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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-27290
KSW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
37-16 23RD STREET, LONG ISLAND CITY, NEW YORK 11101
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
718-361-6500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO__ -
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
OUTSTANDING
CLASS JUNE 30, 1999
COMMON STOCK, $.01 PAR VALUE 5,468,644
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THIS IS PAGE 1 OF 15 PAGES.
INDEX TO EXHIBITS IS ON PAGE 13.
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1999 3
and December 31, 1998
Consolidated Statements of Operation - Six months 4
and three months ended June 30, 1999
and 1998
Consolidated Statements of Cash Flow - Six months 5
ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
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SIGNATURES 12
INDEX TO EXHIBITS 13
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KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
KSW, INC. and SUBSIDIARY
Consolidated Balance Sheet
(in thousands)
ASSETS June 30, 1999 Dec. 31, 1998
Current assets: ------------- -------------
Cash and cash equivalents $2,959 $2,404
Accounts receivable, less allowance
for doubtful accounts of $152 and $160 at
June 30, 1999 and December 31,1998, respectively 10,265 9,212
Retainage receivable 3,367 3,747
Costs and estimated earnings in excess
of billings on uncompleted contracts 135 392
Prepaid expense and other receivables 801 827
-------- --------
Total current assets 17,527 16,582
Property and equipment net of accumulated
depreciation of $1,411 and $1,320 at June 30, 1999
and December 31,1998, respectively 332 410
Other Assets
Goodwill, net of accumulated amortization of $1,094
and $1,017 at June 30, 1999 and December 31, 1998,
respectively 3,896 3,973
Other 308 308
-------- --------
Total Assets $22,063 $21,273
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $5,485 $5,464
Retainage payable 1,711 2,242
Accrued payroll and related benefits 393 426
Accrued expenses 138 189
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,375 3,067
--------- --------
Total current liabilities 12,102 11,388
Long-term liabilities 40 57
--------- --------
Total liabilities 12,142 11,445
Stockholders' equity:
Common stock, $.01 par value: 25,000,000 shares
authorized: 5,468,644 shares issued
and outstanding at June 30, 1999
and December 31, 1998 54 54
Additional paid-in capital 9,726 9,726
Retained earnings 141 48
---------- --------
Total stockholders' equity 9,921 9,828
---------- ---------
Total Liabilities and Stockholders' Equity $22,063 $21,273
========== =========
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Six Months Six Months Three Months Three Months
Ended 6/30/99 Ended 6/30/98 Ended 6/30/99 Ended 6/30/98
------------- ------------- ------------- -------------
Revenues:
Contracts $16,610 $19,642 $ 7,706 $ 9,919
Fees from sellers 31 20 19 13
Interest 23 48 11 30
----------- ---------- ------------ ----------
16,664 19,710 7,736 9,962
Cost of sales 14,643 18,732 6,769 9,488
----------- ---------- ------------ ----------
Gross profit 2,021 978 967 474
Selling, general and administrative expenses 1,867 2,209 947 1,066
Interest 13 22 6 10
----------- ----------- ----------- ----------
Profit/(loss) before provision for income taxes 141 (1,253) 14 (602)
Provision for income taxes 48 (597) 8 (277)
----------- ----------- ----------- ----------
Net profit (loss) $ 93 $ (656) $ 6 $ (325)
=========== ============ ============ ==========
Net profit/(loss) per common share-basic $0.02 ($0.12) ($0.00) $(0.06)
=========== ============ ============ ===========
Weighted average common shares 5,468,644 5,458,366 5,468,644 5,458,366
outstanding - basic ============ ============ ============ ===========
Net profit/(loss) per common share $0.02 ($0.11) ($0.00) ($0.06)
diluted ============ ============ ============ ===========
Weighted average common shares outstanding- 5,468,644 5,741,548 5,468,644 5,701,278
diluted ============ ============ ============ ===========
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
Six Months Six Months
Ended 6/30/99 Ended 6/30/98
-------------- ---------------
Cash flows from operating activities:
Net income (loss) 93 (656)
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 167 209
Changes in operating assets and liabilities
Accounts and retainage receivable (673) 3,689
Costs and estimated earnings in excess of billings
on uncompleted contracts 257 109
Prepaid expenses and other receivables 26 (475)
Accounts and retainage payable (510) (3,668)
Acrued salaries and related benefits (33) (239)
Accrued expenses (51) 29
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,308 2,507
------------ -----------
Net cash provided by operating activities: 584 1,505
Cash flows from investing activities:
Purchase of property and equipment (12) (45)
Other assets 57
Other liabilities (4)
------------ -----------
Net cash provided by (used in) investing activities (12) 8
------------ -----------
Cash flows from financing acitivities:
Issuance of stock 102
Exercise of stock options 20
Re-purchase of stock (159)
Long-term liabilities (17) -
------------ -----------
Net cash provided by financing activities (17) (37)
------------ -----------
Net increase in cash and cash equivalents 555 1,476
Cash and cash equivalents, beginning of period 2,404 2,184
Cash and cash equivalents, end of period 2,959 $3,660
============ ===========
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of June 30, 1999 and December 31, 1998 and the results of operations
and cash flows for the three and six month periods ended June 30, 1999 and 1998.
Because of the possible fluctuations in the marketplace in the construction
industry, operating results of the Company on a quarterly basis may not be
indicative of operating results for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter of 1999 decreased by $2,226,000 or 22% to
$7,736,000 from $9,962,000 for the second quarter of 1998. During the first six
months of 1999, revenues decreased by $3,046,000 or 15% to $16,664,000 from
$19,710,000 for the first six months of 1998. These decreases in revenues for
the second quarter and the first six months of 1999 were due primarily to the
delayed start of several projects which did not start until the latter part of
the second quarter of 1999. It is anticipated that these projects will
contribute significant revenues during the balance of 1999. Backlog at June 30,
1999 increased 39% to $ 50,000,000 compared to $ 36,000,000 at June 30, 1998.
COST OF SALES
Cost of sales for the second quarter of 1999 decreased by $2,719,000 or 29% to
$6,769,000 from $9,488,000 for the second quarter of 1998. Cost of sales for the
first six months of 1999 decreased by $4,089,000 or 22% to $14,643,000 from
$18,732,000 for the first six months of 1998. The decreases were due to the
decrease in sales revenues noted above.
GROSS PROFIT
Gross profit for the second quarter of 1999 increased by $493,000 or 104% to
$967,000 from $474,000 in the second quarter of 1998. During the first six
months of 1999 gross profit increased by $1,043,000 or 107% to $2,021,000 from
$978,000 for the first six months of 1998. Gross profit percentage for the
second quarter of 1999 rose to 12.5% as compared to 4.8% for the second quarter
of 1998. Gross profit percentage for the first six months of 1999 rose to 12.1%
as compared to 5.0% for the first six months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the second quarter of
1999 decreased by $119,000 or 11% to $947,000 from $1,066,000 for the second
quarter of 1998. For the six months ended June 30, 1999, SG&A expenses decreased
$342,000 or 15% to $1,867,000 from $2,209,000 for the first six months of 1998.
The decreases were partially due to cost savings measures undertaken by the
company during the fourth quarter of 1998, including closing one of its two
fabrication facilities.
PROVISION FOR TAXES
The tax provision for the three months ended June 30, 1999 was $8,000 as
compared to a benefit of ($277,000) for the same period in 1998, due to the
profit/loss for the respective periods. The tax provision for the six months
ended June 30, 1999 was $48,000 as compared to a benefit of ($597,000) for the
same period in 1998, due to the profit/loss for the respective periods.
NET GAIN/LOSS
The net profit for the second quarter of 1999 was $6,000 compared to a net loss
of ($325,000) for the second quarter of 1998 due to the items mentioned above.
For the six months ended June 30, 1999, there was a net profit of $93,000
compared to loss of ($656,000) for the same period in 1998.
LIQUIDITY AND CASH FLOW
For the first six months of 1999, cash provided by operations was $584,000. For
the same period in 1998 the cash provided by operations was $1,505,000. The
positive cash flow for the first half of 1999 was a result of the net profit and
improved billing procedures.
While no significant capital improvements are projected over the next year, cash
may be needed to fund the start-up costs for new projects. The Company currently
has a $2,000,000 revolving credit facility with Fleet Bank, which it has not
used during 1999. The Company believes this credit facility should be adequate
for the balance of 1999.
YEAR 2000 COMPLIANCE
The Company uses computer software programs and operating systems in its
internal operations, including applications used in billing and various
administrative functions. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year
and impacts both information technology ("IT") and non-IT systems. Any of the
Company's computer programs that have time- sensitive software may recognize a
date using "00" as the year 1900 rather than the Year 2000. This could cause the
Company to incur expenses and the risk and potential expense of any disruptions
that may be caused by the software's impaired functioning as the Year 2000
approaches and by the modification or replacement of such software, including a
temporary inability to send correct invoices or engage in similar normal
administrative activities.
Management has assessed the Company's Year 2000 readiness and determined that
all its computer hardware and software programs are Year 2000 compliant. The
Company, therefore, does not expect to incur significant expenditures to address
Year 2000 compliance. The ability of third parties with whom the Company
transacts business to address adequately their Year 2000 compliance is beyond
the Company's control. The Company has contacted its subcontractors and material
suppliers to determine, to the extent that they utilize computers, their Year
2000 compliance status and their remediation plans if they are not Year 2000
compliant. The Company is a mechanical contractor that relies heavily on the
skills of its subcontractors for its business. The Company currently believes
the consequences of Year 2000 issues with respect to these third parties will
not have a material adverse effect on the Company's business, results of
operations and financial condition. However, there can be no assurance that
these expectations will be met. Actual results could differ from the Company's
plans.
FORWARD-LOOKING STATEMENTS
All statements contained herein and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that are not historical facts,
including but not limited to statements regarding the Company's current business
strategy, and plans for future development and operations are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties, many of which are not within the control of
the Company. Actual results may differ materially. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Litigation Reform Act of 1995
and as such, speak only as of the date made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's market risk exposure with respect to financial instruments depends
upon changes in the "prime rate" in the United States. We may borrow up to
$2,000,000 under our credit facility. Amounts outstanding under the credit
facility bear interest at the bank's prime rate plus 1.00%. At June 30, 1999,
there were no amounts outstanding under the credit facility. The Company
currently does not use interest rate derivative instruments to manage exposure
to interest rate charges.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company or its subsidiary is a party to any regulatory investigation
or inquiry with any governmental agency. The following are the material lawsuits
to which the Company is a party:
a. CO-OP CITY. The Company has sued the General Contractor and its
bonding company in New York State Supreme Court, Queens County, to
recover its contract balance and unpaid proposals in the sum of
$5,362,290. Included is a claim for unanticipated costs incurred
through 1998 in the sum of $3,252,122. The action is in the discovery
stage. While the Company believes this lawsuit has merit, there is no
guaranty the claim will ultimately be successful.
b. HELIONETICS CREDITORS COMMITTEE V. BARNES, ET. AL. On April 26, 1999,
the Company and six current or former officers and directors were
named in a lawsuit in U.S. Bankruptcy Court, Central District of
California, instituted by the Creditors Committee of Helionetics, Inc.
The complaint alleges that the December 28, 1995 Distribution by
Helionetics of KSW, Inc. stock to Helionetics' shareholders was a
fraudulent conveyance, and seeks compensatory damages of $12,141,000,
plus punitive damages. The December 28, 1995 Distribution of stock was
made pursuant to a Form 10 Registration filed with and declared
effective by the Securities and Exchange Commission. The Company
believes that the lawsuit is totally without merit and will
aggressively defend the case.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting, held on May 18, 1999, the stockholders approved
the following resolutions:
a. The stockholders re-elected Daniel Spiegel as a Class I director, to
serve for a term of three years, and elected Stanley Kreitman as a
Class I Director for a three year term. Mr. Kreitman was appointed to
the Board of Directors on February 18, 1999 to replace Armand D'Amato,
who resigned, effective December 10, 1998, for personal reasons
unrelated to the Company or its operations. The voting was as follows:
VOTED AGAINST
NAME: VOTED FOR: OR WITHELD:
Daniel Spiegel 4,593,729 13,116
Stanley Kreitman 4,593,729 13,116
b. The stockholders ratified the appointment of Marden, Harrison &
Kreuter as independent auditors for the Company for the year 1999.
There were 4,596,581 shares voted for approval, 6,630 shares voted
against and 3,634 abstentions.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1 Exhibits
Exhibit 11 - Statement Regarding Computation of Net Earnings (Loss) per
Share Earnings
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K during the second
quarter of 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KSW, INC.
Date: August 9, 1999
/S/ ROBERT BRUSSEL
--------------------------------
Robert Brussel
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
KSW, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
11 Statement Regarding Computation of Net Earnings
(Loss) per Share Earnings 14
27 Financial Data Schedule 15