SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
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, 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, 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,
par value $.01 per share
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]
As of March 8, 1999, Registrant had 5,397,024 shares of its Common Stock
outstanding. As of the date hereof, there is no public market for the issuers
securities.
DOCUMENTS INCORPORATED BY REFERENCE. None.
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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.
On September 9, 1994, the Company purchased 40% of the outstanding
common stock of ATC Real Estate and Development Corporation ("ATC") for
$1,290,000. This acquisition 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.
As part of this transaction the Company entered into a contract with
ATC to manage and operate ATC's 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. Under this agreement the
Company received 3% of annual gross receipts as a management fee. ATC, a
corporation incorporated in the state of Delaware on July 13, 1994, was formed
by AREC and Advanced Contracting Corp. (now known as JD Holding 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.
Turnpike Plaza was purchased by ATC on September 9, 1994, in
consideration of $3,226,000, which consisted of a $2,131,000 cash payment, 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. Currently, ATC has a 100% ownership interest in
Turnpike Plaza.
On April 11, 1997, ATC entered into a mortgage loan of $3,750,000 with
a financial institution, with Turnpike Plaza serving as collateral. The term of
the mortgage is 10 years, at an interest rate of 8.17%, with amortization of the
principal over 20 years.
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.
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 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 Corp. (now known as JD Holding Corp.), 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 those which would have been obtained in an
arm's-length transaction. The valuation of ATC which led to the pricing of ATC's
principal asset, Turnpike Plaza, was conducted by an independent appraiser. The
Company also believes that agreeing to
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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 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 and Trademark Office on January 8, 1991. No other patents or
proprietary rights are held by the Company.
EMPLOYEES
The Company currently has no employees.
ITEM 2. PROPERTIES AND EQUIPMENT
On April 1, 1995, the Company canceled its month to month lease for
office space 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, 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
Fund, 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 non-payment 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 "Settlement Order"). The payment of
the entire settlement amount was made by Angela Donnolo, the wife of Joseph P.
Donnolo. Joseph P. Donnolo is the Company's controlling stockholder and chief
executive officer. The Settlement Order released both Mr. Donnolo and the
Company from liability in the lawsuit. In order to reimburse Ms. Donnolo for the
payment of the amount under the Settlement Order, 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 of the Company. In the opinion of management,
based in part on advice from legal counsel handling these matters, the ultimate
liability
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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 has not held an 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 ("NASDAQ") until July 14, 1992. On
July 14, 1992, the stock of the Company was delisted from NASDAQ 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, 1999, there were 283 holders of record of the
Company's Common Stock.
The Company has not paid dividends on its Common Stock, and it is
management's present intention not to declare or pay any 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 1998, 1997, 1996, 1995, and
1994.
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: 1998 1997 1996 1995 1994
- ---------------------- ---- ---- ---- ---- ----
Real estate management
fees.................... $ - 24 42 21 6
Other revenue............. $ - - 100 100 -
Contract revenue and
referral fees........... $ - - - - 150
General and administrative
expenses................ $ 114 274 368 889 705
Operating loss............ $(114) (250) (226) (768) (549)
Other income (expense):
Interest Income......... $ 37 115 - 3 33
Interest expense........ $ - (43) (48) (8) -
Gain on disposal of
automobile............ $ - - 5 - -
Gain on sale of
investments........... $ - 866 - - -
Income (Loss) before
equity in operations
of investee............ $ (77) 688 (269) (773) (516)
Equity in operation of
investee ............... $ - - 24 35 (2)
Income (loss) before
provision for taxes..... $ (77) 688 (245) (738) (518)
Provision for income
taxes................... $ - 12 - - -
Net income (loss)......... $ (77) 676 (245) (738) (518)
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Year Ended December 31,
(In thousands, except per
share data amounts)
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net income (loss) per
common share............ $ (.01) .13 (.05) (.14) (.10)
Weighted average shares
outstanding ............ 5,397 5,397 5,397 5,397 5,397
Balance Sheet Data:
Working capital........... $ 867 793 (681) (208) (42)
Total assets.............. $1,105 1,227 1,733 1,426 1,929
Total liabilities ........ $ 224 270 1,452 900 665
Total stockholders' equity $ 881 957 281 526 1,264
Book value per common share
at year end............. $ .16 .18 .05 .10 .23
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998, AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1997.
Real estate management fees for fiscal year 1997 were $24,000, as
compared to no real estate management fees during fiscal year 1998. 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.
The Company had no contract revenues or referral fees for fiscal years
1998 or 1997.
The operating loss for fiscal year 1998 was $113,756, as compared to an
operating loss of $250,256 for fiscal year 1997.
Interest expense for fiscal year 1997 was $42,301 as compared to no
interest expense during fiscal year 1998. The interest expense for fiscal year
1997 was a result of the accrual of interest on the note payable to Angela
Donnolo, the wife of Joseph Donnolo, 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 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.
Interest income was $37,118 for fiscal year 1998, as compared to
$114,755 during fiscal 1997. As part of the interest income received during
1997, the Company realized $98,000 as a one time interest and dividend income
due to the funds it received from the aforementioned proceeds and its investment
in ATC.
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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1996.
Real estate management fees for fiscal year 1997 were $24,000, as
compared to $42,000 in real estate management fees during fiscal year 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 with no other revenue
during fiscal 1997. During fiscal year 1996, the Company provided construction
management and financial management to ATC. The fee for such services was
credited to other income.
The Company had no contract revenues or referral fees for fiscal 1997
or 1996.
The operating loss for fiscal 1997 was $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 both 1997 and 1996 was a result of the accrual of
interest on the note payable to Angela Donnolo, the wife of Joseph Donnolo, 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 year 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 year 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.
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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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's current ratio (current assets to
current liabilities) was 5.11 to 1, as compared to 4.13 to 1 at December 31,
1997. For the year ended December 31, 1998, the Company experienced a negative
cash flow from operations of $74,223, as compared with a negative cash flow from
operations of $421,652 for the prior fiscal year. During fiscal year 1998, total
cash flow was a result of decreased Notes Receivable-Affiliate by $146,500, and
decreased Prepaid Expense of $36,239, which was partially offset by decreased
Accounts Payable of $36,111, and a net loss of $76,638.
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 (the "Former Accountant") served as the
Company's independent auditors for the fiscal year ended December 31, 1996. On
December 3, 1997, the Former Accountant was dismissed by the Company and
Lazar Levine
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& Felix LLP was appointed as the Company's new independent auditors. The reports
of the Former Accountant on the Company's financial statements for the year
ended December 31, 1996 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 the
Former Accountant on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure, which disagreement, if
not resolved to the Former Accountant's satisfaction, would have caused the
Former Accountant to make reference to the subject matter of the disagreement in
connection with its report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE TITLE AND PERIOD OF SERVICE
---- --- ---------------------------
Joseph P. Donnolo 55 Chairman of The Board Of Directors and
Chief Executive Officer
Frank J. Fitzsimmons 52 Director, Secretary
James J. Gruba 58 Director
Rohullah F. Lodin 37 Chief Financial Officer and
Chief Accounting Officer
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
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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. Mr. Gruba has been a Vice President with
Dillon, Read & Co., and, since 1986, has been a Director of Whole Loans at
Morgan Stanley & Co.
Mr. Lodin joined the Company in February 1988 as Corporate Controller. In
September 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.
ITEM 11 AND 12. EXECUTIVE COMPENSATION AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following persons are known to the Company to be officers, directors and
beneficial owners of more than five percent of the Registrant's common stock as
of March 15, 1999:
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
Joseph P. Donnolo 4,006,500 (1) 76%
c/o Advatex Associates, Inc.
605 West 48th Street
New York, NY 10036
Frank J. Fitzsimmons 3,900 (2) *
c/o Advatex Associates, Inc.
605 West 48th Street
New York, NY 10036
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James J. Gruba 5,000 *
c/o Advatex Associates, Inc.
605 West 48th Street
New York, NY 10036
ALL OFFICERS AND
DIRECTORS AS A
GROUP (3 Individuals) 4,065,400 77%
* Represents less than 1% of outstanding shares of the Common Stock of the
Company.
(1) Includes 4,000 shares controlled by Mr. Donnolo and certain of his
affiliates.
(2) Includes shares held in an IRA account for Mr. Fitzsimmons and shares held
in an IRA account for Mr. Fitzsimmons' wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 the then-fair market value for such
transaction. Additional information regarding these transactions can be found in
Item 1, Business; Item 3, Legal Proceedings; Item 7, Management's Discussion and
Analysis of Financial Condition and Result of Operations; Item 8, Financial
Statements and Supplementary Data; and in "Note 6. Related-party transactions".
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, 1998, 1997 and 1996 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
- --------------
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").
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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.
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. Incorporated by
reference to the Company's 1994 Annual Report on Form 10-K.
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. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission at
http://www.sec.gov.
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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/ Joseph P. Donnolo
-----------------------------------
Joseph P. Donnolo
Chairman of the Board
and Chief Executive Officer
By: /s/ Rohullah F. Lodin
-----------------------------------
Rohullah F. Lodin
Chief Financial Officer
and Chief Accounting Officer
Dated: March 27, 1999
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/ Frank J. Fitzsimmons Director March 27, 1999
- ------------------------
Frank J. Fitzsimmons
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
Independent Auditors' Report - Current Auditor F - 2
Independent Auditors' Report - Prior Auditor F - 3
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1998 and 1997 F - 4
Consolidated Statements of Operations - Years Ended December 31, 1998, 1997 and 1996 F - 5
Consolidated Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1998, 1997 and 1996 F - 6
Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 F - 7
Notes to Financial Statements F - 8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advatex Associates, Inc.
We have audited the consolidated balance sheets of Advatex Associates, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the consolidated statements of
operations, shareholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998 and 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
March 22, 1999
F - 2
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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 the year 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 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 results of operations and the cash flows
of Advatex Associates, Inc. and subsidiaries for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
KPMG LLP
February 21, 1997
Short Hills, New Jersey
F - 3
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ADVATEX ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- ASSETS -
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 883,581 $ 815,804
Accounts receivable - affiliate (Note 4) 181,019 181,019
Prepaid expenses and other current assets 12,991 49,230
----------- -----------
TOTAL CURRENT ASSETS 1,077,591 1,046,053
PROPERTY AND EQUIPMENT, NET (Notes 2f and 3) 27,177 35,177
OTHER ASSETS:
Note receivable - affiliate (Note 6c) - 146,500
----------- -----------
$ 1,104,768 $ 1,227,730
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 39,996 $ 76,107
Accrued stock compensation 164,634 164,634
Income taxes payable (Notes 2d and 5) 6,287 12,000
----------- -----------
TOTAL CURRENT LIABILITIES 210,917 252,741
----------- -----------
LONG-TERM LIABILITIES:
Note payable - automobile 13,102 17,602
----------- -----------
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 (5,975,632) (5,898,994)
Treasury stock, at cost - 6,226 shares (82,770) (82,770)
----------- -----------
880,749 957,387
----------- -----------
$ 1,104,768 $ 1,227,730
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
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ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Real estate management fees (Note 4) $ - $ 24,000 $ 42,000
Other revenue (Note 4) - - 100,000
------------ ----------- -----------
- 24,000 142,000
COSTS AND EXPENSES:
General and administrative expenses 113,756 274,256 368,087
------------ ----------- -----------
LOSS FROM OPERATIONS (113,756) (250,256) (226,087)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income (Note 4) 37,118 114,755 121
Interest expense - (42,301) (48,000)
Gain on disposal of fixed assets - - 5,229
Gain on sale of investments (Notes 4 and 6d) - 865,997 -
------------ ----------- -----------
37,118 938,451 (42,650)
------------ ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN OPERATIONS
OF INVESTEE (76,638) 688,195 (268,737)
Equity in operations of investee (Note 4) - - 23,892
------------ ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (76,638) 688,195 (244,845)
Provision for income taxes (Notes 2d and 5) - 12,000 -
------------ ----------- -----------
NET INCOME (LOSS) $ (76,638) $ 676,195 $ (244,845)
============ =========== ===========
BASIC/DILUTED EARNINGS (LOSS) PER SHARE (Note 2e) $(.01) $.13 $(.05)
===== ==== =====
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 5,397,024 5,397,024 5,397,024
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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, 1996 $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
Net loss - - (76,638) - (76,638)
------- ---------- ----------- -------- --------
BALANCE AT DECEMBER 31, 1998 $54,032 $6,885,119 $(5,975,632) $(82,770) $880,749
======= ========== =========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(76,638) $ 676,195 $(244,845)
Adjustments to reconcile net income (loss) to net cash (used in)
operating activities:
Depreciation and amortization 8,000 9,000 11,000
Gain on disposal of fixed assets - - (5,229)
Gain on sale of investments - (865,997) -
Equity in operations of investee - - (23,892)
Increase (decrease) in cash due to changes in:
Accounts receivable - affiliate - (149,001) (17,000)
Prepaid expenses 36,239 (19,230) (30,000)
Accounts payable and accrued expenses (36,111) (84,619) 25,565
Income taxes payable (5,713) 12,000 -
-------- --------- ---------
Net cash (used in) operating activities (74,223) (421,652) (284,401)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in notes receivable - affiliate 146,500 - (122,500)
Purchase of investment - - (37,500)
Increase in notes payable - affiliated companies - - 500,000
Decrease (increase) 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 146,500 1,763,556 287,778
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable - affiliate - (600,000) -
Notes payable - auto (4,500) (8,672) 26,274
-------- --------- ---------
Net cash provided by (used in) financing activities (4,500) (608,672) 26,274
-------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 67,777 733,232 29,651
Cash and cash equivalents at beginning of year 815,804 82,572 52,921
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $883,581 $ 815,804 $ 82,572
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(i) Cash paid during the year for:
Taxes $ 5,713 $ - $ -
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, 1998
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 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), repaid
all affiliated loans in 1997 and believes that, as of December 31,
1998, 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, 1998
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. (See also Note 5).
(e) Earnings (Loss) Per Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128),
which has changed the method of calculating earnings (loss) per share.
SFAS 128 requires the presentation of "basic" and "diluted" earnings
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) 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 as if the fair-value-based method defined in SFAS No. 123
has been applied. The Company did not grant any stock options in 1996,
1997 or 1998, 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.
(h) Reclassification:
The 1996 financial statements have been reclassified, where
appropriate, to conform to the 1997 and 1998 financial statement
presentation.
F - 9
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 3 - PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, at December 31, 1998 and 1997 consist of
the following:
1998 1997
------- -------
Automotive vehicles $55,177 $55,177
Less: accumulated depreciation 28,000 20,000
------- -------
$27,177 $35,177
======= =======
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
annual receipts of the property. The income earned of $24,000 and
$42,000 in 1997 and 1996, 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 earned income of $100,000 which is included
in other revenue on the consolidated statements of operations.
As of December 31, 1998 and 1997, the Company had a non-interest
bearing balance due on demand from ATC in the aggregate of $181,019.
F - 10
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 4 - INVESTMENTS (Continued):
Summarized information for the investment accounted for by the equity
method follows:
1996
----------
Current assets $ 235,907
Property, net 2,823,505
Other assets 504,265
----------
$3,563,677
==========
Liabilities $ 549,778
Total shareholders' equity 3,013,899
----------
$3,563,677
==========
Total net revenue $1,459,625
==========
Net income $ 59,731
==========
Company's equity in net income $ 23,892
==========
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 carry forward position, no tax benefits
were recorded relative to the losses incurred in 1998 and 1996. The
provision for income taxes for 1997 consists of the following:
Current:
Federal - net of benefit of net operating loss
carry forward $12,000
State and local -
-------
$12,000
=======
The tax effects of temporary differences that would give rise to
deferred tax assets at December 31, 1998 and 1997 are presented below:
1998 1997
---------- ----------
Net operating loss carry forwards $1,850,000 $1,900,000
Contribution carryover 43,180 43,180
Depreciation 1,000 1,815
---------- ----------
Total gross deferred tax assets 1,894,180 1,944,995
Less valuation allowance 1,894,180 1,944,995
---------- ----------
Net Deferred Tax Asset $ - $ -
========== ==========
F - 11
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 5 - INCOME TAXES (Continued):
The Company has available operating loss carry forwards 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).
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 $11,000, $11,000 and $99,000 in 1998, 1997 and 1996,
respectively.
(c) The note receivable - affiliate of $146,500 at December 31, 1997, was
due from Sprint Recycling, Inc. which is owned 100% by the controlling
shareholder of the Company. The note was due on demand with 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, the Company received full payment of this note.
(d) 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.
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.
F - 12
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
NOTE 7 - STOCK OPTION AND INCENTIVE PLANS (Continued):
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.
At December 31, 1997 and 1996, the Board had granted an aggregate of
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 and 1996, non-qualified Stock Options were 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 1998. At December 31, 1997, 276,448 shares
were exercisable and 14,468 shares were available for grant under the
1988 Plan.
None of the above option grants were exercised and the 1988 Plan
expired on September 25, 1998
During 1990, the Company adopted the 1990 Stock Option Plan for Outside
Directors which provides for the issuance of non-qualified options to
purchase shares of common stock to outside members of the Board. As of
December 31, 1998 and 1997, 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 2g.
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 $6,000
for each of the three years in the period ended December 31, 1998.
F - 13
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
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. This shareholder has waived the receipt of
compensation for the 1998 and 1997 years. The agreement also contained
post-employment non-compete provisions and provided that the Company
maintain 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, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 883,581
<SECURITIES> 0
<RECEIVABLES> 181,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,077,591
<PP&E> 55,177
<DEPRECIATION> 28,000
<TOTAL-ASSETS> 1,104,768
<CURRENT-LIABILITIES> 210,917
<BONDS> 13,102
54,032
0
<COMMON> 0
<OTHER-SE> 826,717
<TOTAL-LIABILITY-AND-EQUITY> 1,104,768
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 113,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> (76,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,638)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
