-----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, J4RzZQN+mKhH9iuf7cwT16PgCUoIQCJwV3wgR7eUx7yDuEfKV5EZRxzJVaa+xHcK 6l/QMC281rg85Ro0Vi4uRg== 0001011823-97-000010.txt : 19970401 0001011823-97-000010.hdr.sgml : 19970401 ACCESSION NUMBER: 0001011823-97-000010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-14088 FILM NUMBER: 97571308 BUSINESS ADDRESS: STREET 1: 1855 WALL ST CITY: GARLAND STATE: TX ZIP: 75041 BUSINESS PHONE: 2142783433 MAIL ADDRESS: STREET 2: 1855 WALL ST CITY: GARLAND STATE: TX ZIP: 75041 10-K405 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, 1996 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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 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 |X| No |_| State issuer's revenues for its most recent fiscal year. $47,438,930 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 $2,250,000 As of March 27, 1997. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 4,000,000 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. 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, Eckerds, Oshmans Super Sports, BizMart, Lil Things, Petco, Barnes & Noble, Office Max (BizMart), Petstuff, Just for Feet, Organized Living, Copy Max and Petsmart. In July of 1996, the Company sold 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 for $1,150,000. Although the complex had previously operated for many years, it was closed prior to the time the Company acquired it. The Company performed extensive renovations on the complex and opened it in January of 1996 as a large, high volume, entertainment, recreation, restaurant and meeting complex. The Company incurred operating losses of $1,802,114 prior to the sale and incurred an additional loss of $5,277,103 upon the sale of Bronco Bowl Holding, Inc. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation." 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 1996, approximately 40% of the Company's revenues are derived from "ground up" work and 60% from "finish out" work. The Company plans to allocate its resources to increase significantly its "finish-out" business due to its high gross margins. 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. Management believes that using its own personnel offers several advantages: a consistent labor force that is familiar with the operational needs of the customer as well as familiarity with the customer's type of construction; close control over the work and construction schedule; increased focus on higher margin activities such as demolition, drywall, painting, electrical, and air conditioning and heating systems by having a skilled work force in those areas; and more efficient use of personnel. Marketing of the Construction Business 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 3 year on a nation-wide basis. In addition, these retail chains often remodel a large number of existing outlets, providing a greater opportunity to generate revenues for the Company. The Company believes that concentrating on this targeted market provides for longer term growth and financial stability. Concentration on this type of client base also allows the Company to mitigate the cyclical and seasonal revenues which are often typical of the construction industry. Although economic contraction often reduces retail store's expansion, management's experience has been that most such retail chains continue to expand during recessions, particularly in areas of the country that are not affected by a recession or in which an economic slowdown is not as severe as in other parts of the country. 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. Management believes its service and product will promote itself after the completion of a single project for a national chain, providing additional construction and remodeling opportunities after completion of the first contract. During 1996, approximately 76% 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 1996, the Company was engaged in over 120 projects for approximately 40 different clients. Four clients, Office Max (25%), Oshmans (13%), Just for Feet (5%), and Lil Things (6%) accounted for approximately 49% of the Company's revenues during 1996. There can be no assurances that these clients will continue at the present level or at all and the loss if any one of them would have a material adverse effect on the Company. Contracting Process Almost all of the Company's projects are competitively bid on a fixed price basis. The Company presently obtains approximately 70% 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. On site inspections are always made by the project manager/estimator prior to bid date. This allows the project manager to observe any peculiarities with the project and to make note of any discrepancies in the architectural documents. Competition The Company believes that its construction business competes on price, reputation for quality, timeliness, familiarity with retail construction, the availability of aggregate materials and financial strength. Management believes the Company competes favorably on the basis of the foregoing factors. 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 4 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. The Company has never been refused a surety bond. 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, 1997, the field operations of the Company were conducted by 22 superintendents and 100 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 16 persons, including four project managers, four project assistants, three project accountants and a receptionist. 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. As of March 15, 1997, the Company owned six trucks and four trailers. The Company also owned one tractor, two fork lifts and eight 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 that occur in the ordinary course of business, none of which, in the opinion of management, is material. 5 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. The Company completed its initial public offering in January of 1996 and trading commenced on January 15, 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 1996 commencing January 15, 1996. as reported by NASDAQ: Ask Bid High Low High Low First Quarter 2.125 1.81250 1.8125 1.5625 Second Quarter 1.75 1.5 1.3125 0.65625 Third Quarter 1.375 1.25 0.875 0.50 Fourth Quarter 1.9375 1.375 1.00 0.6875 As of March 15, 1997, 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, 1996. 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.
1996 1995(1) 1994(1) Net sales $47,438,930 $33,336,120 $21,010,296 Income (loss) from continuing operation 546,383 1,592,835 74,101 Income (loss) per share from continuing operation $0.14 $ 0.53 $0.02 Total Assets $12,733,026 $11,291,394 $4,516,816 Long-term obligations 563,254 945,057 100,492 Cash Dividends - - -
(1) Prior to January 12, 1996, 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 In 1996 the Company incurred a loss of $4,122,834 or $1.07 per share. The loss is attributable to loss from the discontinued operations of the Bronco Bowl and its sale in the second quarter in 1996. The loss from 6 operations of the Bronco Bowl was $1,186,114, and the loss from the disposal of the Bronco Bowl was $3,4483,103. In 1996, income from continuing operations was $546,383. Results of Operations - 1996 Compared with 1995 Revenues increased approximately 42% from $33,336,120 for the year ended December 31,1995, to $47,438,930 for the year ended December 31, 1996. In 1994 the Company had begun a program to add additional clients, and by late 1995, the Company had succeded in adding several new clients. The effect of this program is reflected in the revenue growth enjoyed in 1996. However, there can be no assurance that the recent rate of growth can be sustained in the future. Gross profit margins decreased from 10.4% in 1995 to 5.25% in 1996. The decline in gross margins resulted in a decline in gross profit from $3,458,626 in 1995 to $2,490,249 in 1996. Although the third quarter of 1996 had a gross profit margin of almost 10.0%, the other three quarter's gross profit margin was significantly lower. In the earlier quarters of 1996, margins were lower due to managment's involvement with the Bronco Bowl as well as a charge off of one entire project where the client did not pay for work. The fourth quarter was adversely affected by one project that had a significnat number of weather related problems. General and administrative costs also increased significantly in 1996 from 1995. In 1996 general and administrative costs were $1,574.416, or 3.3% of revenues, compared in $903,294, or 2.7% of revenues, in 1995. Most of the increase is attributable to the costs of being publicly held as well as the administrative costs releated to closing and selling the Bronco Bowl. Because of lower margins and increased general and administrative costs, net income in 1996 from continuing operations declined to $546,383 from proforma net income in 1995 from continuing operations of $1,592,835. The 1995 year benefitted from a $446,596 gain on temporary investments. Results of Operations - 1995 Compared with 1994 Revenues increased approximately 59% from $21,010,296 for the fiscal year ended December 31, 1994, to $33,336,120 for fiscal year ended December 31, 1995. This increase in construction revenue is attributable to bidding for contracts for a larger number of clients, a program begun in 1994. In both 1993 and 1994, management believed that by adding clients, the Company's revenues would be less subject to interruptions in the building plans of a given client. The full effect on revenues of this commitment to adding clients did not occur until 1995. The first quarter of 1995 did not experience a decline in revenues from the previous quarters as did the first quarters of 1993 and 1994, and in late 1995 the Company added several new clients that are national retail chains. The Company had gross profits from construction revenues of approximately $845,000 in 1994 compared to a gross profits from construction revenues of approximately $3,458,626 in 1995. The greater gross profitability in the later year, approximately 4.0% of construction revenues in 1994 compared to approximately 10.3% of construction revenues in 1995, is attributable to the programs begun in 1994 to bid contracts more effectively and control costs of those contracts actually entered. The Company's profit in the 1995 fiscal year was favorably affected by approximately $480,000 in gains on temporary investments which was mitigated by approximately $584,000 of operating expenses incurred by the Bronco Bowl which opened in January of 1996. General and administrative expense were $557,930 for the earlier period compared to $903,294 in 1995. The Company's General and Administrative Expenses increased in the later period because of additional hiring in anticipation of growth. Liquidity and Capital Resources The Company's working capital ratio at December 31, 1996 was 0.94, current liabilities exceeding current assets by approximately $612,000. The Company's negative working capital at December 31, 1996, that is, the amount by which current liabilities exceed current assets, is largely attributable to losses related to the Bronco Bowl. The Bronco Bowl 7 opened in January of 1996 and incurred losses from operations of approximately $1,200,000 in 1996. In addition, the Company sustained a loss of approximately $3,483,103 on the disposition of the Bronco Bowl. The effect of this loss was to consume a significant portion of the Company's liquid resources and cash flow for the Bronco Bowl. Since the sale of the Bronco Bowl, however, the Company's liquidity has steadily improved. At June 30, 1996, the working capital ratio was 0.66. This ratio increased to 0.88 at the end of the third quarter of 1996 and to 0.94 at the end of the year. The average number of days that payables and receiveables have been outstanding has been level since June 30, 1996. Plan of Operation The Company plans to continue its aggressive growth throughout the 1997 fiscal year. The Company plans to expand again the number of clients for which it works, a plan which the Company began to implement in the third and fourth quarters of 1995. The Company plans to return to the margins experiencedin 1995, although there can be no assurance that these margins will be attained. 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 39 President, Director Tony Gibbs 35 Vice-President, Director Dennis T. Mitchell 47 Director Elliot R. Simon 42 Director Phyllis Gibbs Wright 45 Secretary 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 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 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. Elliot R. Simon is a President and chairman of the board of The Colfax Group Realty Advisors, Inc., a real estate consulting firm providing brokerage and consulting services to tenants. The principal clients of the 8 Colfax Group, including one of the Company's clients, Lil Things, are large retailers expanding on a national basis. Prior to joining The Colfax Group Realty Advisors, Inc. in October of 1992, Mr. Simon was vice president of real estate and construction for BizMart, Inc., a national retailer of office products, where he was responsible for managing the real estate acquisitions and construction for Biz Mart, Inc. Mr. Simon joined Bizmart in February of 1988 until he joined The Colfax Group Realty Advisors, Inc. Mr. Simon received a Bachelors degree from the State University of New York at Cortland and an MBA degree from the University of Houston. Phyllis Gibbs Wright has been Secretary of the Company since its formation and during the Company's operations has been responsible for management's administration. Danny Gibbs and Tony Gibbs are brothers. Phyllis Gibbs Wright is their sister. 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. Danny Gibbs and Tony Gibbs have committed to supporting for reelection the existing outside directors at the Company's next annual meeting. 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. On January 12, 1996, the Company became a reporting company under the Securities Exchange Act of 1944 and its officers, directors, and 10% stockholders were required, on that date, to file initial reports of stockholdings in the Company on Form 3. These were not filed until February of 1996 by the directors and 10% stockholders. 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, 1994, 1993, and 1992.
Summary Compensation Table Name and Annual Compensation (1) All Other Principal Position Fiscal Year Salary Bonus (2) Compensation - ------------------ ----------- ------ --------- ------------ Danny Gibbs 1996 $150,000 - Chief Executive Officer 1995 49,220 136,423 - 1994 47,220 140,349 - Tony Gibbs 1996 $150,000 - Vice President 1995 49,220 200,246 - __________ 1994 47,220 140,349 -
(1) The Company provides certain perquisites and personal benefits to its executive officers, the aggregate amount of which does not exceed $50,000 or 10% of such officer's total annual salary and bonus. 9 (2) These amounts represent distributions to Messrs. Danny and Tony Gibbs in connection with the Company's status as a subchapter S corporation pursuant to the United States tax codes. They exclude amounts accrued in 1995 but paid in 1996 as part of the Company's termination of its status as a subchapter S corporation. As of December 31, 1996, $406,000 remained to be paid. Executive Director Compensation Upon the completion of this Offering the Company plans to pay $150,000 per year to each of Messrs. Danny Gibbs and Tony Gibbs. 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 directors 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. 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 three "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 10 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, 1996 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 1,000,000 25.0% Tony Gibbs 1,000,000 25.0% All directors and officers 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. 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 has accrued $815,000 to be distributed to Danny Gibbs and Tony Gibbs for payment of income taxes owed for the Company's operations. As of December 31, 1996, $406,000 remained to be paid. All future transactions between the Company and its officers, directors, and/or 5% shareholders will be on terms no less favorable than could be obtained from independent, third parties and will be approved by a majority of the independent disinterested directors of the Company. 11 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 Copnsolidated 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 (filed herewith) 27.1 Financial Data Schedule 12 GIBBS CONSTRUCTION, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS GIBBS CONSTRUCTION, INC. AND SUBSIDIARY TABLE OF CONTENTS 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 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, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. 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. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gibbs Construction, Inc. and Subsidiary as of December 31, 1995 and 1996, and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. KILLMAN, MURRELL & COMPANY, P.C. Dallas, Texas March 14, 1997 F-1 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1996 ASSETS
1995 1996 ------------ ----------- CURRENT ASSETS Cash $ 64,183 $ 124,565 Temporary Investments - Note 9 24,183 1,503 Accounts Receivable Trade 3,439,389 8,596,282 Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts - Note 2 294,472 976,681 Prepaid Expenses 33,942 19,376 Deferred Tax Asset - Note 12 - 510,000 ----------- ----------- TOTAL CURRENT ASSETS 3,856,169 10,228,407 ----------- ----------- LAND, BUILDINGS AND EQUIPMENT - Note 3 7,229,232 1,084,380 Less Accumulated Depreciation (279,630) (387,744) ----------- ----------- NET LAND, BUILDINGS AND EQUIPMENT 6,949,602 696,636 ------------ ----------- OTHER ASSETS Other Assets 49,689 2,454 Deferred Registration Costs 366,810 - Receivables From Affiliates and Employees 193,839 232,789 Deferred Tax Asset - Note 12 - 1,572,740 ------------ ----------- TOTAL OTHER ASSETS 610,338 1,807,983 ------------ ----------- TOTAL ASSETS $11,416,109 $12,733,026 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements (Continued) F-2 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Continued) DECEMBER 31, 1995 AND 1996 LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1996 ------------ -------------- CURRENT LIABILITIES Notes Payable - Note 4 $ 150,000 $ 150,000 Current Installments of Long-Term Debt - Note 5 122,081 374,443 Current Capital Lease Obligations - Note 10 138,616 - Accounts Payable 5,260,692 8,047,940 Accrued Expenses - Note 11 1,630,723 719,749 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts - Note 2 414,621 1,142,164 Payable to Stockholders - 406,055 --------------- ------------ TOTAL CURRENT LIABILITIES 7,716,733 10,840,351 LONG-TERM DEBT - Excluding Current Installments - Note 5 351,935 563,254 CAPITAL LEASE OBLIGATIONS Excluding Current Obligations - Note 10 593,122 - ------------- ------------ TOTAL LIABILITIES 8,661,790 11,403,605 ------------ ------------ CONTINGENCIES - Notes 6, 7, and 8 - - STOCKHOLDERS' EQUITY - Note 14 Common Stock of $.01 Par Value. Authorized 7,500,000 Shares; Issued and Outstanding 3,000,000 and 4,000,000 Shares, respectively 30,000 40,000 Additional Paid-In-Capital - 4,907,272 Retained Earnings 2,724,319 (3,617,851) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,754,319 1,329,421 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,416,109 $12,733,026 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements F-3 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 ---------------- --------------- CONSTRUCTION REVENUE $33,336,120 $47,438,930 COST OF CONSTRUCTION (29,877,494) 44,948,681 ----------- -------------- NET CONSTRUCTION REVENUE 3,458,626 2,490,249 ----------- -------------- BRONCO BOWL OPERATING EXPENSES (584,173) - ----------- -------------- GROSS PROFIT 2,874,453 2,490,249 GENERAL AND ADMINISTRATIVE EXPENSES (903,294) (1,574,416) ----------- -------------- INCOME BEFORE OTHER INCOME (EXPENSE) 1,971,159 915,833 OTHER INCOME (EXPENSE) (Loss) on Disposal of Equipment (7,959) (1,623) Gain (Loss) on Temporary Investments Transactions 446,596 (22,906) Interest Income 5,042 22,215 Interest Expense, net of capitalized interest of $128,332 at December 31, 1995 (1,895) (86,628) Other 392 12,492 ----------- -------------- INCOME BEFORE INCOME TAXES 2,413,335 839,383 INCOME TAX (BENEFIT) - Note 1 and Note 12 - (293,000) ----------- ------------- INCOME FROM CONTINUING OPERATIONS 2,413,335 546,383 DISCONTINUED OPERATIONS (Loss) From Discontinued Operations - (1,186,114) (Loss) on Disposal of Subsidiary - (3,483,103) ----------- ------------ NET INCOME (LOSS) $ 2,413,335 $ (4,122,834) =========== ============ INCOME (LOSS) PER SHARE Continuing Operations $ 0.14 Discontinued Operations (1.21) ------------ $ (1.07) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,846,154 ============ PRO FORMA DATA Historical Income Before Income Taxes $2,413,335 Pro Forma Provision for Income Taxes 820,500 ---------- Pro Forma Net Income $1,592,835 ========== Pro Forma Net Income Per Common Share $.53 ==== Weighted Average Number of Common Shares Outstanding 3,000,000 =========
The accompanying notes are an integral part of these consolidated financial statements F-4 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995 AND 1996
Common Stock ------------------- Number Paid-In Retained of Shares Amount Capital Earnings Total --------- -------- ------- -------- ----- BALANCE, DECEMBER 31, 1994 3,000,000 $30,000 $ - $ 639,156 $ 669,156 1995 Net Income - - - 2,413,335 2,413,335 Distributions - - - (328,172) (328,172) --------- -------- ------------ ------------ ---------- BALANCE, DECEMBER 31, 1995 3,000,000 30,000 - 2,724,319 2,754,319 Sale of Common Shares January 1996 1,000,000 10,000 3,712,500 - 3,722,500 Registration Costs, net of applicable tax effect - - (358,948) - (358,948) "S" Corporation Status Termination - - 1,553,720 (2,219,336) (665,616) 1996 Net Loss - - - (4,122,834) (4,122,834) --------- ------- ---------- ------------ ---------- BALANCE DECEMBER 31, 1996 4,000,000 $40,000 $4,907,272 $(3,617,851) $1,329,421 ========= ======= ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements F-5 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 ---------------- ----------------- CASH FLOW FROM OPERATING ACTIVITIES Net Income (Loss) $2,413,335 $(4,122,834) Adjustments to Reconcile Net Income (Loss) to Net Cash From Operating Activities Loss on Sale of Discontinued Operations - 3,483,103 Depreciation 113,790 520,756 Loss on Disposal of Equipment 7,959 1,623 (Gain) Loss on Temporary Investments Transactions (446,596) 22,906 Deferred Taxes - (323,000) Changes in Current Assets and Liabilities (Increase) in Accounts Receivable (1,373,557) (5,156,893) (Increase) in Inventories - (8,259) (Increase) Decrease in Billings Related to Cost and Earnings on Uncompleted Contracts (350,342) 45,334 (Increase) in Prepaid Expenses (1,624) (72,909) Increase in Accounts Payable 3,147,314 2,787,248 Increase (Decrease) in Accrued Expenses 833,376 (246,900) Purchase of Temporary Investments (3,682,996) (20,177) Proceeds From Sale of Temporary Investments 4,105,409 19,951 ---------- ------------- NET CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES 4,766,068 (3,070,051) ---------- ------------ CASH FLOW FROM INVESTING ACTIVITIES Purchase of Equipment (303,244) (219,425) Bronco Bowl Renovations (4,039,808) (1,983,864) Proceeds from Sale of Equipment 67,183 3,500 (Increase) Decrease in Other Assets (129,899) (43,461) Cash Proceeds from Sale of Discontinued Operations - 712,456 -------------- ------------- NET CASH FLOW (USED) IN INVESTING ACTIVITIES (4,405,768) (1,530,794) ---------- ------------ CASH FLOW FROM FINANCING ACTIVITIES Deferred Registration Costs (292,627) (107,358) Proceeds from Note Borrowings 418,128 1,444,334 Repayments of Note Borrowings (208,557) (284,827) Repayments of Capital Lease Obligations (3,181) (3,341) Distributions to Stockholders (328,172) - Sale of Common Stock - 3,722,500 Changes in Stockholder Receivables - (110,081) -------------- ------------ NET CASH FLOW (USED) PROVIDED BY FINANCING ACTIVITIES (414,409) 4,661,227 ----------- ------------
The accompanying notes are an integral part of these consolidated financial statements F-6 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 ------------ ---------------- NET (DECREASE) INCREASE IN CASH (54,109) 60,382 CASH AT THE BEGINNING OF THE PERIOD 118,292 64,183 ------------ ----------- CASH AT THE END OF THE PERIOD $ 64,183 $ 124,565 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year For: Interest Expense $ 48,096 $ 63,425 ============ =========== Income Taxes $ - $ 50,057 ============ =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Termination of "S" Corporation Status Increase in Payable to Stockholders and Affiliates $ - $ 665,616 Transfer of Retained Earnings to Paid-in-Capital - 1,553,720 Reduction in Retained Earnings - (2,219,336) Reduction in Deferred Registration Costs - 358,948 Registration Costs Offset against Paid-in-Capital - (358,948) Increase in Capital Lease Obligations 734,919 634,625 Assets Purchased through Capital Lease (734,919) (634,625) ------------ ---------- $ - $ - ============ ==========
The accompanying notes are an integral part of these consolidated financial statements F-7 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 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, providing construction services principally to national retail store chains. Subsidiary and Principles of Consolidation The consolidated financial statements include the accounts of Gibbs Construction, Inc. and its wholly owned 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. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. F-8 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition (Continued) 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. Deferred Registration Costs The costs incurred by the Company associated with its public stock offering were deferred until the completion of the public offering in January 1996. The costs were offset against the proceeds from the public offering. 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. Federal Income Taxes From May 31, 1992 to December 31, 1995, the Company elected to be taxed as an "S" corporation under the Internal Revenue Code; therefore, for that period the Company's stockholders were required to include in their personal tax returns the income and expenses of the Company and pay any applicable federal income taxes. As of May 31, 1992, the Company reflected a retained earnings balance of $212,975, which was subjected to federal income taxes when earned. The Company returned to the "C" Corporation status on December 31, 1995. The Company accounts for income taxes for the year ended December 31, 1996, 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. F-9 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 plans by the Company in 1995 or 1996. 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. Cash Flows The Company considers cash to be cash equivalents for purposes of preparing the statements of cash flows. NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Excess costs and billings are as follows:
Years Ended December 31, 1995 1996 ------------ ------------ Costs Incurred on Uncompleted Contracts $7,445,586 $17,451,069 Estimated Earnings 1,010,755 1,612,101 ---------- ------------ 8,456,341 19,063,170 Less Billings to Date 8,576,490 19,228,653 ---------- ----------- $ (120,149) $ (165,483) =========== ============
F-10 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Continued) The above amounts are included in the accompanying balance sheets as follows: Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts $ 294,472 $ 976,681 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts (414,621) (1,142,164) ----------- ------------ $ (120,149) $ (165,483) =========== ============
NOTE 3: LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are as follows:
December 31, --------------------------------------- 1995 1996 ------------- ------------ Land $ 14,600 $ 48,255 Buildings and Improvements 149,716 227,214 Vehicles and Trailers 443,071 464,866 Construction Equipment 208,043 235,978 Office Equipment and Furniture 76,488 108,067 Under Renovation Facilities - Bronco Bowl Land 846,370 - Building 303,630 - Building Renovation 5,187,314 - ---------- ------------- 7,229,232 1,084,380 Less Accumulated Depreciation (279,630) (387,744) ---------- ---------- NET LAND, BUILDINGS AND EQUIPMENT $6,949,602 $696,636 ========== ========
F-11 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 4: NOTES PAYABLE A summary of notes payable at December 31, 1995 and 1996, follows:
1995 1996 -------- --------- 10% note payable to an individual, unsecured, due January 17, 1997 $ 150,000 $ 150,000 ========= =========
NOTE 5: LONG-TERM DEBT A summary of long-term debt at December 31, 1995 and 1996, follows:
1995 1996 ---------- --------- 4.9% note payable to a credit corporation, payable in monthly installments of $546 including interest, due June 1, 1996, secured by equipment $ - $ 14,898 9.9%note payable to a bank, payable in monthly installments of $466 including interest, due May 6, 1996, secured by vehicle 2,272 - 9.5%note payable to a credit corporation, payable in monthly installments of $653 including interest, due August 4, 1996, secured by vehicle - 28,615 9.65% note payable to a bank, payable in monthly installments of $807 including interest, due July 8, 1999, secured by vehicle 29,789 22,057 9.9% note payable to a credit corporation, payable in installments of $469 including interest, due January 2, 2001, secured by vehicle 22,058 18,579 10.0% note payable to a credit corporation, payable in monthly installments of $533 including interest, due August 30, 1999, secured by equipment 19,915 15,709
F-12 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 5: LONG-TERM DEBT (Continued)
1995 1996 ---------- --------- 9.5% note payable to a credit corporation, payable in monthly installments of $628 including interest, due August 4, 1996, secured by vehicle - 31,632 7.9%note payable to a credit corporation, payable in monthly installments of $579 including interest, due September 30, 1998, secured by vehicle 17,137 - 6.9%note payable to a credit corporation, payable in monthly installments of $617 including interest, due March 15, 1997, secured by equipment 11,317 3,644 7.25% to 8.75% notes payable to a bank, payable in installments of $2,618 including interest, due April 23, 1998, secured by vehicles and equipment 60,278 26,155 Prime plus 1% (10%) note payable to a bank, payable in monthly installments of $1,300 plus interest, due June 25, 1998, secured by real estate 135,196 119,596 16% note payable to a credit corporation, payable in monthly installments of $451 including interest, due June 13, 1996, secured by equipment 2,490 - 9.5% note payable to a credit corporation, payable in monthly installments of $633 including interest, due June 26, 2000, secured by vehicle 27,423 22,038 9.5% note payable to a credit corporation, payable in monthly installments of $648 including interest, due October 20, 2000, secured by vehicle 29,780 24,175 9.55% note payable to a bank, payable in monthly installments of $428 including interest, due August 25, 1999, secured by vehicle 15,681 11,365
F-13 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 5: LONG-TERM DEBT (Continued)
1995 1996 ---------- --------- 9.5% note payable to a credit corporation, payable in monthly installments of $655 including interest, due January 15, 1999, secured by vehicle 21,356 14,768 9.95% note payable to a credit corporation, payable in monthly installments of $643 including interest, due December 1, 2000, secured by vehicle 29,498 24,504 12% note payable to the Texas State Treasurer, payable in monthly installments of $25,000 including interest, due December 24, 1998 - 527,196 10.0% note payable to a credit corporation, payable in monthly installments of $1,010 including interest, due July 15, 1998, secured by equipment 27,444 17,609 10.0% note payable to a credit corporation, payable in monthly installments of $762 including interest, due September 1, 1998, secured by equipment 22,382 15,157 ---------- --------- 474,016 937,697 Less Current Installments 122,081 374,443 --------- --------- $351,935 $563,254 ======== =========
Aggregate maturities of long-term debt for the five years ending December 31, 2001, are as follows: 1997 $374,443 1998 372,520 1999 83,615 2000 44,048 2001 21,476 Thereafter 41,595 -------- $937,697 ======== F-14 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 6: LEASE OBLIGATIONS The Company leases equipment under operating leases that expire over the next three years. The following is a schedule by year of future minimum rental payments required under these operating leases as of December 31, 1996: 1997 12,183 1998 12,183 1999 4,061 -------- $28,427 ======== For the years ended December 31, 1995 and 1996, the lease payments aggregated $23,592 and $13,583, respectively. NOTE 7: MAJOR CUSTOMERS AND RISK CONCENTRATION In 1996, the Company derived approximately 63% of its revenue from five (5) customers while in 1995, the Company derived substantially all construction revenues from seven (7) customers. The Company grants credit, generally without collateral, to its customers, which are located primarily within the forty-eight contiguous United States. Management believes that it's contract acceptance, billing and collection policies are adequate to minimize potential credit risks. At December 31, 1995 and 1996, the Company had deposits aggregating $510,096 and $595,335, respectively with a bank. Such deposits exceed the Federal Deposit Insurance Corporation's insurance coverage. The carrying amounts of notes payable, long term debt, and capital lease obligations approximate their fair values. NOTE 8: CONTINGENCIES 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, 1995 and 1996, were $20,143 and $14,343, respectively. The Company is a defendant in various legal proceedings arising in connection with its business. In management's opinion the financial position of the Company will not be materially affected by the final outcome of these legal proceedings. F-15 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 9: TEMPORARY INVESTMENTS The Company participates in trading publicly traded equity securities. At December 31, 1995 and 1996, the temporary investment securities were as follows:
Gross Gross Unrealized Unrealized Fair Balance Sheet Date Cost Gains Losses Value -------------------------- ---------- -------------- ------------ --------- December 31, 1995 $30,000 $ - $ 5,817 $24,183 December 31, 1996 $21,217 $ - $19,713 $ 1,504
The gross unrealized gains and losses, set forth above, have been included in the applicable statement of operations. NOTE 10: DISCONTINUED OPERATIONS In July 1996, Gibbs Construction, Inc. sold substantially all of the assets of its subsidiary, Bronco Bowl Holding, Inc. to a third party resulting in a loss on sale of discontinued operations of $5,277,103 before income tax benefit of $1,794,000. The sale included assumptions by the buyer of $1,350,000 of debt and $1,300,000 of liability relating to capital leases. The major stockholders and the Company are the ultimate guarantors on the liability related to the capital leases. Loss from discontinued operations aggregated $1,802,114 before income tax benefit of $616,000. NOTE 11: ACCRUED EXPENSES Accrued Expenses were comprised of the following at December 31, 1995 and 1996: 1995 1996 ---------- -------- Sales Tax $1,388,878 $583,504 Salaries 49,940 68,299 State Taxes 155,000 49,244 Other 36,905 18,702 ----------- -------- $1,630,723 $719,749 =========== ======== F-16 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 12: 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: 1996 ----------- Tax (Expense) at Statutory Rates (34%) $(285,390) Differences Resulting From Nondeductible Expenses and Other (7,610) ----------- TOTAL INCOME TAX (EXPENSE) $(293,000) =========== The Company's total deferred tax assets, deferred tax liabilities, and deferred tax asset valuation allowances at December 31, 1996, are as follows: Total Deferred Tax Assets $ 2,410,000 Less Valuation Allowance - ---------- $ 2,410,000 Total Deferred Tax Liabilities (327,260) ---------- Net Deferred Tax Asset $ 2,082,740 =========== The deferred tax assets have been recorded based on a net operating loss carryforward from sale of discontinued operations and loss from discontinued operations. Management does not deem a valuation necessary due to expected profits in future years. Those amounts have been presented in the Company's financial statements as follows: Current Noncurrent ----------- ----------- Deferred tax asset $510,000 $1,900,000 Deferred tax liability - (327,260) ----------- ---------- Net deferred tax asset $510,000 $1,572,740 ======== ========== For book and tax return purposes, the Company has approximately $5,880,000 and $6,183,000, respectively, of net operating loss carryforwards as of December 31, 1996, which expire beginning 2011. F-17 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 13: STOCK OPTIONS PLANS 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, 1995. 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, 1995. 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 entered into the following financial consulting agreement: - $12,000 annual fee, payable in monthly installments plus out of pocket expenses. - Two year period from date of execution of agreement. - Consulting services will include: a. Shareholder relations, including preparation of annual reports and news releases. b. Long-term financing planning. c. Capital structure, acquisitions and expansion. F-18 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 13: STOCK OPTIONS PLANS (Continued) 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. NOTE 14: PUBLIC OFFERING On January 12, 1996, the Company completed its public offering and sold 1,000,000 shares of its common stock. Net proceeds to the Company were $3,722,500. NOTE 15: BUSINESS SEGMENT REPORTING The Company has three (3) primary business segments which are: - Construction - Securities Trading - Entertainment Facility The following summarizes the operation by business segment: Year Ended December 31, ------------------------------ 1995 1996 ------------ ------------ REVENUES Construction $33,336,120 $47,438,930 Securities Trading $446,596 $(22,906) Entertainment Facility - - OPERATING PROFIT (LOSS) Construction $3,458,626 $2,490,249 Securities Trading $446,596 $(22,906) Entertainment Facility $(584,173) - CAPITAL EXPENDITURES Construction $303,244 $219,425 Securities Trading - - Entertainment Facility $4,774,727 $1,983,864 F-19 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 1995 AND 1996 NOTE 15: BUSINESS SEGMENT REPORTING (Continued) DEPRECIATION Construction $113,790 $147,534 Securities Trading - - Entertainment Facility - $373,222 IDENTIFIABLE ASSETS Construction $4,989,837 $12,731,523 Securities Trading $24,183 $1,503 Entertainment Facility $6,402,089 - NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)
Income (Loss) Before Net Income Net Income 1996 Revenues Income Taxes (Loss) Per Share ---------- ------------- --------------------- ------------- ---------- December $ 15,532,920 $ (149,455) $ (99,652) $(.03) September 16,078,943 1,201,638 787,689 .23 June 9,022,323 (31,052) (19,288) (.01) March 6,804,744 (243,852) (160,942) (.04) 1995 ---------- December $ 8,580,897 $ 407,597 $ 407,597 $.14 September 10,002,025 1,028,705 1,028,705 .34 June 9,465,633 846,596 846,596 .28 March 5,287,565 130,437 130,437 .04
F-20 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: /s/ Danny R. Gibbs ----------------------------- Danny R. Gibbs, President and Chief Financial Officer Date: March 31, 1997 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 /s/ Danny R. Gibbs Director March 31, 1997 - ------------------------------------ Danny R. Gibbs /s/ Tony G. Gibbs Director March 31, 1997 - ------------------------------------ Tony G. Gibbs * Director March 31, 1997 - ------------------------------------ Dennis T. Mitchell Director March 31, 1997 - ------------------------------------ Elliot R. Simon * By: Danny R. Gibbs As Attorney-in-Fact /s/ Danny R. Gibbs Danny R. Gibbs 13 EX-23 2 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation of our report dated March 14, 1997, which is incorporated in this Annual Report on Form 10-K. Killman, Murrell & Co. March 31, 1997 EX-24 3 Exhibit 24.1 POWER OF ATTORNEY Know All Persons By These Presents, that the undersigned, Dennis T. Mitchell, whose signature appears below constitutes and appoints Danny R. Gibbs and Tony G. Gibbs, or either of them, his attorneys-in-fact, for such person in any and all capacities, to sign the Annual Report on Form 10-K for the year ended December 31, 1996, of Gibbs Construction, Inc., any amendments thereto and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. /s/ Dennis T. Mitchell Dennis T. Mitchell Dated: March 25, 1997 EX-27 4
5 12-MOS DEC-31-1996 DEC-31-1996 124,565 1,503 8,663,588 0 0 10,28,407 1,084,380 (387,744) 12,733,026 10,840,351 0 0 0 40,000 12,859,421 12,733,026 47,438,930 47,438,930 44,948,681 44,948,681 1,574,416 0 86,628 836,383 293,000 546,383 (4,669,217) 0 0 (4,122,834) (1.07) (1.07)
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