U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
GIBBS CONSTRUCTION, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 1541 75-2095676
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1855 WALL STREET
GARLAND, TX 75041
(972) 278-3433
(Address and telephone number of principal executive offices and
principal place of business)
----------------------
DANNY R. GIBBS
CHIEF EXECUTIVE OFFICER
1855 WALL STREET
GARLAND, TX 75041
(Name, address and telephone number of agent for service)
----------------------
COPIES TO:
ROBERT A. FORRESTER, ESQ.
1215 EXECUTIVE DRIVE WEST,
SUITE 102
RICHARDSON, TEXAS 75081
(972) 437-9898
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the date this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<PAGE>
---------------------
Calculation of Fees
<TABLE>
<CAPTION>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Title of each class Amount to be Proposed Maximum Proposed Maximum Amount of
of securities to be Registered Offering Price Per Aggregate Offering Registration Fee
registered Security Price
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock 500,000 $1.75 $875,000 $295
- ---------------------- -------------------- --------------------- --------------------- --------------------
Total $295
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
GIBBS CONSTRUCTION, INC.
500,000 SHARES OF COMMON STOCK
UNDERLYING REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Gibbs Construction, Inc. (the "Company") is hereby offering for a
period of sixty days from the date of this prospectus (the "Offer Termination
Date") 500,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock") for $1.75 per share to holders of its Redeemable Common Stock Purchase
Warrants (the "Warrants") that the Company issued in connection with its initial
public offering in January, 1996 (the "IPO"). As of the date of this prospectus
there are 1,000,000 Warrants issued and outstanding and the right to purchase
Common Stock pursuant to the offer contained in this prospectus is limited to
those exercising the first 500,000 shares. As of the date of this prospectus
each Warrant entitles the holder to purchase one share of Common Stock prior to
January 12, 2001 and is subject to redemption by the Company at $0.05 per
Warrant on thirty days prior written notice, provided that the closing bid
quotation for the Common Stock has equaled or exceeded $7.50 for ten consecutive
trading days. The Common Stock has not so traded, and this prospectus does not
relate to a call for redemption. Upon the closing of this offering the Company
has determined to reset the exercise price of the warrants that have not been
exercised pursuant to this offering to $2.50 provided that the closing bid
quotation for the Common Stock has equaled or exceeded $5.00 for ten consecutive
trading days. This prospectus relates solely to an offer by the Company to
holders of the Warrants to purchase one share of Common Stock for $1.75 for each
Warrant held for a period of 60 days from the date of this Prospectus or
_______, 1998.
The Company has caused the offer contained in this prospectus to be
sent to holders all of the Warrants. Holders of Warrants may acquire the Common
Stock offered hereby until 5:00 p.m., New York City time on _____, 1998, the
last day business day before the Offer Termination Date or until 500,000 shares
have been purchased, whichever occurs first. Warrants may be exercised by
surrendering at the Corporate office of American Stock Transfer and Trust
Company (the "Warrant Agent") at 40 Wall Street, New York, New York 10005, the
Warrant Certificate evidencing the holder's Warrant together with a subscription
in the form set forth on the reverse side of the Warrant Certificate, duly
executed, and accompanied by the tender, in U.S. dollars, of either federal bank
or certified check or bank cashier's check, payable to the order of the Warrant
Agent for the applicable price of the Common Stock purchased.
The Common Stock is traded on the Nasdaq Small-Cap Market System
("Nasdaq Small-Cap") under the symbol "GBSE" and on the Boston Stock Exchange
under the symbol "GBS." On May __, 1998, the closing sale price of the Common
Stock as reported by Nasdaq Small-Cap was $________ per share.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND ARE SUITABLE ONLY FOR PERSONS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH HEREIN UNDER "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO PROCEEDS TO
PUBLIC COMPANY(1)
Per Unit $ $
Per Share $ $
Total $ $
(1) Before deducting expenses of this offering payable by the Company, estimated
at $20,000.
It is expected that delivery of the certificates representing the securities
offered hereby will be made against payment therefor on or about the Redemption
Date.
The date of this Prospectus is June , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected, without
charge, and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such reports and other information may also
be obtained by mail at prescribed rates, from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and other information statements regarding registrants that file
electronically with the Commission.
No person has been authorized to give any information or to make any
representations in connection with the offering described herein other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein contained is correct as of any time
subsequent to the date of this Prospectus.
The Company has filed with the Commission a Registration Statement on Form
SB-2 (as amended from time to time and together with all exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This Prospectus
constitutes a part of the Registration Statement and does not contain all the
information set forth in the Registration Statement, certain parts of which have
been omitted as permitted by the rules of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to herein are not necessarily complete and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions of such exhibit, to which reference
is hereby made for a full statement of the provisions thereof. or further
information pertaining to the Company and the securities offered hereby,
reference is made to the Registration Statement.
The Registration Statement may be inspected, without charge, and copies
may be obtained, at prescribed rates, at the public reference facilities of the
Commission maintained at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement may also be obtained by mail at
prescribed rates, from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes thereto) appearing
elsewhere in this Prospectus. The shares offered hereby involve a high degree of
risk. Investors should carefully consider the information set forth under "Risk
Factors."
Prospective investors should note that this Prospectus contains certain
"forward-looking statements," as such term is defined in the Private Securities
Litigation Reform Act of 1995, including without limitation, statements
containing the words "believes," "anticipates," "expects," "intends," "plans,"
"should," "seeks to," and similar words. Prospective investors are cautioned
that such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. Actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including but not limited to, the risk factors set forth in this Prospectus. The
accompanying information contained in this Prospectus identifies certain
important factors that could cause such differences.
THE COMPANY
Gibbs Construction, Inc. (the "Company") is a full service, national,
commercial construction company. The Company provides construction services
principally to national retail chains 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. Beginning in 1998, the Company commenced constructing small hotels
for national hotel chains.
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.
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, companies that are
publicly held or anticipating to become publicly held which have the necessary
funds appropriated for construction programs on a nation-wide basis. These
national retail companies are frequently engaged in aggressive expansion
programs. 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 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's principal executive offices are located at 1855 Wall Street,
Garland, TX and its telephone number at such address is (972) 278-3433.
<PAGE>
Summary of the Offering
Securities offered hereby 500,000 shares of Common Stock at a
price of $1.75 per share, issuable
upon exercise of 500,000 Warrants
(the "Warrants Called for
Redemption") included in 500,000
Units (the "Public Units") sold to
the public in the IPO
Common Stock Outstanding
Before the Offering 4,000,000
After the Offering 4,500,000, assuming all shares
offered hereby are sold
Warrants outstanding
Publicly Traded Warrants 1,000,000
Publicly Traded Warrants 500,000 assuming 500,000 warrants
After Offering are exercised pursuant to this
offering
Underwriters' Warrants 100,000
Private Warrants(1) 180,000
Use of Proceeds Working Capital
Risk Factors The Securities offered
hereby are speculative and involve a
high degree of risk and should not
be purchased by investors who cannot
afford the loss of their entire
investment. See "Risk Factors."
(1)Excludes 2,000,000 shares that may be potentially issued to Messrs. Danny and
Tony Gibbs.
<PAGE>
Summary Financial Information(1)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31 March 31
----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Data:
Construction revenues $33,336 $47,439 $47,993 $8,694 $11,464
Cost of service and construction 29,877 44,948 45,551 8,482 11,027
General and administrative expense 903 1,574 1,369 327 372
Income from continuing operations 2,413 546 585 (89) 31
Net (loss) earnings (1) 1,593 (4,122) 585 (89) 31
Net earnings (loss) per share (1) $ 0.53 ($1.07) $ 0.14 ($0.02) $ 0.01
Weighted average shares outstanding 3,000,000 3,846,154 4,000,000 4,000,000 4,000,000
</TABLE>
<TABLE>
<CAPTION>
December 31 March 31, 1998
1996 1997
Balance Sheet Data: Actual Pro Forma
<S> <C> <C> <C> <C>
Working Capital $(612) $16 $52 $907
Cash 125 438 (327) 528
Total Assets 12,733 12,618 12,051 12,906
Shareholders' Equity 1,329 1,914 1,945 2,800
</TABLE>
(1) For 1995, the information reflects pro forma information since the Company
was taxed as an S corporation at that time.
(2) The Balance Sheet Data for December 31, 1996 and 1997 were derived from the
Company's audited financial statements. The Operating Data for the three
months periods ended March 31, 1998 and 1997 and the Balance Sheet data for
March 31, 1998 are based upon financial statements that are unaudited.
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involve a high degree of
risk. Prospective investors should consider, among other things, the following
risk factors in addition to the other information set forth in this Prospectus
before purchasing the Common Stock offered hereby.
Limited Financial Resources
The Company has limited financial resources available, which has had an
adverse impact on the Company's liquidity, activities and operations. In the
past, the Company's limited liquidity has limited the amount of credit available
from the Company's suppliers and from being able to obtain performance and
payment bonds. These limitations have adversely affected the Company's ability
to obtain certain projects and pursue additional business. There is no assurance
that the proceeds of this Offering will be sufficient to enhance the Company's
financial resources sufficiently to increase its business volume, increase its
bonding capacity and increase the jobs available to it.
Application of Offering Proceeds
All of the proceeds of this offering will be applied to working capital of
the Company. Accordingly, the Company's management will have broad discretion as
to the application of such proceeds. See "Use of Proceeds". Although management
believes that the proceeds from the offering will provide sufficient operating
funds for the immediate future, the Company's ability to grow will depend upon
the amount of the proceeds from this offering. The greater the amount of the
proceeds from this offering, the better the Company will be able to grow more
aggressively as the proceeds from this offering approach the maximum offered
hereby.
Competition
The market for construction services, particularly service to national
retail chains, is highly competitive. While the vast majority of the Company's
competitors in this are smaller and following this Offering should 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 marketplace or that the marketplace will not change.
Availability Of Labor
Management of the Company believes that the current strength of the United
States economy and the strength of the economy in Texas has decreased the number
of qualified people available for employment in the construction industry.
Unemployment rates in Texas and the United States are low when compared to the
last several years. The Company is not currently experiencing, and has not in
the past experienced, a shortage of labor although there can be no assurance
that qualified people will be available, that the Company will be able to retain
qualified employees, or that the Company's labor costs may not have to increase
to retain qualified employees.
Potential Conflicts Of Interest
Potential conflicts of interest may arise between the Company and its
officers and directors. Although each of the Company's officers and directors is
committed to devote full working time to the business of the Company, they also
may be engaged in other business activities. If these business activities are of
the same type as those engaged in or contemplated by the Company, conflicts of
interest will arise in the area of corporate opportunities or in the area of
conflicting time commitments with respect to the officers and directors of the
Company. Conflicts of interest also will develop with respect to any contractual
relationships that may be entered into between the Company and any of its
officers and directors. See "TRANSACTIONS BETWEEN THE COMPANY AND RELATED
PARTIES--Conflicts Of Interest Policy".
<PAGE>
The Company has established a policy pursuant to which the Board Of
Directors will consider transactions with officers, directors, and shareholders
of the Company and their respective affiliates. Pursuant to this policy, the
Board Of Directors will not approve any transaction unless it determines that
the terms of the transaction are no less favorable to the Company than those
available from unaffiliated parties. Because this policy is not contained in the
Company's Certificate Of Incorporation or Bylaws, the policy is subject to
change by the Board Of Directors, although it currently is not contemplated that
the policy will be changed. In addition, in the event any conflicts of interest
arise with respect to any officer or director of the Company, the Company
anticipates that its officers and directors will exercise their judgment
consistent with their fiduciary duties arising under the applicable state laws.
There can be no assurance that all conflicts of interest will be resolved in
favor of the Company.
Industry Conditions and Cyclicality
The Company's operations are dependent largely upon the construction
markets and retail sales which have traditionally been cyclical. The economy has
a direct bearing on these factors. Although national retail chains have in the
past continued expansion during recessions, particularly in areas of the nation
that are less affected by a recession, a weak economy could depress demand for
the Company's service and from time to time prices for the Company's key raw
materials could fluctuate widely. The markets for the Company's services are
cyclical and are affected by the same economic factors that affect the housing
and remodeling industries in general, including the availability of credit,
changes in interest rates, market demand and general economic conditions, all of
which are beyond the Company's control. Any deterioration in these markets could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Risk of Losing Boston Stock Exchange and Nasdaq Small-Cap Market Listing
The Company's Common Stock is listed for trading on the Boston Stock
exchange and the Nasdaq Small-Cap Market. There can be no assurance that a
sustained market for the Common Stock will be maintained on such markets.
Failure of the Company to meet the maintenance requirements of such exchanges
could result in the Company's Common Stock being delisted from the Boston Stock
Exchange and the Nasdaq Small-Cap Market. Among other consequences, delisting
from such exchanges may cause a decline in the stock price, difficulty in
conducting trades and difficulty in obtaining future financing.
Immediate Substantial Dilution
The exercise price of the Common Stock is substantially higher than the
current book value per share of Common Stock. Consequently, investors purchasing
shares of Common Stock will incur an immediate and substantial dilution of their
investment insofar as it relates to the resulting book value of Common Stock
after completion of this Offering. See "Dilution."
Arbitrary Determination of Exercise Price
The exercise price for the Common Stock offered hereby was determined by
the Company and should not be assumed to bear any relationship to the Company's
asset value, net worth or other generally accepted criteria of value. The market
price for the Common Stock could be highly volatile. See "The Offering."
Cost of Raw Materials
The Company's results of operations are affected significantly by
fluctuations in the market prices of building material, which represent a
substantial portion of the total cost of goods sold by the Company. The Company
buys its building material at market-based prices from numerous suppliers. The
Company's average purchase price for building materials has been stable,
although no assurances can be given that such price will not increase
significantly in the future.
Dependence on Key Personnel
The business of the company will depend on the continued services of its
President, Danny Gibbs and the continued service of its Vice President, Tony
Gibbs. None of the Company's officers and directors has entered into employment
agreements with the Company. The loss of the services of both Danny Gibbs and
<PAGE>
Tony Gibbs would be particularly detrimental to the Company because of their
experience and contacts in the construction industry. The Company has purchased
key man life insurance on the lives of Mr. Danny Gibbs and Mr. Tony Gibbs. See
"Management - Directors and Executive Officers of the Registrant."
Environmental Liability
The Company's services are noisy and involve the use of chemicals, paint
and dust. The Company aggressively seeks to protect its employees and the
environment from the effects of noise by-products created by the milling of wood
products and from the chemicals and paint involved in the finishing of wood
products. Several governmental agencies are concerned with the protection of the
environment and safety of the workers. The regulations change, are subject to a
variety of interpretations by different agencies, and can have a draconian
effect on the way in which businesses conduct operations. The Company's
compliance with these regulations as well as the protection of its employees may
cause the Company to significantly modify its existing processes or incur
significant expenses to meet standards dictated by environmental and health
concerns.
No Dividends on Common Stock
The Company's board of directors presently intends to retain all of the
Company's earnings for the expansion of its business. The Company therefore does
not anticipate the distribution of cash dividends in the foreseeable future. Any
future decision of the Company's board of directors to pay cash dividends will
depend, among other factors, upon the Company's earnings, financial position,
and cash requirements. See "Dividend Policy"
Substantial Shares of Common Stock Reserved
The Company has reserved 250,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to the Company's
Stock Option plans. The existence of these options and any other options or
warrants may prove to be a hindrance to future equity financing by the Company.
Further, the holders of such options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
Effect of Outstanding Warrants and Underwriters' Warrants
Until January of 2001, the holders of the Warrants and Underwriters'
Warrants are given an opportunity to profit from a rise in the market price of
the Common Stock, with a resulting dilution in the interests of the other
stockholders. Assuming that all of the shares offered pursuant to this
prospectus are exercised, there will be 500,000 shares of Common Stock reserved
for issuances pursuant to unexercised Common Stock Warrants. The shares of
Common Stock underlying the Warrants and Underwriters' Warrants have certain
registration rights. Further, the terms on which the Company might obtain
additional financing during that period may be adversely affected by the
existence of the Warrants and Underwriters' Warrants. The holders of the
Warrants and Underwriters' Warrants may exercise the Warrants and Underwriters'
Warrants at a time when the Company might be able to obtain additional capital
through a new offering of securities on terms more favorable than those provided
herein. The Company has agreed that, under certain circumstances, it will
register under federal and state securities laws the Warrants and Underwriters'
Warrants and/or the securities issuable thereunder. Exercise of these
registration rights could involve substantial expense to the Company at a time
when it could not afford such expenditures and may adversely affect the terms
upon which the Company may obtain financing.
USE OF PROCEEDS
The net proceeds to the Company, after deducting estimated offering
expenses of $20,000, from the sale of the Common Stock will be approximately
$855,000 if all of the shares hereby are sold. All of the proceeds of this
offering will be utilized for working capital of the Company.
DILUTION
<PAGE>
The net tangible book value of the Common Stock at March 31,1998, was
$1,944,991 or $ 0.49. Net tangible book value per share is determined by
dividing the Company's tangible net worth (tangible assets less liabilities).
The net tangible book value per share represents the total tangible assets of
the Company, less total liabilities of the Company, divided by the number of
shares of Common Stock outstanding.
After giving effect to the sale of all of the shares offered hereby,
500,000 shares, at an assumed offering price of $1.75, and the application of
the estimated net proceeds therefore, the net tangible book value would increase
to $2,799,991 or $0.62 per share. This represents an immediate increase in net
tangible book value of $0.13 per share and an immediate dilution of $1.13 per
share or 64.6% to new investors, as illustrated in the following offering.
<TABLE>
<S> <C> <C>
Public offering price per share $ 1.75
Net tangible book value per share before this offering $0.49
Increase per share attributable to new investors 0.13
Adjusted net tangible book value per share after this offering 0.62
------
Dilution per share to new investors $ 1.13
=====
64.6%
</TABLE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, and as adjusted to give pro forma effect to the sale by the
Company of the maximum amount of the Common Stock and the receipt of the net
proceeds anticipated by the Company from such sale:
<TABLE>
<CAPTION>
March 31, 1998
Actual As adjusted
<S> <C> <C>
Long term debt:
Debt $189,209 $189,209
Stockholders' equity:(1)
Common Stock, $0.01 per share 40,000 45,000
Additional paid-in capital 4,907,272 5,757,272
Retained earnings (3,002,281) (3,002,281)
---------- ----------
Total stockholders' equity 1,944,991 2,799,991
--------- ---------
Total capitalization $2,134,200 $2,989,200
========== ==========
</TABLE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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:
<TABLE>
<CAPTION>
1998 Ask Bid
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 2.125 1.5 1.3125 1.000
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
</TABLE>
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.
<PAGE>
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>
Quarter Ended Year Ended
March 31 December 31
1998 1997 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net sales 11,463,976 8,693,918 $47,993,287 $47,438,930 $33,336,120
Income (loss)
from continuing operation 30,670 (89,094) 584,900 546,383 1,592,835
Income (loss) per share
from continuing operation 0.01 ($0.02) $0.14 $0.14 $ 0.53
Total Assets $12,050,671 8,797,243 $12,617,916 $12,733,026 $11,416,109
Long-term obligations $189,209 469,640 210,232 563,254 945,057
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.
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 "Business- General."
In 1997, the Company's net profit from operations was $584,900.
Results of Operations - First quarter of 1998 compared to first quarter of 1997
Income from continuing operations was $30,670 for the three month
period ended March 31, 1998, compared to a loss of $89,094 for the same period
in 1997. This change is attributable to increased revenues in the 1998 period,
increased gross margins in the 1998 period when gross margins were approximately
3.8% compared to approximately 2.4% in the 1997 period and lower general and
administrative costs as a percentage of revenue in the 1998 period, 3.2% in the
1998 period compared to 3.8% in same period in 1997. The increase in gross
margins in the 1998 period reflects the fact that in the earlier year the
Company had several contracts with one client where the margins were low or
nonexistent. Although the Company experienced some contracts in the first
quarter of 1998 in which the Company lost money due to subcontractor, these
contracts did not result in losses as severe as those in 1997.
The Company's revenues increased in the first quarter of 1998 by
approximately 32% when compared to the first quarter of 1997, to $11,463,976 in
1998 compared to $8,693,918 in 1997. The increase in revenues is attributable to
the Company expanding into construction for clients other than national retail
chains. During the first quarter of 1998 the Company constructed nursing homes,
schools and small hotels in addition to its traditional business of construction
for large retail chains.
<PAGE>
General and administrative expenses in the three month period ended
March 31, 1998, declined as a percentage of revenue when compared to the same
1997 period although general and administrative costs increased to $372,392 from
$327,415 in the earlier period. The increase in amount reflects higher salaries
in the later period as well as higher insurance costs.
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,
$2,439,046 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.
<PAGE>
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.
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.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
Legal Proceedings
The Company is involved in a number of legal proceedings, none of
which, in the opinion of management, is material.
MANAGEMENT
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 41 President, Director
Tony Gibbs 37 Vice-President, Director
Dennis T. Mitchell 48 Director
Phyllis Gibbs Wright 46 Secretary
L.W. Reynolds 62 Director
Danny Gibbs has served as president, general manager and a director of the
Company since the Company's inception in 1984. Mr. Gibbs has acted as the
Company's Chief Financial Officer throughout the Company's existence. Mr. Gibbs
received a Bachelor of Arts degree in History with a minor in Architecture from
Texas Tech University.
Tony Gibbs has served as vice president and a director of the Company
since the Company's inception in 1984. From 1983 to 1984, Mr. Gibbs formed a
construction company which provided construction services to the residential
industry and the commercial industry. Mr. Gibbs received a Bachelor of Science
degree in Accounting with a minor in Architecture from Texas Tech University
Dennis T. Mitchell, a licensed professional architect, is president of
AIG, Inc., an architectural firm Mr. Mitchell formed in 1969 which is primarily
engaged in the design, documentation and execution of commercial construction.
AIG, Inc. provides architectural service to a variety of retail, industrial and
governmental entities, including Barnes & Noble, Lil Things, and Eckerds. Mr.
Mitchell is a member of several national and local architectural professional
organizations and a graduate of the University of Texas at Arlington.
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.
L. W. Reynolds became a director in May 1998. Since 1990 Mr. Reynolds has
been president of Reynolds Financial and Management Services, Inc. which
provides financial consulting services to the real estate, wholesale
distribution, retail, environment services, assisted living and construction
industries. He is also chairman of Elder Living Centers, Inc., a Company Mr.
Reynolds formed in 1996 that develops and finances assisted living facilities in
<PAGE>
New Mexico and Texas. Also in 1996, Mr. Reynolds formed Davis Covenant
Corporation, a general contractor engaged in the development of apartments and
assisted living facilities as well as asbestos statement. Mr. Reynolds, a
certified public accountant, worked for KPMG from 1959 to 1966 and the Maloof
Companies from 1966 through 1984, becoming an Executive Vice President and Chief
Financial Officer in 1980. From 1984 to 1986, he was President and Chief
Executive Officer of American Federal Savings and Loan Association and from 1986
through 1989 was Vice President of Market Development for Public Service Company
of New Mexico. Mr. Reynolds is a graduate of McMurry University and holds a
Masters of Business Administration from the University of Texas at Austin .
Danny Gibbs and Tony Gibbs are brothers. 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.
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.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
Name and ----------------------- 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
</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, $422,245 remained to be paid.
Executive Director Compensation
Upon the completion of this Offering the Company plans to pay $150,000 per
year to each of Messrs. Danny Gibbs and Tony Gibbs. Directors of the Company are
entitled to receive from the Company fees and reimbursement of expenses for
their services as directors. Under the Company's standard arrangement for
compensation of directors, outside are entitled to receive a fee for each Board
meeting attended of $500. In addition, directors will be reimbursed for their
ordinary and necessary expenses incurred in attending meetings of the Board of
Directors or a committee thereof. Directors of the Company, whether or not
employees of the Company, will also be entitled to receive options to acquire
shares of Common Stock under the Company's Stock Option Plans.
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
<PAGE>
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.
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(2) 1,000,000 25.0%
Tony Gibbs(2) 1,000,000 25.0%
All directors and officers
as a group (6 persons) 2,000,000 50.0%
- -----------------
(1) The address for Danny Gibbs and Tony Gibbs is 1855 Wall Street,
Garland, TX 75041.
(2) In connection with certain actions taken by the Company, Messrs. Danny
R. Gibbs and Tony G. Gibbs relinquished a total of 1,000,000 shares of
Common Stock to the Company and acquired the right to acquire for $0.10
per share 2,000,000 shares of stock if either Danny R. Gibbs or Tony G.
Gibbs are terminated without their consent if 20% of the Company is
acquired by those other than Danny R. Gibbs or Tony G. Gibbs.
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.
In connection with certain actions taken by the Company, Messrs. Danny
R. Gibbs and Tony G. Gibbs relinquished a total of 1,000,000 shares of Common
Stock to the Company and acquired the right to acquire for $0.10 per share
2,000,000 shares of stock if either Danny R. Gibbs or Tony G. Gibbs are
terminated without their consent if 20% of the Company is acquired by those
other than Danny R. Gibbs or Tony G. Gibbs. If all of the shares are purchased
pursuant to this offering are purchased by those other than Danny R. Gibbs and
Tony G. Gibbs, who have no intent to purchase stock pursuant to this offering,
12.5% of the Company would be acquired by those other than Danny R. Gibbs and
Tony G. Gibbs.
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.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, par value $0.01 per share. The following summary of
certain provisions of the Company's capital stock does not purport to be
complete and is subject to and qualified in its entirety by, the Articles of
Incorporation and the Bylaws of the Company and by the provisions of applicable
law.
Common Stock
At March 31, 1996, there were 4,000,000 shares of Common Stock
outstanding. In addition, 250,000 shares of Common Stock were reserved for
issuance upon exercise of stock options. The Company presently has 15,000,000
shares of Common Stock authorized.
Holders of Common Stock are entitled to one vote per share on any
matter submitted to the vote of stockholders. Cumulative voting is prohibited in
the election of directors. The holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds, legally available therefor. See "Dividend
Policy". The Common Stock is not redeemable, does not have any conversion
rights, and is not subject to call. Holders of shares of Common Stock have no
pre-emptive rights to maintain their respective percentage of ownership in
future Offerings or sales of stock by the Company. The shares of Common Stock
presently outstanding are, and the shares of Common Stock offered hereby when
issued will be, fully paid and non assessable.
Common Stock Warrants
This offering relates to the purchases of up to 500,000 shares of
Common Stock that may be acquired by holders of 1,000,000 Common Stock Warrants
that are issued and outstanding. See "Plan of Distribution." For a period of
sixty days following the effective date of this prospectus, or _____, 1998. The
Company will grant the holders of Warrants the right to acquire one share of
Common Stock for $1.75 per share. The Warrants were initially issued in
connection with the Company's IPO in January of 1996. These warrants expire on
January 12, 2001. The Warrants are subject to redemption by the Company at $0.05
per Warrant, at any time after July 12, 1996, on thirty days prior written
notice, provided that the closing bid quotation for the Common The exercise
price is $4.50. These 1,000,000 Warrants are subject redemption for $0.05 per
share once the Common Stock has equaled or exceeded $7.50 for ten consecutive
trading days. The exercise price is subject to reduction in certain
circumstances.
<PAGE>
Following the close of this offering the Company will reset the
exercise price of the Warrants that are not exercised pursuant to this offering
to $2.50 and set the price at which the Warrants may be called for redemption at
$5.00 one the Common Stock has equaled or exceeded that price for ten
consecutive trading days. Assuming that holders of 500,000 shares of Common
Stock acquire Common Stock pursuant to this offering the exercise price would
otherwise decline to $_____ and the number of shares that can be purchased at
that price will increase to ____. The number of shares that could be exercised
will not be increased as a result of the resetting of the exercise price.
The Warrants may be exercised only if there is a current registration
statement in effect at the time of exercise.
In addition, there are 30,000 warrants outstanding granting the right
to purchase Common Stock for $5.00 per share as well as 50,000 warrants to
acquire up to 100,000 shares of Common Stock at an exercise price of
approximately $5.52 and 100,000 warrants for another 100,000 shares. The
exercise price of these Warrants will decline to ____ if all the shares offered
by this Prospectus are purchased and the number of shares that can be purchased
at that price will increase to _________. In addition, the Company has granted
to an individual a warrant to purchase 150,000 shares of Common Stock for $0.60
per share. This warrant expires on April 29, 2002.
In connection with certain actions taken by the Company, Messrs. Danny
R. Gibbs and Tony G. Gibbs relinquished a total of 1,000,000 shares of Common
Stock to the Company and acquired the right to acquire for $0.10 per share
2,000,000 shares of stock if either Danny R. Gibbs or Tony G. Gibbs are
terminated without their consent if 20% of the Company is acquired by those
other than Danny R. Gibbs or Tony G. Gibbs.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming all 500,000 shares of Common
Stock are purchased pursuant to the offer contained in this prospectus, the
Company will have 4,500,000 shares of Common Stock outstanding. All of the
securities sold in this offering will be freely transferable without further
restriction or registration under the Securities Act, except for any securities
purchased by an "affiliate" of the Company (as defined under the Securities
Act). Additional shares of Common Stock may become eligible for sale in the
public market from time to time upon exercise of warrants and stock options.
See "RISK FACTORS- Outstanding Options; Risk of Further Dilution" and
"RISK FACTORS-Underwriters' Warrants; Risk of Further Dilution." At the date of
this Prospectus, there were outstanding 4,000,000 shares of Common Stock issued
and outstanding 2,000,000 of which shares are "restricted securities" under
applicable securities laws. Additional shares of Common Stock may become
eligible for sale in the public market from time to time upon exercise of
warrants and stock options.
Holders of restricted securities must comply with the requirements of
Rule 144 in order to sell their shares in the open market. In general, under
Rule 144 as currently in effect, any affiliate of the Company and any person (or
persons whose sales are aggregated) who has beneficially owned his or her
restricted shares for at least two years, would be entitled to sell in the open
market within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the then outstanding shares of the Company's Common Stock
(approximately 45,000 shares immediately after this offering); or (ii) the
average weekly trading volume reported on the Nasdaq System during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain limitations on manner of sale, notice requirements, and availability of
current public information about the Company. Nonaffiliates who have held their
restricted shares for three years are entitled to sell their shares under Rule
144 without regard to any of the above limitations, provided they have not been
affiliates of the Company for the three months preceding such sale.
<PAGE>
As of the date of this Prospectus, (i) an aggregate of 200,000 shares
of Common Stock had been reserved for issuance to employees and directors of the
Company pursuant to the Amended and Restated 1995 Incentive Stock Plan. In
addition, at the date of this Prospectus, (i) an aggregate of 50,000 shares of
Common Stock has been reserved for issuance to Directors of the Company pursuant
to the Outside Directors' Stock Option Plan, 30,000 shares have been reserved
for issuance to four individuals pursuant a warrant, (iii) 100,000 have been
reserved for issuance pursuant to certain warrants exercisable, (iv) 150,000
shares have been reserved for issuance to an individual and (v) 2,000,000 shares
are reserved for exercise pursuant to two warrants owned by Danny Gibbs and Tony
Gibbs. Options remained available for future issuance under the Outside
Directors' Stock Option Plan. See "RISK FACTORS-Outstanding Options; Risk of
Further Dilution."
In addition, at the date of this Prospectus, an aggregate of 150,000
shares of Common Stock has been reserved for issuance in connection with the
issuance of Units issuable upon exercise of the Underwriters' Warrants and the
exercise of the Warrants included therein. See "DESCRIPTION OF
SECURITIES-Underwriters' Warrants" and "RISK FACTORS-Underwriters' Warrants;
Risk of Further Dilution."
The Company can make no prediction as to the effect, if any, that sales
of shares of Common Stock or the availability of such shares for sale will have
on the market price of Common Stock. Nevertheless, sales of significant amounts
of Common Stock could adversely affect the prevailing market price of Common
Stock, as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities.
PLAN OF DISTRIBUTION
No underwriters are employed with respect to the exercise of the
Warrants. Gibbs Construction, Inc. (the "Company") is hereby offering for a
period of sixty days from the date of this prospectus (the "Offer Termination
Date") 500,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock") for $1.75 per share to holders of its Redeemable Common Stock Purchase
Warrants (the "Warrants") that the Company issued in connection with its initial
public offering in January, 1996 (the "IPO"). As of the date of this prospectus
there are 1,000,000 Warrants issued and outstanding and the right to purchase
Common Stock pursuant to the offer contained in this prospectus is limited to
those exercising the first 500,000 shares. As of the date of this prospectus
each Warrant entitles the holder to purchase one share of Common Stock prior to
January 12, 2001 and is subject to redemption by the Company at $0.05 per
Warrant on thirty days prior written notice, provided that the closing bid
quotation for the Common Stock has equaled or exceeded $7.50 for ten consecutive
trading days. The Common Stock has not so traded, and this prospectus does not
relate to a call for redemption. This prospectus relates solely to an offer by
the Company to holders of the Warrants to purchase one share of Common Stock for
$1.75 for each Warrant held for a period of 60 days from the date of this
Prospectus or _______, 1998.
The Company has caused the offer contained in this prospectus to be
sent to holders all of the Warrants. Holders of Warrants may acquire the Common
Stock offered hereby until 5:00 p.m., New York City time on _____, 1998, the
last day business day before the Offer Termination Date or until 500,000 shares
have been purchased, whichever occurs first. Warrants may be exercised by
surrendering at the Corporate office of American Stock Transfer and Trust
Company (the "Warrant Agent") at 40 Wall Street, New York, New York 10005, the
Warrant Certificate evidencing the holder's Warrant together with a subscription
in the form set forth on the reverse side of the Warrant Certificate, duly
executed, and accompanied by the tender, in U.S. dollars, of either federal bank
or certified check or bank cashier's check, payable to the order of the Warrant
Agent for the applicable price of the Common Stock purchased.
The Common Stock is traded on the Nasdaq Small-Cap Market System
("Nasdaq Small-Cap") under the symbol "GBSE" and on the Boston Stock Exchange
under the symbol "GBS." On May __, 1998, the closing sale price of the Common
Stock as reported by Nasdaq Small-Cap was $________ per share.
LEGAL MATTERS
Certain matters with respect to the validity of the shares of the Common
Stock offered hereby will be passed upon for the Company by Robert A. Forrester
Esq., 1215 Executive Drive West, Suite 102, Richardson, Texas 75081. Mr.
Forrester owns a warrant to purchase 7,500 shares of Common Stock for $5.00 per
share.
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996
and 1997 and March 31, 1998 (Unaudited) F-3
Consolidated Statements of Operations for Each of
the Years in the Three Year Period Ended December
31, 1997 and the Three Months Ended March 31,
1997 and 1998 (Unaudited) F-5
Consolidated Statements of Stockholders' Equity for
Each of the Years in the Three Year Period Ended
December 31, 1997 and the Three Months Ended
March 31, 1997 and 1998 (Unaudited) F-7
Consolidated Statements of Cash Flows for Each of
the Years in the Three Year Period Ended December
31, 1997 and the Three Months Ended March 31,
1997 and 1998 (Unaudited) F-8
Notes to Consolidated Financial Statements
(Including Notes Applicable to the Unaudited
Periods) F-9
F-1
<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 each of the years in the three year period ended December 31, 1997.
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 each of the years in the three year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
KILLMAN, MURRELL & COMPANY, P.C.
Dallas, Texas
February 27, 1998
F-2
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
--------------- --------------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 124,565 $ 438,445 $ -
Temporary Investments - Note 9 1,503 142,533 141,119
Accounts Receivable
Trade 8,596,282 7,662,445 7,633,632
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts - Note 2 976,681 1,834,063 1,785,766
Prepaid Expenses 19,376 82,309 74,115
Deferred Tax Asset - Note 12 510,000 350,000 334,225
------------ ------------ ------------
TOTAL CURRENT ASSETS 10,228,407 10,509,795 9,968,857
----------- ----------- ------------
LAND, BUILDINGS AND EQUIPMENT - Note 3 1,084,380 1,105,556 1,107,445
Less Accumulated Depreciation (387,744) (542,015) (578,015)
------------- ------------ ------------
NET LAND, BUILDINGS AND EQUIPMENT 696,636 563,541 529,430
------------ ------------ ------------
OTHER ASSETS
Other Assets 2,454 - -
Receivables From Affiliates and Employees 232,789 118,040 125,870
Deferred Tax Asset - Note 12 1,572,740 1,426,540 1,426,540
------------ ------------ ------------
TOTAL OTHER ASSETS 1,807,983 1,544,580 1,552,410
------------ ------------ ------------
TOTAL ASSETS $12,733,026 $12,617,916 $12,050,697
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
(Continued)
F-3
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
--------------- --------------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Cash Overdraft $ - $ - $ 327,191
Notes Payable - Note 4 150,000 150,000 150,000
Current Installments of Long-Term Debt - Note 5 374,443 380,769 215,538
Accounts Payable 8,047,940 7,482,475 7,118,440
Accrued Expenses - Note 11 719,749 685,722 651,856
Billings in Excess of Costs and Estimated Earnings on
Uncompleted Contracts - Note 2 1,142,164 1,372,152 1,032,727
Payable to Stockholders 406,055 422,245 420,745
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 10,840,351 10,493,363 9,916,497
LONG-TERM DEBT - Excluding
Current Installments - Note 5 563,254 210,232 189,209
------------ ------------ ------------
TOTAL LIABILITIES 11,403,605 10,703,595 10,105,706
----------- ----------- -----------
CONTINGENCIES - Notes 6, 7, 8 and 10 - - -
STOCKHOLDERS' EQUITY - Note 14
Common Stock of $.01 Par Value. Authorized
15,000,000 Shares; Issued and Outstanding
4,000,000 Shares 40,000 40,000 40,000
Additional Paid-In-Capital 4,907,272 4,907,272 4,907,272
Retained Earnings (3,617,851) (3,032,951) (3,002,281)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,329,421 1,914,321 1,944,991
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,733,026 $12,617,916 $12,050,697
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-4
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
---------------------------------- March 31,
------------------
1995 1996 1997 1997 1998
------------- ---------------- ---------------- -------------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CONSTRUCTION REVENUE $33,336,120 $47,438,930 $47,993,287 $8,693,918 $11,463,976
COST OF CONSTRUCTION 29,877,494 44,948,681 45,554,241 (8,481,834) 11,026,551
----------- ----------- ----------- ---------- -----------
NET CONSTRUCTION REVENUE 3,458,626 2,490,249 2,439,046 212,084 437,425
----------- ------------ ------------ ---------- ------------
BRONCO BOWL OPERATING
EXPENSES 584,173 - - - -
------------ --------------- --------------- ------------- ---------------
GROSS PROFIT 2,874,453 2,490,249 2,439,046 212,084 437,425
GENERAL AND ADMINISTRATIVE
EXPENSES 903,294 1,574,416 1,368,957 327,415 372,392
------------ ------------ ------------ ----------- ------------
INCOME BEFORE OTHER
INCOME (EXPENSE) 1,971,159 915,833 1,070,089 (115,331) 65,033
OTHER INCOME (EXPENSE)
Gain (Loss) on Disposal of
Equipment (7,959) (1,623) 9,140 - -
Gain (Loss) on Temporary
Investments Transactions 446,596 (22,906) (62,157) (540) -
Interest Income 5,042 22,215 23,566 64 2,503
Interest Expense (1,895) (86,628) (155,347) (25,455) (21,091)
Other 392 12,492 5,809 6,268 -
------------- ------------- ------------- ------------ ---------------
INCOME BEFORE
INCOME TAXES 2,413,335 839,383 891,100 (134,994) 46,445
INCOME TAX (EXPENSE) -
Note 1 and Note 12 - (293,000) (306,200) 45,900 (15,775)
-------------- ------------ ------------ ----------- -------------
INCOME FROM CONTINUING
OPERATIONS 2,413,335 546,383 584,900 - -
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) $ 584,900 $ (89,094) $ 30,670
=========== ============ ============ =========== ============
</TABLE>
(Continued)
F-5
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
---------------------------------- March 31,
------------------
1995 1996 1997 1997 1998
------------- ---------------- ---------------- -------------- -------------
(Unaudited)
BASIC EARNINGS (LOSS) PER SHARE
<S> <C> <C> <C> <C> <C>
Continuing Operations $ 0.14 $ 0.14 $ (0.02)$ 0.01
Discontinued Operations (1.21) - - -
-------------- -------------- ------------- ---------------
$ (1.07) $ 0.14 $ (0.02) $ 0.01
============== ============= =========== =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 3,846,154 4,000,000 4,000,000 4,000,000
============ ============ ========= =========
PRO FORMA DATA
Historical Income Before
Income Taxes $2,413,335
Pro Forma Provision for
Income Taxes 820,500
Pro Forma Net Earnings $1,592,835
Pro Forma Earnings
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-6
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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
1997 Net Income - - - 584,900 584,900
------------- ---------- -------------- ------------ -----------
BALANCE, DECEMBER 31, 1997 4,000,000 40,000 4,907,272 (3,032,951) 1,914,321
1998 Net Income (Unaudited) - - - 30,670 30,670
------------ ---------- -------------- ------------ -----------
BALANCE, MARCH 31, 1998 4,000,000 $40,000 $4,907,272 $(3,002,281) $1,944,991
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-7
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
---------------------------------- March 31,
------------------
1995 1996 1997 1997 1998
---------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES
Net Income (Loss) $2,413,335 $(4,122,834) $584,900 $ (89,094) $ 30,670
Adjustments to Reconcile Net Income
(Loss) to Net Cash From Operating
Activities
Loss on Sale of Discontinued
Operations- - 3,483,103 - - -
Depreciation 113,790 520,756 159,400 35,999 36,000
Loss (Gain) on Disposal
of Equipment 7,959 1,623 (9,140) - -
Loss on Temporary
Investments Transactions (446,596) 22,906 62,157 540 -
Deferred Taxes - (323,000) 306,200 (45,900) 15,775
Changes in Current Assets and Liabilities
(Increase) Decrease in Accounts Receivable(1,373,557) (5,156,893) 933,837 3,577,300 28,813
(Increase) in Inventories - (8,259) - - -
(Increase) Decrease in Billings Related to
Cost and Earnings on Uncompleted
Contracts (350,342) 45,334 (627,394) 24,605 (291,128)
(Increase) in Prepaid Expenses (1,624) (72,909) (62,933) - 8,194
Increase (Decrease) in Accounts Payable 3,147,314 2,787,248 (565,465) (3,650,868) (364,035)
Increase (Decrease) in Accrued Expenses 833,376 (246,900) (34,027) (31,252) (33,866)
Purchase of Temporary Investments (3,682,996) (20,177) (302,327) - -
Proceeds From Sale of Temporary Investments 4,105,409 19,951 99,140 - 1,414
---------- ------------- --------- ------------- ---------
NET CASH FLOW (USED)
PROVIDED BY OPERATING
ACTIVITIES 4,766,068 (3,070,051) 544,348 (178,670) (568,163)
---------- ------------ -------- ---------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Equipment (303,244) (219,425) (48,101) (8,792) (1,889)
Bronco Bowl Renovations (4,039,808) (1,983,864) - - -
Proceeds from Sale of Equipment 67,183 3,500 30,936 - -
(Increase) Decrease in Other Assets (129,899) (43,461) 117,203 81,524 (7,830)
Cash Proceeds from Sale of Discontinued
Operations - 712,456 - - -
------------- ------------- ----------- ------------- -----------
NET CASH FLOW (USED) PROVIDED
BY INVESTING ACTIVITIES (4,405,768) (1,530,794) 100,038 72,732 (9,719)
---------- ------------ -------- ----------- ---------
</TABLE>
(Continued)
The accompanying notes are an
integral part of these consolidated financial statements.
F-8
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended
---------------------------------- March 31,
-------------------
1995 1996 1997 1997 1998
---------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Deferred Registration Costs $ (292,627) $ (107,358)$ - $ - $ -
Proceeds from Note Borrowings 418,128 1,444,334 212,277 70,000 -
Repayments of Note Borrowings (208,557) (284,827) (558,973) (114,814) (186,254)
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) 16,190 - (1,500)
-------------- ------------ --------- ------------ ----------
NET CASH FLOW PROVIDED (USED)
BY FINANCING ACTIVITIES (414,409) 4,661,227 (330,506) (44,814) (187,754)
----------- ------------ -------- ---------- ---------
NET INCREASE (DECREASE) CASH (54,109) 60,382 313,880 (150,752) (765,636)
CASH AT THE BEGINNING OF THE PERIOD 118,292 64,183 124,565 124,565 438,445
----------- ----------- -------- --------- ---------
CASH AT THE END OF THE PERIOD $ 64,183 $ 124,565 $438,445 $ (26,187) $(327,191)
=========== ========== ======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During the Year For:
Interest Expense, net of capitalized
interest of $128,332 at
December 31, 1995 $ 48,096 $ 63,425 $155,347 $ 29,945 $ 21,090
=========== =========== ======== ========= =========
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-9
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE THE UNAUDITED PERIODS)
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.
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-10
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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 1995,
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-11
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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.
Basic Earnings Per Share
Basic earnings (loss) per share was computed using the weighted average
outstanding common shares for the applicable periods. The diluted earnings
(loss) per share is the same as basic since inclusion of the stock warrants
in the computation would have been anti-dilutive.
Pro forma earnings per share is based on the weighted average number of
common shares outstanding during the year ended December 31, 1995.
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. 128, "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 requires 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-12
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Standards (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>
December 31, March 31,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Costs Incurred on Uncompleted Contracts $17,451,069 $26,167,883 $32,736,979
Estimated Earnings 1,612,101 2,245,274 2,296,982
------------ ------------ -----------
19,063,170 28,413,157 35,033,961
Less Billings to Date 19,228,653 27,951,246 34,280,922
----------- ----------- -----------
$ (165,483) $ 461,911 $ 753,039
============ ============ ============
</TABLE>
(Continued)
F-13
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (Continued)
The above amounts are included in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Costs and Estimated Earnings in Excess of Billings
on Uncompleted Contracts $ 976,681 $1,834,063 $1,785,766
Billings in Excess of Costs and Estimated Earnings
on Uncompleted Contracts (1,142,164) (1,372,152) 1,032,727
----------- ---------- ----------
$ (165,483) $ 461,911 $ 753,039
=========== ========== ==========
</TABLE>
NOTE 3: LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
--------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
Land $ 48,255 $ 48,255 $ 48,255
Buildings and Improvements 227,214 227,214 227,214
Vehicles and Trailers 464,866 503,499 503,499
Construction Equipment 235,978 213,489 213,489
Office Equipment and Furniture 108,067 113,099 114,988
--------- --------- ----------
1,084,380 1,105,556 1,107,445
Less Accumulated Depreciation (387,744) (542,015) (578,015)
--------- --------- ----------
NET LAND, BUILDINGS AND
EQUIPMENT $ 696,636 $ 563,541 $ 529,430
========= ========= ==========
</TABLE>
F-14
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 4: NOTES PAYABLE
<TABLE>
<CAPTION>
A summary of notes payable follows:
December 31, March 31,
1996 1997 1998
--------- -------- --------
(Unaudited)
<S> <C> <C> <C>
10% note payable to an individual, unsecured,
due January 17, 1998 $ 150,000 $150,000 $150,000
========= ======== ========
NOTE 5: LONG-TERM DEBT
A summary of long-term debt follows:
December 31, March 31,
1996 1997 1998
--------- -------- --------
(Unaudited)
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 $7,405
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 22,323
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 12,066
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 13,684
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 9,334
</TABLE>
(Continued)
F-15
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 5: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
--------- -------- --------
(Unaudited)
<S> <C> <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 $25,644
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 13,705
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 5,195 531
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 98,796
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 13,477
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 14,999
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 16,930
9.55% note payable to a bank, payable in monthly
installments of $428 including interest, due
August 25, 1999, secured by vehicle 11,365 8,236 850
</TABLE>
(Continued)
F-16
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 5: LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
--------- -------- --------
(Unaudited)
<S> <C> <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 $ 6,939
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 17,507
12% note payable to the Texas State Treasurer, payable
in monthly installments of $25,000 including
interest, due December 24, 1998 527,196 276,996 125,730
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 1,997
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 2,830
--------- --------- ---------
937,697 591,001 404,747
Less Current Installments 374,443 380,769 215,538
-------- -------- --------
$563,254 $210,232 $189,209
======== ======== ========
</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-17
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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, 1995, 1996, and 1997, the lease payments
aggregated $23,592, $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, in 1996, the Company derived approximately 63% of its revenue
from five (5) customers; and 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, 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, 1995, 1996, and
1997, were $20,143, $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-18
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
NOTE 9: TEMPORARY INVESTMENTS
The Company participates in trading publicly traded equity securities. 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 $ 21,216 $ - $19,713 $ 1,503
December 31, 1997 $214,322 $1,415 $73,204 $142,533
March 31, 1998 (Unaudited) $161,913 $ - $20,794 $141,119
</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:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997 1998
-------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Sales Tax $583,504 $609,675 $525,641
Salaries 68,299 33,451 60,202
State Taxes 49,244 40,000 40,000
Other 18,702 2,596 26,013
-------- --------- ---------
$719,749 $685,722 $651,856
======== ======== ========
</TABLE>
F-19
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ----------- ---------
(Pro forma)
<S> <C> <C> <C>
Tax (Expense) at Statutory Rates (34%) $820,500 $(285,390) $(302,974)
Differences Resulting From Nondeductible
Expenses and Other - (7,610) (3,226)
----------- ---------- ----------
TOTAL INCOME TAX (EXPENSE) $820,500 $(293,000) $(306,200)
======== ========= =========
</TABLE>
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax asset valuation allowances at December 31, 1997, are as
follows:
1996 1997
---------- -----------
Total Deferred Tax Assets $2,410,000 $1,817,176
Less Valuation Allowance - -
---------- -----------
2,410,000 1,817,176
Total Deferred Tax Liabilities (327,260) 40,636
---------- -----------
Net Deferred Tax Asset $2,082,740 $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:
<TABLE>
<CAPTION>
1996 1997
----------------------------- -----------------------------
Current Noncurrent Current Noncurrent
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Deferred tax asset $510,000 $1,900,000 $350,000 $1,467,176
Deferred tax liability - (327,260) - (40,636)
----------- ----------- ----------- ----------
Net deferred tax asset $510,000 $1,572,740 $350,000 $1,426,540
======== ========== ======== ==========
</TABLE>
For financial accounting and federal 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-20
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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 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.
F-21
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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>
Years Ended December 31, Three Months Ended
---------------------------------- March 31,
------------------
1995 1996 1997 1997 1998
------------ -------------- ----------- ----------- -----------
(Unaudited)
REVENUES
<S> <C> <C> <C> <C> <C>
Construction $33,336,120 $47,438,930 $47,993,287 $8,693,918 $11,463,976
Securities Trading $446,596 $(22,906) $(62,157) $(540) -
OPERATING PROFIT (LOSS)
Construction $3,458,626 $2,490,249 $2,439,046 $212,084 $437,425
Securities Trading $446,596 $(22,906) $(62,157) $(540) -
Entertainment Facility $(584,173) - - - -
CAPITAL EXPENDITURES
Construction $303,244 $219,425 $48,101 $8,792 $1,889
Entertainment Facility $4,039,808 $1,983,864 - - -
DEPRECIATION
Construction $113,790 $147,534 $159,400 $35,999 $36,000
Entertainment Facility - $373,222 - - -
IDENTIFIABLE ASSETS
Construction $4,989,837 $12,731,523 $12,475,383 $8,796,280 $11,909,578
Securities Trading $24,183 $1,503 $142,533 $963 $141,119
Entertainment Facility $6,402,089 - - - -
</TABLE>
F-22
<PAGE>
GIBBS CONSTRUCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(Continued)
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-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a
corporation may indemnify an individual made a party to a proceeding because the
individual is or was a director against liability incurred in his official
capacity with the corporation including expenses and attorneys fees.
Article THIRTEEN of the Restated Articles of Incorporation provides as
follows
`The corporation shall indemnify any and all persons whom it
has the power to indemnify under the Texas Business Corporation Act
against any and all expenses, judgments, fines, amounts paid in
settlement, and any other liabilities to the fullest extent permitted
by such Law and may, at the discretion of the Board of Directors,
purchase and maintain insurance, at its expense, judgment, fine, amount
paid in settlement or other liability, whether or not the Corporation
would have the power to so indemnify such person under the Texas
Business Corporations Act.
`A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholder, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 2.02-1 of the Texas Business Corporation Act, as the same
exists or hereafter may be amended, or (iv) for any transaction form
which the director derived an improper personal benefit. Any repeal or
modification of this paragraph by the stockholders of the corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation
existing at the time of such repeal or modification.
`The corporation, to the maximum extent permitted by the Texas
Business Corporations Act (or any other applicable law, rule or
regulation), shall indemnify and hold harmless each person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that
he, or a person of whom he is the legal representative, is or was a
director of officer of the corporation's, or is or was serving at the
request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding. Expenses incurred by
any such person in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding, to the maximum extent
permitted by law. Notwithstanding any subsequent alteration, amendment
or repeal of the ARTICLE THIRTEEN, the rights to indemnification and to
advance payments created by this ARTICLE THIRTEEN, shall apply to (a)
any claims made or asserted at any time while this ARTICLE THIRTEEN is
in effect and (b) any claims based on or arising from any act, omission
or event occurring at any time while this ARTICLE THIRTEEN is in
effect.'
Item 25. Other Expenses of Issuance and Distribution.
Estimated expenses in connection with the public offering of
Units by the Company pursuant to this Registration Statement are as follows:
Securities and Exchange Commission filing fee...................... $ 4,611.86
NASD filing fee.................................................... 1,245.50
Chicago Stock Exchange filing fee.................................. 25,000.00
<PAGE>
Accounting fees and expenses....................................... 50,000.00
Legal fees and expenses............................................ 15,000.00
Printing and engraving.............................................
Fees of Transfer Agent and Registrar...............................
Blue Sky fees and expenses.........................................
Underwriter's nonaccountable expense allowance.....................
Miscellaneous......................................................
Total.............................................................. $ 20,000.00
Item 26. Recent Sales of Unregistered Securities.
The following is a summary of transactions by the Company during the
least three years involving securities which were not registered under the Act.
Warrant for the purchase of 30,000 shares of Common Stock between the
Company and Can Capital dated July 15, 1995. This warrant was issued in the
consideration of financial advice rendered to the Company and its issuance was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof.
All of the above options were issued to persons closely associated with
the Company in reliance upon the exemption in Section 4(2) of the Securities
Act.
Item 27. Exhibits.
Exhibit No.
Exhibit 1.1 Revised Form of Underwriting Agreement (3)
Exhibit 3.1 Registrant's Restated Articles of Incorporation, as amended (3)
Exhibit 3.2 Bylaws of the Registrant (3)
<PAGE>
Exhibit 4.1 Form of Warrant Agreement Covering Redeemable Common Stock
Purchase Warrants (3)
Exhibit 5.1 Opinion of Robert A. Forrester, Esq. (2)
Exhibit 10.1 Revised form of Representative's Warrant and Registration
Rights Agreement (3)
Exhibit 10.2 Copy of 1995 Incentive Stock Option Plan (3)
Exhibit 10.3 Copy of Outside Director Stock Option Plan (3)
Exhibit 10.4 Copy of Warrant Agreement between the Company and Can Am
Capital (3)
Exhibit 10.5 Copy of Note and Security Agreement between the Company and
Bronco Bowl Holding, Inc. (3)
Exhibit 10.6 Diversified Employee Leasing, Inc. Client Service Agreement (3)
Exhibit 23.1 Consent of Certified Public Accountant (1)
Exhibit 23.2 Consent of Robert A. Forrester, Esq. (contained in Exhibit 5.1)
(3)
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(1) Filed herewith
(2) To be filed by Amendment
(3) Previously filed
Item 28. Undertakings.
The undersigned Registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted
to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy, as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, office or controlling person in
connection with the Units being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(3) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it was declared
effective.
(4) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
The Registrant further undertakes
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) to reflect in the
prospectus any facts or events arising after the effective
date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii)
to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form S-1 and authorized this amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on June 26, 1998 1995.
GIBBS CONSTRUCTION, INC.
(Registration)
By:
-------------------------------------------
Danny Gibbs, Chairman of the Board
(Principal Executive and Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons inthe capacities and on the
dates indicated.
Signature Title Date
Danny Gibbs Director June 29,1998
Tony Gibbs Director June 29,1998
Dennis T. Mitchell Director June 29,1998
L. W. Reynolds Director June 29,1998
ROBERT A. FORRESTER
1215 EXECUTIVE DRIVE WEST, SUITE 102
RICHARDSON, TX 75081
(972) 437-9898
July 1, 1998
Gibbs Construction, Inc.
1855 Wall Street
Garland, TX 75041
Gentlemen:
I have acted as counsel to Gibbs Construction, Inc., a Texas
corporation (the "Corporation"), in connection with the offering of 500,000
shares of the Corporation's Common Stock, par value $0.01 per share (the "Common
Stock").
I have participated in the preparation of the Registration Statement covering
the offering of Common Stock (the "Registration Statement") dated on or around
July 1, 1998, in connection with which this opinion is rendered. As to various
questions of fact material to my opinion, I have examined such certificates of
corporate or public officials, corporate documents and records and other
certificates, opinions and instruments and have made such other investigations
as I have deemed necessary in connection with the opinions hereinafter set
forth.
Based upon the foregoing and upon such investigation as I have deemed necessary,
I give you my opinion as follows:
1. The Corporation is duly organized and validly existing under
the laws of the State of Texas.
2. The Corporation has 15,000,000 authorized shares of Common
Stock of which 4,000,000 are outstanding. Said 2,500,000
shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable.
3. When the Registration Statement shall have been declared
effective by order of the Securities and Exchange Commission,
the Common Stock, will be validly authorized and legally
issued, fully paid and nonassessable.
<PAGE>
Gibbs Construction, Inc.
July 1, 1998
Page 2
I hereby consent (1) to be named in the Registration Statement or Statements,
and in the prospectus which constitutes a part thereof, as the attorney who will
pass upon legal matters in connection with the sale of the Common Stock, and (2)
the filing of this opinion as Exhibit 5 to any related Registration Statement.
Very truly yours,
Robert A. Forrester
RAF/sw
Exhibit 23.1
EXHIBIT 23.1
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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Gibbs Construction, Inc.
We hereby consent to the use in this Registration Statement on form S-1 of
our report dated February 27, 1998, relating to the financial statements of
Gibbs Construction, Inc. and to the reference of our Firm under the capiton
"Experts" in the Prospectus.
Killman Murrell & Company, P.C.
July 1, 1998
