.00 (0.01)
--------- --------- --------- ---------
Weighted average number of
common shares outstanding 5,375,744 5,375,744 5,375,744 5,375,744
========= --------- --------- ---------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 18,974 (61,723)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 3,000 6,000
Increase (decrease) in cash due to change in:
Prepaid insurance (11,960) 41,402
Accounts payable and accrued expenses (22,981) (60,496)
Income taxes payable (6,287) -0-
Loans receivable - affiliate -0- -0-
Note receivable - affiliate -0- 146,500
--------- ---------
Net cash (used in) provided by
operating activities (19,254) 71,683
(Decrease)increase in cash (19,254) 71,683
Cash at beginning of period 883,581 815,804
--------- ---------
Cash at end of period $ 864,327 887,487
========= =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999 and 1998
(1) Basis of Presentation
The financial information for the three and nine-month periods ended September
30, 1999 and 1998 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,
1998 annual report on Form 10-K.
The results of operations for the three and nine-month periods ended September
30, 1999 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 or
potential common stock. Statement 128 replaces primary EPS 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.
<PAGE>
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
INTRODUCTION
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
collateral. The term of the mortgage was 10 years with amortization of the
principal over 20 years. The interest rate on this mortgage was 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. 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, (now known as JD Holding Corp.), 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 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 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 was in the best interest of the Company.
<PAGE>
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
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 or investment in affiliated companies to search for
other business opportunities.
Effective June 15, 1999, the Company entered into a Consulting Agreement (the
"Agreement") with G-V Capital Corp., a New York-based investment banking firm
("G-V"). Pursuant to the Consulting Agreement, G-V agreed to assist the Company
in introducing potential business opportunities, including possible acquisitions
of operating businesses by the Company. The Consulting Agreement continues until
December 31, 1999, and is automatically renewed for three-month periods
thereafter, but may be terminated by either party on 30 days' notice. As
compensation for its services, G-V will receive five percent (5%) of the fully
diluted outstanding Common Stock of the Company following a transaction pursuant
to which the Corporation acquires, directly or indirectly, the assets or
business operation of an operating business, whether or not introduced by G-V (a
"Transaction"). G-V is also reimbursed for certain business expenses.
<PAGE>
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
In addition, at the same time as the Consulting Agreement, Joseph P. Donnolo,
the Company's President, G-V and the Company entered into a Stock Purchase
Agreement (the "Purchase Agreement") pursuant to which Mr. Donnolo sold 540,325
shares of Common Stock to designees of G-V at a purchase price of $.185 per
share or $100,000 in the aggregate. If the Consulting Agreement is terminated
prior to consummation of a Transaction, Mr. Donnolo is obligated to repurchase
these shares from the G-V designees at the price they were sold, unless the
designees shall have transferred the shares prior thereto. As part of the
Purchase Agreement, the Company agreed not to issue any shares of Common Stock
or other securities without G-V's prior written consent, which consent shall not
be unreasonably withheld or delayed.
Quarter to Quarter Results
General and administrative expenses were $17,026 for the three months ended
September 30, 1999 as compared to $35,314 for the same period in 1998.
Interest income was $12,000 for the three months ended September 30, 1999 as
compared to $3,500 for the same period in 1998.
Year to Date Results
General and administrative expenses were $21,026 for the nine months ended
September 30, 1999 as compared to $72,223 for the same period in 1998.
Interest income was $40,000 for the nine-month period ended September 30, 1999
as compared to $10,500 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's current ratio, that is, the ratio of
current assets to current liabilities, was 5.89 to 1 as compared to 5.11 to 1 at
December 31, 1998. Cash used in operating activities for the nine months ended
September 30, 1999 was $19,254 as compared to cash provided by operating
activities of $71,683 for the same period in 1998. The negative cash flow from
operations for the current nine-month period ended September 30, 1999 is
primarily due to the decrease of accounts payable and accrued expenses of
$22,981 and increase of prepaid insurance of $11,960, partially offset by a net
income of $18,974.
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.
<PAGE>
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
PART II - Other Information
Item 1
Legal Proceedings
To management's knowledge, there are no pending 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 occurred 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.
Year 2000 Issue. In light of the fact that the Company has no active operations,
no remedial measures will be necessary or taken to address the so-called Year
2000 computer issue.
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, 1998.
<PAGE>
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.
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: November 13, 1999 ADVATEX ASSOCIATES, INC.
(Registrant)
/s/ Joseph P. Donnolo
____________________________
Joseph P. Donnolo
Chairman President and Chief
Executive Officer
/s/ Rohullah F. Lodin
____________________________
Rohullah F. Lodin
Chief Financial and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended September 30, 1999
and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 864,327
<SECURITIES> 0
<RECEIVABLES> 181,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,070,297
<PP&E> 55,177
<DEPRECIATION> 31,000
<TOTAL-ASSETS> 1,094,474
<CURRENT-LIABILITIES> 181,649
<BONDS> 13,102
54,032
0
<COMMON> 0
<OTHER-SE> 845,691
<TOTAL-LIABILITY-AND-EQUITY> 899,723
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 21,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 18,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,974
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,974
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
