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.
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(Exact name of registrant as specified in its charter)
Texas 75-2095676
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1855 Wall Street, Garland, TX 75041
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(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
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Warrants to purchase Common Stock Boston Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act;
(Title of class)
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Common Stock
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Warrants to purchase Common Stock
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<PAGE>
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
<PAGE>
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
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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
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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.
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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.
<TABLE>
<CAPTION>
1996 1995(1) 1994(1)
<S> <C> <C> <C>
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 - - -
</TABLE>
(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
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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
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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
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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.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Annual Compensation (1) All Other
Principal Position Fiscal Year Salary Bonus (2) Compensation
- ------------------ ----------- ------ --------- ------------
<S> <C> <C> <C> <C>
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 -
</TABLE>
(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.
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(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
<PAGE>
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
<PAGE>
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
<PAGE>
GIBBS CONSTRUCTION, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
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
<PAGE>
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
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
------------ -----------
CURRENT ASSETS
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
(Continued)
F-2
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1995 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1996
------------ --------------
CURRENT LIABILITIES
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-3
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------------- ---------------
<S> <C> <C>
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
=========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-4
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Common Stock
-------------------
Number Paid-In Retained
of Shares Amount Capital Earnings Total
--------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
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
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-5
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
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
----------- ------------
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-6
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ----------------
<S> <C> <C>
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)
------------ ----------
$ - $ -
============ ==========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-7
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1996
------------ ------------
<S> <C> <C>
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)
=========== ============
</TABLE>
F-10
<PAGE>
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:
<TABLE>
Costs and Estimated Earnings in Excess of Billings
<S> <C> <C>
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)
=========== ============
</TABLE>
NOTE 3: LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
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
========== ========
</TABLE>
F-11
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
10% note payable to an individual, unsecured,
due January 17, 1997 $ 150,000 $ 150,000
========= =========
</TABLE>
NOTE 5: LONG-TERM DEBT
A summary of long-term debt at December 31, 1995 and 1996, follows:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
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
</TABLE>
F-12
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1995 AND 1996
NOTE 5: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
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
</TABLE>
F-13
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1995 AND 1996
NOTE 5: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Balance Sheet Date Cost Gains Losses Value
-------------------------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
December 31, 1995 $30,000 $ - $ 5,817 $24,183
December 31, 1996 $21,217 $ - $19,713 $ 1,504
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
Income (Loss) Before Net Income Net Income
1996 Revenues Income Taxes (Loss) Per Share
---------- ------------- --------------------- ------------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
F-20
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 124,565
<SECURITIES> 1,503
<RECEIVABLES> 8,663,588
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,28,407
<PP&E> 1,084,380
<DEPRECIATION> (387,744)
<TOTAL-ASSETS> 12,733,026
<CURRENT-LIABILITIES> 10,840,351
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 12,859,421
<TOTAL-LIABILITY-AND-EQUITY> 12,733,026
<SALES> 47,438,930
<TOTAL-REVENUES> 47,438,930
<CGS> 44,948,681
<TOTAL-COSTS> 44,948,681
<OTHER-EXPENSES> 1,574,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,628
<INCOME-PRETAX> 836,383
<INCOME-TAX> 293,000
<INCOME-CONTINUING> 546,383
<DISCONTINUED> (4,669,217)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,122,834)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
