SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to______________
Commission file number 0-16450
ADVATEX ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3453420
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
605 West 48th Street, New York, N.Y. 10036
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (212) 921-0600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes X No ___
As of November 8, 1998, Registrant had 5,403,250 shares of its Common Stock,
$.01 par value outstanding.
1
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
- ------ ------------- ------------
Current assets: (UNAUDITED)
Cash $ 887,487 $ 815,804
Accounts Receivable - affiliate 181,019 181,019
Prepaid insurance 7,829 49,230
---------- ----------
Total current assets 1,076,335 1,046,053
Note receivable-affiliate -0- 146,500
Property and equipment, net 29,177 35,177
---------- ----------
Total assets $1,105,512 $1,227,730
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 21,324 $ 76,107
Income taxes payable 6,287 12,000
Accrued stock compensation 164,634 164,634
---------- ----------
Total current liabilities 192,245 252,741
---------- ----------
Note payable - automobile 17,602 17,602
========== ==========
Stockholders' equity:
Common stock, $.01 par value.
Authorized 20,000,000 shares;
5,403,250 shares issued 54,032 54,032
Additional paid-in capital 6,885,119 6,885,119
Accumulated deficit (5,960,716) (5,898,994)
Treasury stock, at cost, 27,506
shares (82,770) (82,770)
---------- ----------
Total stockholders' equity 895,665 957,387
---------- ----------
Total liabilities and
stockholders' equity $1,105,512 $1,227,730
========== ==========
See accompanying notes to condensed consolidated financial statements.
2
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- -------- -------- ---------
Real estate management fee $ -0- $ -0- $ -0- $ 24,000
General and administrative
expenses 35,314 91,204 72,223 191,571
------------ ------------ ----------- ----------
Operating loss (35,314) (91,204) (72,223) (167,571)
------------ ------------ ----------- ----------
Other income (expense):
Gain on sale of investment
in affiliated companies -0- 963,997 -0- 963,997
Interest income 3,500 -0- 10,500 25
Interest expense -0- (16,922) -0- (40,922)
------------ ------------ ----------- ----------
Net (loss) income $ (31,814) $ 855,871 $ (61,723) $ 755,529
============ ============ =========== ==========
Net (loss) income per
common share $ (0.01) $ 0.16 $ (0.01) $ 0.14
------------ ------------ ----------- ----------
Weighted average number of
common shares outstanding 5,470,000 5,470,000 5,470,000 5,470,000
============ ============ =========== ==========
See accompanying notes to condensed consolidated financial statements.
3
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
----------- -----------
Cash flows from operating activities:
Net (loss) income $(61,723) $ 755,529
Adjustments to reconcile net
(loss) income to net cash (used in) provided
by operating activities:
Depreciation and amortization 6,000 7,000
Gain on sale of investment in
affiliated companies -0- (963,997)
Increase (decrease) in cash due to change in:
Prepaid insurance 41,402 30,000
Accounts payable and accrued expenses (60,496) (134,127)
Accounts receivable - affiliate -0- (149,000)
Note receivable - affiliate 146,500 -0-
Amount due to affiliated companies -0- (1,055,000)
-------- -----------
Net cash provided by (used in)
operating activities 71,683 (1,509,595)
Cash flows provided by financing
activities-
Proceeds from sales of assets -0- 2,361,556
-------- -----------
Increase in cash 71,683 851,961
Cash at beginning of period 815,804 82,572
-------- -----------
Cash at end of period $887,487 $ 934,533
======== ===========
See accompanying notes to condensed consolidated financial statements.
4
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997
(1) BASIS OF PRESENTATION
The financial information for the three and nine-month periods ended September
30, 1998 and 1997 included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and related notes included in the Company's December 31,
1997 annual report on Form 10-K.
The results of operations for the three and nine-month periods ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
(2) FASB STATEMENT NO. 128 "EARNINGS PER SHARE"
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.128, "Earnings Per Share",
(Statement 128). Statement 128 supersedes APB Opinion No.15, "Earnings Per
Share", and specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces
5
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively.
Statement 128 also requires dual presentation of Basic and Diluted EPS on the
face of the income statement for entities with complex capital structures and a
reconciliation of the information utilized to calculate Basic EPS to that used
to calculate Diluted EPS.
Statement 128 is effective for financial statements periods ending after
December 15, 1997. Earlier application is not permitted. After adoption, all
prior period EPS is required to be restated to conform with Statement 128.
6
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER TO QUARTER RESULTS
On September 9, 1994 the Company purchased 40% of the outstanding common stock
of ATC Real Estate and Development Corporation ("ATC") through its wholly-owned
subsidiary, Advatex Real Estate Corporation ("AREC"). As part of this
transaction the Company entered into a contract with ATC to manage and operate
ATC's property. Under this agreement the Company received 3% of annual gross
receipts as a management fee. On April 11, 1997 ATC entered into a mortgage loan
of $3,750,000 with a financial institution with ATC's property serving as a
collateral. The term of the mortgage was 10 years with amortization of the
principal over 20 years. The interest rate on this mortgage was 8.17%.
On May 5, 1997, the Board of Directors of the Company resolved to effect a
merger between its two wholly-owned subsidiaries, AREC, which owns shares of
common stock of ATC, and Alorex Corp., a New York corporation ("Alorex"),
pursuant to which Alorex would be the surviving corporation. This merger was
completed in June 1997.
On July 31, 1997, ATC paid a cash dividend of $98,000 to Alorex in respect of
its ownership of 40% of ATC's common stock as successor to AREC's ownership.
7
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
In addition, on August 1, 1997, pursuant to a certain Redemption Agreement
between ATC and Alorex, the 40% ownership of ATC by Alorex was redeemed by ATC
for $2,054,557. The manner of payment consisted of $1,604,557 in cash and
$450,000 in cancellation of certain indebtedness of Alorex to ATC. The Company
no longer receives certain management fee and other income it received as a
result of its 40% ownership of ATC and has no revenue generating operations at
this time.
At the same time as the redemption of the 40% ownership of ATC, all but one of
the other shareholders of ATC similarly agreed to have their shares redeemed for
the same purchase price per share. The remaining shareholder of ATC is Advanced
Contracting, Inc. a majority shareholder of which, Joseph P. Donnolo, is the
President and Chairman of the Company. The Company believes that the terms of
the redemption 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 redemption, was based in substantial part on an independent
appraisal of ATC's principal asset, an office building in East Brunswick, New
Jersey. The Company also believes that agreeing to redeem the 40% ownership of
ATC was in the best interest of the Company.
The Company used part of the proceeds from redemption of its 40% ownership of
ATC to pay certain indebtedness. The Company will use the balance of the
proceeds from the sale of investment in affiliated companies to search for other
business opportunities.
General and administrative expenses were $35,314 for the three months ended
September 30, 1998 as compared to $91,204 for the same period in 1997. This
difference results primarily from legal fees incurred in 1997,
8
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
which were not incurred in 1998.
Interest expense was $16,922 for the three months ended September 30, 1997 as
compared to no interest expense for the same period in 1998. Interest expense
was accrued at 8% for the outstanding balance of the note payable-affiliate
during fiscal 1997 (see Part II - Item I - Legal Proceedings).
YEAR TO DATE RESULTS
Revenue from the real estate management fee for the nine month period ended
September 30, 1997 was $24,000 as compared to none for the same period in 1998.
As indicated above, following the redemption of the ATC shares, additional
management fee income is not expected.
General and administrative expenses were $72,223 for the nine months ended
September 30, 1998 as compared to $191,571 for the same period in 1997. This
difference results primarily from legal fees incurred in 1997, which were not
incurred in 1998.
Interest expense was $40,922 for the nine months ended September 30, 1997 as
compared to no interest expense for the same period in 1998. Interest expense
was accrued at 8% for the outstanding balance of the note payable- affiliate
during fiscal 1997 (see Part II - Item I - Legal Proceedings).
9
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's current ratio, that is, the ratio of
current assets to current liabilities, was 5.60 to 1 as compared to 4.14 to 1 at
December 31, 1997. Cash provided by operating activities for the nine months
ended September 30, 1998 was $71,683 as compared to cash used in operating
activities of $1,509,595 for the same period in 1997. The positive cash flow
from operations for the current nine-month period ended September 30, 1998 is
primarily due to the decrease of Note Receivable-Affiliate of $146,500,
partially offset by a net loss of $61,723.
The Company has experienced substantial operating losses over the past several
years. The Company has sought to minimize general and administrative expenses,
however, losses may continue in the future years which may require the Company
to obtain additional funds from its affiliates or other third party sources.
There can be no assurance as to the availability and terms of such funding.
PART II - Other Information
Item 1
Legal Proceedings
On June 24, 1993, the Mason Tenders District Council fringe benefit funds,
certain other industry funds and the District Council itself, named the Company
and certain other companies with whom the Company did business as defendants in
a suit in the U.S. District Court for the Southern District of New York {92 CIV.
3572 (KTD)} under the Employee Retirement Income Security Act (" ERISA") and the
Labor-Management Relation Act. The suit sought recovery in excess of one million
dollars in actual damages and ten million dollars in punitive
10
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
damages for the alleged nonpayment of union dues, fringe benefit contributions
and other contributions allegedly required by the District Council's collective
bargaining agreement. The suit was settled in a stipulation and order approved
and entered by the court, to which the Company was a party, which called for a
payment of $700,000. The payment of the entire settlement amount was made by
Angela Donnolo, the wife of the controlling stockholder who is the Company's
chief executive officer, releasing the controlling stockholder and the Company
from liability in the lawsuit. In order to reimburse Mrs. Donnolo for the
payment of the settlement, the Company made a cash payment to Mrs. Donnolo of
$100,000 and issued her a note in the amount of $600,000. This Note was paid in
full on September 15, 1997.
To management's knowledge, there are no other pending or contemplated legal
proceedings against the Company that could be reasonably expected to have a
material adverse effect on the Company's business or financial position.
Item 2
Changes in Securities.
No changes in securities during the quarter for which this Form 10-Q quarterly
report is filed.
Item 3
Defaults upon Senior Securities.
N/A.
Item 4
Submission of Matters to a Vote of Security Holders.
No matters have been submitted for a vote to security holders during the quarter
for which this Form 10-Q is
11
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
filed.
Item 5
Other Information.
Year 2000 Issue
In light of the fact that the Company has no active operations, no remedial
measures will be necessary or taken to address the Year 2000 computer issue.
Item 6
Exhibits and Reports on Form 8-K.
a) Except as set forth below exhibits are incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Exhibit Item
27.1 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter for which this Form
10-Q quarterly report is filed.
12
ADVATEX ASSOCIATES, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1998 ADVATEX ASSOCIATES, INC.
------------------------
(Registrant)
/s/ Joseph P. Donnolo
------------------------------------
Joseph P. Donnolo
Chairman and Chief Executive Officer
/s/ Rohullah F. Lodin
------------------------------------
Rohullah F. Lodin
Chief Financial and Chief Accounting Officer
13