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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, 2001
COMMISSION FILE NUMBER 0-27290
KSW, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
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(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
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(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, 2001
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COMMON STOCK, $.01 PAR VALUE 5,470,311
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THIS IS PAGE 1 OF 16 PAGES.
INDEX TO EXHIBITS IS ON PAGE 15.
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2001
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TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations
Six Months and Second Quarter ended
June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows 5
Six months ended June 30, 2001 and 2000
Consolidated Statement of Comprehensive Income
Six months and Second Quarter ended June
30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Independent Accountants' Review Report 9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Change in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matter to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K. 13
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SIGNATURE 14
INDEX TO EXHIBITS 15
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, 2001 Dec. 31, 2000
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 1,981 $ 3,499
Marketable Securities 696 2,541
Accounts receivable, less allowance
for doubtful accounts of $200 at
6/30/01 and 12/31/00 14,008 13,704
Retainage receivable 2,968 3,263
Costs and estimated earnings in excess of
billings on uncompleted contracts 308 138
Deferred income taxes 1,786 227
Prepaid expenses and other receivables 699 879
----------- -----------
Total current assets 22,446 24,251
Property and equipment, net of accumulated
depreciation of $1,722 and $1,644 at 6/30/01
and 12/31/00, respectively 323 337
Other Assets:
Goodwill, net of accumulated amortization
of $1,399 and $1,323 at 6/30/01 and 12/31/00,
respectfully 3,591 3,667
Deferred income taxes 68
Other 8 8
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TOTAL ASSETS $ 26,436 $ 28,263
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable - current $ 1,444 -
Account payable 6,041 $ 8,823
Retainage payable 1,698 1,781
Accrued payroll and related benefits 1,171 1,148
Accrued expenses 723 680
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,321 4,823
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Total current liabilities 17,398 17,255
Long-term liabilities 24 51
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Total liabilities 17,422 17,306
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Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 5,470,311 shares issued and
outstanding at June 30, 2001 and December 31, 2000 54 54
Additional paid-in capital 9,729 9,729
Retained earnings (deficit) (758) 1,149
Net unrealized holding gain (loss) on available for
sale securities (11) 25
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Total stockholders' equity 9,014 10,957
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,436 $ 28,263
=========== ===========
See Accountants' review report and notes to Consolidated Financial Statements
3
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED
Six Months Six Months Three Months Three Months
Ended 6/30/01 Ended 6/30/00 Ended 6/30/01 Ended 6/30/00
------------- ------------- ------------- -------------
Revenues:
Contracts $ 20,310 $ 26,701 $ 9,747 $ 14,663
Fees 22 16 0 13
Interest 70 168 14 88
-------------- -------------- -------------- --------------
20,402 26,885 9,761 14,764
Cost of Sales 21,480 23,258 10,532 13,052
-------------- -------------- -------------- --------------
GROSS PROFIT (LOSS) (1,078) 3,627 (771) 1,712
Selling, general and
administrative expenses 2,389 2,331 1,199 1,167
Interest 32 13 29 5
-------------- -------------- -------------- --------------
Income (loss) before provision for
income taxes (3,499) 1,283 (1,999) 540
Provision (benefit) from income (1,592) 584 (908) 254
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taxes
Net income $ (1,907) $ 699 $ (1,091) $ 286
============== ============== ============== ==============
(loss)
Net income (loss) per common
share - basic $ (.35) $ .13 $ (.20) $ .05
============== ============== ============== ==============
Net income (loss) per common
share - diluted $ (.35) $ .12 $ (.20) $ .05
============== ============== ============== ==============
Weighted average common
shares outstanding - basic 5,470,311 5,468,644 5,470,311 5,468,644
============== ============== ============== ==============
Weighted average common
shares outstanding diluted 5,470,311 5,659,226 5,470,311 5,663,535
============== ============== ============== ==============
See Accountant's review report and notes to consolidated Financial Statements
4
KSW, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Six Months
Ended 6/30/01 Ended 6/30/00
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Cash Flows from operating activities:
Net Income (loss) $ (1,907) $ 699
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
Depreciation and Amortization 154 166
Deferred income taxes
Changes in Operating Assets & Liabilities: (1,627) -
Accounts and Retainage Receivable (9) (2,289)
Costs and Estimated Earnings in excess of billings
on uncompleted (170) (27)
contracts
Prepaid Expenses and other receivables 180 (38)
Accounts and Retainage Payable (2,865) 1,258
Accrued Payroll and Related Benefits 23 210
Accrued Expenses 43 (215)
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,498 116
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NET CASH USED IN OPERATING ACTIVITIES: (4,680) (120)
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (64) (80)
Sale of marketable securities 1,809 -
Other liabilities (27) 15
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,718 (65)
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Cash Flows from Financing Activities:
Increase in loan payable current 1,444 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,444 -
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Net decrease in Cash & Cash Equivalents (1,518) (185)
Cash & Cash Equivalents, beginning of period 3,499 6,651
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Cash & Cash Equivalents, end of period $ 1,981 $ 6,446
=============== ===============
See Accountants' review report and notes to Consolidated Financial Statements
5
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
Six Months Six Months Three Months Three Months
Ended June 30, 2001 Ended June 30, 2000 Ended June 30, 2001 Ended June 30, 2000
------------------- ------------------- ------------------- -------------------
Net Income (Loss) $ (1,907) $ 699 $ (1,091) $ 286
Other Comprehensive income (loss):
Net unrealized holding gain
(loss) during year
------------ ------------ ------------ ------------
(36) -- 27 --
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Total Comprehensive income (loss)
$ (1,943) $ 699 $ (1,064) $ 286
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See Accountants' review report and notes to Consolidated Financial Statements
6
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. In the opinion of the Company's Management, the accompanying 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, 2001 and December 31, 2000, and the results of operations
and cash flows for the six and three month periods ended June 30, 2001 and 2000.
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.
2. The Company is not aware of any pending or threatened legal proceedings which
could have a material adverse effect on its financial position or results of
operations, other than item (b) below. The following are the material lawsuits
in 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 $5,770,919. Included is a claim for unanticipated costs
incurred through 1998 in the sum of $3,662,734. Discovery has been
completed and the action placed on the trial calendar. The case
should be tried within the next twelve months. While the Company and
its counsel believe the 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 $10,890,000,
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 is
aggressively defending the case. On March 15, 2001, the Court denied
a motion for summary judgment filed by the Company and its directors,
except the Court dismissed the case against director Robert Brussel.
The Court found that there were issues of fact requiring trial on the
7
merits. On May 30, 2001, the Court granted partial summary judgment
dismissing Plaintiff's fraudulent conveyance causes of action
relating to the distribution and dismissed plaintiff's causes of
action for aiding and abetting and for conspiracy to breach fiduciary
duties.
c. Stroock & Stroock & Lavan, LLP. On February 13, 2001, the Company
commenced an action in the Superior Court of the State of California,
County of Los Angeles against its former counsel, Stroock & Stroock &
Lavan, LLP ("Stroock") for malpractice in connection with Stroock's
representation of the Company in connection with the transactions
which form the basis for the Helionetics Creditors Committee Action
described in paragraph 2(b) above. The Complaint also alleges
malpractice in connection with Stroock's representation of the
Company and three of its Directors and Officers in the Helionetics
Creditors Committee Action. Subsequent to the filing of this action
in California, Stroock sued the Company and three of its directors in
New York State Supreme Court seeking "not less than $300,000" for
legal fees allegedly due in connection with Stroock's representation
of the Company in the Helionetics Creditors Committee Action describe
in Note 2 (b), above. The Company has moved to dismiss this case on
the grounds that California is the proper venue for the parties'
disputes and that any claims for legal fees relates to the Company's
malpractice action in California.
3. OTHER CLAIMS During the course of its work on construction projects,
the Company incurs expenses for work outside the scope of its
contractual obligations, for which no written acknowledgment of
liability for the additional cost from the owner or general
contractor yet exists. These claims may include change proposals for
extra work or requests for an equitable adjustment to the Company's
contract price due to unforeseen disruptions to its work. In
accordance with accounting principles generally accepted in the
United States of America, until written acknowledgment of these
claims are received, they are not reflected in the accompanying
Financial Statements. At the current time, in addition to the Co-op
City claim discussed in Note 2 a on above, these claims total over
$4,000,000. While the Company has been generally successful in
obtaining a favorable resolution of such claims, there is no
assurance that the Company will be successful in the future.
8
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
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To the Board of Directors and Stockholders
KSW, Inc.
37-16 23rd Street
Long Island City, New York 11101
We have reviewed the accompanying consolidated balance sheet of KSW, Inc. and
subsidiary as of June 30, 2001, and the related consolidated statements of
operations, comprehensive income, retained earnings, and cash flows for the
three month and six month periods ended June 30, 2001 and 2000. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of KSW,
Inc. and subsidiary as of December 31, 2000, and the related consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the year then ended not presented herein; and in our report dated
February 1, 2001, except note 9 (f), as to which the date is March 15, 2001, we
expressed an unqualified opinion on those consolidated financial statements.
Marden, Harrison & Kreuter
Certified Public Accountants, P.C.
White Plains, New York
July 25, 2001
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter of 2001 decreased by 34% or $5,003,000 to
$9,761,000 compared to $14,764,000 for the second quarter of 2000. During the
first six months of 2001, revenues decreased 24% or $6,483,000 to $20,402,000
compared to $26,885,000 for the first six months of 2000. These decreases in
revenues for the second quarter and the first six months of 2001 were due to the
delayed start of several new projects. Future quarters should reflect higher
revenues due to increased backlog. As of June 30, 2001, the Company had a
backlog of $65,000,000 as compared to $54,000,000 at June 30, 2000.
COST OF SALES
Cost of sales for the second quarter of 2001 decreased by $2,520,000, or 19%, to
$10,532,000 from $13,052,000 as a result of the decrease in sales revenue noted
above. Cost of sales for the first six months of 2001 decreased by $1,778,000,
or 8%, to $21,480,000 from $23,258,000 for the same reason.
GROSS PROFIT
For the second quarter of 2001, there was a gross loss of $771,000 (-8%) as
compared to a gross profit of $1,712,000 (12%) for the second quarter of 2000.
For the six months ended June 30, 2001, there was a gross loss of $1,078,000
(-5%) as compared to a gross profit of $3,627,000 (13%) for the comparable
period in 2000. The gross losses generated in 2001 were due to lower than
expected labor productivity on certain projects. The Company has submitted
proposals and/or claims for what it believes is work performed outside its
contractual obligations; however, in accordance with accounting principles
generally accepted in the United States of America no additional revenue has
been recorded for these proposals at June 30, 2001 (see Note 3 to Financial
Statements).
10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased from $1,167,000
for the second quarter of 2000 to $1,199,000 for the second quarter of 2001, an
increase of $32,000 or 3%. For the six months ended June 30, 2001, SG&A expenses
increased $58,000, or 2%, from $2,331,000 to $ 2,389,000. The increases were due
to $234,000 of legal and consulting fees ($200,000 of which occurred in the
second quarter) in connection with the legal matters described in the notes to
Financial Statements.
PROVISION FOR TAXES
The tax benefit for the three months ended June 30, 2001 was $908,000 as
compared to a tax provision of $254,000 for the same period in 2000. For the six
months ended June 30, 2001, the tax benefit was $1,592,000 compared to a tax
provision of $584,000 for the same period in 2000. The tax provision (benefit)
for each period in 2001 and 2000 was approximately 46% of net income (loss)
before taxes.
NET INCOME
The net loss for the second quarter of 2001 was $1,091,000 compared to a net
income of $286,000 for the second quarter of 2000 due to the items mentioned
above. For the six months ended June 30, 2001, there was a net loss of
$1,907,000 compared to a profit of $699,000 for the same period in 2000, also
due to the other items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of 2001, cash used by operations was $4,680,000. For
the same period in 2000 the cash used by operations was $120,000. The decrease
in cash flow from operations for 2001 was due to the losses generated, increases
in deferred taxes and decreases in accounts payable which were partially offset
by an increase in billings in excess of costs and estimated earnings on
uncompleted projects. The cash flow was funded in part by the sale of marketable
securities in the amount of $1,809,000 and an increase in loans payable current
of $1,444,000.
The Company recently extended its line of credit facility with Merrill Lynch for
$2,000,000 to December 31, 2001. The line calls for borrowing at 3% over the 30
day dealer Commercial Paper Rate, which at June 30, 2001 was .06% below prime.
The line is subject to certain financial covenants.
The Company has no significant capital improvements projected over the next
year; however, any substantial increases in revenue may require additional funds
for start-up costs.
11
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 "30 Day Dealer Commercial Paper Rate".
The Company may borrow up to $2,000,000 under its credit facility. At June 30,
2001, there was $1,444,000 outstanding under the credit facility which was fully
repaid in July 2001. 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
See Note 2 to Consolidated Financial Statements.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting on May 10, 2001, the stockholders approved the
following resolutions:
a. The stockholders re-elected Floyd Warkol and Burton Reyer
as Class III directors to serve for a term of three years.
There were 4,504,761 shares voted for the resolution and
153,392 shares voted against it. Continuing as directors
of the Company after the meeting were Stanley Kreitman and
Daniel Spiegel as Class II directors and Robert Brussel as
Class I director.
b. The stockholders ratified the appointment of Marden,
Harrison & Kreuter as independent auditors for the Company
for the year 2001. There were 4,650,029 shares voted for
the resolution, 2,822 shares voted against it and 5,295
abstentions.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
(b) The Company did not file any Current Reports on Form 8-K during the second
quarter of 2001.
13
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 14, 2001 /s/ Robert Brussel
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Robert Brussel
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
14
KSW, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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11 Statement Regarding Computation of Per Share Earnings 16
15