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, 1997 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
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. $47,993,287
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
$7,500,000 As of March 20, 1998.
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, Barnes & Noble, Office Max (BizMart),
Petstuff, Just for Feet, Organized Living, 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 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. Because of operating losses, the Company sold
the facility 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 1997, 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 1997, approximately
77% 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 1997, the Company was engaged in over 115 projects for approximately
35 different clients. Four clients, Office Max (20%), Oshmans (12%), and Just
for Feet (15%), accounted for approximately 47% of the Company's revenues during
1997. 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, 1998, the field operations of the Company were conducted
by 22 superintendents and 60 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 20 persons, including 7 project managers, 6 project
assistants, 3 project accountants, 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, 1998, the Company owned 10 trucks and 5 trailers. The
Company also owned one tractor, one fork lift 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:
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
1996 Ask Bid
High Low High Low
First Quarter 3.625 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 1.000 0.6875
As of March 15, 1998, 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>
1997 1996 1995(1) 1994
<S> <C> <C> <C> <C>
Net sales $47,993,287 $47,438,930 $33,336,120 $21,010,296
Income (loss)
from continuing operation 584,900 546,383 1,592,835 74,101
Income (loss) per share
from continuing operation $0.14 $0.14 $ 0.53 $0.02
Total Assets $12,617,916 $12,733,026 $11,291,394 $4,516,816
Long-term obligations 210,232 563,254 945,057 100,492
Cash Dividends - - - -
</TABLE>
(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 1997 the Company's net profit from operations was $584,900.
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.
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 succeeded 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
management'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 significant 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 related 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 benefited from a $446,596 gain on temporary investments.
Liquidity and Capital Resources
The Company moved to increase its working capital in 1997 to recover
from the losses arising from the Bronco Bowl's operations and sale, increasing
at December 31, 1997, its current ratio to 1.0 from 0.94 at December 31, 1996.
In 1997, the Company also reduced its aggregate indebtedness, other than that
owed to its officers, to $741,001 at December 31, 1997 from $1,087,697 at
December 31, 1996. The Company plans to continue to improve its operating
capital position through operations during 1998.
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:
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Danny Gibbs 41 President, Director
Tony Gibbs 37 Vice-President, Director
Dennis T. Mitchell 48 Director
Phyllis Gibbs Wright 46 Secretary
</TABLE>
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.
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.
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, 1997, 1996, and 1995.
<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 1997 $133,000 -
Chief Executive Officer 1996 150,000 -
1995 49,220 136,423 -
Tony Gibbs 1997 $123,000 - -
Vice President 1996 150,000 -
1995 49,220 200,246
Phyllis Gibbs Wright 1997 100,000
- ------------------
See footnote 1 on next page.
</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.
(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, 1997, $422,000 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 are entitled to receive a fee for each Board
meeting attended of $500. In
<PAGE>
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 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, 1998 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 $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, 1997, $422,245 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.
<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 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
<PAGE>
GIBBS CONSTRUCTION, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
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, 1996 and 1997, 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, 1996 and 1997, 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
February 27, 1998
F-1
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS
1996 1997
------------ -------
<S> <C> <C>
CURRENT ASSETS
Cash $ 124,565 $ 438,445
Temporary Investments - Note 9 1,503 142,533
Accounts Receivable
Trade 8,596,282 7,662,445
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts - Note 2 976,681 1,834,063
Prepaid Expenses 19,376 82,309
Deferred Tax Asset - Note 12 510,000 350,000
------------ ------------
TOTAL CURRENT ASSETS 10,228,407 10,509,795
----------- -----------
LAND, BUILDINGS AND EQUIPMENT - Note 3 1,084,380 1,105,556
Less Accumulated Depreciation (387,744) (542,015)
------------- ------------
NET LAND, BUILDINGS AND EQUIPMENT 696,636 563,541
------------ ------------
OTHER ASSETS
Other Assets 2,454 -
Receivables From Affiliates and Employees 232,789 118,040
Deferred Tax Asset - Note 12 1,572,740 1,426,540
------------ ------------
TOTAL OTHER ASSETS 1,807,983 1,544,580
------------ ------------
TOTAL ASSETS $12,733,026 $12,617,916
=========== ===========
</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, 1996 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1997
------------ ---------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes Payable - Note 4 $ 150,000 $ 150,000
Current Installments of Long-Term Debt - Note 5 374,443 380,769
Accounts Payable 8,047,940 7,482,475
Accrued Expenses - Note 11 719,749 685,722
Billings in Excess of Costs and Estimated Earnings on
Uncompleted Contracts - Note 2 1,142,164 1,372,152
Payable to Stockholders 406,055 422,245
------------ ------------
TOTAL CURRENT LIABILITIES 10,840,351 10,493,363
LONG-TERM DEBT - Excluding
Current Installments - Note 5 563,254 210,232
TOTAL LIABILITIES 11,403,605 10,703,595
----------- -----------
CONTINGENCIES - Notes 6, 7, 8 and 10 - -
STOCKHOLDERS' EQUITY - Note 14
Common Stock of $.01 Par Value. Authorized 7,500,000
Shares; Issued and Outstanding
4,000,000 Shares 40,000 40,000
Additional Paid-In-Capital 4,907,272 4,907,272
Retained Earnings (3,617,851) (3,032,951)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,329,421 1,914,321
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,733,026 $12,617,916
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
---------------- ----------
<S> <C> <C>
CONSTRUCTION REVENUE $47,438,930 $47,993,287
COST OF CONSTRUCTION 44,948,681 45,554,241
----------- -----------
GROSS PROFIT 2,490,249 2,439,046
GENERAL AND ADMINISTRATIVE EXPENSES (1,574,416) (1,368,957)
------------ ------------
INCOME BEFORE OTHER INCOME (EXPENSE) 915,833 1,070,089
OTHER INCOME (EXPENSE)
Gain (Loss) on Disposal of Equipment (1,623) 9,140
(Loss) on Temporary Investments Transactions (22,906) (62,157)
Interest Income 22,215 23,566
Interest Expense (86,628) (155,347)
Other 12,492 5,809
------------- -------------
INCOME BEFORE INCOME TAXES 839,383 891,100
INCOME TAX (EXPENSE) - Note 1 and Note 12 (293,000) (306,200)
------------ ------------
INCOME FROM CONTINUING OPERATIONS 546,383 584,900
DISCONTINUED OPERATIONS
(Loss) From Discontinued Operations (1,186,114) -
(Loss) on Disposal of Subsidiary (3,483,103) -
------------ ---------------
NET INCOME (LOSS) $ (4,122,834) $ -
============ ===============
INCOME (LOSS) PER SHARE
Continuing Operations $ 0.14 $ 0.14
Discontinued Operations (1.21) -
-------------- --------------
$ (1.07) $ 0.14
============== =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,846,154 4,000,000
============ ============
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
COMMON STOCK
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
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
========= ======= ========== ============ ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
<TABLE>
<CAPTION>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
---------------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $(4,122,834) $584,900
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
FROM OPERATING ACTIVITIES
LOSS ON SALE OF DISCONTINUED OPERATIONS 3,483,103 -
DEPRECIATION 520,756 159,400
LOSS (GAIN) ON DISPOSAL OF EQUIPMENT 1,623 (9,140)
LOSS ON TEMPORARY INVESTMENTS TRANSACTIONS 22,906 62,157
DEFERRED TAXES (323,000) 306,200
CHANGES IN CURRENT ASSETS AND LIABILITIES
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (5,156,893) 933,837
(INCREASE) IN INVENTORIES (8,259) -
(INCREASE) DECREASE IN BILLINGS RELATED TO COST
AND EARNINGS ON UNCOMPLETED CONTRACTS 45,334 (627,394)
(INCREASE) IN PREPAID EXPENSES (72,909) (62,933)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE 2,787,248 (565,465)
(DECREASE) IN ACCRUED EXPENSES (246,900) (34,027)
PURCHASE OF TEMPORARY INVESTMENTS (20,177) (302,327)
PROCEEDS FROM SALE OF TEMPORARY INVESTMENTS 19,951 99,140
------------- ---------
NET CASH FLOW (USED) PROVIDED
BY OPERATING ACTIVITIES (3,070,051) 544,348
------------ --------
CASH FLOW FROM INVESTING ACTIVITIES
PURCHASE OF EQUIPMENT (219,425) (48,101)
BRONCO BOWL RENOVATIONS (1,983,864) -
PROCEEDS FROM SALE OF EQUIPMENT 3,500 30,936
(INCREASE) DECREASE IN OTHER ASSETS (43,461) 117,203
CASH PROCEEDS FROM SALE OF DISCONTINUED OPERATIONS 712,456 -
------------- -----------
NET CASH FLOW (USED) PROVIDED BY
INVESTING ACTIVITIES (1,530,794) 100,038
------------ --------
CASH FLOW FROM FINANCING ACTIVITIES
DEFERRED REGISTRATION COSTS (107,358) -
PROCEEDS FROM NOTE BORROWINGS 1,444,334 212,277
REPAYMENTS OF NOTE BORROWINGS (284,827) (558,973)
REPAYMENTS OF CAPITAL LEASE OBLIGATIONS (3,341) -
SALE OF COMMON STOCK 3,722,500 -
CHANGES IN STOCKHOLDER RECEIVABLES (110,081) 16,190
------------ ---------
NET CASH FLOW PROVIDED (USED)
BY FINANCING ACTIVITIES 4,661,227 (330,506)
------------ --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
<TABLE>
<CAPTION>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1997
1996 1997
-------------- ---------
<S> <C> <C>
NET INCREASE IN CASH $ 60,382 $313,880
CASH AT THE BEGINNING OF THE PERIOD 64,183 124,565
----------- --------
CASH AT THE END OF THE PERIOD $ 124,565 $438,445
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST EXPENSE $ 63,425 $155,347
=========== ========
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 634,625 -
ASSETS PURCHASED THROUGH CAPITAL LEASE (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, 1996 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
GIBBS CONSTRUCTION, INC. (THE "COMPANY"), IS A FULL SERVICE, NATIONAL
COMMERCIAL CONSTRUCTION COMPANY LOCATED IN GARLAND, TEXAS. THE COMPANY
OPERATES THROUGHOUT THE UNITED STATES, 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. AN
AMOUNT EQUAL TO CONTRACT COSTS ATTRIBUTABLE TO CLAIMS IS INCLUDED IN
REVENUES WHEN REALIZATION IS PROBABLE AND THE AMOUNT CAN BE RELIABLY
ESTIMATED.
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.
F-8
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NO SIGNIFICANT CONTRIBUTIONS WERE MADE TO THE PLANS BY THE COMPANY IN 1996
OR 1997.
USE OF ESTIMATES
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT CERTAIN REPORTED AMOUNTS AND DISCLOSURES.
ACCORDINGLY, ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES.
F-9
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOWS
THE COMPANY CONSIDERS CASH TO BE CASH EQUIVALENTS FOR PURPOSES OF PREPARING
THE STATEMENTS OF CASH FLOWS.
NEW ACCOUNTING STANDARDS
EFFECTIVE JANUARY 1, 1996, THE COMPANY ADOPTED THE PROVISIONS OF THE
FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG- LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (STATEMENT NO. 121). STATEMENT NO.
121 REQUIRES LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES TO BE
REVIEWED FOR IMPAIRMENT WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES INDICATE
THAT THE CARRYING AMOUNT OF AN ASSET MAY NOT BE RECOVERABLE. WHEN IT IS
DETERMINED THAT AN ASSET'S ESTIMATED FUTURE NET CASH FLOWS WILL NOT BE
SUFFICIENT TO RECOVER ITS CARRYING AMOUNT, AN IMPAIRMENT LOSS MUST BE
RECORDED TO REDUCE THE CARRYING AMOUNT TO ITS ESTIMATED FAIR VALUE. THE
ADOPTION OF STATEMENT NO. 121 DID NOT HAVE A MATERIAL EFFECT ON THE
COMPANY'S CONSOLIDATED FINANCIAL POSITION OR RESULTS OF OPERATIONS.
IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) ISSUED
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, "EARNINGS PER SHARE"
(STATEMENT NO. 128), WHICH IS REQUIRED TO BE ADOPTED FOR FINANCIAL
STATEMENTS ISSUED FOR ANNUAL OR INTERIM PERIODS AFTER DECEMBER 15, 1997.
THE ADOPTION OF STATEMENT NO. 128 WILL REQUIRE A CHANGE IN THE PRESENTATION
OF EARNINGS PER SHARE (EPS) TO REPLACE PRIMARY AND FULLY DILUTED EPS WITH
A PRESENTATION OF BASIC AND DILUTED EPS AND TO RESTATE EPS FOR ALL PERIODS
PRESENTED. THE ADOPTION OF STATEMENT NO. 128 DID NOT HAVE A MATERIAL IMPACT
ON THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
(CONTINUED)
F-10
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IN FEBRUARY 1997, THE FASB ALSO ISSUED STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 129, "DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE"
(STATEMENT NO. 129). STATEMENT NO. 129 ESTABLISHES STANDARDS FOR DISCLOSING
INFORMATION ABOUT ENTITY'S CAPITAL STRUCTURE AND APPLIES TO ALL ENTITIES.
STATEMENT NO. 129 CONTINUES THE PREVIOUS REQUIREMENTS TO DISCLOSE CERTAIN
INFORMATION ABOUT AN ENTITY'S CAPITAL STRUCTURE FOUND IN APB OPINIONS NO. 10,
"OMNIBUS OPINION -- 1996", AND 15, "EARNINGS PER SHARE", AND FASB STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 27, "DISCLOSURE OF LONG-TERM OBLIGATIONS",
FOR ENTITIES THAT WERE SUBJECT TO THE REQUIREMENTS OF APB OPINIONS 10 AND 15 AND
STATEMENT NO. 47 AND CONSOLIDATES THEM FOR EASE OF RETRIEVAL AND FOR GREATER
VISIBILITY TO NON-PUBLIC ENTITIES. STATEMENT NO. 129 IS EFFECTIVE FOR FINANCIAL
STATEMENTS FOR PERIODS ENDING AFTER DECEMBER 15, 1997. THE ADOPTION OF STATEMENT
NO. 129 DID NOT HAVE A MATERIAL IMPACT ON THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS.
IN JUNE 1997, THE FASB ISSUED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
130, "REPORTING COMPREHENSIVE INCOME" (STATEMENT NO. 130). STATEMENT NO. 130
ESTABLISHES STANDARDS FOR REPORTING AND DISPLAY OF COMPREHENSIVE INCOME AND ITS
COMPONENTS (REVENUES, EXPENSES, GAINS AND LOSSES) IN A FULL SET OF GENERAL
PURPOSE FINANCIAL STATEMENTS. STATEMENT NO. 130 REQUIRES THAT ALL ITEMS THAT ARE
REQUIRED TO BE RECOGNIZED UNDER ACCOUNTING STANDARDS AS COMPONENTS OF
COMPREHENSIVE INCOME BE REPORTED IN A FINANCIAL STATEMENT THAT IS DISPLAYED WITH
THE SAME PROMINENCE AS OTHER FINANCIAL STATEMENTS. IT DOES NOT REQUIRE A
SPECIFIC FORMAT FOR THAT FINANCIAL STATEMENT BUT REQUIRES THAT AN ENTITY DISPLAY
AN AMOUNT REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE PERIOD IN THAT
FINANCIAL STATEMENT. STATEMENT NO. 130 IS EFFECTIVE FOR FISCAL YEARS BEGINNING
AFTER DECEMBER 15, 1997. RECLASSIFICATION OF FINANCIAL STATEMENTS FOR EARLIER
PERIODS PROVIDED FOR COMPARATIVE PURPOSES IS REQUIRED. STATEMENT NO. 130 WILL
HAVE NO IMPACT ON THE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE
COMPANY, BUT WILL REQUIRE CHANGES IN THE COMPANY'S DISCLOSURE AND PRESENTATION
REQUIREMENTS.
NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
EXCESS COSTS AND BILLINGS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997
-------------- ----------
<S> <C> <C>
COSTS INCURRED ON UNCOMPLETED CONTRACTS $17,451,069 $26,167,883
ESTIMATED EARNINGS 1,612,101 2,245,274
------------ ------------
19,063,170 28,413,157
LESS BILLINGS TO DATE 19,228,653 27,951,246
----------- -----------
$ (165,483) $ 461,911
============ ============
</TABLE>
(CONTINUED)
F-11
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED)
THE ABOVE AMOUNTS ARE INCLUDED IN THE ACCOMPANYING BALANCE SHEETS AS
FOLLOWS:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997
-------------- ----------
<S> <C> <C>
COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
ON UNCOMPLETED CONTRACTS $ 976,681 $1,834,063
BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS
ON UNCOMPLETED CONTRACTS (1,142,164) (1,372,152)
------------ ----------
$ (165,483) $ 461,911
============ ==========
</TABLE>
NOTE 3: LAND, BUILDINGS AND EQUIPMENT
LAND, BUILDINGS AND EQUIPMENT ARE AS FOLLOWS:
DECEMBER 31,
1996 1997
------------ --------
LAND $ 48,255 $ 48,255
BUILDINGS AND IMPROVEMENTS 227,214 227,214
VEHICLES AND TRAILERS 464,866 503,499
CONSTRUCTION EQUIPMENT 235,978 213,489
OFFICE EQUIPMENT AND FURNITURE 108,067 113,099
--------- ---------
1,084,380 1,105,556
LESS ACCUMULATED DEPRECIATION (387,744) (542,015)
-------- ---------
NET LAND, BUILDINGS AND EQUIPMENT $ 696,636 $ 563,541
========= =========
F-12
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 4: NOTES PAYABLE
A SUMMARY OF NOTES PAYABLE AT DECEMBER 31, 1996 AND 1997, FOLLOWS:
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
10% NOTE PAYABLE TO AN INDIVIDUAL, UNSECURED,
DUE JANUARY 17, 1998 $ 150,000 $150,000
========= ========
</TABLE>
NOTE 5: LONG-TERM DEBT
A SUMMARY OF LONG-TERM DEBT AT DECEMBER 31, 1996 AND 1997, FOLLOWS:
<TABLE>
<CAPTION>
1996 1997
------------- ----------
<S> <C> <C>
4.9% NOTE PAYABLE TO A CREDIT CORPORATION, PAYABLE IN
MONTHLY INSTALLMENTS OF $546 INCLUDING
INTEREST, DUE JUNE 1, 1999, SECURED BY EQUIPMENT $ 14,898 $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 28,615 23,265
9.65% NOTE PAYABLE TO A BANK, PAYABLE IN
MONTHLY INSTALLMENTS OF $807 INCLUDING
INTEREST, DUE JULY 8, 1999, SECURED BY VEHICLE 22,057 14,164
9.9% NOTE PAYABLE TO A CREDIT CORPORATION, PAYABLE
IN INSTALLMENTS OF $469 INCLUDING INTEREST, DUE
JANUARY 2, 2001, SECURED BY VEHICLE 18,579 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 15,709 10,817
</TABLE>
(CONTINUED)
F-13
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 5: LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
------------- ---------
<S> <C> <C>
9.5% NOTE PAYABLE TO A CREDIT CORPORATION, PAYABLE IN
MONTHLY INSTALLMENTS OF $628 INCLUDING
INTEREST, DUE AUGUST 4, 1999, SECURED BY VEHICLE $ 31,632 $ 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 - 14,191
6.9% NOTE PAYABLE TO A CREDIT CORPORATION,
PAYABLE IN MONTHLY INSTALLMENTS OF $617
INCLUDING INTEREST, DUE MARCH 15, 1997,
SECURED BY EQUIPMENT 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 26,155 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 119,596 102,696
9.5% NOTE PAYABLE TO A CREDIT CORPORATION, PAYABLE
IN MONTHLY INSTALLMENTS OF $339 INCLUDING INTEREST,
DUE APRIL 16, 2002, SECURED BY VEHICLE - 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 22,038 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 24,175 18,453
9.55% NOTE PAYABLE TO A BANK, PAYABLE IN
MONTHLY INSTALLMENTS OF $428 INCLUDING
INTEREST, DUE AUGUST 25, 1999, SECURED
BY VEHICLE 11,365 8,236
</TABLE>
(CONTINUED)
F-14
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 5: LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
------------- --------
<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 $ 14,768 $ 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 24,504 18,981
12% NOTE PAYABLE TO THE TEXAS STATE TREASURER, PAYABLE
IN MONTHLY INSTALLMENTS OF $25,000 INCLUDING
INTEREST, DUE DECEMBER 24, 1998 527,196 276,996
10.0% NOTE PAYABLE TO A CREDIT CORPORATION, PAYABLE IN
MONTHLY INSTALLMENTS OF $1,010 INCLUDING INTEREST,
DUE JULY 15, 1998, SECURED BY EQUIPMENT 17,609 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 15,157 4,039
--------- ---------
937,697 591,001
LESS CURRENT INSTALLMENTS 374,443 380,769
-------- --------
$563,254 $210,232
======== ========
</TABLE>
AGGREGATE MATURITIES OF LONG-TERM DEBT FOR THE FIVE YEARS ENDING DECEMBER
31, 2002, ARE AS FOLLOWS:
1998 $380,769
1999 90,170
2000 50,343
2001 27,184
2002 17,840
THEREAFTER 24,695
$591,001
F-15
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
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,
1997:
1998 $11,184
1999 8,364
2000 289
--------
$19,837
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, THE LEASE PAYMENTS
AGGREGATED $13,326 AND 14,984, RESPECTIVELY.
NOTE 7: MAJOR CUSTOMERS AND RISK CONCENTRATION
IN 1997, THE COMPANY DERIVED APPROXIMATELY 59% OF ITS REVENUE FROM SIX (6)
CUSTOMERS WHILE IN 1996, THE COMPANY DERIVED APPROXIMATELY 63% OF ITS
REVENUE FROM FIVE (5) 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, 1996 AND 1997, THE COMPANY HAD DEPOSITS AGGREGATING $595,335
AND $1,275,602, RESPECTIVELY 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, 1996 AND 1997, WERE
$14,343 AND $31,304, 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-16
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 9: TEMPORARY INVESTMENTS
THE COMPANY PARTICIPATES IN TRADING PUBLICLY TRADED EQUITY SECURITIES. AT
DECEMBER 31, 1996 AND 1997, 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, 1996 $21,217 $ - $19,713 $ 1,504
DECEMBER 31, 1997 $214,322 $1,415 $73,204 $142,533
</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, 1996 AND
1997:
1996 1997
------------ -------
SALES TAX $583,504 $609,675
SALARIES 68,299 33,451
STATE TAXES 49,244 40,000
OTHER 18,702 2,596
-------- ---------
$719,749 $685,722
======== ========
F-17
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
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:
1997
TAX (EXPENSE) AT STATUTORY RATES (34%) $(302,974)
DIFFERENCES RESULTING FROM NONDEDUCTIBLE
EXPENSES AND OTHER (3,226)
TOTAL INCOME TAX (EXPENSE) $(306,200)
THE COMPANY'S TOTAL DEFERRED TAX ASSETS, DEFERRED TAX LIABILITIES, AND
DEFERRED TAX ASSET VALUATION ALLOWANCES AT DECEMBER 31, 1997, ARE AS
FOLLOWS:
TOTAL DEFERRED TAX ASSETS $1,817,176
LESS VALUATION ALLOWANCE -
1,817,176
TOTAL DEFERRED TAX LIABILITIES 40,636
NET DEFERRED TAX ASSET $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.
THOSE AMOUNTS HAVE BEEN PRESENTED IN THE COMPANY'S FINANCIAL STATEMENTS AS
FOLLOWS:
CURRENT NONCURRENT
DEFERRED TAX ASSET $350,000 $1,467,176
DEFERRED TAX LIABILITY - (40,636)
----------- ----------
NET DEFERRED TAX ASSET $350,000 $1,426,540
======== ==========
FOR BOOK AND TAX RETURN PURPOSES, THE COMPANY HAS APPROXIMATELY $4,640,000
AND $5,383,000, RESPECTIVELY, OF NET OPERATING LOSS CARRYFORWARDS AS OF
DECEMBER 31, 1997, WHICH EXPIRE BEGINNING 2011.
F-18
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
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, 1997.
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, 1997.
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.
(CONTINUED)
F-19
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1997
-------------- --------
REVENUES
<S> <C> <C>
CONSTRUCTION $47,438,930 $47,993,287
SECURITIES TRADING $(22,906) $(62,157)
OPERATING PROFIT (LOSS)
CONSTRUCTION $2,490,249 $2,439,046
SECURITIES TRADING $(22,906) $(62,157)
CAPITAL EXPENDITURES
CONSTRUCTION $219,425 $48,101
ENTERTAINMENT FACILITY $1,983,864 -
</TABLE>
(CONTINUED)
F-20
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1996 AND 1997
NOTE 15: BUSINESS SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1997
-------------- --------
<S> <C> <C>
DEPRECIATION
CONSTRUCTION $147,534 $159,400
ENTERTAINMENT FACILITY $373,222 -
IDENTIFIABLE ASSETS
CONSTRUCTION $12,731,523 $12,475,383
SECURITIES TRADING $1,503 $142,533
</TABLE>
NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE NET INCOME NET INCOME
1997 REVENUES INCOME TAXES (LOSS) PER SHARE
---------- ------------- --------------------- ------------- ----------
<S> <C> <C> <C> <C>
DECEMBER $17,572,158 $474,566 $308,366 $.08
SEPTEMBER 12,353,343 458,709 304,209 .07
JUNE 9,373,868 95,036 63,636 .01
MARCH 8,693,918 (137,211) (91,311) (.02)
1996
DECEMBER $ 15,532,920 $ (149,455) $ (99,652) $(.03)
SEPTEMBER 16,078,943 1,201,638 787,689 .22
JUNE 9,022,323 (31,052) (19,288) (.01)
MARCH 6,804,744 (243,852) (160,942) (.04)
</TABLE>
F-21
<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 26, 1998
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 26, 1998
- --------------------
Danny R. Gibbs
/s/ Tony G. Gibbs Director March 26, 1998
- -------------------
Tony G. Gibbs
Director March 26, 1998
Dennis T. Mitchell
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 27,
1998, which is incorporated in this Annual Report of Gibbs Construction, Inc. on
Form 10-K.
/s/ Killman, Murrell & Company, P.C.
Killman, Murrell & Company, P.C.
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 438445
<SECURITIES> 142533
<RECEIVABLES> 7662445
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10509795
<PP&E> 563541
<DEPRECIATION> 159400
<TOTAL-ASSETS> 12617916
<CURRENT-LIABILITIES> 10493363
<BONDS> 0
0
0
<COMMON> 40000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12617916
<SALES> 47993287
<TOTAL-REVENUES> 17993287
<CGS> 45554241
<TOTAL-COSTS> 46923198
<OTHER-EXPENSES> 62157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155347
<INCOME-PRETAX> 891100
<INCOME-TAX> 306200
<INCOME-CONTINUING> 584900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 584900
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
