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 SEPTEMBER 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
- --------------------------------------------- -----
(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 SEPTEMBER 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 SEPTEMBER 30, 1999
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 3
September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Operation - 4
Nine months and three months ended September 30, 1999
and 1998
Condensed Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosure About Market Risk 9
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matter to a Vote of Security Holders 11
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 SHEET
(in thousands)
SEPT. 30, 1999 DEC. 31, 1998
-------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 3,986 $ 2,404
Accounts receivable, less allowance
for doubtful accounts of $167 and $160 at
September 30, 1999 and December 31,1998,
respectively 17,020 9,212
Retainage receivable 3,685 3,747
Costs and estimated earnings in excess
of billings on uncompleted contracts 517 392
Prepaid expenses and other receivables 604 827
Total current assets 25,812 16,582
------- -------
Property and equipment net of accumulated
depreciation of $1,444 and $1,320 at September
30, 1999 and December 31,1998, respectively 366 410
Other Assets
Goodwill, net of accumulated amortization of
$1,132 and $1,017 at September 30, 1999 and
December 31, 1999, respectively 3,858 3,973
Other 8 308
TOTAL ASSETS $30,044 $21,273
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Account payable $ 9,727 $ 5,464
Retainage payable 1,810 2,242
Accrued payroll and related benefits 797 426
Accrued expenses 255 189
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,912 3,067
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Total current liabilities 19,501 11,388
Long Term Liabilities 48 57
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Total liabilities 19,549 11,445
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Stockholders' Equity
Common stock,$.01 par value; 25,000,000 shares
authorized; 5,468,644 shares issued
and outstanding at September 30,1999 and
December 31,1998 54 54
Additional paid-in capital 9,726 9,726
Retained earnings 715 48
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Total stockholders' equity 10,495 9,828
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $30,044 $21,273
======= =======
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED 9/30/99 ENDED 9/30/98 ENDED 9/30/99 ENDED 9/30/98
------------- ------------ ------------ -------------
REVENUES:
Contracts $ 31,005 $ 30,414 $ 14,395 $ 10,772
Fees from sellers 221 30 190 10
Interest 61 81 38 33
------------ ------------ ------------ ------------
31,287 30,525 14,623 10,815
Cost of sales 26,963 28,409 12,320 9,677
------ ------ ------ -----
GROSS PROFIT 4,324 2,116 2,303 1,138
Selling, general and administrative 3,097 3,304 1,230 1,094
expenses
Interest 20 32 7 10
----------- ----------- ------------ ------------
Profit/(loss) before provision for 1,207 (1,220) 1,066 34
income taxes
Provision (benefit) for income taxes 540 (581) 492 17
----------- ----------- ------------ ------------
NET PROFIT (LOSS) $ 667 $ (639) $ 574 $ 17
=========== =========== =========== ===========
Net profit/(loss) per common share-basic $ 0.12 ($ 0.12) $ 0.10 $ 0.00
=========== =========== =========== ===========
Weighted average common shares 5,468,644 5,461,792 5,468,644 5,461,792
outstanding - basic ========= ========= ========= =========
Net profit/(loss) per common share - $ 0.12 ($ 0.11) $ 0.10 $ 0.00
diluted =========== =========== =========== ===========
Weighted average common shares - 5,468,644 5,700,459 5,468,644 5,555,650
diluted ========= ========= ========= =========
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
NINE MONTHS NINE MONTHS
ENDED 9/30/99 ENDED 9/30/98
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Cash Flows from operating activities:
Net Income (Loss) $ 667 ($ 639)
Adjustments to reconcile net income to cash
provided
by operating activities:
Depreciation and Amortization 239 313
Changes in Operating Assets and Liabilities:
Accounts and Retainage Receivable (7,746) 3,954
Costs and Estimated Earnings in excess of
billings on uncompleted contracts (125) (138)
Prepaid Expenses and other receivables 223 (324)
Accounts and Retainage Payable 3,831 (3,907)
Acrued Salaries and Related Benefits 371 (103)
Accrued Expenses 66 (540)
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,845 1,883
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,371 499
----- ---
Cash Flows From Investing Activities:
Purchase of Property and Equipment ($ 80) (56)
Other Assets $ 300 57
Other Liabilities (9) (15)
-- ---
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 211 (14)
--- ---
Cash Flows from Financing Acitivities:
Issuance of Stock 102
Exercise of Stock Options 20
Repurchase of Stock -- (159)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -- (37)
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Net Increase in Cash and Cash Equivalents $ 1,582 448
Cash and Cash Equivalents, beginning of period 2,404 2,184
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,986 $2,632
======== =====
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of September 30, 1999 and December 31, 1998 and the results of
operations and cash flows for the three and nine months ended September 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 third quarter of 1999 increased by $3,808,000, or 35%, to
$14,623,000 from $10,815,000 for the third quarter of 1998. During the first
nine months of 1999 revenues increased by $762,000, or 2%, to $31,287,000 from $
30,525,000 for the first nine months of 1998. The increase in revenues for the
third quarter was due to work performed on several new projects which started
toward the end of the second quarter and were in full production during the
third quarter. The increase for the first nine months was less dramatic since
the revenues from these projects were negligible in the first two quarters. With
approximately $27,000,000 of new projects obtained in October, 1999 backlog of
construction projects at October 31, 1999 was $64,000,000, an increase of 73%
from the backlog of $37,000,000 at September 30, 1998.
COST OF SALES
Cost of sales for the third quarter of 1999 increased by $2,643,000, or 27%, to
$12,320,000 from $9,677,000 for the third quarter of 1998. Cost of sales for the
first nine months of 1999 decreased by $1,446,000, or 5%, to $26,963,000 from
$28,409,000 for the first nine months of 1998. The increase for the third
quarter was due to the increase in sales revenues noted above. The decrease for
the first nine months was due to higher gross profit percentages in 1999 than in
1998.
GROSS PROFIT
Gross profit for the third quarter of 1999 increased by $1,165,000, or 102%, to
$2,303,000 from $1,138,000 in the third quarter of 1998. During the first nine
months of 1999 gross profit increased by $2,208,000, or 104%, to $4,324,000 from
$2,116,000 for the first nine months of 1998. Gross profit percentage for the
third quarter of 1999 rose to 15.7% as compared to 10.5% for the third quarter
of 1998. Gross profit percentage for the first nine months of 1999 rose to
13.8%, as compared to 6.9% for the first nine months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the third quarter of
1999 increased by $136,000, or 12%, to $1,230,000 from $1,094,000 for the third
quarter of 1998. The SG&A expenses for the third quarter of 1999 include an
accrued bonus for the executive officers in accordance with their respective
employment agreements. For the nine months ended September 30, 1999, SG&A
expenses decreased by $207,000, or 6%, from $3,304,000 to $3,097,000 for the
first nine months of 1998. This was the result of cost saving measures
instituted by the Company during the fourth quarter of 1998, including closing
one of its two fabrication facilities. The SG&A expenses for the third quarter
of 1999 were 8.4% of revenue versus 10.1% of revenue in 1998. For the first nine
months the SG&A expenses were 9.9% of revenue in 1999 versus 10.8% of revenue in
1998.
PROVISION FOR TAXES
The tax provision for the three months ended September 30, 1999 was $492,000 as
compared to $17,000 for the same period in 1998, due to the profit/loss for the
respective periods. The tax provision for the nine months ended September 30,
1999 was $540,000 compared to a benefit of ($581,000) for the same period in
1998, due to the profit/loss for the respective periods.
NET GAIN/LOSS
The net profit for the third quarter of 1999 was $574,000 compared to a net
profit of $17,000 for the third quarter of 1998 due to the items mentioned
above. For the nine months ended September 30, 1999 there was a net profit of
$667,000 compared to a net loss of ($639,000) for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1999, cash provided by operations was $1,371,000.
For the same period in 1998 the cash provided by operations was $499,000. The
positive cash flow for 1998 was a result of lower accounts and retainage
receivable due to declining sales volume. In 1999, the increase in accounts and
retainage receivable was more than offset by profits 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 DISCLOSURE 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 September 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 nor 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. In February, 1999 the Company 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 Company has not booked any revenue
with respect to this claim. The action is in the discovery stage. While the
Company and its counsel 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. This action is in the discovery stage, and no trial date has
been set. The Company believes that the lawsuit is totally without merit,
has accrued costs for litigation expenses, and is aggressively defending
the case.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K during the third
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.
Dated: November 10, 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
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11 Statement Regarding Computation of Per Share Earnings 14
27 Financial Data Schedule 15