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, 1996
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 June 30, 1996
Common stock, $.01 par value 5,458,004
<PAGE>
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 3
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operation 4
Six months and three months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - 5
Six months ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Change in Securities
Item 4 Submission of Matter to a Vote of Security Holders
Item 5 Other Information
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,055 5,124
Accounts receivable, less allowance
for doubtful accounts of $250 and $300 at
June 30, 1996 and December 31, 1995
respectively 7,277 4,783
Retainage receivable 4,730 3,355
Costs and estimated earnings in excess of - -
billings on uncompleted contracts 2,094 1,513
Prepaid expenses and other 757 455
-------- -------
Total current assets 16,913 15,230
Property and equipment, net of accumulated
depreciation of $608 and $464 at
June 30, 1996 and December 31, 1995
respectively 694 733
Other Assets:
Goodwill, net of accumulated amortization
of $635 and $559 at June 30, 1996 and
December 31, 1995, respectively 4,355 4,43l
Other 34 37
------ -----
Total Assets $ 21,996 $ 20,431
========= ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Account payable 6,112 3,561
Retainage payable 3,606 3,335
Accrued payroll and related benefits 591 971
Accrued expenses 228 539
Due to contractor - 1,264
Billings in excess of costs and estimated
earnings on uncompleted contracts 1207 632
----- ----
Total current liabilities 11,744 10,302
Capital Lease Obligations 31 0
------ -------
Total liabilities 11,775 10,302
------ ------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 5,458,004 and 5,200,026 shares issued
and outstanding at June 30, 1996 and December
31, 1995, respectively 52 52
Additional paid-in capital 9,774 9,450
Retained earnings 395 627
------ ------
Total stockholders' equity 10,221 10,129
------ ------
Total Liabilities and Stockholders' Equity $ 21,996 $ 20,431
========= =======
</TABLE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Contracts $18,838 $20,668 $10,208 $14,008
Fees from Sellers 522 1,949 364 1,164
Interest 65 86 16 38
------- ------- ---------- ----------
19,425 22,703 10,588 15,210
Direct costs 17,861 20,180 9,726 13,467
------ ------- ------- ------
Gross profit 1,564 2,523 862 1,743
Selling, general
& administrative expenses 1,997 1,823 858 896
Interest 4 0 2 0
-------- ----------- --------- ---------
Profit/(Loss) before provision
for income taxes (437) 700 2 847
Provision for income taxes (205) 329 0 398
----- --------- -------- ---
Net Profit/ (Loss) $(232) $ 371 $ 2 $ 449
===== ========= ======== ===
Net Profit/(Loss) per
common share ( .04) .05 0 .06
====== ========= ======== ====
Weighted average common
shares outstanding 5,611,523 7,800,000 5,614,618 7,800,000
========= ========= ========= =========
Fully diluted Profit/(Loss)
per common share ( .04) .05 0 .06
====== ======== ========== ===========
Fully diluted average
common shares 5,611,523 7,800,000 5,614,618 7,800,000
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Six Months
Ended June 30, 1996 Ended June 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net gain/(loss) $ (232) $ 371
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 220 184
Changes in operating assets
and liabilities:
Accounts and retainage receivable (3,869) (6,324)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (581) (1,056)
Prepaid expenses and other (299) 225
Accounts and retainage payable 2,822 7,323
Accrued salaries and related benefits (380) (407)
Accrued expenses (311) 123
Due to contractor (1,264) (575)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 575 2,411
----------- ---------
Net cash provided by/(used in)
operating activities (3,319) 2,275
------------ ---------
Cash flows from investing activities:
Receivable from Helionetics (482)
Purchase of property and equipment (105) (120)
------------ ----------
Net cash used in investing activities (105) (602)
------------ -----------
Cash flows from financing activities:
Sale of stock 450
Repurchase of stock (126)
Capital lease obligations 31
Net cash provided by financing activities 355 0
------------ -----------
Net increase/(decrease) in cash and cash
equivalents (3,069) 1,673
Cash and cash equivalents,
beginning of period 5,124 4,840
------------- ------------
Cash and cash equivalents,
end of period $ 2,055 $ 6,513
============ =============
</TABLE>
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 June 30, 1996 and December 31, 1995 and the results of
operations and cash flows for the six and three month periods ended June 30,
1996 and 1995. 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 decreased by 30% to $10,588,000,
compared to $15,210,000 for the second quarter of 1995. During the second
quarter 1995 there was $10,194,000 of revenues from the New York Hospital
project versus only $3,441,000 in the second quarter of 1996. The Company has
received numerous new projects which will start in the later part of 1996 and
should result in additional revenues for that period as well as for 1997.
Revenues in the second quarter of 1996 were $10,588,000 compared to revenues of
$8,837,000 in the first quarter, an increase of $1,751,000 (19.8%).
Cost of Sales
Cost of sales decreased by $3,741,000 or 28% to $9,762,000 from $13,467,000
as a result of the decrease in sales revenues noted above.
Gross Profit
Gross profit decreased by 51% on $881,000 from $1,743,000 in the second
quarter of 1995 to $862,000 in the second quarter of 1996. This was primarily
due to the sales volume decrease noted above. In addition, the gross profit
percentage decreased from 11.5% in the second quarter of 1995 to 8.1% in the
same quarter of 1996 primarily due to the decrease in fee income associated with
the completion of contracts pursuant to the asset purchase agreement.
Selling General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased from
$896,000 for the second quarter of 1995 to $858,000 in the second quarter of
1996, a decrease of $38,000.
Provision for Taxes
Provision for taxes for the six months ended June 30, 1996 and 1995 and for
the second quarter of 1995 was 47% of net income (loss), the same effective rate
as for the year 1995.
Net Gain
Net gain for the second quarter of 1996 was $2,000 compared to a net gain
of $449,000 in the second quarter of 1995 and a net loss of $234,000 in the
first quarter of 1996. Net Income should increase as work is performed on the
new contracts previously mentioned.
Liquidity and Cash Flow
For the first six months of 1995 cash generated by operations was
$2,275,000. For the same period in 1996 the cash used in operations was
$3,319,000 which was offset by $355,000 generated from financing activities. The
cash flow for the first half of 1996 was affected by start-up costs on various
projects.
While no significant capital improvements are projected over the next year,
cash will be needed to fund the start-up costs of several new large projects
which the Company has successfully negotiated, but for which contracts have not
yet been executed. To this end, the Company has signed an agreement for a $2.5
million unsecured line of credit with Fleet Bank. The Company believes this line
of credit will be sufficient to fund the Company's working capital needs. As of
July 31, 1996, the Company has not drawn down any monies against this line.
PART II - Other Information
Item 1. Legal Proceedings
There are no outstanding material lawsuits to which the Company or its
subsidiary is a party. Neither the Company nor its subsidiary is a party to any
regulatory investigation or inquiry with any governmental agency.
Item 2. Change in Securities
On April 26, 1996, the Company concluded its tender offer to purchase all
shares of the Company's common stock owned by stockholders who, as of March 1,
1996, owned of record 49 or fewer shares of the Company's common stock. A total
of 42,022 shares were purchased from 1869 shareholders at a cost of $126,066.00
($3.00 net per share). This tender offer reduced the total outstanding shares
from 5,500,026 to 5,458,004.
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 June 27, 1996, the stockholders
approved the following resolutions:
a. By an affirmative vote of 91.5% of the shares voted, the stockholders
elected two Class I directors, Armand P. D'Amato and Daniel Spiegel to serve for
a term of three years;
b. By an affirmative vote of 59.5% of the shares voted, the stockholders
approved the adoption by the Company's Board of Directors of the amendment of
the Company's 1995 Stock Option Program. This Amendment increased by 350,000 (to
490,000) shares the aggregate number of shares of common stock of the Company
available for future options.
c. By an affirmative vote of 91.4% of the shares voted, the stockholders
ratified the appointment of Marden, Harrison & Kreuter as independent auditors
for the Company for the year 1996.
Item 5. Other Information
Effective on July 1, 1996, the Company has established an unsecured line of
credit in the amount up to $2,500,000.00 with Fleet Bank. The Company intends to
use this line of credit to fund current operations and believes this line of
credit will be sufficient to fund the Company's working capital needs.
During the second quarter of 1996, the Company was awarded contracts
totaling $32,400,000.00, increasing the Company's backlog to $77,000,000.00.
These new projects, included Terminal One at JFK Airport, Brooklyn Renaissance
Plaza (a mixed use hotel/office building), Amsterdam Nursing Home in Manhattan
and a cooling tower replacement project for NYNEX's Pearl Street Telephone
Building in Manhattan. Preparatory work on each contract is underway. Formal
written agreements are expected to be signed in the third quarter of 1996.
Item 6. Exhibits and Reports on Form 8-K
On July 15, 1996, the Company filed a Report on Form 8-K announcing that
the Board of Directors selected Marden Harrison & Kreuter, certified public
accountants, as the Company's independent auditors for the fiscal year ending
December 31, 1996. At the Annual Meeting of KSW, Inc. stockholders, held on June
27, 1996, the stockholders had ratified the appointment.
Corbin & Wertz has conducted the audit of the financial statements of KSW,
Inc. and its subsidiary for the fiscal year ended December 31, 1995. Corbin &
Wertz was originally selected as independent auditors by the Company's former
corporate parent. Corbin & Wertz did not decline to stand for re-election, but
resigned at the request of the new Board of Directors.
There were no disagreements with the former accountants on any matter of
accounting principles or practices, financial statements disclosure or auditing
scope or procedures or other reportable events during the Company's two most
recent fiscal years.
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, 1996 /s/ Robert Brussel
----------------------
Robert Brussel
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<PAGE>
KSW, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
1 Statement regarding Computation of Per Share Earnings 13
2 Fleet Bank Line of Credit 14 - 17
EXHIBIT
<TABLE>
<CAPTION>
KSW, INC.
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
Six Months Ended Three Months Ended
June 30,1996 June 30,1995 June 30,1996 June 30,1995
<S> <C> <C> <C> <C>
Net earnings (loss) ($232,000) $ 371,000 $ 2,000 $ 449,000
Weighted average shares 5,429,015 7,800,000 5,429,015 7,800,000
outstanding during the
period
Common and common stock 182,508 185,603
equivalent shares using the
treasury stock method
Total shares outstanding for 5,611,523 7,800,000 5,614,618 7,800,000
========= ========= ========= =========
purposes of calculating
primary and fully diluted
earnings (loss) per share
Primary and fully diluted (.04) .05 0 .06
===== === == ====
earnings/(loss) per common
and common equivalent
share
</TABLE>
July 1, 1996
KSW, Inc.
37-16 23rd Street
Long Island City, New York 11101
Gentlemen:
We are pleased to advise you that Fleet Bank, N.A. (the "Bank") has
established for the use of KSW, Inc. (the "Company") an uncommitted, unsecured
line of credit in the amount of up to $2,500,000.00 upon the following terms and
conditions:
1. Facility. (a) The line of credit (the "Line") shall be a facility for
short-term loans ("Loans"), provided that the aggregate principal amount of the
Loans at any time outstanding shall not exceed $2,500,000.00.
(b) Loans shall be extended upon the Company's prior written notice to the
Bank (duly executed by an authorized officer of the Company) such notice to be
in a form satisfactory to the Bank which may be accomplished by facsimile
transmission.
(c) By establishing the Line, the Bank is enabling its appropriate
representatives to make Loans available, if they so determine, during the Credit
Period (as hereinafter defined) up to the amount specified above, without
further credit authorization in each instance. The Line does not constitute an
agreement by the Bank to make any particular Loans available, and, accordingly,
the Bank may refuse to make any requested Loans available. Further, the Bank may
terminate the Line at any time and without prior notice.
(d) Any Loan which the Bank, in its sole discretion, decides to make
available, shall be upon such additional terms and conditions, including,
without limitation, as to amount, use of proceeds, term and others, which at the
time such Loan is made 0 available, are acceptable to the Bank.
(e) Additionally, no fact or circumstance of any kind whatsoever,
including, without limitation, the fact that the Bank may discuss or make Loans
available from time to time, the fact that the Company may depend on Loans from
the Bank from time to time, or any act, practice, course of dealing or procedure
which the Bank (or any person purporting to act on behalf of the Bank) may take,
omit to take or establish or follow in connection with the Line, shall create or
result in any obligation on the part of the Bank at any time to make any Loan
available under the Line. The Line may not be amended, modified or expanded
except in writing executed by the Bank and, without limitation, may not be
amended, modified or expanded orally or by any act, practice or procedure, taken
or engaged in by the Bank (or any person purporting to act on behalf of the
Bank).
2. Credit Period. The Line shall be available for the period commencing
with the date of the Company's acceptance of the terms hereof and ending May 31,
1997 (the "Credit Period"). All Loans shall mature on the last day of the Credit
Period.
3. Clean-Up Requirement. Notwithstanding the foregoing, during a single
period comprised of any 30 consecutive days during the Credit Period there shall
be no Loans outstanding under the Line.
4. Interest and Fees. The Bank shall charge and shall be entitled to
receive the following (which amounts, together with any other amounts owing by
the Company to the Bank, may be charged to any demand deposit account maintained
by the Company with the Bank):
(a) Loans shall bear interest at a fluctuating rate per annum equal to it
in excess of the Prime Rate (the floating rate of interest per annum announced
by the Bank from time to time as being the so-called "Prime Rate"), such
interest rate to change when and as the Prime Rate changes. Interest shall be
computed on the basis of a 360-day year for actual days elapsed and shall be
payable monthly in arrears on the first day of each month.
(b) A Line fee due to the Bank on the date of acceptance hereof in the
amount of $12,500.00.
(c) All fees and disbursements of the Bank's counsel in connection with the
preparation of any documentation, enforcement of the Bank's rights or otherwise
in connection with the Line, due upon presentment of an invoice therefor.
5. Guarantees. All obligations of the Company owing to the Bank shall be
unconditionally guaranteed by KSW Mechanical Services, Inc. (the "Guarantor")
pursuant to the Bank's standard form of guarantee of payment (the "Guarantee").
6. Other Conditions. In addition to the foregoing, at all times during the
Credit Period and as long as any Loan remains outstanding, the Company shall:
(a) Furnish to the Bank:
(i) within 120 days of the close of each of the Company's fiscal years, the
consolidated balance sheet, consolidated statements of income and retained
earnings and cash flows of the Company and the Guarantor as of the last day of
and for such fiscal year, each such statement to be prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
certified by Corbin & Wertz, CPAs or other firm of independent certified public
accountants satisfactory to the Bank;
(ii) within 45 days of the close of each fiscal quarter of the Company
throughout the Credit Period, the consolidated balance sheet, consolidated
statements of income and retained earnings and cash flows of the Company and the
Guarantor as of the last day of and for such quarter and for the portion of the
fiscal year then elapsed, each such statement to be certified by the chief
financial or accounting officer of the Company, in each case as having been
prepared in accordance with GAAP consistently applied;
(iii) monthly, not later than the 15th day of each month, a work in
progress report, an accounts receivable aging schedule and an accounts payable
schedule, each in form and detail I acceptable to the Bank, as of the last day
of the immediately preceding month; and
(iv) such other statements and reports as shall be reasonably requested by
the Bank.
(b) Maintain the following at all times:
(i) a ratio of total liabilities to tangible net worth of no greater than
1.5 to 1.0; (ii) a ratio of current assets to current liabilities of at least
1.5 to 1.0;
(iii) tangible net worth of at least $5,600,000;
and
(iv) working capital of at least $4,000,000.
For purposes of determining compliance with (i) and (ii) above, the ratios
shall be net of the long term retainage payable due under the New York Hospital
contract and the corresponding receivable.
7. Documentation. There shall be no extension of credit hereunder until
there shall have been executed documentation acceptable to the Bank, including
without limitation, a promissory note, officers' certificates and Guarantee and
the Bank has been provided with all corporate documentation and financial
statements requested by the Bank.
8. Governing Law. This letter agreement and each extension of credit
hereunder shall be governed by and construed in accordance with the laws of the
State of New York and the Company hereby submits to the jurisdiction of the
United States federal courts and the courts of the State of New York located in
any county or city as selected by the Bank within the State of New York.
IN ANY ACTION, SUIT OR PROCEEDING, IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, THE NOTE, OR ANY OTHER DOCUMENTS RELATING TO THE LINE OF CREDIT, THE
COMPANY, THE GUARANTOR AND THE BANK MUTUALLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY, COUNTERCLAIM AND ANY CLAIM FOR CONSEQUENTIAL,
PUNITIVE, OR SPECIAL DAMAGES.
9. Acceptance. If the foregoing is acceptable, please have the enclosed
copy of this letter signed by a duly authorized officer of the Company and by
the Guarantor in the spaces provided below and returned to the Bank on or before
July 8, 1996. This letter shall be of no force or effect and shall be
unenforceable against the Bank unless signed and returned to the Bank by such
date.
Very truly yours,
FLEET BANK, N.A.
By: /s/Thomas A. Rogers
------------------------
Thomas A. Rogers
Vice President
Accepted and Agreed:
KSW, INC.
By:/s/Robert E. Brussel
------------------------
Name: Robert E. Brussel
Title: Chief Financial Officer
Guarantor:
KSW MECHANICAL SERVICES, INC.
By:/s/Robert E. Brussel
-------------------------
Name: Robert E. Brussel
Title: Chief Financial Officer
