-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OfeykP71RQ5pCvOFl0Gryz3NuMclGch73awssjoQwUfFcyHyebCb6V848r9Glez2 m7Ps230bTJo/ZG9jUnaWrQ== 0001011823-00-000022.txt : 20000407 0001011823-00-000022.hdr.sgml : 20000407 ACCESSION NUMBER: 0001011823-00-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIBBS CONSTRUCTION INC CENTRAL INDEX KEY: 0001001463 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL BUILDING CONTRACTORS - NONRESIDENTIAL BUILDINGS [1540] IRS NUMBER: 752095676 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14088 FILM NUMBER: 594750 BUSINESS ADDRESS: STREET 1: 1855 WALL ST CITY: GARLAND STATE: TX ZIP: 75042 BUSINESS PHONE: 9422783433 MAIL ADDRESS: STREET 1: 1855 WALL ST STREET 2: 1855 WALL ST CITY: GARLAND STATE: TX ZIP: 75041 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1999 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from ________ to _______ Commission file number 1-14088 -------------------------- Gibbs Construction, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 75-2095676 - --------------------------------------------- ----------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1855 Wall Street, Garland, TX 75041 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (972) 278-3433 -------------- Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered Common Stock Boston Stock Exchange - ------------------------------------------- ------------------------------- Warrants to purchase Common Stock Boston Stock Exchange - ------------------------------------------- ------------------------------- Securities registered under Section 12(g) of the Exchange Act; (Title of class) - -------------------------------------------------------------------------------- Common Stock - -------------------------------------------------------------------------------- Warrants to purchase Common Stock Indicate by check and mark whether registrant (1) has 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 [ ] Indicate by check mark if there is no disclosure of delinquent filers in pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. Yes [ ] No [X] State issuer's revenues for its most recent fiscal year. $53,366,171 State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked price, as of a specified date within 60 days prior to the date of filing $1,866,875 As of March 16, 2000. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 4,060,000 Item 1. Business General Danny and Tony Gibbs, the Company's two executives, acquired Gibbs Construction, Inc. (Gibbs Construction, Inc. is referred to herein as the "Company" unless the context indicates otherwise) in 1985 and began to conduct their construction business from that entity. The Company headquarters are located in Garland, Texas, a suburb of Dallas. The Company is a full service, national, commercial construction company. The Company's clients are principally national retail chains that are engaged in aggressive expansion programs although the Company has begun to construct small hotels. These programs usually call for the erection of stand-alone facilities or "power centers," which typically have stores that range in size from 10,000 to 75,000 square feet. Some of the Company's clients include Best Buy, Oshmans Super Sports, Barnes & Noble, Office Max, Petstuff, Just for Feet, Copy Max and Petsmart. In July of 1996, the Company sold the assets of its wholly owned subsidiary, Bronco Bowl Holding, Inc. which operated a 136,000 square foot complex, the Bronco Bowl, on approximately twenty acres near downtown Dallas. The Company acquired the property in 1994 and performed extensive renovations on the complex, opening it in January of 1996. Because of operating losses, the Company sold the facility later in 1996. Effective January 18, 2000, the Company and two of its principal stockholders, Danny and Tony Gibbs, entered into a joint control and escrow agreement whereby one of the Company's principal sureties agreed to provide funds to complete contract obligations. This agreement followed a request by the Company for financial assistance because of the Company's lack of cash flow to make certain payments relative to five bonded construction contracts. As part of the agreement, the Company agreed to grant the surety a security interest in certain Company assets, and Danny and Tony Gibbs granted the surety a security interest in their ownership of 2,000,000 shares of the Company's stock. Two of the five bonded contracts, which relate to the construction of small hotels, had resulted in major losses and the five contracts resulted in losses of approximately $5,000,000. Primarily because of those losses, the Company anticipates filing for protection under Chapter 11 of the United State Bankruptcy Code. Construction Operations The Company acts as a general contractor for both "ground up" and interior "finish out" construction. "Ground up" construction involves the construction of a building's shell, that is, construction of the building's floor, wall, and ceiling. "Finish out" comprises electrical work, erection of walls, painting, demolition, air conditioning and heating systems and plumbing, among other activities. The Company focuses on the higher margin activities involved in "finish out" work, subcontracting lower margin work to other contractors. In 1999, approximately 65% of the Company's revenues were derived from "ground up" work and 35% from "finish out" work. The Company utilizes its own personnel throughout a project while trying to minimize any subcontract labor. Personnel are sometimes flown to the city where the construction occurs, but normally personnel and equipment are transported by trucks and trailers to the construction site. The Company rents corporate apartment housing when necessary, housing three or four persons per apartment. The Company transports Company owned small tools and equipment to the construction site via Company owned trucks. The Company leases or rents particularly heavy equipment such as hoists, cranes and personnel lifts from local equipment suppliers when necessary for use on particular projects. Most jobs, including out of state jobs, can be organized within seven to ten days after award of the contract. Marketing of the Construction Business In 1999, the Company's construction business focuses on a clientele of publicly held companies or companies anticipating to become publicly held which have the necessary funds appropriated for construction programs on a nation-wide basis. The specifically targeted companies are national retail chains that conduct operations in stand-alone facilities or "power-centers". These national retail companies are frequently engaged in aggressive expansion programs, which often require the construction of ten to fifty units of 10,000 to 100,000 square feet per year on a nation-wide basis. In addition, these retail chains often remodel a large number of existing outlets for which the Company bid. However, in 1998 the Company began to bid on non-retail projects, including the small hotels referred to above. The Company usually experiences some work slowdown in the first quarter of each calendar year due, in the opinion of management, to a slowing of the bidding process during the holiday season. The Company does not engage in a formal marketing or selling program for the construction business. Most work comes by referral or reputation with a large amount of repeat business from existing customers. During 1999, approximately 40% of the Company business was repeat business from existing clients. Most clients which have stores under construction have revenues which are directly affected by the opening date of the store. It is critical for the Company to further establish and maintain a dependable reputation within the industry to meet completion schedules. To date, the Company has never had to delay the expected completion date of a project. After completion of the first project for a new client, the Company is able to develop a continuing relationship with its clients by demonstrating the Company's other advantages such as: the ability to work throughout the United States regardless of the client's targeted area of expansion; more consistent service and product due to familiarity with the client construction and operational needs; more centralized communication since numerous projects could be discussed at one time; and greater control over the construction schedule due to the use of the Company's own crews. The Company does not engage in heavy construction and provides neither engineering nor architectural services. Only a small portion of its business comes from construction in shopping malls or finish out of commercial office buildings. None of its business is derived from work provided to governmental agencies. In 1999, the Company was engaged in over 120 projects for approximately 40 different clients. Two clients, Office Max (17%) and Just for Feet (18%), accounted for approximately 35% of the Company's revenues during 1999. One shopping center development amounted to approximately 20% of the Company's revenues. In 1999 Just for Feet filed for protection under the United States Bankruptcy Code. Contracting Process Almost all of the Company's projects are competitively bid on a fixed price basis. The Company presently obtains approximately 85% of all of its work on a competitive bid basis. The Company utilizes an estimating process whereby the project manager reviews every division and line item of the project. Unit costs are then applied to each line item. This approach not only allows the project manager to become extremely familiar with the details of the project but also gives a good indication as to whether subcontractor prices are consistent with market conditions. Competition The Company believes that its construction business competes on price, reputation for quality, timeliness, familiarity with retail construction, the availability of aggregate materials. The market for construction services, particularly services to national retail chains, is highly competitive. While the vast majority of the Company's competitors are smaller and may not be as well capitalized, several of the Company's competitors are larger, better known and have substantially greater marketing, financial, personnel and other resources, including established reputations and working relationships, than the Company. There can be no assurance that the Company's services will continue to be competitive in the market place. Government Regulation The Company's business is subject to a variety of state and local governmental regulations and licensing requirements relating to construction activities. Prior to commencing work on a construction project, the Company is required to obtain building permits and, in some jurisdictions, state and local authorities require the Company to obtain demonstrating knowledge of construction, building, fire and safety codes. In order to complete a project and obtain a certificate of occupancy, the Company is required to obtain the approval of local authorities confirming compliance with these requirements. The Company has general contractor licenses in numerous large states and major metropolitan areas. Insurance and Bonding The Company maintains general liability and excess liability insurance covering its construction equipment in amounts consistent with industry practices. Management believes its insurance programs are adequate. Worker's compensation insurance covering the leased employees is provided through the employee leasing company from which the Company leases employees. Although not required by most clients, occasionally the Company is required to provide various types of surety bonds guaranteeing its performance under certain contracts. The Company's ability to obtain surety bonds depends upon its capitalization, working capital, past performance, management expertise and other factors. Surety companies consider such factors in light of the amount of surety bonds then outstanding for the Company and their current underwriting standards, which may change from time to time. Construction Employees The Company leases all of its field employees through an employee leasing company. The Company has utilized the same employee leasing company for more than five years. By doing so, the Company is able to relieve itself from administration surrounding employment practices. In particular, the Company believes that the employee leasing company is able to find more favorable workers compensation insurance than it would otherwise be able to find as well as develop and administer Company safety programs. At March 15, 2000, the field operations of the Company were conducted by 8 superintendents and 35 tradesmen. A field superintendent is assigned to each project with the responsibility to oversee the day to day progress on the project. The field superintendent reports directly to the project manager. In addition to Danny and Tony Gibbs, the Company employs in the construction business six persons, including one project managers, 3 project assistants, one project accountant, and one accounting clerks. The project managers typically run three to four projects at a time and are responsible for the overall coordination and scheduling of each project as well as communications with the client. Item 2. Properties. The Company owns a 10,000 square foot office and warehouse facility in Garland, Texas. Offices presently occupy approximately 6,000 square feet. Of that space, the Company completed in March of 1996 and an additional 2,500 square feet that enabled the Company to have space for additional project managers and four staff members capable of supporting operations. These assets now secure the Company's surety. See "Item 1. Business - General." As of March 15, 2000, the Company owned 9 trucks and 5 trailers. The Company also owned two tractors, two fork lifts and six scissor lifts. This type of equipment is used on almost all jobs, and any additional equipment or machinery required for a job is rented on an as needed basis. The Company has very little inventory. That which does exist primarily consists of left over or unused material which can be used on the next project. Item 3. Legal Proceedings The Company is involved in a number of legal proceedings. Several of these matters involve alleged non-performance by the Company and, in the opinion of management arise in the ordinary course of business. Several additional suits are on accounts and relate to disputes arising out of the Company's financial difficulties. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Maters. The Company's common stock is listed on the NASDAQ Small Cap Market and is traded under the symbol GBSE. The stock is also listed for trading on the Boston Stock Exchange. On March 30, 2000, the Boston Stock Exchange and the NASDAQ Small Cap Market stopped trading on the exchanges. The Company completed its initial public offering in January of 1996 and trading commenced on January 12, 1996. The following table set forth the high and low bid and cash prices of the Company's Common Stock for each calendar quarter in 1999 and 1998: 1999 Ask Bid High Low High Low First Quarter 1.96875 1.53125 1.875 1.375 Second Quarter 1.51325 1.125 1.46875 1.00 Third Quarter 1.75 1.093875 1.6875 1.00 Fourth Quarter 1.625 0.5 1.5625 0.40625 1998 Ask Bid High Low High Low First Quarter 2.125 1.125 1.9375 1.00 Second Quarter 2.625 1.125 2.0625 1.9375 Third Quarter 2.25 2.0625 1.9375 1.5625 Fourth Quarter 2.00 1.50 2.0625 1.4375 As of March 15, 2000, there were approximately 800 holders of record of the Company's common stock, according to the records provided by the transfer agent. Item 6. Selected Financial Data. The following table summarizes certain selected financial of the Company for each of the years in the five year period ended December 31, 1998. The selected financial data should be read in conjunction with (i) The Company's Consolidated Financial Statements and Notes thereto as set forth in Item 14 below, and (ii) "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 below.
1999 1998 1997 1996 1995(1) Net sales $53,366,171 $54,496,848 $47,993,287 $47,438,930 $33,336,120 Income (loss) from continuing operation $(8,950,262) 465,707 584,900 546,383 1,592,835 Income (loss) per share from continuing operation $ (2.23) $0.12 $0.14 $0.14 $ 0.53 Total Assets $7,470,947 $13,132,346 $12,617,916 $12,733,026 $11,291,394 Long-term obligations 326,976 408,402 210,232 563,254 945,057 Cash Dividends - - - - -
(1) Prior to October 1, 1995, the Company was taxed as a subchapter S corporation under the Internal Revenue Code of 1986. Income, Income, per share and Total Assets reflect amounts that would have been accrued had the Company taxed other than as a subchapter S corporation. Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations. Overview The Company is presently operating under an agreement with one of its sureties relating to five small hotels that the Company contracted to construct which resulted in approximately $5,000,000 in losses. The Company accrued an additional $2,000,000 in bad debt expense relating to receivables that may not be collected. The Company's financial resources are not sufficient to finance these losses and the Company will file for protection under Chapter 11 of the United States Bankruptcy Code. Results of Operations - 1999 Compared with 1998 Revenues for 1999 were essentially unchanged from 1998, $53,366,171 in 1999 compared to $54,496,848 in 1998. Gross profit was positive in 1998 and negative in 1999 principally because of approximately $5,000,000 in losses incurred in connection with the construction of hotels referred to above. The loss was also affected by a large contract which failed to pay for extensive change orders causing a significant reduction in gross profit on the contract. Finally, the bankruptcy of Just for Feet significantly diminished gross profit because in 1998 the client provided significant gross margin on contracts. General and administrative costs were $2,759,871 in 1999 compared to $1,687,147 in 1998. The increase relates $800,000 in liquidated damages that may be charged against the Company, $450,000 in litigation expenses in excess of charges to projects and $325,000 in legal expenses. In addition, in 1999 the Company increased its bad debt expense to $2,508,138 from $842,758 in the earlier year. The Company also expensed an income tax asset of $1,523,840 in 1999 which it had previously set up as a result of losses in prior years. Accordingly, the Company Net loss in 1999 was $8,950,262 compared to a profit of $465,707 in 1998. Results of Operations - 1998 Compared with 1997 Revenues from continuing operations between 1998 and 1997 increased approximately 13.6% to $54,496,848 in 1998 compared to $47,993,287 in 1997. The increase is principally attributable to expanding the Company's operations beyond retail construction to small hotels. Gross profits for 1998 increased to $3,282,871 in 1998 or approximately 6.0% of revenues compared to $2,439,086 or 5.1% of revenue in 1997. The Company enjoyed particularly strong gross margins in the fourth quarter from its construction on several retail construction projects. Operating income from continuing operations, however, decreased to $752,966 in 1998 from $1,070,089 in 1997. The decrease resulted from an increase in 1998 in General and Administrative expenses principally because the Company wrote off $842,758, of which $637,632 was written off in the fourth quarter of 1998. In addition, the Company accrued $166,670 in 1998 in litigation expense compared to $62,213 in 1997 related to collection of aforesaid receivables. The effect of these increases in General and Administrative Expense was to reduce 1998 income before taxes to approximately $731,772 in 1998 compared to $891,100 in 1997, and net income in 1998 to $465,707 compared to $584,900 in 1997. Liquidity and Capital Resources The Company is insolvent and will shortly file for protection under Chapter 11 of the United States Bankruptcy Code. It is possible that a proceeding under Chapter 11 could be converted into a Chapter 7 and the Company liquidated. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 8. Financial Statements and Supplementary Data. The response to this item is submitted as a separate section of this Form 10-K. See "Item 14. Exhibits, Financial Statements and Reports on Form 8-K." Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None PART III Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With section 16(a) of the Exchange Act. Executive Officers and Directors The directors and executive officers of the Company, and their respective ages and positions held with the Company, are as follows: Name Age Position - -------------------------------------------------------------------------------- Danny Gibbs 43 President/Secretary Director Tony Gibbs 39 Vice-President/Treasurer, Director Dennis T. Mitchell 50 Director L.W. Reynolds 64 Director Danny Gibbs has served as president, general manager and a director of the Company since the Company's inception in 1984. Mr. Gibbs has acted as the Company's Chief Financial Officer throughout the Company's existence. Mr. Gibbs is a principal and large equity owner of Team Technical Services, Inc. In 1999 Team Technical Services, Inc. filed for protection under Chapter 7 of the United States Bankruptcy Act. See "Item 13. Certain Relationships and Related Transactions." Mr. Gibbs received a Bachelor of Arts degree in History with a minor in Architecture from Texas Tech University. Tony Gibbs has served as vice president and a director of the Company since the Company's inception in 1984. From 1983 to 1984, Mr. Gibbs formed a construction company which provided construction services to the residential industry and the commercial industry. Mr. Gibbs is a principal and large equity owner of Team Technical Services, Inc. In 1999 Team Technical Services, Inc. filed for protection under Chapter 7 of the United States Bankruptcy Act. See "Item 13. Certain Relationships and Related Transactions." Mr. Gibbs received a Bachelor of Science degree in Accounting with a minor in Architecture from Texas Tech University Dennis T. Mitchell, a licensed professional architect, is president of AIG, Inc., an architectural firm Mr. Mitchell formed in 1969 which is primarily engaged in the design, documentation and execution of commercial construction. AIG, Inc. provides architectural service to a variety of retail, industrial and governmental entities, including Barnes & Noble, Lil Things, and Eckerds. Mr. Mitchell is a member of several national and local architectural professional organizations and a graduate of the University of Texas at Arlington. L. W. Reynolds is president of Reynolds Financial and Management Services, Inc., a financial and management consulting firm that provides services to the real estate, wholesale distribution, retail, environmental services, assisted living and construction industries. Mr. Reynolds formed the firm in 1990. He is also chairman of Elder Living Centers, Inc., a Company Mr. Reynolds formed in 1996 that develops and finances assisted living facilities in New Mexico and Texas. Also in 1996, Mr. Reynolds formed Davis Covenant Corporation, a general contractor engaged in the development of apartments and assisted living facilities and asbestos statement. Mr. Reynolds, a certified public accountant, worked for Peat Marwick Mitchell and Company from 1959 to 1966 and the Maloof Companies from 1966 through 1984, becoming an Executive Vice President and Chief Financial Officer in 1980. From 1984 to 1986, he was President and Chief Executive Officer of American Federal Savings and Loan Association and from 1986 through 1989 was Vice President of Market Development for Public Service Company of New Mexico. Mr. Reynolds is a graduate of McMurry University and holds a Masters of Business Administration from the University of Texas at Austin. Danny Gibbs and Tony Gibbs are brothers. Each director will hold office until the next Annual Meeting of Shareholders and until such time as his successor is elected and qualified, subject to prior removal by the shareholders of the Company in accordance with the Bylaws of the Company. The officers of the Company serve at the discretion of the Board of Directors of the Company. Committees of the Board of Directors The Company's Board of Directors will establish an Audit Committee and a Compensation Committee, each consisting of at least two directors, none of whom will be an officer or employee of the Company. The duties of the Audit Committee will be to recommend to the entire Board of Directors the selection of independent certified public accountants to perform an audit of the financial statements of the Company, to review the activities and report of the independent certified public accountants, and to report the results of such review to the entire Board of Directors. The Audit Committee will also monitor the internal controls of the Company. The duties of the Compensation Committee will be to provide a general review of the Company's compensation and benefit plans to ensure that they meet corporate objectives and to administer or oversee the Company's 1995 Incentive Stock Option Plan and other benefit plans. In addition, the Compensation Committee will review the compensation of officers of the Company and the recommendations of the Chief Executive Officer on (i) compensation of all employees of the Company and (ii) adopting and changing major Company compensation policies and practices. Except with respect to the administration of the 1995 Incentive stock option plan, the Compensation Committee will report its recommendations to the entire Board of Directors for approval. Item 11. Executive Compensation. The following table sets forth certain information concerning the compensation of the chief executive officer of the Company and the other executive officers of the Company whose total annual salary and bonus exceeded $100,000, for the fiscal years ended December 31, 1998, 1997, and 1996.
Summary Compensation Table Name and Annual Compensation (1) All Other Principal Position Fiscal Year Salary Bonus (2) Compensation - ---------------------------------------------------------------------------------------------------- Danny Gibbs 1999 $114,000 Chief Executive Officer 1998 119,000 - 1997 133,000 - Tony Gibbs 1999 $ 99,000 - - Vice President 1998 104,000 - - 1997 123,000 -
- ------------------ (1) The Company provides certain perquisites and personal benefits to its executive officers, the aggregate amount to either does not exceed $60,000. Executive Director Compensation Directors of the Company are entitled to receive from the Company fees and reimbursement of expenses for their services as directors. Under the Company's standard arrangement for compensation of directors, outside are entitled to receive a fee for each Board meeting attended of $500. In addition, directors will be reimbursed for their ordinary and necessary expenses incurred in attending meetings of the Board of Directors or a committee thereof. Directors of the Company, whether or not employees of the Company, will also be entitled to receive options to acquire shares of Common Stock under the Company's Stock Option Plans. In connection with certain actions taken by the Company, Messrs. Danny R. Gibbs and Tony G. Gibbs relinquished a total of 1,000,000 shares of Common Stock to the Company and acquired the right to acquire for $0.10 per share 2,000,000 shares of stock if either Danny R. Gibbs or Tony G. Gibbs are terminated without their consent or if 20% of the Company is acquired by those other than Danny R. Gibbs or Tony G. Gibbs. Benefit Plans 1995 Incentive Stock Option Plan The Company's 1995 Incentive Stock Option Plan was approved by the Board of Directors and shareholders of the Company on August 15, 1995 to provide for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended to officers and employees of the Company and subsidiaries of the Company. A total of 200,000 shares of Common Stock has been authorized and reserved for issuance under the 1995 Incentive Stock Option Plan, subject to adjustment to reflect changes in the Company's capitalization in the case of a stock split, stock dividend or similar event. The 1995 Incentive Stock Option Plan is administered by the Compensation Committee, which consists of the Company's two "Outside Directors." Outside Directors shall mean only those directors of the Company or a subsidiary of the Company who are not regular salaried employees of either the Company or a subsidiary as of the date the option is granted. The Compensation Committee has the sole authority to interpret the 1995 Incentive Stock Option Plan, to determine the persons to whom options will be granted, to determine the basis upon which the options will be granted, and to determine the exercise price, duration and other terms of options to be granted under the 1995 Incentive Stock Option Plan; provided that, (i) the exercise price of each option granted under the 1995 Incentive Stock Option Plan may not be less than the fair market value of the Common Stock on the day of the grant of the option, (ii) the exercise price must be paid in cash and or stock upon exercise of the option, (iii) no option may be exercisable for more than 10 years after the date of grant, and (iv) no option is transferable other than by will or the laws of descent and distribution. No option is exercisable after an optionee ceases to be employed by the Company or a subsidiary of the Company, subject to the right of the Compensation Committee to extend the exercise period for not more than 90 days following the date of termination of an optionee's employment. An optionee who was a director or advisor may exercise his option at any time within 90 days after such optionee's status as a director or advisor terminates to the extent he was entitled to exercise such option at the date of termination of his status. If an optionee's employment is terminated by reason of disability, the Compensation Committee has the authority to extend the exercise period for not more than one year following the date of termination of the optionee's employment or service as an advisor or director. If an optionee dies and shall hold options not fully exercised, such options may be exercised in whole or in part within one year of the optionee's death by the executors or administrators of the optionee's estate or by the optionee's heirs. The vesting period, if any, specified for each option will be accelerated upon the occurrence of a change of control or threatened change of control of the Company. Outside Directors Stock Option Plan The Outside Directors Stock Option Plan was approved by the Board of Directors and shareholders of the Company on August 15, 1995. A total of 50,000 shares of Common Stock has been authorized and reserved for issuance under the Outside Directors Stock Option Plan, subject to adjustment to reflect changes in the Company's capitalization in the case of a stock split, stock dividend or similar event. The Outside Directors Stock Option Plan is administered by the Stock Option Committee which consists of Danny Gibbs and Tony Gibbs. The Stock Option Committee has the sole authority to interpret the Outside Directors Stock Option Plan, to determine the persons to whom options will be granted, to determine the basis upon which the options will be granted, and to determine the exercise price, duration and other terms of options to be granted under the Outside Directors Stock Option Plan; provided that, (i) the exercise price of each option granted under the Plan may not be less than the fair market value of the Common Stock on the day of the grant of the option, (ii) the exercise price must be paid in cash and or stock upon exercise of the option, (iii) no option may be exercisable for more than 10 years after the date of grant, and (iv) no option is transferable other than by will or the laws of descent and distribution. If an optionee's status as an Outside Director is terminated for any reason other than death, the optionee may exercise his option at any time within 90 days after such termination to the extent it was then exercisable. If an optionee dies while an Outside Director and shall not have fully exercised options granted under the Outside Directors Stock Option Plan, such options may be exercised in whole or in part within six months of the optionee's death by the executors or administrators of the optionee's estate or by the optionee's heirs. The vesting period, if any, specified for each option will be accelerated upon the occurrence of a change of control or threatened change of control of the Company. Options under the Outside Directors Stock Option Plan are granted only to Outside Directors selected by the Committee. Outside Directors shall mean only those directors of the Company or a subsidiary of the Company who are not regular salaried employees of either the Company or a subsidiary as of the date the option is granted. As of the date of this Prospectus, none of the Common Stock reserved for issuance in either the Outside Directors Stock Plan or the 1995 Incentive Stock Option Plan had been issued. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of March 15, 1999 by (i) each person known by the Company to be a beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, and (iii) all directors and executive officers of the Company as a group. Unless otherwise noted, each beneficial owner named below has sole investment and voting power with respect to the Common Stock shown below as beneficially owned by him. Shares Owned Name and Address of Number of Percent Beneficial Owner Shares Owned Owned - ----------------------------------------------------------------------------- Danny Gibbs(1)(2)(3) 1,000,000 25.0% Tony Gibbs 1,000,000 25.0% All directors and officers(1)(2)(3) as a group (6 persons) 2,000,000 50.0% - ----------------- (1) The address for Danny Gibbs and Tony Gibbs is 1855 Wall Street, Garland, TX 75041. (2) In connection with certain actions taken by the Company, Messrs. Danny R. Gibbs and Tony G. Gibbs relinquished a total of 1,000,000 shares of Common Stock to the Company and acquired the right to acquire for $0.10 per share 2,000,000 shares of stock if either Danny R. Gibbs or Tony G. Gibbs are terminated without their consent if 20% of the Company is acquired by those other than Danny R. Gibbs or Tony G. Gibbs. (3) In January 2000 Messrs. Danny and Tony Gibbs pledged all of their stock to Liberty Mutual in connection with Liberty Mutual's joint control agreement. See "Item 1- Business." Item 13. Certain Relationships And Related Transactions As part of the termination of the Company's election to be taxed as a Subchapter S Corporation, the Company accrued $749,255 to be distributed to Danny Gibbs and Tony Gibbs for payment of income taxes owed for the Company's operations. At December 31, 1999, $79,325 remained to be paid, a decrease of $318,415 in 1999. In 1997 Messrs. Danny and Tony Gibbs formed Team Technical Services, Inc. and in 1998 formed Tri-Tech, Inc which engaged in electrical and roofing contracting services. In 1999 Mr. Danny Gibbs formed a residential real estate development company, Regal Homes, Inc. Team Technical Services filed for protection under Chapter 7 of the United States Bankruptcy Code in 1999. In connection with services rendered to the Company, the Company paid Team Technical Services and Tri Tech, Inc. $1,799,576, $2,068,365 and $75,775 during the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, 1998, and 1997, the Company owed Team Technical Services, Inc. and Tri-Tech, Inc. $786, $164,342 and $53,412, respectively. In 1999 Tri Tech and Regal Homes purchased approximately $130,000 of materials on a Company account. This amount was accrued and offset against a payable to Messrs. Danny and Tony Gibbs. In 1999, Vratsinas Construction Company, Inc. filed a lawsuit against the Company, Team Technical Services and Messrs. Danny R. Gibbs and Tony G. Gibbs relating to certain services provided by Team Technical Services and alleging breach of contract. Management of the Company believes that any recovery against the Company pursuant to this litigation is remote. The litigation asserts a claim of approximately $1,400,000. In 1999, Pinion Construction, Inc. filed a similar claim against Team Technical Services, the Company and Messrs. Danny R. Gibbs and Tony G. Gibbs upon similar theories, asserting approximately $1,540,000 in damages. Management of the Company believes that any recovery against the Company is remote. Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) Financial Statements The following financial statements are included herewith: Page Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 (b) Reports on Form 8-K None (c) Exhibits 3.1 Restated Articles of Incorporation, as amended (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 3.2 Bylaws (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 4.1 Form of Warrant Agreement Covering Redeemable Common Stock Purchase Warrants (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.1 Revised form of Representative's Warrant and Registration Rights Agreement (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.2 Copy of 1995 Incentive Stock Option Plan (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.3 Copy of Outside Director Stock Option Plan (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.4 Copy of Warrant Agreement between the Company and Can Am Capital (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.5 Copy of Note and Security Agreement between the Company and Bronco Bowl Holding, Inc. (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 10.6 Diversified Employee Leasing, Inc. Client Service Agreement (incorporated by reference from a similarly numbered exhibit filed with the Company's Registration Statement No. 33-97308-D) 23.1 Consent of Killman, Murrell & Company, P.C. (filed herewith) 24.1 Power of Attorney 27.1 Financial Data Schedule GIBBS CONSTRUCTION, INC. AND SUBSIDIARY TABLE OF CONTENTS Page Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3 Consolidated Statements of Operations for Each of the Years in the Three Year Period Ended December 31, 1999 F-5 Consolidated Statements of Stockholders' (Deficit) Equity for Each of the Years in the Three Year Period Ended December 31, 1999 F-6 Consolidated Statements of Cash Flows for Each of the Years in the Three Year Period Ended December 31, 1999 F-7 Notes to Consolidated Financial Statements F-9 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Gibbs Construction, Inc. and Subsidiary Garland, Texas We have audited the accompanying consolidated balance sheets of Gibbs Construction, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows for each of the years in the three year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We were unable to obtain a discussion or evaluation from one of seventeen firms of attorneys who were acting as the Company's legal counsel on pending or threatened litigation described in Note 8 to the consolidated financial statements. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to obtain a discussion or evaluation of pending or threatened litigation from the Company's outside legal counsel as discussed in the preceding paragraph, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Gibbs Construction, Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their operations and cash flows for each of the years in the three year period ended December 31, 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $8,950,262 for the year ended December 31, 1999, and, as of that date, had a working capital deficiency of $7,149,451 and net stockholders' deficit of $6,473,672. As described more fully in Note 16 to the financial statements, the Company is experiencing extreme financial difficulty due to large losses on numerous construction contracts. The balance of the funding of those construction projects was assumed by the Company's bonding surety on January 18, 2000. The Company is not aware of any alternate sources of capital to finance future operations. Those conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. KILLMAN, MURRELL & COMPANY, P.C. Dallas, Texas March 17, 2000 F-2 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS
1999 1998 ------------- ------------- CURRENT ASSETS Cash $ 624,130 $ 1,066,665 Temporary Investments - Note 9 129 99,768 Note Receivable 139,300 - Accounts Receivable Trade - net of allowance for doubtful accounts of $1,233,393 and $725,000, in 1999 and1998, respectively 5,276,100 7,313,519 Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts - Note 2 310,085 2,134,170 Prepaid Expenses 104,866 107,549 Deferred Tax Asset - Note 11 - 350,000 --------- ------------ TOTAL CURRENT ASSETS 6,454,610 11,071,671 ---------- ----------- LAND, BUILDINGS AND EQUIPMENT - Note 3 1,489,686 1,341,939 Less Accumulated Depreciation (782,717) (657,394) ---------- ------------ NET LAND, BUILDINGS AND EQUIPMENT 706,969 684,545 ---------- ------------ OTHER ASSETS Receivables From Affiliates and Employees 26,779 202,290 Deferred Tax Asset - Note 11 - 1,173,840 Real Estate Investments 282,589 - --------- ----------- TOTAL OTHER ASSETS 309,368 1,376,130 ----------- ----------- TOTAL ASSETS $7,470,947 $13,132,346 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. (Continued) F-3 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Continued) DECEMBER 31, 1999 AND 1998 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
1999 1998 --------------- ------------ CURRENT LIABILITIES Notes Payable - Note4 $ 219,309 $ 150,000 Current Installments of Long-Term Debt - Note 5 178,226 193,260 Current Installment of Capital Lease Obligation - Note 6 15,472 - Accounts Payable 8,442,710 7,975,704 Accrued Liabilities on Loss Jobs 2,163,809 - Accrued Expenses - Note 10 2,173,907 794,765 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts - Note 2 331,303 832,447 Payable to Stockholders 79,325 397,740 ----------- ------------ TOTAL CURRENT LIABILITIES 13,604,061 10,343,916 LONG-TERM DEBT - Excluding Current Installments - Note 5 326,976 408,402 CAPITAL LEASE OBLIGATION - Excluding Current Installments - Note 6 13,582 - ------- -- TOTAL LIABILITIES 13,944,619 10,752,318 ----------- ----------- CONTINGENCIES - Notes 6, 7, 8, and 16 - - STOCKHOLDERS' (DEFICIT) EQUITY - Note 14 and 16 Common Stock of $.01 Par Value. Authorized 15,000,000 Shares; Issued and Outstanding 4,060,000 and 4,000,000 Shares, in 1999 and 1998, respectively 40,600 40,000 Additional Paid-In-Capital 5,003,234 4,907,272 Retained Deficit (11,517,506) (2,567,244) ----------- ------------ TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (6,473,672) 2,380,028 ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 7,470,947 $13,132,346 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 --------------- --------------- ---------------- CONSTRUCTION REVENUE $53,366,171 $54,496,848 $47,993,287 COST OF CONSTRUCTION, including accrued costs on loss jobs of $2,163,809 in 1999 55,487,878 51,213,977 45,554,241 ----------- ----------- ----------- GROSS (LOSS) PROFIT (2,121,707) 3,282,871 2,439,046 ----------- ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES 2,759,871 1,687,147 1,288,997 ----------- ------------ ------------ BAD DEBT EXPENSE 2,508,138 842,758 79,960 ---------- ------------ ------------- (LOSS) INCOME BEFORE OTHER INCOME (EXPENSE) (7,389,716) 752,966 1,070,089 OTHER INCOME (EXPENSE) Gain on Disposal of Equipment 5,000 5,000 9,140 Gain (Loss) on Temporary Investments Transactions 78,682 (39,782) (62,157) Interest Income 72,122 157,795 23,566 Interest Expense (206,832) (144,207) (155,347) Other 37,524 - 5,809 ----------- ---------------- -------------- (LOSS) INCOME BEFORE INCOME TAXES (7,403,220) 731,772 891,100 INCOME TAX (EXPENSE) - Note 11 Current (23,202) (13,365) - Deferred (1,523,840) (252,700) (306,200) ----------- ------------ ------------ TOTAL INCOME TAX (EXPENSE) (1,547,042) (266,065) (306,200) ----------- ------------ ------------ NET (LOSS) INCOME $(8,950,262) $ 465,707 $ 584,900 =========== ============ ============ BASIC (LOSS) EARNINGS PER SHARE $ (2.23) $ 0.12 $ 0.14 ============== ============== ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,018,462 4,000,000 4,000,000 ========= =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock --------------------------------------- Number Paid-In Retained of Shares Amount Capital Deficit Total ------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 4,000,000 $40,000 $4,907,272 $ (3,617,851) $ 1,329,421 1997 Net Income - - - 584,900 584,900 -------------- ---------- -------------- -------------- ------------- BALANCE, DECEMBER 31, 1997 4,000,000 40,000 4,907,272 (3,032,951) 1,914,321 1998 Net Income - - - 465,707 465,707 -------------- ---------- -------------- -------------- ------------- BALANCE, DECEMBER 31, 1998 4,000,000 40,000 4,907,272 (2,567,244) 2,380,028 Common Shares Issued for Services Rendered 60,000 600 95,962 - 96,562 1999 Net Loss - - - (8,950,262) (8,950,262) ------ ----- ------ ----------- ----------- BALANCE, DECEMBER 31, 1999 4,060,000 $40,600 $5,003,234 $(11,517,506) $(6,473,672) ========= ======= ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 --------------- --------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES Net (Loss) Income $(8,950,262) $ 465,707 $584,900 Adjustments to Reconcile Net (Loss) Income to Net Cash From Operating Activities Depreciation and Amortization 194,592 163,420 159,400 (Gain) on Disposal of Equipment (5,000) (5,000) (9,140) (Gain) Loss on Temporary Investments Transactions (78,682) 39,782 62,157 Deferred Taxes 1,523,840 252,700 306,200 Increase in Allowance for Doubtful Accounts, Net of Recoveries 887,945 725,000 - Receivables from Employees and Affiliates Expensed 105,482 - - Issuance of Common Stock for Services 96,562 - - Changes in Current Assets and Liabilities Accounts Receivable 1,010,174 (376,074) 933,837 Billings Related to Cost and Earnings on Uncompleted Contracts 1,322,941 (839,812) (627,394) Prepaid Expenses 2,683 (25,240) (62,933) Accounts Payable 2,630,815 493,229 (565,465) Accrued Expenses 1,379,142 109,043 (34,027) Purchase of Temporary Investments (17,770,782) (2,514,475) (302,327) Proceeds From Sale of Temporary Investments 17,949,103 2,517,458 99,140 Purchase of Real Estate Investments (282,589) - - --------- ------- -- NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 15,964 1,005,738 544,348 ------------- ----------- -------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of Equipment (181,212) (288,348) (48,101) Proceeds from Sale of Equipment 18,718 8,924 30,936 Change in Receivables from Affiliates and Employees 70,029 (84,250) 117,203 ----------- ---------- -------- NET CASH FLOW (USED) PROVIDED BY INVESTING ACTIVITIES (92,465) (363,674) 100,038 ------------ ------------ --------
(Continued) The accompanying notes are an integral part of these consolidated financial statements. F-7 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------------- ------------- ------------ CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Note Borrowings $ 326,336 $ 534,134 $212,277 Repayments of Note Borrowings (353,487) (523,473) (558,973) Repayments of Capital Lease Obligations (20,468) - - Changes in Stockholder Payable (318,415) (24,505) 16,190 --------- ----------- --------- NET CASH FLOW (USED) BY FINANCING ACTIVITIES (366,034) (13,844) (330,506) --------- ----------- -------- NET (DECREASE) INCREASE IN CASH (442,535) 628,220 313,880 CASH AT THE BEGINNING OF THE PERIOD 1,066,665 438,445 124,565 ---------- ----------- -------- CASH AT THE END OF THE PERIOD $ 624,130 $1,066,665 $438,445 ========= ========== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year For: Interest Expense $ 206,833 $ 144,207 $155,347 ========= =========== ======== Income Taxes $ 23,202 $ 13,365 $ - ========== ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Increase in Capital Lease Obligations $ 49,522 $ - $ - Assets Purchased through Capital Lease (49,522) - - ---------- -------------- ----------- $ - $ - $ - ============= ============== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-8 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gibbs Construction, Inc. (the "Company"), is a full service, national commercial construction company located in Garland, Texas. The Company operates throughout the United States and Puerto Rico, providing construction services principally to national retail store chains, hotels, and other miscellaneous construction projects. Subsidiary and Principles of Consolidation The consolidated financial statements include the accounts of Gibbs Construction, Inc. and its wholly owned inactive subsidiary, Bronco Bowl Holding, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Temporary Investments The Company has entered into numerous account agreements with stockbrokers and participates in an active trading program in equity securities listed on nationally recognized stock exchanges. The fair value for temporary investment securities are based on quoted market prices. Revenue Recognition Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of total direct job costs incurred to date to estimated total direct job costs for each contract. This method is used because management considers expended direct job costs to be the best available measure of progress on contracts. Contract costs include all direct material, labor and sub-contract costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repair costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The asset "costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability "billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Receivables and payables related to construction contracts are generally expected to be paid in less than one year. (Continued) F-9 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998, and 1997 (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable consists of amounts due on open customer accounts, contract balances billed, retain- age, and sundry accounts receivable. The Company uses the allowance method to account for uncollectible accounts receivable. The allowance for doubtful accounts is based on management's analysis of possible bad debts. Management has determined an allowance for doubtful accounts of $1,233,393 and $725,000 for the years ended December 31, 1999 and 1998, respectively. Bad debt expense was recorded in the amounts of $2,508,138, $842,758, and $79,960, respectively for the years ended December 31, 1999, 1998, and 1997. Activity related to the allowance for doubtful accounts is as follows:
1999 1998 ------------- ------------ Balance-Beginning of Year $ 725,000 $ - Provision for Doubtful Accounts Receivable 1,117,344 725,000 Accounts Receivable Written Off (379,552) - Recoveries of Previously Written Off Accounts Receivable (229,399) - ---------- --------- Balance-End of Year $1,233,393 $725,000 ========== ========
Advertising Costs The Company has the policy of expensing advertising costs as incurred. Total advertising costs charged to expenses was $213,416, $61,833, and $1,531 for the years ended December 31, 1999, 1998, and 1997, respectively. Buildings and Equipment Depreciation of buildings and equipment is provided principally on the straight-line method using estimated useful lives ranging from five to twenty-five years. Major renewals and betterments are added to the property accounts while the cost of repairs and maintenance is charged to operating expenses in the period incurred. Cost of assets retired or otherwise disposed of and the applicable accumulated depreciation are removed from the accounts, and the resultant gain or loss, if any, is reflected in operations. (Continued) F-10 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Federal Income Taxes The Company accounts for income taxes, pursuant to the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Pension and Employee Benefit Plans The Company has established a flexible benefits plan for its employees. The purpose of this plan is to provide eligible employees a choice between cash and specified welfare benefits. The Company has established a deferred contribution profit sharing plan (401(k) Plan), covering substantially all employees. This plan allows both the Company and eligible employees to contribute to the plan. No significant contributions were made to the plan by the Company in 1999, 1998, or 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The Company recognizes revenues from fixed-price construction contracts using the percentage-of-completion method, measured by the percentage of cost incurred to date to management's estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Cash Flows The Company considers cash to be cash equivalents for purposes of preparing the statements of cash flows. Basic Earnings Per Share Basic earnings (loss) per share was computed using the weighted average outstanding common shares for the applicable periods. The diluted earnings (loss) per share is the same as basic since inclusion of the stock warrants in the computation would have been anti-dilutive. (Continued) F-11 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting for Long-Lived Assets The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of". The Company reviews long-lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. At December 31, 1999, the Company believes that there has been no impairment of its long-lived assets. NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Excess costs and billings are as follows:
1999 1998 -------------- --------------- Costs Incurred on Uncompleted Contracts $43,297,977 $35,513,827 Estimated (Losses) Earnings (1,268,127) 3,488,583 ----------- ------------ 42,029,850 39,002,410 Less Billings to Date 42,051,068 37,700,687 ---------- ----------- $ (21,218) $ 1,301,723 ============= ===========
The above amounts are included in the accompanying balance sheets as follows:
1999 1998 -------------- ------------- Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts $ 310,085 $ 2,134,170 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts (331,303) (832,447) ------------ ------------ $ (21,218) $ 1,301,723 ============= ===========
F-12 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 3: LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are as follows:
1999 1998 ------------ ------------ Land $ 48,255 $ 48,255 Buildings and Improvements 227,214 227,214 Vehicles and Trailers 698,120 603,857 Construction Equipment 342,098 292,576 Office Equipment and Furniture 173,999 170,037 -------- ------------ 1,489,686 1,341,939 Less Accumulated Depreciation (782,717) (657,394) --------- ------------ NET LAND, BUILDINGS AND EQUIPMENT $ 706,969 $ 684,545 =========== ============
NOTE 4: NOTES PAYABLE A summary of notes payable follows:
1999 1998 ------------ -------- 10% note payable to an individual, unsecured, due January 17, 1999 $ - $150,000 8.5% note payable to an individual, due on demand, secured by second lien deed of trust 39,309 - 10% note payable to a bank, monthly interest payments payable through August 26, 2000 when principal is due. Secured by deed of trust 180,000 - -------- -------- $219,309 $150,000 ======== ========
F-13 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 5: LONG-TERM DEBT A summary of long-term debt follows:
1999 1998 ----------- ------------- 4.9%note payable to a credit corporation, payable in monthly installments of $546 including interest, due June 1, 1999, secured by equipment $ - $2,687 9.5%note payable to a credit corporation, payable in monthly installments of $653 including interest, due August 4, 2001, secured by vehicle 11,482 17,896 9.65% note payable to a bank, payable in monthly installments of $807 including interest, due July 8, 1999, secured by vehicle - 5,472 9.9% note payable to a credit corporation, payable in installments of $469 including interest, due January 2, 2001, secured by vehicle 5,656 10,796 10.0% note payable to a credit corporation, payable in monthly installments of $533 including interest, due August 30, 1999, secured by equipment - 5,140 9.5%note payable to a credit corporation, payable in monthly installments of $628 including interest, due August 4, 1999, secured by vehicle - 21,696 9.5%note payable to a credit corporation, payable in monthly installments of $339 including interest, due April 16, 2002, secured by vehicle 8,219 11,594 12.5% notes payable to a bank, payable in monthly installments of $836 including interest, due June 15, 2002 unsecured 21,524 - 9.29% note payable to a bank, payable in monthly installments of $836 including interest, due August 13, 2004, secured by vehicle 37,870 -
(Continued) F-14 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 5: LONG-TERM DEBT (Continued)
1999 1998 ------------- ------------ 9.5% note payable to a credit corporation, payable in monthly installments of $339 including interest, due April 16, 2002, secured by vehicle $ 8,202 $11,570 9.5% note payable to a credit corporation, payable in monthly installments of $633 including interest, due June 26, 2000, secured by vehicle 4,076 10,857 9.5% note payable to a credit corporation, payable in monthly installments of $648 including interest, due October 20, 2000, secured by vehicle 5,849 12,708 9.55% note payable to a bank, payable in monthly installments of $428 including interest, due August 25, 1999, secured by vehicle - 3,301 9.5% note payable to a credit corporation, payable in monthly installments of $655 including interest, due January 15, 1999, secured by vehicle - 766 9.95% note payable to a credit corporation, payable in monthly installments of $643 including interest, due December 1, 2000, secured by vehicle 6,149 12,883 11.25% note payable to a credit corporation, payable in monthly installments of $765 including interest, due April 9, 2002, secured by vehicle 38,564 - 9.5%note payable to a credit corporation, payable in monthly installments of $1,676 including interest, due September 17, 2002, secured by equipment 48,506 63,241 9.5%note payable to a credit corporation, payable in monthly installments of $1,212 including interest, due June 25, 2002, secured by equipment 27,183 34,809 9.75% note payable to a bank, payable in monthly installments of $5,834 plus interest, due April 30, 2003, secured by deed of trust 233,320 303,328
(Continued) F-15 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 5: LONG-TERM DEBT (Continued)
1999 1998 ------------- ----------- 10.75% note payable to a credit corporation, payable in monthly installments of $1,022 including interest, due July 8, 2001, secured by vehicle $ 16,919 $ 27,556 11.9% note payable to a credit corporation, payable in monthly installments of $642 including interest, due October 1, 2001, secured by vehicle 12,110 17,983 12.75% note payable to a credit corporation, payable in monthly installments of $964 including interest, due November 20, 2001, secured by vehicle 19,573 27,379 --------- --------- 505,202 601,662 Less Current Installments 178,226 193,260 -------- -------- $326,976 $408,402 ======== ========
Aggregate maturities of long-term debt for the five years ending December 31, 2004, are as follows: 2000 $178,226 2001 153,808 2002 134,438 2003 32,269 2004 6,461 ---------- $505,202 NOTE 6: LEASE OBLIGATIONS The Company leases certain construction equipment under a 36 month capital lease obligation consisting of the following: Equipment $49,522 Less Accumulated Depreciation (9,904) ------- $39,618 (Continued) F-16 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 6: LEASE OBLIGATIONS (Continued) Future minimum lease payments under capital lease obligation as of December 31, 1999 are as follows: Year Ending December 31, 2000 $18,756 2001 12,504 Total Minimum Lease Payment 31,260 Less Amount Representing Interest (2,206) ------- Present Value of Minimum Lease $29,054 ======= The Company leases equipment under operating leases that expire over the next two years. The following is a schedule by year of future minimum rental payments required under these operating leases as of December 31, 1999: Year Ending December 31, 2000 $11,865 2001 574 -------- $12,439 For the years ended December 31, 1999, 1998, and 1997, the operating lease payments aggregated $17,175, $20,263, and $14,984, respectively. NOTE 7: MAJOR CUSTOMERS AND RISK CONCENTRATION In 1999, the Company derived approximately 68% of its revenue from five (5) customers, In 1998, the Company derived approximately 58% of its revenue from five (5) customers, and in 1997, the Company derived approximately 59% of its revenue from six (6) customers. The following customers exceeded 10% of total revenues for their respective years:
1999 1998 1997 --------------------------------------------- Rockwall Market Center 20.0% - - Just for Feet 17.6% 21.9% 14.8% Office Max 17.0% 12.1% 14.6% Oshman's - - 12.1%
(Continued) F-17 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 7: MAJOR CUSTOMERS AND RISK CONCENTRATION (Continued) At December 31, 1999, the Company had deposits aggregating $1,062,349 with a bank. Such deposits exceed the Federal Deposit Insurance Corporation's insurance coverage. The carrying amounts of accounts receivable, accounts payable, notes payable, and long term debt approximate their fair values. NOTE 8: LITIGATION AND CONTINGENCIES The Company, its two principal shareholders, the Company's bonding surety and construction project owners are defendants in numerous lawsuits initiated by material suppliers and/or subcontractors for work performed and/or material supplied and for liquidated damages on certain contracts which specified completion dates. The Company's management and outside legal counsel has estimated the potential loss exposure to be approximately $1,092,000. This amount was accrued as a liability of the Company and charged against operations for the year ended December 31, 1999. The Company's Subsidiary is a defendant in two lawsuits related to equipment leases that were assumed by the purchaser of the Bronco Bowl in 1996. The purchaser subsequently filed for bankruptcy protection thereby exposing the Company and its Subsidiary to approximately $161,000 in lease liabilities, which were recognized as an expense in the statement of operations for the year ended December 31, 1999. As part of the audit process, the independent certified public accountants, selected as auditors by the Company, sent correspondence to seventeen (17) legal firms requesting discussion and evaluation regarding pending or threatened litigation involving the Company and its Subsidiary. All legal firms with the exception of one firm provided the requested discussions and evaluations. The legal firm not responding to the request billed the Company $86,075 subsequent to December 31, 1999, and the Company objected to the amount billed. The primary legal service provided by this firm was in connection with the Company's negotiations with its bond surety. The Company's management is not able to determine the amount of any liabilities associated with pending or threatened litigation for which this firm was representing the Company. The Company has entered into guarantee arrangements on contracts in the ordinary course of business. The guarantee period is generally one year. Cost of repairs on guarantee arrangements cannot be reasonably estimated. Warranty costs incurred for the years ended December 31, 1999, 1998, and 1997 were $50,839, $5,317, and $31,314, respectively. F-18 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 9: TEMPORARY INVESTMENTS The Company participates in trading publicly traded equity securities. The temporary investment securities were as follows:
Gross Gross Unrealized Unrealized Fair Balance Sheet Date Cost Gains Losses Value ----------------------------------------------------------------------------------------------------------------- December 31, 1997 $214,322 $1,415 $73,204 $142,533 December 31, 1998 $118,318 $ - $18,550 $ 99,768 December 31, 1999 $ 129 $ - $ - $ 129
The gross unrealized gains and losses, set forth above, have been included in the applicable statement of operations. NOTE 10: ACCRUED EXPENSES Accrued Expenses were comprised of the following:
1999 1998 ------------ ------------ Accrued Litigation Claims $1,253,000 $ - Sales Tax 919,641 679,794 Salaries - 74,041 State Taxes - 38,000 Other 1,266 2,930 ------------ --------- $2,173,907 $794,765 ========== ========
NOTE 11: INCOME TAXES Total income tax benefit (expense) is less than the amount computed by multiplying earnings before income taxes by the statutory Federal income tax rate. The reason for these differences and the related tax effects are:
1999 1998 1997 ------------ ---------- ------- Tax Benefit (Expense) at Statutory Rates (34%) $ 2,517,095 $(248,802) $(302,974) Valuation Allowance of Deferred Tax Asset (4,029,616) - - Differences Resulting From Nondeductible Expenses and Other (34,521) (17,263) (3,226) ----------- ---------- ---------- TOTAL INCOME TAX (EXPENSE) $(1,547,042) $(266,065) $(306,200) =========== ========= =========
(Continued) F-19 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 11: INCOME TAXES (Continued) The Company's total deferred tax assets, deferred tax liabilities, and deferred tax asset valuation allowances at December 31, 1999 and 1998, are as follows:
1999 1998 -------------- ----------- Total Deferred Tax Assets $4,062,688 $1,561,084 Less Valuation Allowance (4,029,616) - ---------- ----- Net Deferred Assets 33,072 1,561,084 Deferred Tax Liabilities (33,072) (37,244) ------------ ------------ $ - $1,523,840 ============ ==========
The deferred tax assets have been recorded based on a net operating loss carryforward from sale of discontinued operations and loss from discontinued and continuing operations. Due to excessive losses from operations, the Company anticipates that it will file for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code; therefore, it has determined that there is less than a 50% probability that future taxable income will be sufficient to fully realize the deferred tax assets. The Company has determined that a deferred tax asset valuation allowance of $4,029,616 is needed at December 31, 1999. The types of temporary differences that give rise to significant portions of deferred income taxes and the tax effects of those temporary differences included in the deferred income taxes balances are presented below:
1999 1998 ------------------------------- ---------------------------------- Current Noncurrent Current Noncurrent Allowance for Doubtful Accounts $ - $ 419,354 $ - $ 246,500 Net Operating Loss Carryforward - 3,564,450 350,000 899,612 Excess of tax basis over financial basis of interest accrued but not paid to stockholders - 70,825 - 53,118 Excess of tax basis over financial basis of security loss reserve - 6,886 - 6,886 Excess of financial basis over tax basis of property and equipment - (33,072) - (34,082) Valuation Allowance - (4,029,616) - - Other - 1,173 - 1,806 ------------- ------------- -------- ---------- Net deferred tax asset $ - $ - $350,000 $1,173,840 ============= ============= ======== ==========
For financial accounting and federal tax return purposes, the Company has approximately $11,266,000 and $10,395,000, respectively, of net operating loss carryforwards as of December 31, 1999, which will expire beginning 2011. F-20 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 12: RELATED PARTY TRANSACTIONS The Company does business with two (2) subcontractors that are related through common ownership of its two (2) principal shareholders of the Company and a key employee of the Company. One of these subcontractors filed for bankruptcy on December 6, 2000. Payments made to these related parties for subcontractor services were $1,799,576 and $2,068,365 during the years ended December 31, 1999 and 1998, respectively. Amounts due the related parties was $164,342 at December 31, 1998. Amounts due from/to these related parties at December 31, 1999 were netted against amounts payable to the principal shareholders. The Company is also affiliated with a real estate company through common ownership that builds single family dwellings. There were no payments to this affiliate during the years ending December 31, 1999 and 1998. Amounts due from/to this affiliate at December 31, 1999 were noted against amounts payable to the principal shareholders. NOTE 13: STOCK OPTIONS PLANS AND WARRANTS In September, 1995, the Company established the "1995 Incentive Stock Option Plan" (the "Plan") to encourage ownership in the Company's common stock by certain officers, directors, employees and advisors. The Company has reserved two hundred thousand (200,000) authorized but unissued shares of common stock, $.01 par value for issuance in connection with its plan. The Plan will be administered by the Compensation Committee appointed by the Board of Directors. In making any determination as to persons to whom Options shall be granted and as to the number of shares to be covered by such Options, the Compensation Committee shall take into account the duties and responsibilities of the respective officers, directors, employees, or advisors, their current and potential contributions to the success of the Company and such other factors as the Compensation Committee shall deem relevant in connection with accomplishing the purpose of the Plan. No options have been granted under the Plan as of December 31, 1999. In September 1995, the Company established the "Outside Directors Stock Option Plan" (the "Directors Plan") which is to provide incentives for Directors to promote the success of the Company and to remain as Outside Directors. The Company has reserved fifty thousand (50,000) authorized but unissued shares of common stock, $.01 par value for purposes of the Directors Plan. The Directors Plan will be administrated by the Stock Option Committee ("Options Committee") appointed by the Board of Directors. In making any determination as to Outside Directors to whom Options shall be granted, and as to the number of shares to be covered by such Options, the Options Committee shall take into account the duties and responsibilities of the respective Outside Directors, their current and potential contributions to the success of the Company, the time devoted by such Outside Directors to matters pertaining to the Company, and such other factors as the Options Committee shall deem relevant in connection with accomplishing the purpose of the Plan. No options have been granted under the Directors Plan as of December 31, 1999. F-21 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 13: STOCK OPTIONS PLANS AND WARRANTS (CONTINUED) In September 1995, the Company entered into a warrant agreement with its financial consultant which allows the purchase of 150,000 authorized and unissued shares of common stock, $.01 par value at a price equal to 120% of the public offering price, exercisable for a four year (4) period commencing one year from the effective date of the public offering. The Company has previously issued warrants to purchase 30,000 shares of common stock, exercisable prior to December 31, 2000 to Can Am Capital, LLC. The purchase price of these shares is $5.00. On October 4, 1996, the Company entered into a warrant agreement with Danny R. Gibbs and Tony G. Gibbswhich allowed these individuals to purchase 2,000,000 shares of the Company $.01 par value common stock for $.10 per share in the event that either individual is terminated from employment or from an executive position with the Company without the individuals consent in writing, or a stockholder or a group of stockholders, other than the two (2) individuals, become beneficial owners of at least twenty-five percent (25%) of the issued and outstanding shares of common stock of the Company as indicated on a schedule 13D filed under the Securities Exchange Act of 1934. NOTE 14: BUSINESS SEGMENT REPORTING The Company has two (2) primary business segments which are: - Construction - Securities Trading The following summarizes the operation by business segment:
1999 1998 1997 ------------- -------------- ------------- REVENUES Construction $53,366,171 $54,496,848 $47,993,287 OPERATING (LOSS) PROFIT Construction $(2,121,707) $3,282,871 $2,439,046 Securities Trading $78,682 $(39,782) $(62,157) CAPITAL EXPENDITURES Construction $230,734 $288,348 $48,101 DEPRECIATION Construction $194,592 $163,420 $159,400 IDENTIFIABLE ASSETS Construction $7,470,818 $13,032,578 $12,475,383 Securities Trading $129 $99,768 $142,533
F-22 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED)
Income (Loss) Before Net Income Net Income (Loss) 1999 Revenues Income Taxes (Loss) Per Share ---------- ------------ ------------------------ -------------- ----------------- December $ 6,891,523 $(7,912,225) $(9,262,165) $(2.31) September 16,144,549 95,301 39,199 .01 June 16,725,803 217,659 143,309 .04 March 13,604,296 196,045 129,395 .03 1998 ---------- December $17,691,628 $ 473,742 $ 308,792 $ .08 September 13,520,229 82,671 36,156 .01 June 11,821,015 128,914 90,089 .02 March 11,463,976 46,445 30,670 .01
NOTE 16: SUBSEQUENT EVENT AND GOING CONCERN In the latter part of 1998 and early 1999, the Company contracted to construct several hotels in the Southeast United States (approximately $9,836,000 in construction revenue, of which, $5,031,000 was recognized in 1998). These construction projects were bonded by the Company's primary bonding surety. During 1999, losses relating to these projects began to mount and by December the Company realized it would not have sufficient cash resources to finish construction on the remaining hotel projects. In addition the Company was nearing completion of the largest retail project (construction price of $11,286,422) it had undertaken to date, and the owner discontinued approval of change orders and funding for the project. This project was bonded by the Company's surety. In the fourth quarter 1999, the Company's bonding surety notified the Company that it would no longer provide completion and payment bonds for the Company's construction projects. Given these events, the Company began a series of negotiations with its bonding surety in December 1999, which resulted in a written agreement in January 2000, whereby the bonding surety would provide funds to finish certain projects and required the Company to terminate construction on other projects. As of March 20, 2000, the Company's bonding surety had made payments to subcontractors, suppliers and other claimants in the amount of $2,675,738. In addition to the problems associated with these projects, the Company's largest and most profitable retail customer, Just For Feet, filed for bankruptcy in November 1999, leaving the Company with $306,000 of worthless accounts receivables and the loss of its most profitable client, which accounted for 17.6% and 21.9% of the Company's total revenues in 1999 and 1998, respectively. Going forward, the Company is actively seeking another company with which to combine its operations. Discussions were initiated with an Atlanta, Georgia company in December 1999. That company is a family of Corporations and LLC(s) whose operations involve construction services and is a minority designated and owned business. Discussions (which are continuing) around a plan whereby a "reverse merger" would occur utilizing a pooling of assets or a stock acquisition by Gibbs. Management of Gibbs would be consolidated with that company. A change of control by tax definition would not occur under the terms as contemplated in the current discussions; however, there would be a change of control in management. (Continued) F-23 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 and 1997 (Continued) NOTE 16: SUBSEQUENT EVENT AND GOING CONCERN (CONTINUED) In conjunction with the pending merger as discussed above, in the near future the Company anticipates that it will file for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code, which will allow it time to reorganize itself; thereby, allowing the Company to continue its operations. The Company's management is unable to determine the ultimate effect of the Company's seeking protection form its creditors using Chapter 11 of the Federal Bankruptcy Code and has not completed its merger negotiations; therefore, these financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. F-24 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Gibbs Construction, Inc. By: ----------------------------- Danny R. Gibbs, President and Chief Financial Officer Date: March 31, 2000 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date Director March 31, 2000 - ------------------------------------ Danny R. Gibbs Director March 31, 2000 - ------------------------------------ Tony G. Gibbs Director March 31, 2000 - ------------------------------------ Dennis T. Mitchell Director March 31, 2000 - ------------------------------------ L. W. Reynolds EX-27 2
5 12-MOS DEC-31-1999 DEC-31-1999 624,130 0 5,276,100 1,233,393 0 6,454,610 1,489,686 782,717 7,470,947 13,604,061 326,976 0 0 (6,473,672) 0 7,470,947 53,366,171 53,366,171 55,487,878 5,268,009 13,504 0 206,832 (7,403,220) (1,547,840) (8,950,262) 0 0 0 (8,950,262) (2.23) (2.23)
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