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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 SEPTEMBER 30, 2001
COMMISSION FILE NUMBER 0-27290
KSW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
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 SEPTEMBER 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
NY2:\1094795\02\NGQZ02!.DOC\79775.0001
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - 3
September 30, 2001 and December 31, 2000
Consolidated Statements of Operation - 4
Nine months and three months ended September 30, 2001
and 2000
Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 2001 and 2000
Consolidated Statement of Comprehensive Income for the
Nine Months and Third Quarter ended September 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Independent Accountants' Review Report
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 12
Market Risk
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities and Use of Proceeds 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, 2001 Dec. 31, 2000
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $2,298 $3,499
Marketable Securities 573 2,541
Accounts receivable, less allowance
for doubtful accounts of $200 at
9/30/01 and 12/31/00 17,220 13,704
Retainage receivable 2,434 3,263
Costs and estimated earnings in excess of
billings on uncompleted contracts 328 138
Deferred Income Taxes 1,571 227
Prepaid expenses and other receivables 472 879
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Total current assets 24,896 24,251
Property and equipment, net of accumulated
depreciation of $1,748 and $1,644 at 9/30/01
and 12/31/00, respectively 367 337
Other Assets:
Goodwill, net of accumulated amortization of $1,437
and $1,323 at 9/30/01 and 12/31/00, respectively 3,553 3,667
Deferred Income Taxes 68 0
Other 8 8
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TOTAL ASSETS $28,892 $28,263
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $10,300 $8,823
Retainage payable 2,403 1,781
Accrued payroll and related benefits 1,040 1,148
Accrued expenses 508 680
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,375 4,823
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Total current liabilities 19,626 17,255
Long-term liabilities 22 51
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Total liabilities 19,648 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 9/30/01 and 12/31/00 54 54
Additional paid-in capital 9,729 9,729
Retained earnings (deficit) (491) 1,149
Net unrealized holding gain (loss) on available
for sale securities (48) 25
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Total stockholders' equity 9,244 10,957
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,892 $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)
Nine Months Nine Months Three Months Three Months
Ended 9/30/01 Ended 9/30/00 Ended 9/30/01 Ended 9/30/00
------------- ------------- ------------- -------------
REVENUES:
Contracts $36,832 $37,785 $16,498 $11,084
Fees 22 46 0 30
Loss on Sale of
Marketable Securities (82) 0 (58) 0
Interest 78 236 8 68
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36,850 38,067 16,448 11,182
Cost of Sales 36,246 33,749 14,766 10,491
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GROSS PROFIT 604 4,318 1,682 691
Selling, general and administrative
expenses 3,549 3,587 1,160 1,256
Interest 40 20 8 7
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Profit/(Loss) before provision
for income taxes (2,985) 711 514 (572)
Provision/(benefit) for income
taxes (1,345) 327 247 (257)
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NET INCOME (LOSS) $(1,640) $384 $267 $(315)
============= ============= ============= =============
Net Income/(loss) per common
share - basic $(.30) $0.07 $.05 $(0.06)
============= ============= ============= =============
Weighted Average Common
Shares outstanding - basic $5,470,311 $5,468,644 $5,470,311 $5,468,644
============= ============= ============= =============
Net Income (loss) per common share
- diluted $(.30) $.07 $.05 $(0.06)
============= ============= ============= =============
Weighted average common
shares outstanding diluted 5,470,311 5,656,976 5,470,311 5,654,834
============= ============= ============= =============
See Accountant's review report and notes to consolidated Financial Statements
4
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(unaudited)
Nine Months Nine Months
Ended 9/30/01 Ended 9/30/00
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Cash flows from operating activities:
Net income (loss) $ (1,640) $ 384
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation and amortization 218 250
Deferred Income Taxes (1,412) 0
Changes in operating assets and liabilities:
Accounts and retainage receivable (2,687) 379
Costs and estimated earnings in
excess of billings on uncompleted
contracts (190) (76)
Prepaid expenses and other 407 (41)
Accounts and retainage payable 2,099 215
Accrued payroll and related benefits (108) (10)
Accrued expenses (172) (37)
Billings in excess of costs and 552 (214)
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estimated earnings on uncompleted
contracts
NET CASH PROVIDED BY (USED IN) (2,933) 850
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OPERATING ACTIVITIES
Cash flows from investing activities:
Purchase of property and equipment (134) (116)
Sale of marketable securities 1,895 0
Other liabilities (29) 19
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NET CASH PROVIDED BY (USED IN) INVESTING 1,732 (97)
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ACTIVITIES
NET INCREASE (DECREASE) IN CASH AND CASH (1,201) 753
EQUIVALENTS
Cash and cash equivalents, beginning of period 3,499 6,651
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,298 $ 7,404
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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)
Nine Months Nine Months Three Months Three Months
Ended Sept. 30, 2001 Ended Sept. 30, 2000 Ended Sept. 30, 2001 Ended Sept. 30, 2000
-------------------- -------------------- -------------------- --------------------
Net Income (Loss) $ (1,640) $ 384 $ 267 $ (315)
Other Comprehensive loss:
Net unrealized holding
(losses) during period (73) -- (37) --
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Total Comprehensive income (loss) $ (1,713) $ 384 $ 230 $ (315)
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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 September 30, 2001 and December 31, 2000, and the results of
operations and cash flows the nine and three month periods ended September 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
merits. On May 30, 2001, the Court granted partial summary judgment
as to the Company's officers and directors, dismissing Plaintiff's
fraudulent conveyance causes of action relating to the distribution.
On October 11, 2001, the Court ruled from the bench that it would
dismiss all causes of action against the Company's officers and
directors which relate to the distribution itself. An order
effectuating this ruling awaits the Court's signature.
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
7
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 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. On October 24, 2001, the Court
granted the Company's motion to the extent of staying the New York
action pending the determination of the California Action, on
condition that the Company does not object to Stroock's assertion of
a counteclaim for legal fees in the California malpractice action.
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) 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 September 30, 2000, and the related consolidated statements of
operations for the three month and nine month periods then ended and
consolidated statements of cash flows for the nine months then ended. 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 generally accepted auditing standards, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of KSW, Inc. and Subsidiary as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended not presented
herein; and in our report dated February 4, 2000, we expressed an unqualified
opinion on those consolidated financial statements.
Marden, Harrison & Kreuter
Certified Public Accountants, P.C.
White Plains, New York
October 25, 2000
9
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 2001 increased by $5,266,000 or 47% to
$16,448,000 from $11,182,000 for the third quarter of 2000. During the first
nine months of 2001, revenues decreased by $1,217,000 or 3% to $36,850,000 from
$38,067,000 for the first nine months of 2000. The increase in revenues for the
third quarter was due to the start of several new projects during the second and
third quarter of 2001. The decrease in revenues for the first nine months was
due to the delayed start of some of these projects which affected the first and
second quarters of 2001. As of September 30, 2001, the Company had a backlog of
$52,000,000 as compared to a backlog of $62,000,000 as of September 30, 2000.
COST OF SALES
Cost of sales for the third quarter of 2001 increased by $4,275,000 or 41% to
$14,766,000 from $10,491,000 for the third quarter of 2000. Cost of sales for
the first nine months of 2001 increased by $2,497,000 or 7% to $36,246,000 from
$33,749,00 for the first nine months of 2000. The increases were due to the
increase in sales revenues for the third quarter of 2001 and the reduction of
the gross profit percentage noted below for the first six months of 2001.
GROSS PROFIT
Gross profit for the third quarter of 2001 increased by $991,000 or 143% to
$1,682,000 from $691,000 in the third quarter of 2000. During the first nine
months of 2001 gross profit decreased by $3,714,000 to $604,000 compared to
$4,318,000 for the first nine months of 2000. Gross profit percentage for the
third quarter of 2001 increased to 10.2% as compared to 6.2% for the third
quarter of 2000. Gross profit percentage for the first nine months of 2001 was
1.6% as compared to 11.3% for the first nine months of 2000. Starting with the
third quarter of 2000 and continuing through the second quarter of 2001 the
Company experienced an erosion to its gross profit percentage due to lower than
anticipated productivity and higher labor costs on several projects (see note 3
to Consolidated Financial Statements). These projects were substantially
complete at September 30, 2001, and while they had a negative impact on the
third quarter, it was more than offset by higher gross profits on new projects.
The Company in accordance with accounting principals generally accepted in the
United States, has not booked any revenue for the claims noted in notes 2a and 3
to financial statements; however, the related costs are reflected in the
applicable periods when they were incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the third quarter of
2001 decreased by $96,000 or 8% to $1,160,000 from $1,256,000 for the third
quarter of 2000. The SG&A expense for the third quarter of 2001 included legal
fees of $130,000 compared to $280,000 in the third quarter of 2000 for the Co-Op
City and Helionetics legal proceedings (see Notes To Consolidated Financial
Statements). For the nine months ended September 30, 2001, the SG&A expenses
10
were $3,549,000 as compared to $3,587,000 for the comparable period in the prior
year, a decrease of $38,000 or 1%. The legal expenses relating to the Co-op City
and Helionetics legal proceedings were $364,000 and $280,000 for the nine months
ended September 30, 2001 and 2000, respectively.
PROVISION FOR TAXES
The tax provision for the three months ended September 30, 2001 was $247,000 as
compared to a benefit of $257,000 for the same period in 2000, due to the profit
(loss) for respective periods. The tax benefit for the nine months ended
September 30, 2001 was $1,345,000 compared to a provision of $327,000 for the
same period in 2000, also due to the income (loss) for the respective periods.
In all periods the tax provision/benefit was approximately 46% of the income
(loss) before provision for income taxes.
NET INCOME (LOSS)
The net income for the third quarter of 2001 was $267,000 compared to a loss of
$315,000 for the third quarter of 2000 due to the items mentioned above. For the
nine months ended September 30, 2001 there was a net loss of $1,640,000 compared
to net income of $384,000 for the same period in 2000.
LIQUIDITY AND CASH FLOW
For the first nine months of 2001, cash used in by operations was $2,933,000.
For the same period in 2000 the cash provided by operations was $850,000. The
cash flow for both periods was due, primarily to the profit (loss) and deferred
taxes for the respective period.
While no significant capital improvements are projected over the next year, cash
may be needed to fund the start-up costs for new projects.
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 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 which at October 18,
2001 was 2.4%. The Company may borrow up to $2,000,000 under its credit
facility. Amounts outstanding under the credit facility bear interest at 3% over
11
the "30 Day Dealer Commercial Paper Rate." The Company currently does not use
interest rate derivative instruments to manage exposure to interest rate
charges.
12
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.
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
(b) The Company did not file any Current Reports on Form 8-K during the
third 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: November 9, 2001 /s/ Robert Brussel
------------------------------------
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