<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, 1998
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, 1998 was $0.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 23, 1999, 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 23, 1999 was 3,583,332.
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PART I
ITEM 1. GENERAL DESCRIPTION OF BUSINESS
Peachtree FiberOptics, Inc. (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.
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EMPLOYEES
At December 31, 1998, the Company had one part-time employee, who on October 27,
1993, was appointed by JW Genesis Financial Corp. (formerly JW 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, 1998.
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. The Warrants expired in October 1995. Since
January 1994 until January 1999, when the Company's Common Stock was relisted
and began trading on the OTC, there has been no public trading market for the
Company's Common Stock.
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
18, 1999 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.
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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, 1998, the net realizable
value of the Company's assets was $499 and its total liabilities were
approximately $858,579.
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.
In October 1998, Mr. Sokolow and another investor each provided a $6,000 bridge
loan to the Company. The Company used these proceeds to pay professional fees
and operating expenses. In exchange for such financing, the Company issued
promissory notes in the principal amount of $6,000 each to Mr. Sokolow and the
investor. Such notes will bear interest at the rate of 10% per annum and are due
and payable upon the merger of the Company with, or acquisition of, another
company or business.
Effective December 31, 1998, the Company reduced, to zero, certain accounts
payable and accrued liabilities aggregating $194,000 that have been outstanding
since the Company adopted the liquidation basis of accounting on October 28,
1993. The Company has not been contacted by these vendors related to settling
these liabilities and therefore believes such amounts have been effectively
settled. Accordingly, the Company adjusted these liabilities to their net
realizable values.
On February 28, 1999, the Company entered into a non-binding letter of intent to
acquire all of the outstanding capital stock of a private company in the home
healthcare equipment and service industry in exchange for the Company's
outstanding stock. The transaction will be accounted for under the purchase
method of accounting.
Management has completed the assessment of its Year 2000 issues and concluded
that the consequences of its Year 2000 issues will not have a material effect on
the Company's business, results of operations, or finacial condition as they are
using the liquidation method of accounting and have no operations.
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Management fees totaling $775,000 have been accrued by the Company as of
December 31, 1998 and are due and payable by the Company to Genesis Partners,
Inc. ("Genesis"). (See "Managing Agent Compensation"). The Company determined
that in order to attract any viable financing and/or merger or acquisition
opportunities it would need to satisfy such outstanding fees payable to Genesis
without requiring any cash consideration. As a consequence, on March 18, 1999
the Company entered into a Debt Conversion Agreement with Genesis and Mr.
Sokolow. The Debt Conversion Agreement provides that Genesis can covert in whole
part $.011273398 of such accured fees for one share of common stock of the
Company (the "Conversion Ratio") up to a maximum of $775,000 in accrued fees
resulting in a maximum of 68,745,910 common shares of the Company to be issued
to Genesis upon full conversion of such $775,000 in accrued fees. Genesis
further agreed that, immediately preceding a merger, acquisition or financing by
or of the Company ("Reorganization Event"), any and all accrued fees not then
converted shall be automatically converted ("Full Conversion") in its entirety
pursuant to the Conversion Ratio. Genesis and Mr. Sokolow also agreed to
forgive, release and forever discharge the Company for any and all other debt
that the Company has incurred or may incur to Mr. Sokolow and/or Genesis.
Furthermore, immediately preceding a Reorganization Event and after the Full
Conversion, Sokolow and Genesis have agreed to cancel the Management Agreement
and forever forgive, release and forever discharge the Company from any and all
obligations or fees which may be due under such Management Agreement. Upon
execution of the Debt Conversion Agreement on March 18, 1999, Genesis converted
$75,000 of the accrued fees pursuant to the Conversion Ratio into 6,652,830
shares of the Company's common stock.
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.
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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 42 Managing Agent
Sidney Levine 81 Director
LEONARD J. SOKOLOW. From September 1996, Mr. Sokolow has been President
of Union Atlantic LC; a privately held investment and consulting 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.
Since June 1994 until December 1998 Mr. 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. 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 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 programming 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.
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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 1998, 1997, and 1996 fiscal years to persons who served as
the Company's chief executive officers (or acted in a similar capacity) during
the 1998, 1997 and 1996 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/ 1998 $0 $0 $0 $0 $0 $0 $0
Managing Agent (1) 1997 $0 $0 $0 $0 $0 $0 $0
1996 $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
$775,000 for the first, second, third, fourth, fifth and part of the sixth
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
1995, 1996, 1997 and 1998 the outside director served without compensation.
MANAGING AGENT COMPENSATION
On October 26, 1993, the Company entered into a management agreement with
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
Mr. 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 $775,000 ("Managing Agent Debt") for the first, second, third,
fourth, fifth and part of the sixth 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 Mr. Sokolow 287,288 and 71,044 shares, respectively, of the
Company's Common Stock. This agreement was to have expired on
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October 26, 1995 but was extended for an additional three years until October
26, 1998 and was extended again for an additional one year until October 26,
1999. This management agreement also contains an anti-dilution provision which
provides that if during the term of the agreement the Company issues any
additional shares of its capital stock, the Company shall promptly thereafter
issue to Sokolow, for no additional consideration, such number of additional
shares of the Company's common stock so that Sokolow shall maintain a 10%
interest in the issued and outstanding shares of the Company's capital stock and
all shares underlying outstanding options, warrants, and any other rights to
acquire such capital stock. Mr. Sokolow has been granted certain demand and
piggyback registration rights.
The Company determined that in order for the Company to attract any viable
financing and/or merger or acquisition opportunities it would net to eliminate
such outstanding fees payable to Genesis without requiring any cash
consideration. Accordingly, on March 18, 1999 the Company entered into a Debt
Conversion Agreement with Genesis and Mr. Sokolow. The Debt Conversion Agreement
provides that Genesis can covert in whole or part $.011273398 of the Managing
Agent Debt for one share of common stock of the Company (the "Conversion Ratio")
up to a maximum of $775,000 resulting in a maximum of 68,745,910 common shares
of the Company to be issued to Genesis upon full conversion of the Managing
Agent Debt. Genesis further agreed that, immediately preceding a merger,
acquisition or financing by or of the Company ("Reorganization Event"), any and
all Managing Agent Debt not then converted shall be automatically converted
("Full Conversion") in its entirety pursuant to the Conversion Ratio. Genesis
and Mr. Sokolow also agreed to forgive, release and forever discharge the
Company for any and all other debt that the Company has incurred or may incur to
Mr. Sokolow and/or Genesis. Furthermore, immediately preceding a Reorganization
Event and after the Full Conversion, Sokolow and Genesis have agreed to cancel
the Management Agreement and forever forgive, release and forever discharge the
Company from any and all obligations or fees which may be due or otherwise arise
under such Management Agreement. Upon execution of the Debt Conversion Agreement
on March 18, 1999, Genesis converted $75,000 of the Managing Agent Debt pursuant
to the Conversion Ratio into 6,652,830 shares of the Company's common stock.
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.
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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. (As of December 31, 1998 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at March 18, 1999 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.
NAME AND ADDRESS SHARES OWNED PERCENTAGE OWNED
---------------- ------------ ----------------
Leonard J. Sokolow (1) 7,011,162 68.5
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Sidney Levine (2) 0 0.0
3 Timber Drive
Ocean, New Jersey 07712
All executive officers and directors 7,011,162 68.5
as a group (2 persons)
(1) Leonard J. Sokolow is sole shareholder, President and CEO of Genesis
Partners, Inc. ("Genesis"), a company that has provided executive
management services to the Company since 1993. Includes 6,652,830 shares
of Common Stock issued to Genesis on March 18, 1999 in consideration for
Genesis Converting $75,000 debt owed to Genesis by the Company of Common
Stock.
(2) Mr. Levine in the sole director of the Company
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.
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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:
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
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.**
10.10 Addendum to October 27, 1993 Management Agreement by and
between the Company and Genesis Partners, Inc.
October 1, 1998
10.11 Debt Conversion Agreement by and between the Company
and Genesis Partners, Inc. and Leonard J. Sokolow dated
March 18, 1999
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule (For SEC Purposes Only)
* 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, 1998 and 1997 (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 five years ended December 31,
(Liquidation Basis)
(4) Statement 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, 1998.
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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 25, 1999
Peachtree FiberOptics, Inc.
By: /s/ 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>
/s/ Leonard J. Sokolow Managing Agent March 25, 1999
- ------------------------------- (Chief Executive and Financial
Leonard J. Sokolow Officer)
/s/ Sidney Levine Director March 25, 1999
- -------------------------------
Sidney Levine
</TABLE>
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Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Financial Statements
December 31, 1998 and 1997,
Period from October 28, 1993 through December 31, 1993,
Years ended December 31, 1998, 1997, 1996, 1995 and 1994
and Period from Inception (February 18, 1992) through October 27, 1993
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors..........................................................................F-1
Financial Statements
Statements of Deficiency in Net Assets Available in Liquidation as
of December 31, 1998 and 1997 (Liquidation Basis)....................................................F-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
the five years ended December 31, 1998 (Liquidation Basis)...........................................F-4
Statement of Operations for the period from inception (February 18, 1992)
through October 27, 1993.............................................................................F-6
Statement of Stockholders' Equity for the period from inception
(February 18, 1992) through October 27, 1993.........................................................F-7
Statement of Cash Flows for the period from inception (February 18, 1992)
through October 27, 1993.............................................................................F-8
Notes to Financial Statements..........................................................................F-10
</TABLE>
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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, 1998 and 1997, 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
five years in the period ended December 31, 1998. 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 financial statement 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.
F-1
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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, 1998 and 1997, 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 five years ended December 31, 1998 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.
February 26, 1999, except for
Note 9 as to which the date
is March 18, 1999
F-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,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Cash $ 499 $ 1,813
Total assets 499 1,813
LIABILITIES
Accounts payable -- 134,915
Accrued expenses 21,579 69,572
Note payable to related party 6,000 --
Notes payable 56,000 50,000
Lease obligations -- 4,276
Managing agent fee 775,000 625,000
-------------- --------------
Total liabilities 858,579 883,763
-------------- --------------
Deficiency in net assets available in liquidation $ (858,080) $ (881,950)
============== ==============
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 3,504,460 3,504,460
Accumulated deficit (4,394,790) (4,418,660)
-------------- --------------
Stockholders' deficiency in net assets $ (858,080) $ (881,950)
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-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 the
Years ended December 31, 1998, 1997, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<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>
F-4
<PAGE> 17
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 the
Years ended December 31, 1998, 1997, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
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)
Changes in net assets available in liquidation attributed to:
General and administrative expenses (19,905)
Managing agent fee (150,000)
Capital contribution 7,500
------------
(162,405)
------------
Deficiency in net assets available in liquidation at December 31, 1997 (881,950)
Changes in net assets available in liquidation attributed to:
General and administrative expenses (20,604)
Managing agent fee (150,000)
Gain on settlement of liabilities 194,474
Capital contribution 11,608
Capital distribution (11,608)
------------
23,870
------------
Deficiency in net assets available in liquidation at December 31, 1998 $ (858,080)
============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE> 18
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)
================
Basic and diluted net loss per share $ (1.53)
================
Weighted average number of shares of common stock outstanding 2,289,464
================
</TABLE>
SEE ACCOMPANYING NOTES.
F-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.
F-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)
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>
F-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.
F-9
<PAGE> 22
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
December 31, 1998 and 1997
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
F-10
<PAGE> 23
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
and 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. No royalties were 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.
F-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 an 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
per year for the five ensuing years plus a pro rata share equaling $25,000 for
the sixth year, for a total of $775,000 at December 31, 1998. 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 1998 the
Managing Agent's agreement was extended through October 27, 1999 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.
F-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, 1998 and 1997 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.
FINANCIAL INSTRUMENTS
The fair value of the Company's current assets and current liabilities including
cash, accounts payable, accrued expenses, notes payable and the managing agent
fee approximates their net realizable values in accordance with the liquidation
basis of accounting.
F-13
<PAGE> 26
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In 1997 the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE ("Statement 128"). Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Net loss per share for the period from inception through
October 27, 1993 has been restated to conform to Statement 128 (there was no
effect on such amount per share as a result of such restatement).
Basic and diluted net loss per share was computed using the weighted average
number of common shares outstanding during the period.
STOCK BASED COMPENSATION
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, and, accordingly, has not reported net income or
earnings per share information in its financial statements since that date.
Therefore, no pro forma information related to SFAS No. 123 is presented herein.
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.
F-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)
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.
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.
F-15
<PAGE> 28
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (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 1998 and 1997 an affiliated entity controlled by the Managing Agent paid
certain expenses of the Company. As the Managing Agent is a principal
stockholder of the Company, the payments were treated as capital contributions.
Additionally, certain of these expenses were subsequently reimbursed by the
Company and treated as a distribution of capital.
F-16
<PAGE> 29
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
OTHER RELATED PARTY TRANSACTIONS
The Company subleased, on a month-to-month basis, certain facilities from the
affiliated company and shared 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. SETTLEMENT OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Effective December 31, 1998, the Company reduced, to zero, certain accounts
payable and accrued liabilities aggregating $194,000 that have been outstanding
since the Company adopted the liquidation basis of accounting on October 28,
1993. The Company has not been contacted by the vendors to settle these
liabilities and therefore believes such amounts have been effectively settled.
Accordingly, the Company adjusted these liabilities to their net realizable
values.
5. 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
F-17
<PAGE> 30
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
5. NOTES PAYABLE (CONTINUED)
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 of November 15, 1995 or the closing date of a firm
commitment underwritten secondary public offering of the Company's securities.
At December 31, 1998 such amounts are past due. In connection with the notes,
the Company issued anti-dilutive
Common Stock Purchase Warrants to purchase 20,000 shares of the Company's $.01
par value common stock at an exercise price of $2.50 per share. The warrants
expired on May 15, 1998.
During October 1998 the Company borrowed $12,000 under two subordinated
promissory notes of equal amounts from the principal stockholder and another
investor. The principal amount and accrued interest, at a rate of 10% per annum,
are due and payable upon the closing date of a merger of the Company with, or
acquisition of, another company or business. At December 31, 1998 no principal
or interest payments have been made.
6. 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.
F-18
<PAGE> 31
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
6. COMMITMENTS (CONTINUED)
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 the 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.
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.
7. INCOME TAXES
For income tax purposes the Company has approximately $3,514,000 of net
operating loss carryforwards available for offset against future taxable income,
subject to certain limitations, which expire during 2007 through 2012. During
1998 the Company utilized approximately $66,000 of net operating loss
carryforwards to offset current year income
F-19
<PAGE> 32
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
tax expense of the same amount. Based on assessments of all available evidence
as of December 31, 1998 the Company has concluded that its remaining net
deferred income tax asset should be reduced by a valuation allowance equal to
the amount of such asset.
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 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Managing agent fee $ (294,500) $ (237,500)
Net operating loss carryforwards (1,335,100) (1,401,200)
----------- -----------
Total deferred income tax assets (1,629,600) (1,638,700)
Valuation allowance for deferred tax assets 1,629,600 1,638,700
----------- -----------
Net deferred income tax assets $ -- $ --
=========== ===========
</TABLE>
8. 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 were reserved for issuance,
pursuant to which officers, directors, consultants, and key employees were
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
F-20
<PAGE> 33
Peachtree FiberOptics, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
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), warrants to purchase 555,000 shares 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.
9. SUBSEQUENT EVENTS
On February 28, 1999, the Company entered into a non-binding letter of intent to
acquire all the outstanding capital stock of a private company in the home
healthcare equipment and service industry in exchange for shares of the
Company's capital stock. Should the proposed transaction be consummated, it will
be recorded as a reverse purchase.
On March 18, 1999, the Company entered into a debt conversion agreement (the
"Conversion Agreement") whereby the Managing Agent is permitted to convert, in
whole or part, $.011273398 of amounts due to the Managing Agent into one share
of common stock of the Company. Additionally, upon the completion of a
reorganization event, as defined in the conversion agreement, the remaining
managing agent fee shall be automatically converted, in full, to common stock.
On March 18, 1999, the Managing Agent converted $75,000 of the managing agent
fee into 6,652,830 shares of the Company's common stock.
F-21
<PAGE> 1
Exhibit 10.10
FOURTH ADDENDUM TO MANAGEMENT AGREEMENT
THIS FOURTH ADDENDUM TO MANAGEMENT AGREEMENT dated as of October 1,
1998, is entered into among Genesis Partners, Inc., a Florida corporation
("Genesis"), Peachtree FiberOptics, Inc., a Delaware corporation ("Peachtree"),
and Leonard J. Sokolow, an individual.
RECITALS:
A. On October 27, 1993 Genesis and Peachtree entered into a management
agreement (the "Management Agreement"), which agreement was amended by
Addendums to Management Agreement, dated February 28, 1994, October 26, 1995
and March 1, 1996 (collectively "Addendums"), among Genesis, Peachtree and
Leonard J. Sokolow ("Sokolow").
B. The Management Agreement, as amended by the Addendums Agreement
expires on October 26, 1998.
C. Genesis, Peachtree and Sokolow desire to extend the term of
the Management Agreement, as amended by the Addendums, for an additional 12
months pursuant to the terms and conditions of this Fourth Addendum to
Management Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Extension of Term. Section 3 of the Management Agreement, as
amended by the Addendums is hereby modified to read as follows:
The term of this Agreement shall commence as of the date first above
written and shall expire on October 26, 1999, unless terminated pursuant to the
terms hereof or extended or renewed by mutual written agreement of the parties
hereto.
2. Management Agreement. Except as set forth herein, all other terms
and conditions in the Management Agreement, as amended by the Addendums, are
incorporated herein and shall remain in full force and effect.
3. Counterpart Signatures. This Agreement may be signed in identical
counterparts, each one of which shall be deemed an original, and such
counterparts, when taken together shall constitute one and the same document.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
PEACHTREE FIBEROPTICS, INC.
By:
--------------------------------
Authorized Representative
GENESIS PARTNERS, INC.
By:
--------------------------------
Leonard J. Sokolow
President/CEO
By:
--------------------------------
Leonard J. Sokolow,
Individually
<PAGE> 1
Exhibit 10.11
DEBT CONVERSION AGREEMENT
THIS AGREEMENT dated as of March 18, 1999, is entered into among Genesis
Partners, Inc., a Florida corporation ("Genesis"), Peachtree FiberOptics,
Inc., a Delaware corporation ("Company"), and Leonard J. Sokolow ("Sokolow"),
an individual.
WHEREAS, the managing agent fees totaling $775,000 ("Debt") as of
December 31, 1998 are due and payable by the Company to Genesis and Sokolow
pursuant to the Management Agreement dated October 27, 1993, between Genesis
Partners, Inc. and the Company, as amended by the Addendums to the Management
Agreement dated February 28, 1994, October 26, 1995, March 1, 1996 and October
1, 1998, among Genesis Partners, Inc., the Company and Sokolow (collectively,
the "Management Agreement") which expires on October 26, 1999;
WHEREAS, the Debt plus any and all reimbursable expenses,
reimbursement for overhead or office/administrative facilities or any and all
other claims Genesis or Sokolow may have against the Company (collectively,
"Administrative Debt") have never been paid to Genesis/Sokolow;
WHEREAS, it is in the best interest of the Company to eliminate such
outstanding Debt and Administration Debt to Genesis without requiring any cash
consideration and in order for the Company to attract any potential capital or
merger/acquisition candidates; and
WHEREAS, Genesis and Sokolow agree that Genesis shall convert to
common stock of the Company the Debt as provided in this Agreement.
NOW THEREFORE, in consideration of the mutual promises set forth
herein, the parties agree as follows:
1. The Company hereby agrees to allow Genesis to convert $.011273398 of Debt for
one share of common stock of the Company ("Conversion Ratio") up to a maximum
of $775,000 in Debt resulting in a maximum of 68,745,910 common shares of the
Company to be issued to Genesis upon full conversion of such $775,000 in
Debt.
2. Genesis shall be permitted to convert the Debt in whole or part. However,
immediately preceding a merger, acquisition or financing by or of the Company
("Reorganization Event"), such Debt not yet converted shall be automatically
converted ("Full Conversion") in its entirety pursuant to the Conversion
Ratio.
3. Sokolow and Genesis agree to forgive, release and forever discharge the
Company for any and all Administrative Debt the Company has incurred or may
incur to Sokolow and/or Genesis. Immediately preceding a Reorganization Event
and after the Full Conversion, Sokolow and Genesis agree to cancel the
Management Agreement and forever forgive, release and forever discharge the
Company from any and all obligations or fees which may be due under such
Management Agreement.
4. Genesis hereby agrees to convert $75,000 of the Debt pursuant to the
Conversion Ratio into 6,652,830 shares of the Company's common stock. The
Company shall instruct its transfer agent to issue such common shares to
Genesis immediately.
5. In case the Company shall declare any dividend or other distribution upon
its outstanding stock payable in stock or shall subdivide its outstanding
shares of stock into a greater number of shares, then the number of shares
that may thereafter be acquired upon the conversion of the rights represented
hereby shall be increased in proportion to the increase through such
dividend, distribution or subdivision.
6. In case of any (i) reclassification reorganization, stock split or other
change of outstanding stock of the Company, or (ii) consolidation or merger
of the Company with or into another corporation (other than a consolidation
or merger in which the Company is the continuing corporation and that does
not result in any reclassification, capital reorganization or other change of
the shares issuable upon conversion, then and in such event the Conversion
Ratio shall be deemed to be appropriately adjusted, and the Company shall
cause effective provision to be made, so that the Genesis shall have the
right thereafter, upon conversion of the Debt, to purchase the kind and
amount of shares of stock and other securities and property, if any,
receivable upon such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance that Genesis would have
received had the Debt been converted in its entirety immediately prior to
such event.
<PAGE> 2
7. The Company shall at all times reserve for issuance and/or delivery such
number of common shares as shall be required for issuance or delivery on
conversion of such Debt. In the event, there is not a sufficient amount of
shares available, then the Company shall use its best efforts to resolve such
short fall including the authorization of additional common stock or
effectuating a reverse stock split.
8. Any controversy or claim arising out of, or relating to, this Agreement, to
the making, performance, or interpretation of it shall be settled by
arbitration in Miami, Florida, or as otherwise mutually agreed upon by the
parties, under the commercial arbitration rules of the American Arbitration
Association then existing, and any judgment on the arbitration award may be
entered in any court having jurisdiction over the subject matter of the
controversy. If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled.
9. This Agreement shall be governed by and construed in accordance with the laws
of the State of Florida, without reference to the choice of law principles
thereof, as to all matters, including matters of validity, construction,
effect, performance and remedies.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date and year first above written.
PEACHTREE FIBEROPTICS, INC.
By:
--------------------------------
Authorized Representative
GENESIS PARTNERS, INC.
By:
--------------------------------
Leonard J. Sokolow
President/CEO
By:
--------------------------------
Leonard J. Sokolow,
Individually
<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 February 26, 1999,
with respect to the financial statements of Peachtree FiberOptics, Inc. included
in the Annual Report (Form 10-KSB) for the year ended December 31, 1998.
ERNST & YOUNG LLP
Atlanta, Georgia
March 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 499
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 499
<CURRENT-LIABILITIES> 858,579
<BONDS> 0
0
0
<COMMON> 32,250
<OTHER-SE> 3,504,460
<TOTAL-LIABILITY-AND-EQUITY> (858,080)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,870
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,870
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
Peachtree FiberOptics, Inc. uses the liquidation basis of accounting.
</FN>
</TABLE>
