<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Annual Report Under 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1999
Commission File No. 0-28811
LUDLUM CONSTRUCTION CO., INC.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
FLORIDA 59-1413673
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3050 S.E. DIXIE HIGHWAY
STUART, FL 34997
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 287-2378
--------------------------------
Securities to be registered under Section 12(b) of the Act: NONE
Securities to be registered under Section 12(g) of the Act:
CLASS B COMMON STOCK ($.01 PAR VALUE)
(Title of Class)
(Currently registered - Symbol LDLMB)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be contained
to be best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference I Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenue for most recent fiscal year. $3,942,935 12/31/99
(audited)
State the aggregated market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such, as of a specified date within the last 60 days.
$3,760,767.00 based on the average of the closing bid and asked obtained from
the OTC Bulletin Board on December 31, 1999.
Class B Common Stock - 3,711,000 shares
Class A Common Stock - 0 shares
Transitional Small Business Disclosure Format [ ] YES [X] No
<PAGE> 2
TABLE OF CONTENTS
Item 1. Description of Business
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and
Management
Item 5. Directors, Executive Officers, Promoters and
Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Shareholder Matters
Item 10. Legal Proceedings
Item 11. Changes in and Disagreements With Accountants
Item 12. Recent Sales of Unregistered Securities
Item 13. Indemnification of Directors and Officers
Item 14. Financial Statements
Item 15. Exhibits
A) Articles of Incorporation
B) Amendment of Articles of Incorporation
C) Bylaws
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Ludlum Construction Co., Inc. (LDLMB)is filing this Form 10-KSB I Compliance
with disclosure requirements of Rule 12b-23 of the Securities Exchange Act of
1934.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Ludlum Construction Co., Inc., a Florida corporation ("Ludlum
Construction" or the "Company"), was founded and incorporated in 1976 by Noah
Ludlum. Ludlum Construction is a dredging and land excavating contractor which
provides dredging services for navigable waterways, lake construction and
marinas. It also provides excavation and development relating to construction of
golf courses and subdivisions. The Company is based in Palm City, Martin County,
Florida.
In April 1998, the Company implemented its expansion plan which
included restructuring of management. Noah Ludlum resigned as president, turning
management over to his protege, James Schwarz, who has been employed by the
Company since its inception. In March of 1998, the Company conducted a private
offering under Rule 504 Of Regulation D of the Securities Exchange Act of 1934.
On September 18, 1998 the Company was approved by the National Association of
Securities Dealers for listing on the Over the Counter Bulletin Board (symbol
LDLMB).
CONTRACT SERVICES
The dredging and excavation market consists of government, Commercial
and private segments. Ludlum relies primarily on a national on-line subscription
service for information on new projects and bidding instructions. Because of its
longstanding reputation, the Company receive some of its private contracts
through referrals. The Company bids an average of six potential projects a
month. The Company regularly pursues government jobs on a competitive bid basis
and is currently focusing on the most profitable jobs in the least competitive
$.3 to $1.5 million range.
The Company's 25 plus employees uses the Company's equipment base of
five dredges, three barge-mounted excavators, tug boats, and work boats, along
with 20 pieces of earth-moving equipment to provide dredging and earthwork
services for federal and local government jobs, real estate developers and
marinas.
NEW SERVICES
The Company has recently implemented a "lease-out" equipment program
that enables the Company to profit from leasing its dormant equipment to outside
contractors for short periods. Within twelve months the Company plans to
establish a concrete crushing recycling facility. The Company will purchase or
lease a concrete crusher to process debris concrete obtained from rubble and
demolition debris or from construction companies. Although concrete crushing
facilities are available throughout the United States, none currently exist on
Florida's Treasure Coast. Such a facility would provide contractors a more
cost-effective alternative to dispose of waste concrete. Implementation of the
concrete recycling facility is dependent upon permitting and approval by the
Martin County Commission.
COMPETITIVE DESCRIPTION
The land excavating industry is very competitive; however, there is
less competition for dredging projects. There are currently a limited number of
major Florida-based companies competing with Ludlum Construction in the dredging
field. The Company estimates its present share of the South Florida market as
20%, a number which is
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projected to increase as the Company expands. The Company estimates it is
awarded 25% of all jobs it bids. Ludlum Construction can bid competitively
because most of the equipment is owned and operated by Ludlum Construction. Only
minor aspects of the jobs awarded are subcontracted. In addition, over the last
23 years the Company has established a reputation for reliable and efficient
completion of all jobs undertaken.
EMPLOYEES
At December 31, 1999, the Company had 27 full-time employees and 2
officers. None of the Company's employees are covered by collective bargaining
agreements. The Company considers its employee relations to be satisfactory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW
RECENTLY COMPLETED PROJECTS (CUSTOMERS)
The Company completed the following dredging projects within the past 12 months:
<TABLE>
<CAPTION>
Job Site Contractor/Customer $ Contract Amount
-------- ------------------- -----------------
<S> <C> <C>
1. Jupiter Inlet, Florida Jupiter Inlet District 234,820
2. Clam Bay, Florida Collier County B.O.C.C. 324,030
3. C-12 Canal, Florida South Florida Water Management 794,867
4. Castaway Cay, Bahamas American Bridge Co. 113,125
5. Sailfish Point POA, Florida Sailfish Point, P.O.A. 150,647
6. Lauderdale Marine Center, FL Lauderdale Marine Center 262,500
7. Evans Crary Bridge, Florida PCL Civil Constructors Inc. 65,938
8. Trump Golf Course, Florida Ranger Construction Industries, Inc. 324,326
9. St. Lucie County
Landfill, Florida St. Lucie County 1,075,533
</TABLE>
CURRENT PROJECTS IN PROCESS
The following is a list of the Company's current pending projects in
progress as of December 31, 1999:
CONTRACT TOTAL EST.
PROJECT TOTAL $ DIRECT COST* $
------- -------- --------------
COE Puerto Rico 701,000 374,619
Felix-Eagle Marsh 114,500 45,045
Felix - BJS 102,750 45,000
Kissimmee 265,750 105,553
C-51 Canal 118,167 11,704
Crossroads 286,481 117,882
TIME & MATERIALS PROJECTS
-------------------------
Misc Small Projects 72,482 35,283
Floridian 177,658 118,862
Hendry 175,768 11,199
Lowenthal-Cinderella 80,000 6,368
Lowes Boatyard 28,953 10,390
Mancils 108,304 23,534
Millenium 126,176 65,373
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RESULTS OF OPERATIONS
A review of the audited 1998 financials indicates a net loss of
$904,354, of which $619,987 is attributed to depreciation. A portion of the loss
in 1998 can also be attributed to cost overrun on tow jobs, the St. Lucie County
Landfill and Andros Isle.
The current management began operating the Company in April 1998, Noah
Ludlum the founder of the Company, who remained with the Company as a consultant
until he retired in July 1999. In 1998 and 1999, the Company experienced cost
overruns on two jobs that had been negotiated and bid upon by the former
management. Excessive costs, difficulty in dredging at the St. Lucie County
Landfill, and significantly underbidding the job ($1 per cubic yard of fill
material), caused a loss of approximately $240,000 to be recorded on the St.
Lucie County Landfill job in 1998. (The St. Lucie County Landfill job was
finished in September 1999 with an additional loss of approximately $240,000 in
1999). Ambiguities and disputes in the Andros Isle contract as to the amount of
fill removed caused the Company to write off $150,000.00 from that project in
1998. Working with their accountants, the new management has refined the bidding
process and spreadsheets to get a true cost-of-job estimate. In sharp contrast
to the $1.00 per cubic yard received from the St. Lucie County Project, the new
management has successfully bid on and completed the following projects:
CONTRACTOR SITE YARDS DREDGED PRICE PER YARD
---------- ---- ------------- --------------
South Florida Water
Management District C-12 Canal, FL 80,000 $5.63
Pelican Bay Services Clam Bay, FL 32,000 $5.32
City of Melbourne Crane Creek, FL 46,552 $5.25
PCL Civil
Constructors, Inc. St. Lucie River, FL 5,950 $7.57
As can be noted, the Company has significantly increased its cost per
cubic yards of material dredged. This was accomplished by focusing on bonded
jobs which are awarded by federal, state and local governments. The bonded jobs
are less competitive because of the financial and regulatory requirements.
Another positive aspect of government jobs is that payment is guaranteed, unlike
projects with private contractors where collectability is often an issue. By
focusing on the government contracts, the Company is expected to continually
increase its profitability over the next 5 years.
In 1999 the Company sold two dredges which were not being utilized. The
Company plans to begin leasing more equipment on an "as needed" basis to
decrease costs of operation. The Company also plans to lease out its equipment
when it is not being used on a project. The Company's dredge, the "Florida
Chief" was recently leased to Hendry Corporation for $32,000 per month, while
its fixed costs to the Company is approximately $12,000 per month. The Company's
most recent project in Aguadilla, Puerto Rico will be completed in the next 60
days. The Army Corps of Engineers is paying the Company $701,000 to dredge
57,000 yards of sand out of this harbor in Puerto Rico. Because this project is
scheduled to be completed within a 60-day time frame, the Company expects it
will be one of its most profitable projects to date. The management is confident
that this is just the beginning of many more profitable jobs in the future.
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EXPANSION PROGRAM
The Company is looking to the year 2000 to begin a major expansion in
its dredging and excavation operations. As its first step, the Company will
begin bidding jobs in the southeastern United States. This will enable the
Company to focus on government awarded contracts. These contracts are more
profitable because there is less competition due to the strict bonding
requirements. Further, many of these dredging projects are done on an emergency
basis which gives the Company an advantage over its competitors because of the
large number of portable dredges it owns. Beginning next year the Company plans
to further expand by considering the acquisition of smaller dredging and
excavation companies.
IMPLEMENTATION SUMMARY
Through the use of on-line services announcing government, the Company
will begin expanding its dredging projects throughout the southeastern United
States and the Caribbean. The Company has already completed projects in North
Carolina for the U.S. Army Corps of Engineers and in Gorda Cay, Bahamas
(Disney's Island) for American Bridge Company. Before bidding a job the
management meets with employees to discuss the potential project. At these
meetings, equipment needs, number of workers and potential problems of the jobs
are discussed. The implementation of these strategy meetings have proved
invaluable to the current management in accurately preparing cost analysis for
its projects.
MARKETING STRATEGY
The vast majority of contracts the Company is awarded are on a closed
bid basis usually to the lowest bidder. Therefore, cost effectiveness is a
number one priority for the Company to market itself and obtain government and
private contracts.
SALES FORECAST
Revenues for 1999 are approximately $4 million. Through its expansion
efforts, the Company is seeking to increase revenues to $5 million the following
year. In 1998 the Company had a net loss. Through cost cutting efforts of the
new management, the Company has reduced the amount of loss in 1999 to
($245,120.00) from ($904,354.00) in 1998.
ITEM 3. DESCRIPTION OF PROPERTY
FACILITIES
The Company leases an office and yard on five acres of industrial real
estate in Palm City, Florida. The office and yard shop combined provide a total
of approximately 2,000 square feet. Because of the large size of the dredges,
barges, dump trucks, and transport rigs, the equipment is kept in the yard. The
Company leases an 1100 square foot business office in Stuart, Florida. Expansion
plans call for relocating the Company to a waterfront property on the Okeechobee
Waterway in Palm City, Florida, where the office, repair shop and equipment yard
can be situated at one location. This will give the Company direct water access
to the west coast of Florida and the Gulf states via Lake Okeechobee. Lease
negotiations are currently under way. Also, negotiations for the lease of an
industrial site for the concrete crushing operation, a sand plant, and mulching
operation will be concluded once county permits are approved.
EQUIPMENT
Ludlum Construction's dredging and excavating equipment base consists
of four
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dredges, three barge-mounted excavators, tug boats, and work boats along with 20
pieces of earth-moving equipment. The Company has leased with an option to
purchase a new Elliott 370 Mud-Cat to meet increasing demand for dredging.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
number of shares of Common Stock owned beneficially as of December 31, 1999 by:
(i) each person known to the Company to own more than five percent (5%) of any
class of the Company's voting securities; (ii) each director of the Company; and
(iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
-------- ------------------- ------------------- --------
<S> <C> <C> <C>
Class B James K. & Donna M. Schwarz 2,031,250 54%
Common Stock 4437 SW Cherokee Street Restricted
Palm City, FL 34990
Class B James A. Conway 1,218.750 32%
Common Stock 963 SE MacArthur Boulevard Restricted
Stuart, FL 34996
Class B All Directors & Officers 3,250,000 86%
Common Stock as a Group Restricted
</TABLE>
All shares of Common Stock are held directly with sole voting and
investment powers.
The Company is not aware of any arrangement which might result in a
change of control in the future.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth certain information about the directors
and executive officers of the Company:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION TERM
---- --- -------- ----
<S> <C> <C> <C>
James K. Schwarz 45 Director/President April 9, 1998-Present
Chairman of the Board
James A. Conway 39 Chief Executive Officer April 9, 1998-Present
</TABLE>
JAMES K. SCHWARZ, President and Director. Mr. Schwarz has served as the
Company's President since April 1998 and has been employed by the Company since
its inception. Schwarz is proficient in managing Company operations, monitoring
projects, and marketing the Company's services. He is the primary reason for the
Company's long-standing reputation for excellence throughout the industry.
JAMES A. CONWAY, Chief Executive Officer. Mr. Conway has served as the
Company's Chief Executive officer, Vice President, Secretary and Treasurer since
April 1998. Conway holds degrees in finance and law from the University of
Florida. He has thirteen
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years of experience in the corporate legal area including negotiations, drafting
contracts and litigation. Conway currently practices law in Palm Beach and
Martin County, Florida. He has served as the Company's legal counsel for eight
years.
ITEM 6. EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
regarding compensation paid during the fiscal year ending December 31, 1999 to
the executives of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual
Principal Salary Bonus
Position Year ($) ($)
-------- ---- ------ ------
<S> <C> <C> <C>
James K. Schwarz 1999 100,000 0
President
James A. Conway 1999 25,000 0
Vice President,
Treasurer/Secretary
Chief Executive Officer
Chief Financial Officer
</TABLE>
COMPENSATION OF DIRECTORS
No director of the Company received any form of compensation from the
Company for any services provided as a director, for committee participation, or
for special assignments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company intends that any transactions between the Company and its
officers, directors, principal shareholders, affiliates or advisors will be on
terms no less favorable to the Company than those reasonably obtainable from
third parties.
ITEM 8. DESCRIPTION OF SECURITIES
COMPANY STOCK
On October 24, 1997, the Company's Articles of Incorporation were
amended to authorize the Company to issue ten million (10,000,000) shares of
Common Stock, par value $.Ol per share ("Common Stock"), designated as one (1)
share "Class A" and nine million nine hundred ninety-nine thousand (9,999,999)
"Class B". As of December 31, 1999, there were issued and outstanding 3,703,000
shares of "Class B" Common Stock held of record by approximately 27 shareholders
and no Class A" Common Stock.
The holders of the "Class B" shares shall have exclusive voting rights
and powers, including the exclusive right to notice of shareholders meetings.
DIVIDENDS
The Company has paid no dividends on its "Class B" Common Stock and it
currently
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intends to retain earnings for use in its business to finance operations and
growth. Any future determination as to the distribution of cash dividends will
depend upon the earnings and financial position of the Company at that time and
such other factors as the Board of Directors may deem appropriate.
WARRANTS
The Company has no outstanding warrants.
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Effective December 31, 1999, the Company is listed on the NASDAQ
Over-the-Counter Bulletin Board (symbol LDLMB). The quarterly high and low sales
prices are listed below. As of June 30, 1999, there were approximately 27
holders of the Company's Common Stock.
HIGH LOW
Initially listed ---- ---
9/25/98 2.75 2.50
Qtr. End 12/31/98 4.25 2.625
Qtr. End 3/31/99 4.50 0.875
Qtr. End 6/30/99 1.0625 0.8125
Qtr. End 9/30/99 1.125 0.375
Qtr. End 12/31/99 1.375 0.6562
The Company distributed no dividends during fiscal year 1998.
ITEM 10. LEGAL PROCEEDINGS
(a) Pending Legal Proceedings
No legal proceedings terminated during the period covered by this
report.
On November 3, 1999 a lawsuit was filed in the Circuit Court of the
15th Judicial Circuit, Palm Beach County, Florida, Case #CL9910542G by Nelson
Bunker Hunt Trust Estate - Trust A and Edward Stephenson against Ludlum
Construction Co., Inc., Noah W. Ludlum, Jr., Timothy Ludlum, James Conway, James
K. Schwarz, Merit First, Inc., and John O'Keefe. The plaintiffs signed a
subscription agreement stating "that there is no market for the purchase and
sale of the shares and that no such market may ever exist." After the shares
were registered the price per share rose to a high of $4.50. When the price per
share dropped the lawsuit was filed. The plaintiffs have alleged fraud in the
inducement, violation of Florida Securities Investment Protection Act, and
Breach of promissory note. Each Plaintiff is seeking $250,000.00 in damages. On
the advice of counsel, the lawsuit was settled on April 2, 2000. The plaintiffs
dismissed the lawsuit and all claims in exchange for a new promissory note being
executed by the Company and guaranteed by its officers in the amount of
$450,000.00 payable at $8,000.00 per month with no interest. The note is secured
by the assets of the Company. Noah Ludlum, in exchange for being dropped from
the suit, forgave a $228,000.00 secured note the Company owed him which was
payable at $8,000.00 per month. In further consideration, he also received some
excess equipment from the Company valued at $75,000.00.
(b) Pending governmental agency proceedings.
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As the result of a sales tax audit for the years 1992 to 1997, the
Florida Department of Revenue filed a sales tax lien against Ludlum Construction
Co., Inc. in July 1999 in the amount of $75,071. A written agreement has been
reached to pay off the lien. The Company has paid $20,000 and will begin making
$5,000 monthly payments beginning February, 2000 until the taxes are paid in
full without any additional interest.
Martin County Tax Collector has a $45,000.00 claim for personal
tangible property taxes which the Company is disputing claiming the assets were
appraised too high. The Company has no knowledge of any other pending or
contemplated legal proceedings against it.
ITEM 11. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 12. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-Laws of the Company make no provision for indemnification of its
directors or officers.
ITEM 14. FINANCIAL STATEMENTS
Please refer to the Financial Statements and the index thereto which
appear on pages F-1 to F-12 hereof.
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
LUDLUM CONSTRUCTION CO., INC.
a Florida corporation
By: /s/ James K. Schwarz
-----------------------------------
James K. Schwarz
President and Chairman of the Board
Dated: May 30, 2000
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LUDLUM CONSTRUCTION CO., INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE> 12
CONTENTS
PAGE
----
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6-12
<PAGE> 13
Holyfield Associates, P.A.
Certified Public Accountants
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders of
Ludlum Construction Co., Inc.
Stuart, Florida
We have audited the accompanying balance sheets of Ludlum Construction Co., Inc.
as of December 31, 1999 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of Ludlum Construction Co., Inc. management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Ludlum Construction Co., Inc.
as of December 31, 1999 and 1998 and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Holyfield Associates, P.A.
West Palm Beach, Florida
March 28, 2000
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LUDLUM CONSTRUCTION CO., INC. BALANCE SHEETS
<TABLE>
<CAPTION>
as of December 31, 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,483 $ 3,251
Contract receivables 532,283 408,933
Costs and estimated earnings in excess of
billings on uncompleted contracts 133,523 128,894
----------- -----------
679,289 541,078
----------- -----------
PROPERTY AND EQUIPMENT
Construction and office equipment 3,915,569 4,312,476
Accumulated depreciation (1,717,872) (1,386,799)
----------- -----------
2,197,697 2,925,677
OTHER ASSETS
Notes receivable, net of $23,932 allowance 37,784 66,332
Deposits and prepaid expenses 418 3,738
----------- -----------
Total assets $ 2,915,188 $ 3,536,825
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 426,829 $ 844,433
Short term debt 408,375 381,195
Due to stockholders 451,886 173,093
Accounts payable and accrued expenses 600,563 569,067
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,025
----------- -----------
1,887,653 1,977,813
NON-CURRENT LIABILITIES
Long term portion of notes payable 879,550 1,185,907
----------- -----------
TOTAL LIABILITIES 2,767,203 3,163,720
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, Class A, $.01 par value,
1 share authorized, none issued and
outstanding in 1998 and 1999
Common stock, Class B, $.01 par value,
9,999,999 shares authorized, 3,711,000 and
3,703,000 shares issued and outstanding 37,110 37,030
Additional paid in capital 972,830 952,910
Retained earnings (deficit) (861,955) (616,835)
----------- -----------
147,985 373,105
----------- -----------
Total liabilities and stockholders' equity $ 2,915,188 $ 3,536,825
=========== ===========
</TABLE>
The accompanying notes and accountant's report should be read
with these financial statements.
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LUDLUM CONSTRUCTION CO., INC. STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
for the years ended December 31, 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C>
Contract revenues earned $ 3,942,935 $ 4,390,049
Cost of revenues earned 3,339,152 4,226,536
----------- -----------
Gross profit 603,783 163,513
----------- -----------
General and administrative expenses 553,054 1,037,180
----------- -----------
Income (loss) from operations 50,729 (873,667)
Other income (expense)
Investment income 21,697 21,290
Gain (loss) on dispostion of assets (24,487) 21,798
Interest expense (293,059) (286,031)
----------- -----------
Income (loss) before income taxes (245,120) (1,116,610)
Provision for income taxes (credit) (212,256)
----------- -----------
Net income (loss) $ (245,120) $ (904,354)
=========== ===========
Basic and diluted earnings (loss) per share:
Net income (loss) per share $ (.07) $ (.23)
=========== ===========
</TABLE>
The accompanying notes and accountant's report should be read
with these financial statements.
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LUDLUM CONSTRUCTION CO., INC. STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
for the years ended December 31, 1999 and 1998
--------------------------------------------------------------------------------------------------------------------------------
Common Stock Shares Additional
--------------------------- Paid-in Retained
Class A Class B Amount Capital Earnings Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 1 5,078,125 $ 50,781 $ 475,250 $ 287,519 $ 813,551
Sale of 1,218,750 shares of Class B common 1,218,750 12,187 35,813 48,000
Redemption of stock (1) (3,046,875) (30,468) (405,896) (436,365)
Issuance of 100,000 shares of Class B
common for consulting services 100,000 1,000 6,273 7,273
Sale of 353,000 shares of Class B common 353,000 3,530 841,470 845,000
Net loss, 1998 (904,354) (904,354)
---------- ---------- ---------- ---------- ---------- ----------
Balances, December 31, 1998 3,703,000 37,030 952,910 (616,835) 373,105
Issuance of shares of Class B common 8,000 80 19,920 20,000
Net loss, 1999 (245,120) (245,120)
---------- ---------- ---------- ---------- ---------- ----------
Balances, December 31, 1999 3,711,000 $ 37,110 $ 972,830 $ (861,955) $ 147,985
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes and accountant's report should be read
with these financial statements.
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LUDLUM CONSTRUCTION CO., INC. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
for the years ended December 31, 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (245,120) $ (904,354)
Adjustments to reconcile net income (loss) to
cash flows from operating activities:
Non-cash issuance of stock for consulting services 7,273
Depreciation and amortization 594,033 623,408
Disposition of property and equipment 24,487 (21,798)
Change in:
Contract receivables (123,350) 345,395
Costs and estimated earnings in excess of billings (4,629) 155,153
Income taxes receivable 24,769
Other assets 28,548 170,603
Accounts payable and accrued expenses 31,496 (58,210)
Deferred income taxes payable (181,700)
Billings in excess of costs and estimated earnings (10,025) (97,556)
----------- -----------
Net cash provided by operating activities 295,440 62,983
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (291,970) (1,713,006)
Proceeds from sales of property and equipment 404,750 415,217
----------- -----------
Net cash provided by (used in) investing activities 112,780 (1,297,789)
----------- -----------
Cash flows from financing activities
Net borrowings from shareholders 278,793 (12,603)
Sales of stock 20,000 893,000
Stock redemption (36,364)
New financing 545,490 1,518,666
Payments on notes payable (1,242,271) (1,192,467)
----------- -----------
Net cash provided by (used in) financing activities (397,988) 1,170,232
----------- -----------
Increase (decrease) in cash and cash equivalents 10,232 (64,574)
Cash and cash equivalents, beginning of year 3,251 67,825
----------- -----------
Cash and cash equivalents, end of year $ 13,483 $ 3,251
=========== ===========
Supplemental disclosures of cash flow information:
Cash payments for interest $ 277,839 $ 276,105
=========== ===========
Non cash financing activities:
Note payable issued in stock redemption $ -- $ 400,000
=========== ===========
</TABLE>
The accompanying notes and accountant's report should be read
with these financial statements.
5
<PAGE> 18
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Ludlum Construction Co., Inc. (the "Company") was incorporated on December 13,
1976, and operates as a construction site and dredge contractor with projects
throughout South Florida. The work is performed under cost-plus fee contracts,
fixed-price contracts and fixed price contracts modified by incentive and
penalty provisions, and on a time and material basis. The Company grants credit,
in accordance with available lien laws, to its customers. Management believes
that its contract acceptance, billing and collection policies are adequate to
minimize potential credit risk.
Accounting for Construction Contracts
Construction contracts are accounted for using the percentage of completion
method of accounting measured by the percentage of costs incurred to date to
estimated total costs. Under the terms of the various contracts, progress
billings are made either at the completion of specific portions of the contract
or at fixed amounts at stated dates. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such
as indirect labor, supplies, tools, repairs and depreciation costs. General and
administrative costs are charged to expense as incurred. At such time as a
contract is estimated to be unprofitable, the anticipated loss is charged to
income.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. The lives
range from five to ten years.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements. The corporation is on the percentage of completion method
for financial statement presentation and on the completed contract method of
accounting for income tax filing purposes. On the percentage of completion
method, income is recognized as the work is performed on all contracts, both
completed and in process. On the completed contract method, revenue is only
recognized when a project is completed.
Deferred taxes are recognized for differences in income recognition between the
two methods of accounting as well as for the differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax consequences of
those differences which will either be deductible or taxable when income is
realized or the assets and liabilities are recovered or settled. Deferred taxes
are also recognized for operating losses and tax credits that are available to
offset future taxable income.
Accounting Estimates
The management of the Company uses accounting estimates in determining revenues
from contracts as accounted for by the percentage of completion method.
Estimates are based on subjective as well as objective factors and, as a result,
judgement is required to estimate certain amounts at the date of the financial
statements.
6
<PAGE> 19
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Cash and Cash Equivalents
Cash and cash equivalents include overnight investments in repurchase
agreements. The Company considers all investments with maturities of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
The fair value of the Corporation's financial instruments, such as accounts
receivable, accounts payable, and notes payable approximate their carrying
value.
Year 2000 Reporting
On August 4, 1998, the SEC issued expanded requirements for disclosure regarding
the international computer programming problems whereby certain computer
programs will not be able to properly recognize the date in the year 2000.
Management believes the Company has no material exposure from the year 2000
problem. The Company's management information systems advisor reports that
because the Company's system was originally designed to be unaffected by the
year 2000 problem, the Company has no exposure to the problem within its own
system. The Company has consulted major vendors and suppliers whose
non-compliance with correction of the problem could cause material damage to the
Company and has determined that such vendors and suppliers have plans in place
that will circumvent year 2000 problems that could affect the Company.
Recent Accounting Pronouncements
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive Income,"
and No. 131, "Disclosures about segments of an Enterprise and Related
Information," which are effective for fiscal years beginning after December 15,
1997. These Statements will have no effect on the Company's financial position
or results of operations.
Net Income (Loss) Per Share
Basic and diluted earnings (loss) per share is computed by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding for the year (retroactively adjusted for the stock split in
1998).
1999 1998
----------- -----------
Net income (loss) to common shareholders $ (245,120) $ (904,354)
----------- -----------
Weighted average number of common
shares outstanding 3,710,333 3,912,264
----------- -----------
Basic and diluted income (loss) per share
from continuing operations $ (.07) $ (.23)
=========== ===========
2. CONTRACT RECEIVABLES
Contract receivables consist of the following as of December 31, 1999 and 1998.
1999 1998
-------- --------
Completed contracts $ 59,616 $230,777
Uncompleted contracts 439,203 70,334
Retainages 33,464 107,822
-------- --------
$532,283 $408,933
======== ========
7
<PAGE> 20
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts as of December 31, 1999
and 1998, consist of the following:
1999 1998
---------- ----------
Costs and expenses incurred on
uncompleted contracts $ 750,250 $2,220,525
Estimated earnings to date 139,821 116,870
---------- ----------
890,071 2,337,395
Less billings 756,549 2,218,526
---------- ----------
$ 133,522 $ 118,869
========== ==========
Included in accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 133,522 $ 128,894
Billings in excess of costs and estimated
earnings on uncompleted contracts -- (10,025)
--------- ---------
$ 133,522 $ 118,869
========= =========
The following schedule reflects a reconciliation of the Company's backlog
representing signed contracts in existence at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Backlog, beginning of year $2,018,000 $2,389,000
New contracts and contract adjustments 3,869,000 4,019,000
---------- ----------
Total 5,887,000 6,408,000
Less contract revenues earned in the current period 3,943,000 4,390,000
---------- ----------
Backlog, end of year $1,944,000 $2,018,000
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment as of December 31, 1999 and 1998 are:
1999 1998
---------- ----------
Dredges, barges and equipment $2,081,417 $2,329,760
Heavy equipment 1,397,777 1,542,956
Vehicles and transports 342,380 367,380
Shop equipment 68,386 43,564
Office equipment 25,609 28,816
---------- ----------
3,915,569 4,312,476
Less accumulated depreciation 1,717,872 1,386,799
---------- ----------
$2,197,697 $2,925,677
========== ==========
Depreciation expense was $590,713 in 1999 and $619,987 in 1998.
8
<PAGE> 21
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
5. DEBT
NOTES PAYABLE
Short-term debt consists of the following as of December 31, 1999 and 1998:
1999 1998
-------- --------
Note payable to a bank,
interest at 9.75%,
secured by a dredge $327,165 $ --
Other short- term notes payable 81,210 381,195
-------- --------
$408,375 $381,195
======== ========
LONG-TERM DEBT
Long term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C>
Note payable, bearing interest at 10.25%, payable monthly in principal and
interest of $8,548 with a balloon payment on January 1, 2001,
guaranteed by officers of the Company. 389,694 --
Note payable, interest at 6.4%, secured by stock of the Company, payments
of $100,000 principal plus accrued interest due April 9, and
July 9, 1998, 1999, 2000, 2001 respectively. 243,530 305,842
Notes payable to finance companies, bearing interest from 5.38% to 22.19%,
payable monthly from $186 to $12,468, secured by vehicles and equipment, final
payments due from April 1998 to January 2003. 643,716 908,312
Notes payable to banks, bearing interest from 6.45% to 14.7%, payable monthly
from $318 to $11,310, secured by vehicles and equipment, final payments
due from March 1997 to June 2001. $ 29,439 $ 816,186
---------- ----------
1,306,379 2,030,340
Less current maturities 426,829 844,433
---------- ----------
$ 879,550 $1,185,907
========== ==========
</TABLE>
9
<PAGE> 22
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
5. DEBT, CONTINUED
1999 1998
---------- ----------
Payments on long term debt due in 1999 $ $ 844,433
2000 426,829 416,653
2001 622,515 603,192
2002 246,503 155,530
2003 10,532 10,532
---------- ----------
$1,306,379 $2,030,340
========== ==========
6. INCOME TAXES
A provision for state and federal income taxes has been computed based on
amounts currently payable to (refundable from) taxing authorities and increased
or decreased by changes in deferred taxes. The current provision for income tax
consists of the following:
1999 1998
--------- ---------
Amount currently refundable $ -- $ (30,566)
Changes in deferred taxes
Current -- --
Long-term -- (181,700)
--------- ---------
$ -- $(212,256)
========= =========
Deferred tax liabilities, giving rise to deferred taxes, are recognized for
temporary differences that will result in taxable amounts in future years. At
December 31, 1999 and 1998, the Company had no deferred tax liabilities.
Offsetting future liabilities are net operating loss carry forwards amounting to
approximately $1,985,000. This operating loss will expire on December 31, 2013.
The loss carry forwards result in a deferred tax asset of $675,000, offset by a
valuation allowance of $675,000 at December 31, 1999.
7. STOCKHOLDERS' EQUITY
Pursuant to a stock subscription agreement dated November 7, 1997, the Company
sold 120 shares of class B stock to an unrelated third party for $48,000.
Pursuant to a contract signed on December 31, 1997 and consummated on April 9,
1998, the board of directors of the Company agreed to redeem the shares of two
directors comprising 100% of the class A and 60% of the class B shares issued by
the Company.
The redemption price set on December 31, 1997 was $0 per share of class A stock
and $1,455 per share for the class B stock. The total purchase price for the
shares was $436,365. On April 9, 1998, the Company signed a note payable to a
selling director for $400,000 bearing an interest rate of 6.4%. The note
requires principal payments of $100,000 payable on July 9, 1998, 1999, 200,
2001. The note is secured by the stock certificates issued to officers of the
Company. Also, the Company must maintain a term life insurance policy on the
life of the note holder to pay the unpaid balance of the note payable until such
time as the note is fully paid.
10
<PAGE> 23
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
7. STOCKHOLDERS' EQUITY, CONTINUED
On April 9, 1998, the Company authorized a stock split of 10,156.25 to one share
for each class B stock.
From April 9, 1998 through December 31, 1998, the Company issued 353,000 shares
of post split class B stock for $845,000.
In 1998, the Company also issued 100,000 shares of post split class B stock for
consulting services. The Company provided a charge to expense for $7,273.
The Company entered into an employment agreement with a selling director. The
agreement obligates the Company to pay the individual $75,000 per year and
provides him with health and term life insurance, as well as use of a Ford F350
truck with all expenses paid for a period of three years. At the end of the
agreement, the truck is to be given to the individual. This person retired in
May, 1999 and the employment agreement was terminated.
8. CONCENTRATION OF CREDIT RISK
During the year, the Company has maintained cash balances in excess of the
Federally insured limits. The funds are with major money center banks.
Consequently, the Company does not believe that there is a significant risk in
having these balances in the financial institutions. The cash balances at
December 31, 1999 were not over the limit.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its office, equipment and land used for equipment storage.
The minimum payments due under these leases are:
<TABLE>
<CAPTION>
Monthly Expiration Current Remaining
Obligation Date Portion Balance
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Equipment $ 3,287 07-07-00 $ 39,444 $ 98,619
Office and shop $ 4,426 11-14-01 $ 53,112 $ 48,686
</TABLE>
11
<PAGE> 24
LUDLUM CONSTRUCTION CO., INC. NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS
1999 AND 1998
================================================================================
10. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of the following for the years 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Salaries $ 261,313 $ 343,212
Bad debts 37,726 217,239
Taxes and licenses 38,930 82,245
Telephone and utilities 38,083 55,074
Rent 34,722 36,089
Professional fees 51,964 137,555
Office expenses 24,977 41,566
Insurance 36,172 21,103
Travel expenses 7,438 19,142
Depreciation and amortization (after allocations to job cost) 3,320 10,199
Other 18,359 73,756
---------- ----------
$ 553,054 $1,037,180
========== ==========
</TABLE>
12
