-----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, EjRVDMJEeEva9meAS5RnkRtw/LvgbLiVHFDT5yYjsb4IKqoQnHZK0Cd2NDUzw4va Kc5oG1T+U+eQkotMm3uE7A== 0001011823-99-000017.txt : 19990402 0001011823-99-000017.hdr.sgml : 19990402 ACCESSION NUMBER: 0001011823-99-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99581588 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-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, 1998 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. $54,496,848 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 $2,968,750 As of March 26, 1999. 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 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. 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 1998, approximately 35% of the Company's revenues were derived from "ground up" work and 65% 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 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 1998, approximately 79% 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 1998, the Company was engaged in over 120 projects for approximately 40 different clients. Two clients, Office Max (12%) and Just for Feet (22%), accounted for approximately 34% of the Company's revenues during 1998. 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 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. 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 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, 1999, the field operations of the Company were conducted by 25 superintendents and 102 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 21 persons, including 8 project managers, 8 project assistants, one project accountant, 3 accounting clerks 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, 1999, the Company owned 15 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, none of which, in the opinion of management, is material. 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 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 1997 and 1996 commencing January 12, 1996. as reported by NASDAQ: 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 1997 Ask Bid High Low High Low First Quarter 1.875 1.1875 1.25 0.875 Second Quarter 1.15625 0.59375 1.00 0.3125 Third Quarter 1.5625 1.0625 1.34375 0.90625 Fourth Quarter 1.6875 1.5 1.5 1.25 As of March 15, 1999, 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.
1998 1997 1996 1995(1) 1994 Net sales $54,496,848 $47,993,287 $47,438,930 $33,336,120 $21,010,296 Income (loss) from continuing operation 465,707 584,900 546,383 1,592,835 74,101 Income (loss) per share from continuing operation $0.12 $0.14 $0.14 $ 0.53 $0.02 Total Assets $13,132,346 $12,617,916 $12,733,026 $11,291,394 $4,516,816 Long-term obligations 408,402 210,232 563,254 945,057 100,492 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 In 1997 the Company returned to its core business, commercial building construction for national retail chains. In 1996 the Company had incurred substantial losses in connection with its operation of the Bronco Bowl, a large entertainment complex which the Company sold in 1996. See "Item 7. Business - General." In 1998 the Company's net profit from operations was $465,707. 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 accounts receivable, of which $637,632 was written off in the fourth quarter of 1998. In addition, the Company recognized $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. Results of Operations - 1997 Compared with 1996 Revenues from continuing operations between 1997 and 1996 were essentially flat, $47,993,287 in 1997 compared to $47,438,930 in 1996. In 1996 the Company added a substantial number of new clients of which one did not have projects that provided the Company with an adequate margin. Early in 1997, the Company stopped bidding on this client's projects. Throughout 1997, new business development replaced the revenues derived from this client but revenues did not grow in 1997. Similarly, gross profits for 1997 and 1996 were essentially the same, $2,439,086 or 5.1% of revenue in 1997 compared to $2,490,249 or 5.2% of revenue in 1996. While gross profits were unchanged compared to the previous year, gross profit margins improved in the latter half of 1997 as the Company ceased work on the projects undertaken for the client described above. Operating income from continuing operations increased by approximately 17% to $1,070,089 in 1997 compared to $915,833 in 1996. The increase resulted from the reduction in General and Administrative expenses to $1,368,957 in 1997 from $1,574,416 in 1996. General and Administrative Expenses were more in 1996 as the Company dealt with its first year being public and administrative expenses associated with the sale of the Bronco Bowl. The increase in operating profits were partially offset by increased interest expense in 1997 and approximately $52,000 in losses in temporary investments. Interest expense increased due to interest on a sales tax obligation the Company owes to the State of Texas. The effect of these increases in other expenses was to reduce 1997 income before taxes to approximately that of 1996, $891,100 in 1997 compared to $839,383 in 1996, and net income in 1997 to $584,900 compared to $546,383 in 1996. Liquidity and Capital Resources The Company finances its operations largely without debt. The debt it does incur principally relates to the financing of vehicles and equipment. In 1998 the Company did encumber its headquarters facility, borrowing approximately $300,000 there on but liquidating a sales tax obligation to the State of Texas. The note requires monthly payments of $5,834 and matures April 30, 2003. The Company moved to continue to increase its working capital in 1998, increasing at December 31, 1998, its current ratio to 1.07 from 0.94 at December 31, 1996. The Company plans to continue to improve its operating capital position through operations during 1998. Year 2000 Computer Issues The Company has determined, after formal review, that it will not be required to modify or replace significant portions of its software to avoid any disruptions that arise because a number of computer programs use two digits rather than four when computing dates. The Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company's systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. However, the can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have and adverse effect on the Company's systems. The total cost of the Year 2000 project is not expected to be significant. 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 42 President/Secretary Director Tony Gibbs 38 Vice-President/Treasurer, Director Dennis T. Mitchell 49 Director L.W. Reynolds 63 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 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. 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. 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. 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 1998 $119,000 Chief Executive Officer 1997 133,000 - 1996 150,000 - Tony Gibbs 1998 $104,000 - - Vice President 1997 $123,000 - - 1996 150,000 - - ------------------
(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. (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 it subchapter S status. As of December 31, 1998, $397,740 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 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 1,000,000 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. (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. 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 $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, 1998, $397,740 remained to be paid. In 1996 Messrs. Danny and Tony Gibbs formed a corporation that engages in electrical contracting services. The Company paid this entity $2,068,365 and $75,772 during the years ended December 31, 1998 and 1997, respectively. At December 31, 1998, and 1997, the Company owed this related party $164,342 and $53,415, respectively. 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, 1998 and 1997 F-3 Consolidated Statements of Operations for Each of the Years in the Three Year Period Ended December 31, 1998 F-5 Consolidated Statements of Stockholders' Equity for Each of the Years in the Three Year Period Ended December 31, 1998 F-7 Consolidated Statements of Cash Flows for Each of the Years in the Three Year Period Ended December 31, 1998 F-8 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, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles. KILLMAN, MURRELL & COMPANY, P.C. Dallas, Texas February 26, 1999 F-2 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS
1998 1997 --------------- --------------- CURRENT ASSETS Cash $ 1,066,665 $ 438,445 Temporary Investments - Note 9 99,768 142,533 Accounts Receivable Trade - net of allowance for doubtful accounts of $725,000 in 1998 7,313,519 7,662,445 Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts - Note 2 2,134,170 1,834,063 Prepaid Expenses 107,549 82,309 Deferred Tax Asset - Note 12 350,000 350,000 ------------ ------------ TOTAL CURRENT ASSETS 11,071,671 10,509,795 ----------- ----------- LAND, BUILDINGS AND EQUIPMENT - Note 3 1,341,939 1,105,556 Less Accumulated Depreciation (657,394) (542,015) ------------ ------------ NET LAND, BUILDINGS AND EQUIPMENT 684,545 563,541 ------------ ------------ OTHER ASSETS Receivables From Affiliates and Employees 202,290 118,040 Deferred Tax Asset - Note 12 1,173,840 1,426,540 ------------ ------------ TOTAL OTHER ASSETS 1,376,130 1,544,580 ------------ ------------ TOTAL ASSETS $13,132,346 $12,617,916 =========== ===========
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, 1998 AND 1997 LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997 --------------- --------------- CURRENT LIABILITIES Note Payable - Note 4 $ 150,000 $ 150,000 Current Installments of Long-Term Debt - Note 5 193,260 380,769 Accounts Payable 7,975,704 7,482,475 Accrued Expenses - Note 11 794,765 685,722 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts - Note 2 832,447 1,372,152 Payable to Stockholders 397,740 422,245 ------------ ------------ TOTAL CURRENT LIABILITIES 10,343,916 10,493,363 LONG-TERM DEBT - Excluding Current Installments - Note 5 408,402 210,232 ------------ ------------ TOTAL LIABILITIES 10,752,318 10,703,595 ----------- ----------- CONTINGENCIES - Notes 6, 7, 8 and 10 - - STOCKHOLDERS' EQUITY - Note 15 Common Stock of $.01 Par Value. Authorized 15,000,000 Shares; Issued and Outstanding 4,000,000 Shares 40,000 40,000 Additional Paid-In-Capital 4,907,272 4,907,272 Retained Deficit (2,567,244) (3,032,951) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 2,380,028 1,914,321 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,132,346 $12,617,916 =========== ===========
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, 1998, 1997 AND 1996
1998 1997 1996 --------------- ---------------- ---------------- CONSTRUCTION REVENUE $54,496,848 $47,993,287 $47,438,930 COST OF CONSTRUCTION 51,213,977 45,554,241 44,948,681 ----------- ----------- ----------- GROSS PROFIT 3,282,871 2,439,046 2,490,249 ------------ ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES 1,687,147 1,288,997 1,338,194 ------------ ------------ ------------ BAD DEBT EXPENSE 842,758 79.960 236,222 ------------ ------------- ------------ INCOME BEFORE OTHER INCOME (EXPENSE) 752,966 1,070,089 915,833 OTHER INCOME (EXPENSE) Gain (Loss) on Disposal of Equipment 5,000 9,140 (1,623) (Loss) on Temporary Investments Transactions (39,782) (62,157) (22,906) Interest Income 157,795 23,566 22,215 Interest Expense (144,207) (155,347) (86,628) Other - 5,809 12,492 --------------- ------------- ------------- INCOME BEFORE INCOME TAXES 731,772 891,100 839,383 INCOME TAX (EXPENSE) - Note 12 Current (13,365) - - Deferred (252,700) (306,200) (293,000) ------------ ------------ ------------- TOTAL INCOME TAX (EXPENSE) (266,065) (306,200) (293,000) ------------ ------------ ------------- INCOME FROM CONTINUING OPERATIONS 465,707 584,900 546,383 DISCONTINUED OPERATIONS (Loss) From Discontinued Operations - - (1,186,114) (Loss) on Disposal of Subsidiary - - (3,483,103) --------------- --------------- ------------ NET INCOME (LOSS) $ 465,707 $ 584,900 $ (4,122,834) =========== ============ ============
(Continued) F-5 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------- ---------------- --------------- BASIC EARNINGS (LOSS) PER SHARE Continuing Operations $ 0.12 $ 0.14 $ 0.14 Discontinued Operations - - (1.21) ------------ ------------ ----------- $ 0.12 $ 0.14 $ (1.07) ========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,000,000 4,000,000 3,846,154 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Common Stock ----------------------- Number Paid-In Retained of Shares Amount Capital Deficit Total --------- ------- ------------- ---------- ---------- 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 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 1997 Net Income - - - 465,707 465,707 ------------- ---------- -------------- ------------ ----------- BALANCE, DECEMBER 31, 1998 4,000,000 $40,000 $4,907,272 $(2,567,244) $2,380,028 ========= ======= ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-7 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------- ---------------- --------------- CASH FLOW FROM OPERATING ACTIVITIES Net Income (Loss) $ 465,707 $584,900 $(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 163,420 159,400 520,756 Loss (Gain) on Disposal of Equipment (5,000) (9,140) 1,623 Loss on Temporary Investments Transactions 39,782 62,157 22,906 Deferred Taxes 252,700 306,200 (323,000) Increase in Allowance for Doubtful Accounts 725,000 - - Changes in Current Assets and Liabilities (Increase) Decrease in Accounts Receivable (376,074) 933,837 (5,156,893) (Increase) in Inventories - - (8,259) (Increase) Decrease in Billings Related to Cost and Earnings on Uncompleted Contracts (839,812) (627,394) 45,334 (Increase) in Prepaid Expenses (25,240) (62,933) (72,909) Increase (Decrease) in Accounts Payable 493,229 (565,465) 2,787,248 Increase (Decrease) in Accrued Expenses 109,043 (34,027) (246,900) Purchase of Temporary Investments (2,514,475) (302,327) (20,177) Proceeds From Sale of Temporary Investments 2,517,458 99,140 19,951 ---------- --------- ----------- NET CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES 1,005,738 544,348 (3,070,051) ---------- -------- ---------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of Equipment (288,348) (48,101) (219,425) Bronco Bowl Renovations - - (1,983,864) Proceeds from Sale of Equipment 8,924 30,936 3,500 (Increase) Decrease in Other Assets (84,250) 117,203 (43,461) Cash Proceeds from Sale of Discontinued Operations - - 712,456 -------------- ----------- ----------- NET CASH FLOW (USED) PROVIDED BY INVESTING ACTIVITIES (363,674) 100,038 (1,530,794) ----------- -------- ----------
(Continued) The accompanying notes are an integral part of these consolidated financial statements. F-8 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------- ---------------- --------------- CASH FLOW FROM FINANCING ACTIVITIES Deferred Registration Costs $ - $ - $ (107,358) Proceeds from Note Borrowings 534,134 212,277 1,444,334 Repayments of Note Borrowings (523,473) (558,973) (284,827) Repayments of Capital Lease Obligations - - (3,341) Sale of Common Stock - - 3,722,500 Changes in Stockholder Receivables (24,505) 16,190 (110,081) ----------- --------- ----------- NET CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES (13,844) (330,506) 4,661,227 ----------- -------- ----------- NET INCREASE CASH 628,220 313,880 60,382 CASH AT THE BEGINNING OF THE PERIOD 438,445 124,565 64,183 ----------- -------- ------------ CASH AT THE END OF THE PERIOD $1,066,665 $438,445 $ 124,565 ========== ======== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year For: Interest Expense $ 144,207 $155,347 $ 63,425 =========== ======== =========== Income Taxes $ 13,365 $ - $ 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 - - 634,625 Assets Purchased through Capital Lease - - (634,625) -------------- ----------- ----------- $ - $ - $ - ============== =========== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-9 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. F-10 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable consists of amounts due on open customer accounts, contract balances billed, retainage, and sundry accounts receivable. Prior to 1998, the Company had not established an allowance for doubtful accounts and did not use the reserve method for recognizing bad debts. Bad debts were treated as direct write-offs in the period management determined that collection was not probable. Bad debts as determined under this method did not vary significantly from the reserve method. In 1998, the Company experienced collection problems resulting in the adoption of the reserve method to account for uncollectible accounts receivable. 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, 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. (Continued) F-11 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Pension and Employee Benefit Plans (Continued) No significant contributions were made to the plans by the Company in 1998, 1997, 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. 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. 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, 1998, the Company believes that there has been no impairment of its long-lived assets. Impact of Year 2000 (Unaudited) The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a recent assessment, the Company determined that it will not be required to modify or replace significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company believes that the Year 2000 Issue will not pose significant operational problems for its computer systems. (Continued) F-12 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impact of Year 2000 (Unaudited) The Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company's systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. The total cost of the Year 2000 project is not expected to be significant. NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Excess costs and billings are as follows:
1998 1997 -------------- ------------- Costs Incurred on Uncompleted Contracts $35,513,827 $26,167,883 Estimated Earnings 3,488,583 2,245,274 ------------ ------------ 39,002,410 28,413,157 Less Billings to Date 37,700,687 27,951,246 ----------- ----------- $ 1,301,723 $ 461,911 =========== ============
The above amounts are included in the accompanying balance sheets as follows:
1998 1997 -------------- ------------- Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts $ 2,134,170 $1,834,063 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts (832,447) (1,372,152) ------------ ---------- $ 1,301,723 $ 461,911 =========== ==========
F-13 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3: LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are as follows:
1998 1997 ------------ ------------ Land $ 48,255 $ 48,255 Buildings and Improvements 227,214 227,214 Vehicles and Trailers 603,857 503,499 Construction Equipment 292,576 213,489 Office Equipment and Furniture 170,037 113,099 ------------ --------- 1,341,939 1,105,556 Less Accumulated Depreciation (657,394) (542,015) ------------ --------- NET LAND, BUILDINGS AND EQUIPMENT $ 684,545 $ 563,541 ============ =========
NOTE 4: NOTES PAYABLE A summary of notes payable follows:
1998 1997 ------------ -------------- 10% note payable to an individual, unsecured, renewed annually on January 17 $150,000 $150,000 ======== ========
NOTE 5: LONG-TERM DEBT A summary of long-term debt follows:
1998 1997 ------------- -------------- 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 $8,942 9.5%note payable to a credit corporation, payable in monthly installments of $653 including interest, due August 4, 2001, secured by vehicle 17,896 23,265 9.65% note payable to a bank, payable in monthly installments of $807 including interest, due July 8, 1999, secured by vehicle 5,472 14,164
(Continued) F-14 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5: LONG-TERM DEBT (Continued)
1998 1997 ------------- -------------- 9.9% note payable to a credit corporation, payable in installments of $469 including interest, due January 2, 2001, secured by vehicle 10,796 14,712 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 10,817 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 $ 26,898 9.5%note payable to a credit corporation, payable in monthly installments of $339 including interest, due April 16, 2002, secured by vehicle 11,594 14,191 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 - 5,195 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 - 102,696 9.5% note payable to a credit corporation, payable in monthly installments of $339 including interest, due April 16, 2002, secured by vehicle 11,570 14,162 9.5% note payable to a credit corporation, payable in monthly installments of $633 including interest, due June 26, 2000, secured by vehicle 10,857 16,485 9.5% note payable to a credit corporation, payable in monthly installments of $648 including interest, due October 20, 2000, secured by vehicle 12,708 18,453 9.55% note payable to a bank, payable in monthly installments of $428 including interest, due August 25, 1999, secured by vehicle 3,301 8,236
(Continued) F-15 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5: LONG-TERM DEBT (Continued)
1998 1997 ------------- ------------ 9.5% note payable to a credit corporation, payable in monthly installments of $655 including interest, due January 15, 1999, secured by vehicle $ 766 $ 9,318 9.95% note payable to a credit corporation, payable in monthly installments of $643 including interest, due December 1, 2000, secured by vehicle 12,883 18,981 12% note payable to the Texas State Treasurer, payable in monthly installments of $25,000 including interest, due December 24, 1998 - 276,996 10.0% note payable to a credit corporation, payable in monthly installments of $1,010 including interest, due July 15, 1998, secured by equipment - 3,451 10.0% note payable to a credit corporation, payable in monthly installments of $762 including interest, due September 1, 1998, secured by equipment - 4,039 9.5%note payable to a credit corporation, payable in monthly installments of $1,676 including interest, due September 17, 2002, secured by equipment 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 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 303,328 - 10.75% note payable to a credit corporation, payable in monthly installments of $1,022 including interest, due July 8, 2001, secured by vehicle 27,556 -
(Continued) F-16 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5: LONG-TERM DEBT (Continued)
1998 1997 ------------- ------------ 11.9% note payable to a credit corporation, payable in monthly installments of $642 including interest, due October 1, 2001, secured by vehicle 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 27,379 - --------- ----------- 601,662 591,001 Less Current Installments 193,260 380,769 -------- -------- $408,402 $210,232 ======== ========
Aggregate maturities of long-term debt for the five years ending December 31, 2003, are as follows: 1999 $193,260 2000 157,267 2001 134,764 2002 93,075 2003 23,296 --------- $601,662 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, 1998: 1999 $15,871 2000 11,865 2001 574 -------- $28,310 For the years ended December 31, 1998, 1997, and 1996, the lease payments aggregated $17,618, $14,984, and $13,326, respectively. F-17 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7: MAJOR CUSTOMERS AND RISK CONCENTRATION In 1998, the Company derived approximately 58% of its revenue from five (5) customers, In 1997, the Company derived approximately 59% of its revenue from six (6) customers, and in 1996, the Company derived approximately 63% of its revenue from five (5) customers. The following customers exceeded 10% of total revenues for their respective years: 1998 1997 1996 ---------- ---------- ---------- Just for Feet 21.9% 14.8% - Office Max 12.1% 14.6% 22.5% Oshman's - 12.1% 13.6% Eckerds - - 11.4% 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. The Company's concentration of credit risk related to receivables from significant customers is reduced by the Company's practice of filing statutory liens on projects where collection problems are anticipated. The liens serve as collateral for contract receivables. At December 31, 1998, the Company had deposits aggregating $1,511,455 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: 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, 1998, 1997, and 1996 were $5,317, $31,314, and $14,343, respectively. The Company is a defendant in various legal proceedings arising in the ordinary course of business. The Company intends to vigorously defend these actions which it considers groundless. While it is not possible to forecast the outcome of such litigation, it is the opinion of management that the disposition of such lawsuits will not have a material adverse effect on the Company's financial position or interfere with its operations. F-18 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 1996 $ 21,216 $ - $19,713 $ 1,503 December 31, 1997 $214,322 $1,415 $73,204 $142,533 December 31, 1998 $118,318 $ - $18,550 $ 99,768
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. Revenues related to discontinued operations were $1,873,916 for the year ended December 31, 1996. There was no revenue related to discontinued operations in 1995. F-19 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 11: ACCRUED EXPENSES Accrued Expenses were comprised of the following: 1998 1997 ------------ ---------- Sales Tax $679,794 $609,675 Salaries 74,041 33,451 State Taxes 38,000 40,000 Other 2,930 2,596 --------- --------- $794,765 $685,722 ======== ======== 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:
1998 1997 1996 ------------ ----------- ------- Tax (Expense) at Statutory Rates (34%) $(248,802) $(302,974) $(285,390) Differences Resulting From Nondeductible Expenses and Other (17,263) (3,226) (7,610) ---------- ---------- ---------- TOTAL INCOME TAX (EXPENSE) $(266,065) $(306,200) $(293,000) ========= ========= =========
The Company's total deferred tax assets, deferred tax liabilities, and deferred tax asset valuation allowances at December 31, 1998 and 1997, are as follows: 1998 1997 ------------- -------------- Total Deferred Tax Assets $1,561,084 $1,820,003 Less Valuation Allowance - - ------------- -------------- 1,561,084 1,820,003 Total Deferred Tax Liabilities (37,244) (43,463) ------------ -------------- Net Deferred Tax Asset $1,523,840 $1,776,540 ========== =========== 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. (Continued) F-20 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12: INCOME TAXES (CONTINUED) 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:
1998 1997 ----------------------------- ----------------------------- Current Noncurrent Current Noncurrent ----------- ----------- ----------- -------------- Allowance for doubtful accounts $ - $ 246,500 $ - $ - Loss on disposal of discontinued operations and loss from discontinued operations 350,000 899,612 350,000 1,427,290 Excess of tax basis over financial basis of interest accrued but not paid to stockholders - 53,118 - 35,412 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 - (34,082) - (40,636) Other - 1,806 - (2,412) ----------- ------------ ----------- ----------- Net deferred tax asset $350,000 $1,173,840 $350,000 $1,426,540 ======== ========== ======== ==========
For financial accounting and federal tax return purposes, the Company has approximately $3,885,000 and $3,584,000, respectively, of net operating loss carryforwards as of December 31, 1998, which expire beginning 2011. NOTE 13: RELATED PARTY TRANSACTIONS The Company does business with a subcontractor that is related through common ownership of the stockholders of the Company and a key employee of the Company. Payments made to this related party for subcontractor services were $2,068,365 and $75,772 during the years ended December 31, 1998 and 1997. Amounts due the related party were $164,342 and $53,415 for December 31, 1998 and 1997, respectively. F-21 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14: 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, 1998. 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, 1998. 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. NOTE 15: 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. F-22 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16: BUSINESS SEGMENT REPORTING The Company has three (3) primary business segments which are: - Construction - Securities Trading - Discontinued Operations The following summarizes the operation by business segment:
1998 1997 1996 ------------- -------------- ---------- REVENUES Construction $54,496,848 $47,993,287 $47,438,930 OPERATING PROFIT (LOSS) Construction $3,282,871 $2,439,046 $2,490,249 Securities Trading $(39,782) $(62,157) $(22,906) CAPITAL EXPENDITURES Construction $288,348 $48,101 $219,425 Discontinued Operations - - $1,983,864 DEPRECIATION Construction $163,420 $159,400 $147,534 Discontinued Operations - - $373,222 IDENTIFIABLE ASSETS Construction $13,032,578 $12,475,383 $12,731,523 Securities Trading $99,768 $142,533 $1,503 Discontinued Operations - - - LOSS FROM DISCONTINUED OPERATIONS - - $1,186,114
F-23 GIBBS CONSTRUCTION, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
Income (Loss) Before Net Income Net Income 1998 Revenues Income Taxes (Loss) Per Share ---------- ------------- --------------------- ------------- ---------- 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 1997 ---------- December $17,572,158 $474,942 $308,742 $.08 September 12,353,343 458,764 304,264 .07 June 9,373,868 92,388 60,988 .01 March 8,693,918 (134,994) (89,094) (.02)
NOTE 18: SUBSEQUENT EVENTS On January 20, 1999, the Company issued 30,000 stock options at an exercise price of $1.6875 per share pursuant to the Company's stock option plan to a public relations firm in exchange for consulting work valued at approximately $50,000. The shares related to the aforementioned stock options were registered under the Securities Act of 1933 on March 16, 1999. As of the date of this report, no shares of stock had been issued. 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: /s/ Danny R. Gibbs ------------------------------ Danny R. Gibbs, President and Chief Financial Officer Date: March 30, 1999 ------------------------------ 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 30, 1999 Danny R. Gibbs /s/ Tony G. Gibbs - --------------------------- Director March 30, 1999 Tony G. Gibbs /s/ Dennis T. Mitchell - --------------------------- Director March 30, 1999 Dennis T. Mitchell - --------------------------- Director March 30, 1999 L. W. Reynolds EX-27 2
5 12-MOS DEC-31-1998 DEC-31-1998 1,066,665 99,768 7,313,519 725,000 0 11,071,671 684,545 163,420 13,132,346 10,343,916 0 0 0 40,000 0 13,132,346 54,496,848 84,496,848 51,213,977 52,582,934 39,782 0 144,207 731,772 266,065 465,707 0 0 0 465,907 0.12 0.12
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