<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 1-11454-03
----------
Peachtree FiberOptics, Inc.
---------------------------
(Name of small business issuer in its charter)
Delaware 58-1974423
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Brickell Avenue, Suite 2000, Miami, Florida 33131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (305) 374-0282
--------------
Securities registered under Section 12(b) of the Exchange Act:
(a) Common Stock, par value $0.01 per share
(b) Callable stock purchase warrants
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (X)
The issuer's revenues for the fiscal year ended December 31, 1996 was $0.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 25, 1997, based upon the average bid and ask prices of such
stock on that date was $0. The number of shares of Common Stock of the issuer
outstanding as of March 25, 1997 was 3,583,332.
<PAGE> 2
PART I
ITEM 1. GENERAL DESCRIPTION OF BUSINESS
The Company is a development stage enterprise and was incorporated in the state
of Delaware in February 1992, primarily to engage in the production and sale of
plastic optical fiber ("POF"). In connection with its formation, the Company
acquired from Peachtree Technologies, Inc. ("PTI") the rights to certain
technology for a new manufacturing process to produce POF. The Company also
entered into an agreement with Fiberoptic Machinery Company, Inc. ("FMCI") to
sell under the Company's name certain custom designed machinery produced by FMCI
to manufacture wire, cable and glass fiber ("Custom Machinery"). FMCI was a
small machinery company incorporated in the state of Georgia at the time the
Company was incorporated. FMCI acquired the remaining assets and debt of PTI and
FMCI's continued survival was solely dependent on the success of the Company's
efforts to sell custom machinery.
Since inception, the Company completed an initial public offering, assembled a
senior management team with extensive experience in the POF and optical fiber
industries, filed for and was granted patent protection for the use of its new
process to produce graded index POF, installed an initial production system,
established relationships with potential key POF customers, and relocated its
corporate offices to a facility with sufficient production capacity. Due to
inadequate capital resources, the inability to raise additional capital,
technical difficulties existing with the Company's initial POF production
system, certain lawsuits filed against the Company, and certain claims asserting
that the Company was liable for the debts of FMCI, the Company, on October 27,
1993, granted any officer of J.W. Charles Securities, Inc. and Corporate
Securities Group, Inc., the Company's initial public offering managing
underwriters, a limited power-of-attorney to negotiate and execute an agreement
with Genesis Partners, Inc. to act as exclusive manager of the Company and all
of its business interests.
POF development efforts had been primarily focused on meeting specifications set
forth by Rutgers University Fiberoptics Department for "Illumination Plastic
Optical Fiber". In the second quarter of 1993 the Company believed its POF met
these specifications and the Company's illumination POF was evaluated and
accepted by a sign manufacturer. During the third quarter of 1993, the sign
manufacturer informed the Company that the POF previously accepted no longer met
required specifications. The Company then determined its POF was not comparable
to POF produced by other manufacturers. At that time, the Company did not
possess funding needed to enhance or modify its existing POF production system
to meet required specifications.
On October 27, 1993, the Company ceased all operations and subsequently sold
certain assets relating to its Custom Machinery and POF operations. On February
2, 1994, the Company entered into an Asset Acquisition Agreement for the sale of
the Company's POF production system, certain equipment and inventory for
$200,000. In connection with this sale, the Company licensed its proprietary
technology.
COMPETITION
Since the Company is now seeking additional capital or investors or acquisition
or merger opportunities, the Company encounters significant competition in its
efforts to locate capital and/or investors or to attract acquisition or merger
opportunities from other individuals and entities having similar objectives.
Some of the competing individuals and entities have management, investment
managers or advisors with significantly greater experience, resources and
managerial capabilities than the Company and are therefore in a better position
than the Company to obtain access to capital or investors or attractive
acquisition or merger opportunities.
2
<PAGE> 3
EMPLOYEES
At December 31, 1996, the Company had one part-time employee, who on October 27,
1993, was appointed by J. W. Charles Securities, Inc. and Corporate Securities
Group, Inc., the Company's initial public offering managing underwriters, to act
as exclusive manager of the Company and its business interests.
The Company's business activities are managed by Mr. Leonard J. Sokolow,
President/CEO, Genesis Partners, Inc., 701 Brickell Avenue, Suite 2000, Miami,
Florida 33131.
ITEM 2. PROPERTIES
The Company's prior lease obligations have been either settled or assigned to
another company, and the Company does not lease any property or own significant
assets as of December 31, 1996.
ITEM 3. LEGAL PROCEEDINGS None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From October 8, 1992 through December 31, 1993, the Company's Common Stock and
Warrants had been traded on the NASDAQ Small-Cap Market under the symbols PFII
and PFIIW, respectively, and on The Boston Stock Exchange under the symbols PFI
and PFIW, respectively. In January 1994 the Company's Common Stock and Warrants
were de-listed from both exchanges, and since such date, there has been no
public trading market for either of such securities. The Warrants expired in
October 1995.
In connection with the bridge financing discussed in Item 6, the Company granted
to two investors an immediately exercisable three-year warrant to purchase
10,000 shares of Common Stock at a price of $2.50 per share. The shares
underlying such warrants have been granted piggyback registration rights during
the term of the warrants and demand registration rights during the last two
years of the term of the warrants. Such warrants also contain certain
anti-dilution rights.
The number of stockholders of record for the Company's common stock as of March
25, 1997 was 182.
The Company has not paid any cash dividends since inception, and it does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
On October 27, 1993 Genesis Partners, Inc. (the "Managing Agent") was granted
authority by the Company to act as exclusive manager of the Company and all of
its business interests. The Managing Agent commenced a liquidation of certain
assets of the Company shortly thereafter.
3
<PAGE> 4
As a result of the Company's decision to liquidate certain assets, the Company
began using the liquidation basis of accounting for the period beginning October
28, 1993. Therefore, for the period beginning October 28, 1993 assets have been
adjusted to net realizable values and liabilities adjusted to settlement amounts
plus estimated liquidation costs. As of December 31, 1996, the net realizable
value of the Company's assets was $15,883 and its total liabilities were
$735,428.
On May 15, 1995, the Company obtained bridge financing in the aggregate amount
of $50,000 from two investors, less a 10% fee paid to JW Charles Securities,
Inc. for arranging the transaction. The Company used approximately $16,000 of
the proceeds from this financing to pay professional fees and applied the
remainder of the proceeds to meet operating expenses. In exchange for such
financing, the Company issued a promissory note in the principal amount of
$25,000 each to the two investors. Such notes bear interest at a rate of 10% per
annum and became due upon the earlier of November 15, 1995 or the closing date
of a firm commitment underwritten secondary public offering of the Company's
securities. Such notes are currently in default and remain unpaid. No agreement,
understanding or arrangement presently exists with respect to any secondary
public offering.
On May 30, 1996, the Company executed an assignment agreement with VAI Patent
management Corporation ("VAI") in the amount of $10,000. The agreement assigns
VAI the Company's title and interest in its U.S. registered patent and its
exclusive license agreement with Lightwave Technology, Inc. Under the terms of
the agreement the Company may receive an additional lump sum payment equal to
$15,000 if certain goals are met by the assignee within a 36 month period.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited financial statements accompany this report as Item 13(b).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
4
<PAGE> 5
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The sole managing agent and director of the Company are as follows:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Leonard J. Sokolow 40 Managing Agent
Sidney Levine 79 Director
LEONARD J. SOKOLOW has been Chairman of the Board, President, Chief
Financial Officer and Portfolio Manager of The Americas Growth Fund, Inc., a
publicly held investment company since June 1994. From September 1996, Mr.
Sokolow has been President of Union Atlantic, LC a privately-held merchant
banking and financial advisory services firm. From August 1993, Mr. Sokolow had
been President and Chief Executive Officer of Genesis Partners, Inc. a
privately-held corporation which provides domestic and international investment
banking and financial advisory services. Genesis Partners, Inc. has been the
Managing Agent of the Company since October 1993. From May 1988 to July 1993,
Mr. Sokolow was employed by Windmere Corporation, a public corporation engaged
in the manufacture and distribution of personal care products and small
household appliances, most recently as its Executive Vice President-Operations,
Administration and Finance and General Counsel. Since September 1992, Mr.
Sokolow has been a director of Video Jukebox Network, Inc. ("Video Jukebox"), a
public company in the entertainment industry of Video Jukebox. Since March 1990,
Mr. Sokolow has served as a director of Catalina Lighting, Inc., a public
company engaged in the import and distribution of commercial and residential
electrical lighting. Since April of 1995 Mr. Sokolow has been a director of
Ezcony Interamerica, Inc. a distributor of electronic products and CD Rom
programing to Latin America. Mr. Sokolow received a B.A. degree with majors in
Economics and Accounting from The University of Florida in 1977, a J.D. degree
from The University of Florida School of Law in 1980 and an L.L.M. (Taxation)
degree from The New York University Graduate School of Law in 1982, Mr. Sokolow
is a Certified Public Accountant.
SIDNEY LEVINE has been serving as a director of the Company since January
21, 1994. For more than the past five years, Mr. Levine has been a retired
business executive.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
As of the date hereof, there are no transactions for which the officers,
directors and significant stockholders have not timely filed the appropriate
form under Section 16(a) of the Exchange Act.
5
<PAGE> 6
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides the cash and other compensation paid or accrued by
the Company for the 1996, 1995, and 1994 fiscal years to persons who served as
the Company's chief executive officers (or acted in a similar capacity) during
the 1996, 1995 and 1994 fiscal years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------------------- ---------------------------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK STOCK LTIP ALL OTHER
NAME/POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
- ---------------------------------------------------------------------------------------- ---------------------------------------
- ---------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard J. Sokolow/ 1996 $0 $0 $0 $0 $0 $0 $0
Managing Agent (1) 1995 $0 $0 $0 $0 $0 $0 $0
1994 $0 $0 $0 $0 $0 $0 $0
</TABLE>
(1) Mr. Sokolow has rendered supervisory and management services to the
Company on behalf of the Managing Agent, Genesis Partners, Inc.,
since October 27, 1993. He has not received any cash compensation
but Genesis Partners, Inc. of which he is President and CEO and a
controlling shareholder is entitled to a managing agent fee equal to
$150,000 per year. The Company has accrued $475,000 for the first,
second, third and part of the fourth year fee but payment of such
fee by the Company is contingent upon certain conditions which have
not yet occurred. See "Managing Agent Compensation."
COMPENSATION TO DIRECTORS
Outside directors receive a fee of $1,000 per meeting for serving as directors
of the Company and are also reimbursed for reasonable out-of-pocket expenses
incurred while performing their functions as directors of the Company. During
1994, 1995 and 1996 the outside director served without compensation.
MANAGING AGENT COMPENSATION
On October 26, 1993, the Company entered into a management agreement with
Genesis Partners, Inc. ("Genesis") to perform supervisory and managerial
services relating to the Company's business affairs. On February 28, 1994, the
management agreement was amended whereby Mr. Sokolow, President and CEO of
Genesis, was added to the agreement to render supervisory and managerial
services to the Company on behalf of Genesis. The terms of the agreement require
the Company to pay Genesis and Mr. Sokolow for services rendered a fee in an
amount equal to $150,000 per year and issue Leonard J. Sokolow, the sole
stockholder of the Managing Agent, 10% of the Company's outstanding common stock
on a fully diluted basis. As of the date of this report no cash compensation has
been paid to the Managing Agent. However, the Company has accrued $475,000 for
the first, second, third and part of the fourth year fee. Payment of such
compensation is contingent upon the Company obtaining sufficient capital through
a private placement or a public offering and/or the completion of a merger or
acquisition. Pursuant to such agreement, on February 28, 1994, and February 15,
1995, the Company issued
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<PAGE> 7
Mr. Sokolow 287,288 and 71,044 shares, respectively, of the Company's Common
Stock. This agreement was to have expired on October 26, 1995 but was extended
for an additional three years and will expire on October 26, 1998.
1992 INCENTIVE STOCK PLAN
In July 1992, the Company adopted an Incentive Stock Plan (the "Plan") covering
310,000 shares of Common Stock pursuant to which officers, directors, key
employees and consultants of the Company are eligible to receive incentive stock
options and non qualified stock options, restricted stock and stock appreciation
rights. The selection of participants, grants of options, restricted stock and
stock appreciation rights, determination of price and other conditions of the
grants will be determined by the Stock Option Committee in its sole discretion.
Incentive stock options granted under the Plan are exercisable for a period of
up to ten years from the date of grant at an exercise price which is not less
than the fair market value of the Common Stock on the date of grant, except that
the term of an incentive stock option granted under the Plan to a stockholder
owning more than ten percent of the outstanding Common Stock may not exceed five
years and its exercise price may not be less than 110% of the fair market value
of the Common Stock on the date of grant.
To date, non qualified options to purchase an aggregate of 205,000 shares of
Common Stock have been granted under the Plan. Options for 25,000 shares have an
exercise price of $3.13 per share and all other options have an exercise price
of $2.25 per share. These options are immediately exercisable, and expire ten
years after the date of grant. (None of these options have been exercised.) All
of the shares issuable upon exercise of the options are subject (at the election
of the Company) to repurchase at fair market value for one year after
termination of employment or as a Director, as the case, may be, except that if
the termination is for cause, the shares may be repurchased at the price paid by
the optionee.
7
<PAGE> 8
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at March 25, 1997 with
respect to the beneficial ownership of shares of Common Stock by: (i) each
person known by the Company to be the owner of more than five percent of the
outstanding shares of Common Stock, (ii) each officer and director; and (iii)
all officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OWNED
---------------- ------------ ----------------
<S> <C> <C>
Steve Gorlin 500,200 (1) 13.5%
3453 Holcomb Bridge Road
Suite 220
Norcross, Georgia 30092
D. H. Blair Investment 475,200 12.8
Banking Corp.
44 Wall Street
New York, New York 10009
Leonard J. Sokolow 358,332 10.0
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Sidney Levine - -
3 Timber Drive
Ocean, New Jersey 07712
All executive officers and directors 358,332 10.0
as a group (2 persons)
</TABLE>
(1) Includes 25,000 options pursuant to the Plan that are immediately
exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A Shareholders' Agreement entered into among certain stockholders of the Company
prior to the initial public offering contains certain registration rights. These
stockholders holding 880,000 of the 3,583,332 currently outstanding shares of
Common Stock can request that the Company register their shares pursuant to the
Act. The expenses of the registration will be either paid by the Company or
selling stockholders, depending upon the type of registration.
8
<PAGE> 9
PART IV
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are being filed and are numbered in
accordance with Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.1 Management Agreement by and between the Company and Genesis Partners, Inc. dated October 27,
1993.*/**
10.2 Addendum to Management Agreement by and between the Company and Genesis Partners, Inc. dated
October 27, 1993. */**
10.3 Asset Acquisition Agreement by and between the Company and Lightwave Technology, Inc. dated
February 2, 1994. *
10.4 Bill of Sale by and between the Company and Lightwave Technology, Inc. dated February 2, 1994.*
10.5 Exclusive License Agreement and Option to Purchase Agreement by and between the Company and
Lightwave Technology, Inc. dated February 2, 1994. *
10.6 Assignment of Lease Agreement by and between the Company and Lightwave Technology, Inc. dated
February 2, 1994. *
10.7 Addendum to October 27, 1993 Management Agreement by and between the Company and Genesis
Partners, Inc. dated February 28, 1994.
10.8 Addendum to October 27, 1993 Management Agreement by and between the Company and Genesis
Partners, Inc. dated October 26, 1995.**
10.9 Addendum to October 27, 1993 Management Agreement by and between the Company and Genesis
Partners, Inc. dated March 1, 1996.**
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule (For S.E.C. purposes only)
</TABLE>
* Previously filed as Exhibits to the Company's Form 10-KSB for the fiscal
years ended December 31, 1993 and December 31, 1994. All of such documents
are incorporated herein by reference.
** Management Agreement
(b) The following documents are filed as part of this report.
(1) Report of Independent Auditors
(2) Statements of Deficiency in Net Assets Available in Liquidation at
December 31, 1996 and 1995 (Liquidation Basis)
(3) Statements of Changes in Deficiency in Net Assets Available in
Liquidation for the period from October 28, 1993 through December 31,
1993 and for each of the three years ended December 31, 1996
(Liquidation Basis)
(4) Statements of Operations for the period from inception (February 18,
1992) through October 27, 1993
(5) Statement of Stockholders' Equity for the period from inception
(February 18, 1992) through October 27, 1993
(6) Statement of Cash Flows for the period from inception (February 18,
1992) through October 27, 1993
(7) Notes to Financial Statements
(c) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the fourth quarter ended December 31, 1996.
9
<PAGE> 10
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on behalf by the undersigned,
thereunto duly authorized.
Dated: March 24, 1997
Peachtree FiberOptics, Inc.
By: LEONARD J. SOKOLOW
---------------------------------
Leonard J. Sokolow
Managing Agent
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ------------------ ----------------------------- ---------------
<S> <C> <C>
LEONARD J. SOKOLOW
- ------------------
Leonard J. Sokolow Managing Agent March 25, 1997
(Chief Executive and Financial
Officer)
SIDNEY LEVINE
- -------------
Sidney Levine Director March 25, 1997
</TABLE>
10
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Financial Statements
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
DECEMBER 31, 1996 AND 1995,
PERIOD FROM OCTOBER 28, 1993 THROUGH
DECEMBER 31, 1993, YEARS ENDED
DECEMBER 31, 1996, 1995, AND 1994 AND
PERIOD FROM INCEPTION (FEBRUARY 18,
1992) THROUGH OCTOBER 27, 1993
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 12
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Financial Statements
December 31, 1996 and 1995,
Period from October 28, 1993 through December 31, 1993,
Years ended December 31, 1996, 1995, and 1994
and Period from Inception (February 18, 1992) through October 27, 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ...................................................................... 1
Financial Statements
Statements of Deficiency in Net Assets Available in Liquidation
as of December 31, 1996 and 1995 (Liquidation Basis).............................................. 3
Statement of Changes in Deficiency in Net Assets Available in Liquidation for
the period from October 28, 1993 through December 31, 1993 and for each of
the three years ended December 31, 1996 (Liquidation Basis) ...................................... 4
Statements of Operations for the period from inception (February 18, 1992)
through October 27, 1993 ......................................................................... 6
Statement of Stockholders' Equity for the period from inception
(February 18, 1992) through October 27, 1993....................................................... 7
Statement of Cash Flows for the period from inception (February 18, 1992)
through October 27, 1993 ......................................................................... 8
Notes to Financial Statements ....................................................................... 10
</TABLE>
<PAGE> 13
Report of Independent Auditors
Managing Agent and Directors
Peachtree FiberOptics, Inc.
We have audited the accompanying statements of deficiency in net assets
available in liquidation of Peachtree FiberOptics, Inc. (a development stage
enterprise) (the "Company") as of December 31, 1996 and 1995, and the related
statements of changes in deficiency in net assets available in liquidation for
the period from October 28, 1993 through December 31, 1993 and for each of the
three years ended December 31, 1996. In addition, we have audited the
accompanying statements of operations, stockholders' equity and cash flows of
the Company for the period from inception (February 18, 1992) through
October 27, 1993. These financial statements are the responsibility of the
Company's Managing Agent. Our responsibility is to express an opinion on these
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 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 presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on October 27, 1993, the
Company granted J.W. Charles Securities, Inc. and Corporate Securities Group,
Inc. a limited power of attorney to negotiate and execute an agreement with
Genesis Partners, Inc. to act as exclusive manager of the Company's assets. The
exclusive manager commenced a liquidation of the Company's operating assets and
liabilities shortly thereafter. As a result, the Company changed its basis of
accounting for periods subsequent to October 27, 1993 from the going concern
basis to a liquidation basis.
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<PAGE> 14
In our opinion, the financial statements referred to above present fairly, in
all material respects the deficiency in net assets available in liquidation of
the Company at December 31, 1996 and 1995, the changes in its deficiency in net
assets available in liquidation for the period from October 28, 1993 through
December 31, 1993 and for each of the three years ended December 31, 1996 and
the results of operations and cash flows of the Company for the period from
inception (February 18, 1992) through October 27, 1993 in conformity with
generally accepted accounting principles applied on the bases described in the
preceding paragraph.
/s/ Ernst & Young LLP
March 10, 1997
2
<PAGE> 15
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statements of Deficiency in Net Assets
Available in Liquidation
(LIQUIDATION BASIS)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
--------------------------
<S> <C> <C>
ASSETS
Cash $ 15,883 $ 13,198
--------------------------
Total assets 15,883 13,198
LIABILITIES
Accounts payable 134,915 134,915
Accrued expenses 71,237 65,908
Notes payable 50,000 50,000
Lease obligations 4,276 4,276
Managing agent fee 475,000 325,000
--------------------------
Total liabilities 735,428 580,099
--------------------------
Deficiency in net assets available in liquidation $ (719,545) $ (566,901)
==========================
Stockholders' deficiency in net assets:
Common stock, $.01 par value; 20,000,000 shares
authorized, 3,225,000 shares issued and outstanding $ 32,250 $ 32,250
Additional paid-in capital 3,496,960 3,489,460
Accumulated deficit (4,248,755) (4,088,611)
--------------------------
Stockholders' deficiency in net assets $ (719,545) $ (566,901)
==========================
</TABLE>
See accompanying notes.
3
<PAGE> 16
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Changes in Deficiency
in Net Assets Available in Liquidation
Period from October 28, 1993 through December 31, 1993 and
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<S> <C>
Changes in net assets available in liquidation attributed to:
Reduction in cash $ (10,949)
Decrease in inventory due to sales and markdowns (10,569)
Write-down of net property and equipment
to net realizable value (388,063)
Decrease in prepaid expenses and other (12,062)
Increase in accounts payable (15,654)
Increase in accrued expenses (22,406)
Facility operating lease settlement (70,906)
Gain on settlement of liabilities 237,978
Decrease in liability for termination of custom
machinery sales agreement with affiliated company 157,619
---------
(135,012)
Net assets available in liquidation at October 27, 1993 10,336
---------
Deficiency in net assets available in liquidation
at December 31, 1993 (124,676)
Changes in net assets available in liquidation attributed to:
General and administrative expenses (83,328)
Managing agent fee (150,000)
Gain on settlement of liabilities 4,035
---------
(229,293)
---------
Deficiency in net assets available in liquidation
at December 31, 1994 (353,969)
Changes in net assets available in liquidation attributed to:
General and administrative expenses (32,932)
Managing agent fee (175,000)
Fees on notes payable (5,000)
---------
(212,932)
---------
Deficiency in net assets available in liquidation
at December 31, 1995 (566,901)
</TABLE>
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Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Changes in Deficiency
in Net Assets Available in Liquidation (continued)
Period from October 28, 1993 through December 31, 1993 and
Years ended December 31, 1996, 1995 and 1994
Changes in net assets available in liquidation attributed to:
General and administrative expenses (27,452)
Managing agent fee (150,000)
Gain on settlement of liabilities 7,208
Capital contribution 7,500
Other revenue 10,100
----------
(152,644)
----------
Deficiency in net assets available in liquidation
at December 31, 1996 $(719,545)
==========
See accompanying notes.
5
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Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 18, 1992)
THROUGH
OCTOBER 27, 1993
----------------
<S> <C>
Sales:
Equipment $ 2,897,057
Repair parts 73,655
Service 52,589
-----------
3,023,301
Cost of sales:
Equipment 2,344,442
Repair parts 48,197
Service 17,711
-----------
2,410,350
-----------
Gross margin 612,951
Selling, general and administrative expenses:
Salaries and commissions 970,943
Professional fees 618,093
Research and development 422,269
Amortization and depreciation 71,924
Bad debts 160,072
Interest, net 23,163
Other 857,861
Provision for termination of custom machinery
sales agreement with affiliated company 1,000,000
-----------
4,124,325
-----------
Net loss $(3,511,374)
===========
Net loss per share $ (1.53)
===========
Weighted average number of shares of
common stock outstanding 2,289,464
===========
</TABLE>
See accompanying notes.
6
<PAGE> 19
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING THE
---------------- ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial sale of stock on
February 18, 1992 1,302,400 $13,024 457,600 $ 686,400 $ 1,776 $ -- $ 701,200
Conversion of preferred stock on
September 30, 1992 457,600 4,576 (457,600) (686,400) 681,824 -- --
Sale of common stock on
October 19, 1992,
net of issuance costs of $895,297 1,110,000 11,100 -- -- 2,562,353 -- 2,573,453
Net loss -- -- -- -- -- (1,893,619) (1,893,619)
--------- ------- -------- --------- ----------- ----------- -----------
Balance at December 31, 1992 2,870,000 28,700 -- -- 3,245,953 (1,893,619) 1,381,034
Additional October 19, 1992
common stock issuance costs -- -- -- -- (9,193) -- (9,193)
Issuance of common stock:
In September 1993 at $.75
per share for professional fees 110,000 1,100 -- -- 81,400 -- 82,500
In September 1993 at $.75 per share
($.50 paid in cash, $.25
for professional fees) 47,500 475 -- -- 35,150 -- 35,625
In October 1993 at $.70 per share
($.45 paid in cash, $.25
for professional fees) 197,500 1,975 -- -- 136,150 -- 138,125
Net loss -- -- -- -- -- (1,617,755) (1,617,755)
--------- ------- -------- --------- ----------- ----------- -----------
Balance at October 27, 1993 3,225,000 $32,250 -- $ -- $ 3,489,460 $(3,511,374) $ 10,336
========= ======= ======== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 20
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 18, 1992)
THROUGH
OCTOBER 27, 1993
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,511,374)
Adjustments to reconcile net loss to cash used in operations:
Provision for termination of custom machinery sales
agreement with affiliated company 1,000,000
Write-downs of note receivable from stockholders 42,185
Write-downs of acquired technology and marketing rights 20,216
Bad debts 160,072
Issuance of stock options at less than market value 143,750
Depreciation and amortization 71,924
Changes in assets and liabilities:
Accounts receivable (160,072)
Equipment deposits --
Prepaid expenses and other 15,039
Accounts payable 253,489
Accrued expenses 147,287
Deferred rent 37,037
Affiliated company liability (213,862)
Customer deposits 42,107
----------
Net cash used in operations (1,952,202)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (574,282)
Purchase of certificate of deposit (767,000)
Proceeds from sale of property and equipment 18,073
Loans to stockholders (100,000)
Advances to affiliated company, net (630,017)
Purchase of marketing rights (10,000)
----------
Net cash used in investing activities (2,063,226)
</TABLE>
8
<PAGE> 21
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 18, 1992)
THROUGH
OCTOBER 27, 1993
----------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable 950,000
Payments on capital lease obligations and notes payable (276,929)
Proceeds from sale of preferred stock 686,400
Proceeds from sale of common stock 2,684,160
-----------
Net cash provided by financing activities 4,043,631
-----------
Increase in cash and cash equivalents 28,203
Cash and cash equivalents at beginning of period --
-----------
Cash and cash equivalents at end of period $ 28,203
===========
CASH PAID FOR
Interest $ 65,505
===========
</TABLE>
See accompanying notes.
9
<PAGE> 22
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Peachtree FiberOptics, Inc. (the "Company") was formed on February 18, 1992 by
the sale of 520,000 shares of nonvoting, Series A convertible preferred stock
(convertible to 457,600 shares of common stock) for $686,400 and 651,200 shares
of common stock for $7,400. Concurrent with the formation, the Company, among
other things: (a) acquired certain fiber optic technology in exchange for
651,200 shares of the Company's common stock; (b) paid $340,000 to an affiliated
company to manufacture an initial production system; and (c) paid $127,500 for a
covenant not to compete with a company owned by certain of the Company's
stockholders, which payment was immediately charged to research and development
expense.
On September 30, 1992 the Company effected a .88-for-one reverse stock split of
its common shares. All references to numbers of such shares and per share
amounts in the accompanying financial statements and notes reflect this split
retroactively.
On October 19, 1992 the Company closed an initial public offering with the sale
of an additional 1,110,000 shares of its common stock and 555,000 stock warrants
for net cash proceeds of $2,573,453. Concurrent with the initial public offering
and in accordance with the terms of the preferred stock, the 520,000 shares of
preferred stock were converted into 457,600 shares of common stock.
Since inception (February 18, 1992) the Company was involved in the development
of a process to manufacture plastic optical fiber (POF) using the acquired
proprietary technology. The Company was a development stage enterprise, and did
not realize significant operating revenues from its proprietary POF business.
Through October 27, 1993 the Company was engaged in developing its POF products
and obtaining financing, and, through April 1993, purchased and resold wire,
cable and glass fiber manufacturing machinery ("custom machinery") (see Note 3).
Initially the Company expected that revenues from custom machinery orders would
provide sources of funds to offset operating and development expenses in the
Company's POF business. During the first quarter of 1993 the affiliated
company's financial condition significantly weakened, resulting in the Company
suspending sales and
10
<PAGE> 23
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
marketing efforts for custom machinery, terminating its custom machinery
manufacturing agreement with the affiliated company, and recording a charge of
$1,000,000 in the 1992 financial statements to provide for the outstanding
balance under the line of credit described in Note 3 and to provide for
estimated losses to be incurred by the Company as a result of this termination.
Since inception the Company had advanced amounts under the line of credit to the
affiliated company which manufactured custom machinery, for which the Company
acted as reseller. The line of credit was collateralized by all the assets of
the affiliated company. On June 1, 1993, the Company exercised its rights as a
creditor and took possession of its collateral, pursuant to UCC Article 9
repossession, which consisted of certain assets, properties, and rights of the
affiliated company.
On September 23, 1993 the Company filed a Registration Statement on Form S-8
registering 110,000 shares of the Company's common stock and 560,000 options to
acquire an additional 560,000 shares of common stock. From September 23, 1993
through October 27, 1993, 245,000 options were exercised to purchase 245,000
shares of the Company's stock for $112,500. In connection therewith, the Company
recorded $143,750 of expenses related to the excess of the market value of such
shares over the related proceeds.
On October 5, 1993 the Company entered into an Asset Purchase Agreement with an
unaffiliated company for the sale of certain assets, properties, and rights
previously owned by the affiliated company and repossessed by the Company on
June 1, 1993. The aggregate selling price for these assets was based on a
royalty formula extending 36 months. As of December 31, 1996, no royalties had
been received by the Company pursuant to this agreement.
On October 14, 1993 a complaint was filed against the Company by certain trade
creditors of the affiliated company in the amount of $356,000. During 1994 the
Company paid such trade creditors $55,000 in settlement of the complaint.
11
<PAGE> 24
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
On October 27, 1993 the Company granted any officer of J.W. Charles Securities,
Inc. and Corporate Securities Group, Inc., the Company's managing underwriters,
a limited power-of-attorney to negotiate and execute an agreement with Genesis
Partners, Inc. (the "Managing Agent") to act as exclusive manager of the Company
and all of its business interests. The Managing Agent commenced a liquidation of
the Company's operating assets and liabilities shortly thereafter (see Note 2).
The Company agreed to pay the Managing Agent $150,000 per year and issue the
sole stockholder of the Managing Agent 10% of the Company's outstanding common
stock on a fully diluted basis. As of the date of this report, no compensation
has been paid to the Managing Agent. However, the Company has accrued $150,000
for the first year fee, $150,000 for the second year fee, $150,000 for the third
year fee and a pro rata share equaling $25,000 for the fourth year fee, for a
total of $475,000 at December 31, 1996. Payment of such compensation is
contingent upon the Company's obtaining sufficient capital through a private
offering or the completion of a merger or acquisition of the Company. On
February 28, 1994 and February 15, 1995 the Company issued 287,288 and 71,044
restricted shares of common stock, respectively, to the sole stockholder of the
Managing Agent pursuant to the agreement. During 1996 the Managing Agent's
agreement was extended through October 27, 1998 with substantially the same
terms.
During 1994 the Managing Agent sold certain of the Company's remaining operating
assets, primarily the initial production system and certain licensed technology,
for $200,000 to an unrelated third party. Accordingly, such amount was recorded
as the net realizable value of the POF production system at December 31, 1993,
resulting in a decrease in the carrying value of property and equipment of
$388,063 during the liquidation period from October 28 through December
31, 1993.
On May 30, 1996 the Company entered into an assignment agreement with an
unrelated third party (the "assignee") in the amount of $10,100. The agreement
assigns to the third party the Company's title and interest in their U.S.
registered patent and their exclusive license agreement with Lightware
Technology, Inc. Under the terms of the Agreement the Company may receive an
additional lump sum payment equal to $15,000 if certain goals are met by the
assignee within a 36 month period.
12
<PAGE> 25
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
Generally accepted accounting principles require the adjustment of assets and
liabilities to estimated net realizable value under the liquidation basis.
Accordingly, the statements of deficiency in net assets available in liquidation
at December 31, 1996 and 1995 reflect assets and liabilities on this basis.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
REVENUE RECOGNITION
Sales of equipment and repair parts were recognized upon shipment. Service
revenues were recorded when such services were performed.
STATEMENT OF CASH FLOWS
The Company included cash and short-term investments, when present, with
original maturities of less than 90 days in cash and cash equivalents.
NET LOSS PER SHARE
Primary net loss per share was computed using the weighted average number of
common shares outstanding during the period.
13
<PAGE> 26
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which encourages
companies to recognize expense for stock-based awards based on their fair value
on the date of grant. The Company adopted the liquidation basis of accounting
effective October 28, 1993. Accordingly, it does not report net income or
earnings per share information in its financial statements. Therefore, no pro
forma information related to SFAS No. 123 is disclosed in the Company notes to
its financial statements.
3. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM STOCKHOLDERS
On February 18, 1992 the Company loaned an aggregate of $100,000 to certain
stockholders. The loans were due in full on February 18, 1994 and accrued no
interest. Concurrently, the Company accrued a bonus of a like amount which was
payable to such stockholders, assuming they were still employed by the Company
on February 18, 1994. The bonus was being charged to operations over the period
to February 18, 1994. Accordingly, the note receivable and bonus payable were
offset in the Company's financial statements through October 27, 1993.
In February 1993 the Company entered into a settlement agreement with a certain
stockholder in which the Company agreed to cancel the stockholder's loan
obligation to the Company in exchange for the cancellation of the bonus owed by
the Company to such stockholder. Additionally, the Company paid approximately
$73,000 in severance costs to such stockholder through September 30, 1993.
14
<PAGE> 27
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
NOTES RECEIVABLE FROM STOCKHOLDERS (CONTINUED)
In July 1993 the Company terminated the employment of another of the certain
stockholders and requested that the stockholder's loan of $25,000 from the
Company be repaid. As of October 27, 1993 the stockholder had not repaid the
loan and the Company wrote off such amount.
On October 27, 1993 the Company agreed to forgive the remaining stockholders'
loan obligations of $50,000 to the Company in exchange for the cancellation of
the bonus owed by the Company to such stockholders upon the stockholders'
resignations as officers of the Company.
STOCK OPTIONS TO STOCKHOLDER
The Company granted a principal stockholder an option to purchase 25,000 shares
of Common Stock at $3.125 per share in consideration for a short-term loan of
$100,000 made available to the Company in September 1992 and repaid during
October 1992. The options are exercisable and expire in September 2002.
15
<PAGE> 28
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
3. RELATED PARTIES (CONTINUED)
ADVANCES TO AFFILIATED COMPANY
The Company advanced amounts under a line of credit to an affiliated company
which manufactured wire, cable and glass fiber manufacturing machinery, for
which the Company acted as reseller. These advances accrued interest at the rate
of prime plus 2%, not to exceed 10%, from the date of the advance. On July 31,
1992, prior to the Company's initial public offering, the line of credit was
guaranteed in part by a stockholder; however, the guarantee was
"self-liquidating" in that repayments from the affiliated company reduced the
guaranteed amount and additional advances to the affiliated company carried no
such guarantee. During the first quarter of 1993, the affiliated company's
financial condition significantly weakened causing the Company to discontinue
making such advances. On June 1, 1993 the Company exercised its rights as a
creditor pursuant to UCC Article 9 repossessions, and took possession of all
assets, properties, and rights of the affiliated company.
PURCHASES FROM AFFILIATED COMPANY
During the period from inception through October 27, 1993, the Company paid
$2,410,350 to the affiliated company for machinery and parts which the Company
resold to customers for an aggregate of $3,023,301. The Company also paid
approximately $450,000 to the affiliated company to manufacture an initial
production system and advanced an additional $72,200 to the affiliated company
to manufacture certain custom machinery which was never recovered since such
custom machinery was never completed or delivered.
RECEIPTS FROM AFFILIATED COMPANY
During 1996 an affiliated Company controlled by the Managing Agent paid certain
expenses of the Company. As the Managing Agent is a principal stockholder of the
Company, the payment was treated as a capital contribution.
16
<PAGE> 29
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
3. RELATED PARTIES (CONTINUED)
OTHER RELATED PARTY TRANSACTIONS
The Company subleased, on a month-to-month basis, certain facilities from the
affiliated company, as well as sharing certain administrative costs (principally
insurance, utilities and maintenance). Amounts charged to expense as a result of
these arrangements aggregated approximately $52,000 for the period from
January 1, 1993 through October 27, 1993.
In connection with the settlement agreement with a certain stockholder mentioned
above, the Company guaranteed debt of the affiliated company of $59,060 which
debt was assumed by the Company during 1993.
In February 1993 the Company borrowed $50,000 from a stockholder's relative
which loan bore interest at a rate of 10% per annum, and was payable no later
than February 26, 1995. The loan and accrued interest was repaid on May 21,
1993.
4. NOTES PAYABLE
During July 1992 the Company refinanced a line of credit previously supplied by
a stockholder by signing a $700,000 promissory note payable to a bank. On March
4, 1993 the Company refinanced the promissory note with a different bank for
$700,000 due March 1995. Such note accrued interest at the rate of prime plus 1%
per annum and was collateralized by a $700,000 certificate of deposit. In
November 1993 the Company was in violation of, and unable to cure, certain
covenants, and, therefore, the bank exercised its rights under the terms of the
note and took possession of the $700,000 certificate of deposit in full
satisfaction of the promissory note.
During May 1995 the Company borrowed $50,000 under two subordinated promissory
notes of equal amounts, less a $5,000 transaction fee, from certain unrelated
parties. The principal amount and accrued interest, at a rate of 10% per annum,
were due the earlier
17
<PAGE> 30
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
4. NOTES PAYABLE (CONTINUED)
of November 15, 1995 or the closing date of a firm commitment underwritten
secondary public offering of the Company's securities. At December 31, 1996 such
amounts are past due. In connection with the notes, the Company issued each
party an anti-dilutive Common Stock Purchase Warrant to purchase 10,000 shares
of the Company's $.01 par value common stock at an exercise price of $2.50 per
share. The warrants expire on May 15, 1998.
5. COMMITMENTS
The Company had employment contracts with certain of its officers, generally
covering the terms, conditions, salary and other matters regarding their
employment. The Company had assigned, on a recourse basis, two of these
contracts to the affiliated company. Such contracts were reassigned to the
Company during 1993. By October 27, 1993 all contracts had been canceled through
termination or settlement agreements.
The Company agreed to grant options as to 160,000 shares of the Company's common
stock on May 26, 1992 to an officer and director at an exercise price of $2.25
per share. Such options were scheduled to vest in equal amounts annually over a
three-year period and were exercisable until May 2002. On October 27, 1993 the
Company agreed to fully vest such options in return for the officer and
director's resignation. The options expire ten years from date of grant.
In addition to the sublease from the affiliated company (see Note 3), the
Company also leased a production facility from an unrelated third party for
$3,250 per month on a month-to-month basis. In connection with sale of certain
assets of the Company (see Note 1), the lease commitment was transferred to
another company. Total rent expense approximated $112,000 and $139,000 for the
period from January 1, 1993 through October 27, 1993 and for the period from
inception through October 27, 1993, respectively.
18
<PAGE> 31
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
5. COMMITMENTS (CONTINUED)
On February 19, 1993 the Company entered into a seven-year lease for a new
production facility. In connection with the new lease, the Company entered into
an irrevocable standby letter of credit ("letter of credit") with a bank in
favor of the landlord for $116,832 as collateral for the lease. Such letter of
credit was scheduled to expire on October 31, 1994. The letter of credit was
collateralized by a certificate of deposit for $67,000 purchased by the Company
and certain assets of the Company. In October 1993 the Company was in violation
of certain lease provisions, and, therefore, the landlord exercised its rights
against the letter of credit. In February 1994 the Company paid the bank an
additional $25,000 of proceeds from the sale of certain assets to settle the
uncollaterized portion of the letter of credit. Rental expense under this lease
approximated $75,000 for the period from January 1, 1993 through October 27,
1993.
6. INCOME TAXES
For income tax purposes the Company has approximately $3,660,000 of net
operating loss carryforwards available for offset against future taxable income,
subject to certain limitations, which expire in 2007, 2008, 2009, 2010 and 2011.
Based on assessments of all available evidence as of December 31, 1996 the
Company has concluded that its net deferred income tax asset should be reduced
by a valuation allowance equal to the amount of such asset.
19
<PAGE> 32
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Deferred income tax assets:
Nondeductible accruals $ (3,000) $ (3,000)
Managing agent fee (180,500) (123,500)
Net operating loss carryforwards (1,390,800) (1,387,117)
------------ -----------
Total deferred income tax assets (1,574,300) (1,513,617)
Valuation allowance for deferred tax assets 1,574,300 1,513,617
------------ -----------
Net deferred income tax assets $ -- $ --
============ ===========
</TABLE>
20
<PAGE> 33
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In July 1992 the Company adopted a stock option plan (the "Plan") under which
310,000 shares of the Company's common stock are reserved for issuance, pursuant
to which officers, directors, consultants, and key employees are eligible to
receive incentive and/or non-qualified stock options. Incentive stock options
granted under the Plan are exercisable for a period of up to ten years from the
date of grant at an exercise price which is not less than the fair market value
of the common stock on the date of grant, except that the term of an incentive
stock option granted under the Plan to a stockholder owning more than 10% of the
then outstanding shares of common stock may not exceed five years and the
exercise price may not be less than 110% of the fair market value of the common
stock on the date of grant. Options as to 205,000 shares including the 160,000
shares referred to in Note 5, 20,000 shares granted to Directors, and 25,000
shares referred to in Note 3 have been granted at exercise prices of $2.25,
$2.25, and $3.125, respectively, under the Plan; all such options are
exercisable. The options expire ten years from the date of grant.
STOCK WARRANTS
In connection with the initial public offering of the Company's common stock
(see Note 1), 555,000 stock warrants (to purchase one share of the Company's
common stock at $3.125 per share) were issued. The warrants became exercisable
October 8, 1993 and expired on October 8, 1995.
21
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-94354) pertaining to the 1993 Management Agreement between
Peachtree FiberOptics, Inc. and Leonard J. Sokolow of our report dated March
10, 1997, with respect to the financial statements of Peachtree FiberOptics,
Inc. included in the Annual Report (Form 10-KSB) for the year ended December
31, 1996.
ERNST & YOUNG, LLP
Atlanta, Georgia
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,883
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,883
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,883
<CURRENT-LIABILITIES> 735,428
<BONDS> 0
0
0
<COMMON> 32,250
<OTHER-SE> 3,496,960
<TOTAL-LIABILITY-AND-EQUITY> 4,248,755
<SALES> 0
<TOTAL-REVENUES> 10,100
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (162,744)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (152,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (152,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,644)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Peachtree FiberOptics, Inc. uses the liquidation basis of accounting.
</FN>
</TABLE>
