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, 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, 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 ___
<PAGE>
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 9, 2000, 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 $850,000
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's definitive proxy statement for the 1999 Annual
Meeting, which will be filed within 120 days of December 31, 1999 are
incorporated by reference into Part III.
<PAGE>
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 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. Under this agreement the Company received
3% of the annual gross receipts as 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.
<PAGE>
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. 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 a 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.
<PAGE>
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 certain management fees 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 the ATC's
principal asset, Turnpike Plaza, 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.
<PAGE>
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. Through
the date of filing of this Form 10-K, neither party has terminated. As
compensation for its services, G-V will receive five percent (5%) of the fully
diluted outstanding common stock of the Company, par value $.01 per share
("Common Stock") 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.
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.
<PAGE>
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.
<PAGE>
Item 2. PROPERTIES AND EQUIPMENT
On April 1, 1995 the Company cancelled 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 a base rent of $500 per month through December 31, 1998. Lease
payments have been waived effective January 1, 1999 since the Company's use of
this space is minimal.
Item 3. LEGAL PROCEEDINGS
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 handling these matters, 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.
<PAGE>
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 Systems ("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 9, 2000, 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 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 1999, 1998, 1997, 1996, and 1995.
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).
<PAGE>
Year Ended December 31,
(In thousands,except per
share data amounts)
------------------------
Income Statement Data: 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
Real estate management
fee..................... $ - - 24 42 21
Other revenue............. $ - - - 100 100
Contract revenue and
referral fees........... $ - - - - -
General and administrative
expenses................ $ (87) 114 274 368 889
Operating loss............ $ (87) (114) (250) (226) (768)
Other income (expense):
Interest Income......... $ 40 37 115 - 3
Interest expense........ $ - - (43) (48) (8)
Reversal of accrued
compensation.......... $ 165 - - - -
Gain (loss) on disposal
of automobile......... $ (8) - - 5 -
Gain on sale of
investments........... $ - - 866 - -
Income (loss) before
equity in operations
of investee............ $ 110 (77) 688 (269) (773)
Equity in operation of
investee ............... $ - - - 24 35
Income (loss) before
provision for taxes..... $ 110 (77) 688 (245) (738)
Provision for income
taxes................... $ - - 12 - -
Net income (loss)......... $ 110 (77) 676 (245) (738)
<PAGE>
Year Ended December 31,
(In thousands,except per
share data amounts)
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net income (loss) per
common share.......... $ .02 (.01) .13 (.05) (.14)
Weighted average shares
outstanding ........ 5,397 5,397 5,397 5,397 5,397
Balance Sheet Data:
Working capital....... $ 990 867 793 (681) (208)
Total assets.......... $1,037 1,105 1,227 1,733 1,426
Total liabilities..... $ 47 224 270 1,452 900
Total stockholders' equity $ 990 881 957 281 526
Book value per common share
at year end........... $ .18 .16 .18 .05 .10
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, AS COMPARED WITH
YEAR ENDED DECEMBER 31, 1998.
The operating loss for fiscal year 1999 was $86,952 as compared to an operating
loss of $113,756, for fiscal 1998.
Interest income was $40,152 for fiscal year 1999, as compared to $37,118 during
fiscal 1998.
The Company also recognized income of $164,634 as a result of the reversal of
compensation accrued with respect to unexercised and expired stock options.
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 a 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.
<PAGE>
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's current ratio (current assets to current
liabilities) was 25.8 to 1, as compared to 5.11 to 1 at December 31, 1998. For
the year ended December 31, 1999, the Company experienced a negative cash flow
from operations of $18,130, as compared with a negative cash flow from
operations of $74,223 and $421,652 for the prior two fiscal years, respectively.
<PAGE>
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
NONE.
<PAGE>
Part III
Item 10. DIRECTORS AND OFFICERS OF THE COMPANY
NAME AGE TITLE AND PERIOD OF SERVICE
---- --- ---------------------------
Joseph P. Donnolo 56 Chairman of The Board and
Chief Executive Officer since 1987.
Frank J. Fitzsimmons 53 Partner, Fitzsimmons & Ringle, P.C.,
Director, Secretary of the Corporation
since 1987.
Rohullah F. Lodin 38 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 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. 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.
<PAGE>
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 5% of the registrant's Common Stock as of March
15, 1999:
Name and address Amount and Nature
of Beneficial owner Beneficial ownership Percent of Class
- ------------------- -------------------- ----------------
Joseph P. Donnolo 3,303,075 (1) 61%
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
All Officers and Directors
as a Group (2 Individuals) 3,306,975 61%
* 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. Fitzsimmon's wife.
No director or officer has received compensation for services rendered during
1997, 1998 or 1999.
<PAGE>
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 a fair market value for the transaction.
Additional information regarding these transactions can be found in Item 1.
Business, Item 2, Properties, 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, 1999, 1998 and 1997 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.
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.
27 Financial Data Schedule
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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Report F - 2
Consolidated Financial Statements:
Balance Sheets - December 31, 1999 and 1998 F - 3
Statements of Operations - Years Ended December 31, 1999,
1998 and 1997 F - 4
Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1999, 1998 and 1997 F - 5
Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 7
F-1
<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
subsidiary as of December 31, 1999 and 1998 and the consolidated statements of
operations, shareholders' equity and cash flows for the three years ended
December 31, 1999. 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 subsidiary as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for the three years ended December 31,
1999 in conformity with generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
March 27, 2000
F-2
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- ASSETS -
1999 1998
------------ -----------
CURRENT ASSETS:
Cash $ 859,451 $ 883,581
Accounts receivable - affiliate (Note 4) 161,019 181,019
Prepaid expenses and other current assets 9,983 12,991
----------- -----------
TOTAL CURRENT ASSETS 1,030,453 1,077,591
PROPERTY AND EQUIPMENT, NET (Notes 2f and 3) 7,018 27,177
----------- -----------
$ 1,037,471 $ 1,104,768
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 40,000 $ 39,996
Accrued stock compensation (Note 7) - 164,634
Income taxes payable (Notes 2d and 5) - 6,287
----------- -----------
TOTAL CURRENT LIABILITIES 40,000 210,917
----------- -----------
LONG-TERM LIABILITIES:
Note payable - automobile 7,102 13,102
----------- -----------
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 (5,866,012) (5,975,632)
Treasury stock, at cost - 6,226 shares (82,770) (82,770)
----------- -----------
990,369 880,749
----------- -----------
$ 1,037,471 $ 1,104,768
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------ ------ ------
REVENUES:
Real estate management fees (Note 4) $ - $ - $ 24,000
---------- ---------- ----------
COSTS AND EXPENSES:
General and administrative expenses 86,952 113,756 274,256
---------- ---------- ----------
LOSS FROM OPERATIONS (86,952) (113,756) (250,256)
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and dividend income (Note 4) 40,152 37,118 114,755
Interest expense - - (42,301)
Reversal of accrued compensation
(Note 7) 164,634 - -
Loss on disposal of fixed assets (8,214) - -
Gain on sale of investments (Notes 4
and 6c) - - 865,997
---------- ---------- ----------
196,572 37,118 938,451
---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 109,620 (76,638) 688,195
Provision for income taxes (Notes 2d
and 5) - - 12,000
---------- ---------- ----------
NET INCOME (LOSS) $ 109,620 $ (76,638) $ 676,195
========== ========== ==========
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
(Note 2e) $.02 $.(01) $(.13)
==== ===== =====
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-4
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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, 1997 $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
Net income - - 109,620 - 109,620
------- ---------- ----------- --------- --------
BALANCE AT DECEMBER 31, 1999 $54,032 $6,885,119 $(5,866,012) $ (82,770) $990,369
======= ========== =========== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $109,620 $(76,638) $ 676,195
Adjustments to reconcile net income (loss) to net cash (used in)
operating activities:
Depreciation and amortization 11,945 8,000 9,000
Accrued compensation (164,634) - -
Loss on disposal of fixed assets 8,214 - -
Gain on sale of investments - - (865,997)
Increase (decrease) in cash due to changes in:
Accounts receivable - affiliate 20,000 - (149,001)
Prepaid expenses 3,008 36,239 (19,230)
Accounts payable, accrued expenses and income taxes (6,283) (41,824) (72,619)
-------- -------- ----------
Net cash (used in) operating activities (18,130) (74,223) (421,652)
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable - affiliate - 146,500 -
Decrease in notes receivable - - 12,500
Proceeds from sale of investments - - 2,251,056
Notes repaid to affiliate - - (500,000)
-------- -------- ----------
Net cash provided by investing activities - 146,500 1,763,556
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable - affiliate - - (600,000)
Notes payable - auto (6,000) (4,500) (8,672)
-------- -------- ----------
Net cash (used in) financing activities (6,000) (4,500) (608,672)
-------- -------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (24,130) 67,777 733,232
Cash and cash equivalents at beginning of year 883,581 815,804 82,572
-------- -------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $859,451 $883,581 $ 815,804
======== ======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(i)Cash paid during the year for:
Taxes $6,680 $5,713 $ -
Interest 1,544 3,544 90,301
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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 owned and
operated a commercial real estate property (see Notes 4 and 6c)
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. During 1997, the Company sold certain
of its investments (see Notes 4 and 6c), repaid all affiliated
loans in 1997 and believes that, as of December 31, 1999, 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 wholly-owned subsidiary Alorex Corp. 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-7
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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" (ASFAS
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
1997, 1998 or 1999, 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) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
F-8
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(i) Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997. This statement
prescribes standards for reporting other comprehensive income
and its components. Since the Company currently does not have
any items of other comprehensive income, a statement of
comprehensive income is not yet required.
NOTE 3 - PROPERTY AND EQUIPMENT, NET:
Property and equipment at December 31, 1999 and 1998 consist of
the following:
1999 1998
------- -------
Automotive vehicles $35,090 $55,177
Less: accumulated depreciation 28,072 28,000
------- -------
$ 7,018 $27,177
======= =======
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
Contracting Corp., an entity in which the controlling
shareholder is also the controlling shareholder of the Company.
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 in 1997 for the management services provided
by the Company is reflected as real estate management fees on
the consolidated statements of operations.
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.
As of December 31, 1999 and 1998, the Company had a
non-interest bearing balance due on demand from ATC in the
aggregate of $161,019 and $181,019, respectively.
F-9
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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 1999
and 1998. 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, 1999 and 1998 are
presented below:
1999 1998
---------- ----------
Net operating loss carry forwards $1,870,000 $1,850,000
Contribution carryover 43,180 43,180
Depreciation - 1,000
---------- ----------
Total gross deferred tax assets 1,913,180 1,894,180
Less valuation allowance 1,913,180 1,894,180
---------- ----------
Net Deferred Tax Asset $ - $ -
========== ==========
The Company has available operating loss carry forwards for
federal tax purposes of approximately $5,400,000. 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 leased office space
provided by its controlling shareholder at $500 per month
through December 31, 1998. This shareholder has waived such
lease payments effective January 1, 1999, since the Company's
use of such space is minimal.
(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 $500, $11,000 and $11,000 in 1999, 1998
and 1997, respectively.
Management believes that all of the foregoing arrangements in
(a) and (b) above are upon terms no less favorable to the
Company than those which could be obtained from unrelated third
parties.
(c) 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.
F-10
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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
provided 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, 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, 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 1999, the Company
reversed the compensation accrued with respect to these
unexercised and expired stock options.
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, 1999 and 1998,
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.
Proforma net income and earnings (loss) per share as required
by SFAS 123 (see Note 2g) has not been provided since the
Company's stock is not currently traded on any market.
F-11
<PAGE>
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(a) Effective June 15, 1999, the Company entered into a consulting
agreement with an investment banking firm. Pursuant to this
agreement, the investment banking firm agreed to assist the
Company in introducing potential business opportunities,
including possible acquisitions of operating businesses by the
Company. This agreement expired on December 31, 1999, and is
automatically renewable for three-month periods thereafter, but
may be terminated by either party on 30 days' notice. As
compensation for its services (in addition to reimbursable
expenses), the investment banking firm will receive five
percent (5%) of the fully diluted outstanding common stock of
the Company following a transaction pursuant to which the
Company acquires, directly or indirectly, the assets or
business operation of an operating business, whether or not
introduced by the firm.
Simultaneously with the execution of this agreement, the
Company, its President and the investment banking firm entered
into a stock purchase agreement pursuant to which the President
sold 540,325 shares of common stock to designees of the firm at
a purchase price of $.185 per share or $100,000 in the
aggregate. The purchase price of the shares was based on the
book value of the Company at the time of this transaction. If
the consulting agreement is terminated prior to consummation of
an acquisition, the President is obligated to repurchase these
shares 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 the investment
banking firm's prior written consent, which consent shall not
be unreasonably withheld or delayed.
(b) 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 two years in the
period ended December 31, 1998. The Company is currently
utilizing office space provided by an affiliate (see Note 6a)
at no cost.
(c) 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 since 1997. 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.
(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-12
<PAGE>
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
Advatex Associates, Inc.
By: /S/ Rohullah F. Lodin
---------------------
Rohullah F. Lodin
Chief Financial Officer
And Chief Accounting Officer
Dated: March 29, 2000
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
- ---------- ----- ----
By: /s/ Joseph P. Donnolo Chairman of the March 29, 2000
Joseph P. Donnolo Board and Chief
Executive Officer
By: /s/ Frank J. Fitzsimmons Director March 29, 2000
Frank J. Fitzsimmons
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended December 31, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 859451
<SECURITIES> 0
<RECEIVABLES> 161019
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<CURRENT-ASSETS> 1030453
<PP&E> 35090
<DEPRECIATION> 28072
<TOTAL-ASSETS> 1037471
<CURRENT-LIABILITIES> 40000
<BONDS> 7102
54032
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<OTHER-SE> 936337
<TOTAL-LIABILITY-AND-EQUITY> 1037471
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<TOTAL-COSTS> 86952
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