- -------------------------------------------------------------------------------
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, 1998
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, 1998
COMMON STOCK, $.01 PAR VALUE 5,468,644
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THIS IS PAGE 1 OF 14 PAGES. INDEX TO
EXHIBITS IS ON PAGE 12.
<PAGE>
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 3
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operation 4
Nine months and three months ended
September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Change in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matter to a Vote of Security Holders 10
Item 5 Exhibits and Reports on Form 8-K. 10
- -------------------------------------------------------------------------------
SIGNATURES 11
INDEX TO EXHIBITS 12
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<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30, 1998 DEC. 31, 1997
-------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,632 $ 2,184
Accounts receivable, less allowance
for doubtful accounts of $100
and $122 at September 30, 1998
and December 31, 1997 10,111 13,186
Retainage receivable 4,105 4,984
Costs and estimated earnings in excess
of billings on uncompleted contracts 347 209
Prepaid expenses and other 1,270 946
------- ---------
Total current assets 18,465 21,509
Property and equipment, net of accumulated
depreciation of $1,274 and $1,076 at
September 30, 1998 and December 31,
1997, respectively 427 569
Other Assets:
Goodwill, net of accumulated amortization
of $979 and $864 at September 30, 1998 and
December 31, 1997, respectively 4,011 4,126
Other 8 65
--------- ---------
Total Assets $22,911 $26,269
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $ 6,021 $ 8,508
Retainage payable 2,610 4,030
Accrued payroll and related benefits 703 806
Accrued expenses 193 733
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,506 1,623
----------- ---------
Total current liabilities 13,033 15,700
Long Term Liabilities 55 70
------- --------
Total Liabilities: $13,088 15,770
------- --------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000
shares authorized; 5,468,644 and 5,471,311
shares issued and outstanding at
September 30, 1998 and December 31, 1997 54 54
Additional paid-in capital 9,726 9,763
Retained earnings 43 682
--------- -------
Total stockholders' equity 9,823 10,499
--------- -------
Total Liabilities and Stockholders'
Equity $ 22,911 $26,269
========= =======
</TABLE>
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Nine Three Three
Months Months Months Months
ENDED ENDED ENDED ENDED
9/30/98 9/30/97 9/30/98 9/30/97
------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C>
Contracts $ 30,414 $ 52,181 $ 10,772 $ 15,299
Fees from Sellers 30 474 10 307
Interest 81 110 33 16
--------- --------- --------- ---------
30,525 52,765 10,815 15,622
Direct costs 28,409 48,895 9,677 14,445
--------- --------- --------- ---------
Gross profit 2,116 3,870 1,138 1,177
Selling, general and
administrative
expenses 3,304 2,968 1,094 1,048
Interest 32 29 10 12
---------- --------- --------- ----------
Profit/(loss) before provision
for income taxes (1,220) 873 34 117
Provision (benefit) for
income taxes (581) 296 17 54
--------- -------- -------- ---------
Net profit/(loss) $ (639) $ 577 17 63
========= ======== ======== =========
Net profit/(loss) per common
share - basic $ (.12) $ .10 $ 0 $ .01
========= ======== ======== =========
Weighted average common
shares outstanding - basic 5,461,792 5,542,061 5,461,792 5,542,061
========== ========== ========== ==========
Net profit/(loss) per common
share - diluted $ (.11) $ .10 $ 0 $ .01
=========== ========== ========== ==========
Weighted average common
shares - diluted 5,700,459 5,890,632 5,555,650 5,819,334
========== ========== ========== ==========
</TABLE>
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (639) $ 577
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 313 356
Changes in operating assets
and liabilities:
Accounts and retainage receivable 3,954 (1,906)
Costs and estimated earnings in
excess of billings on
uncompleted contracts (138) 754
Prepaid expenses and other (324) (320)
Accounts and retainage payable (3,907) (481)
Accrued salaries and related benefits (103) 145
Accrued expenses (540) ( 64)
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,883 (2,854)
--------- --------
Net cash provided by/(used in)
operating activities 499 (3,793)
--------- ---------
Cash flows from investing activities:
Purchase of property
and equipment ( 56) (162)
Other assets 57 20
Other liabilities ( 15) 192
---------- ---------
Net cash provided by/(used in)
investing activities ( 14) 50
---------- ----------
Cash flows from financing activities:
Issuance of Stock 102
Exercise of stock options 20
Repurchase of stock (159) (151)
---------- ----------
Net cash used in financing activities (37) (151)
---------- ----------
Net increase/(decrease) in cash and cash
equivalents 448 (3,894)
Cash and cash equivalents, beginning
of period 2,184 4,464
---------- ---------
Cash and cash equivalents,
end of period $ 2,632 $ 570
========== =========
</TABLE>
<PAGE>
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, 1998 and December 31, 1997 and the results of
operations and cash flows for the nine and three month periods ended September
30, 1998 and 1997. Because of the nature of construction, operating results of
the Company on a quarterly basis may not be indicative of operating results for
the full year.
<PAGE>
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 1998 decreased by $4,807,000, or 31%, to
$10,815,000 from $15,622,000 for the third quarter of 1997. During the first
nine months of 1998 revenues decreased by $21,767,000, or 42%, to $30,525,000
from $ 52,765,000 for the first nine months of 1997. These decreases in revenues
for the third quarter and the first nine months of 1998 were due primarily to a
lower backlog of construction projects at December 31, 1997 compared to December
31, 1996. Backlog increased 23% from December 31, 1997 ($30,000,000) to
September 30, 1998 ($37,000,000)
COST OF SALES
Cost of sales for the third quarter decreased by $4,768,000, or 33%, to
$9,677,000 from $14,445,000 as a result of the decrease in sales revenue noted
above. Cost of sales for the first nine months of 1998 decreased by $20,48,000,
or 42%, to $28,409,000, from $48,895,000
GROSS PROFIT
Gross profit decreased by $39,000, or 3.3%, to $1,138,000 in the third quarter
of 1998 from $1,177,000 in the third quarter of 1997, primarily due to the
decrease in sales volume noted above. The gross profit percentage increased from
7.5% for the third quarter of 1997 to 10.5% in the third quarter of 1998. During
the third quarter of 1997, the Company had experienced additional unanticipated
costs on one of its projects which continued through the second quarter of 1998,
when the project was substantially completed. This additional cost in the first
six months of 1998 accounted for the lower gross profit margin (6.9%) for the
first nine months of 1998 compared to the first nine months of 1997 (7.3%).
The Company has submitted proposals totaling $3,676,823 with the general
contractor to recover these additional cost on this large, multi-year project.
In addition, the Company has filed a mechanic's lien against the property in the
amount of $5,534,084 covering these proposals, as well as retention and the
balance of its open receivables. While there is no guarantee that the Company
will be successful in collecting these proposals, management believes these
proposals to be meritorious. In accordance with generally accepted accounting
principals, the Company has not booked any revenues or profits with respect to
these proposals.
<PAGE>
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by $46,000, or
4%, to $1,094,000 in the third quarter of 1998 from $1,048,000 for the third
quarter of 1997. For the nine months ended September 30, 1998, SG&A expenses
increased $336,000, or 11%, to $3,304,000 from $2,968,000 for the first nine
months of 1997. The Company has re-negotiated its lease for its Long Island City
facility which will result in a small reduction in overhead during the fourth
quarter and a larger reduction in 1999 when it surrenders a significant portion
of its space.
PROVISION FOR TAXES
The tax provision for the three months ended September 30, 1998 was $17,000 as
compared to a provision of $54,000 for the same period in 1997, due to the
profit/loss for the respective periods. The tax benefit for the nine months
ended September 30, 1998 was $581,000 as compared to a provision for taxes of
$296,000 for the same period in 1997, due to the profit/loss for the respective
periods.
NET GAIN/LOSS
The net income for the third quarter of 1998 was $17,000 compared to net income
of $63,000 for the third quarter of 1997 due to the items mentioned above. For
the nine months ended September 30, 1998, there was a net loss of ($639,000)
compared to a profit of $577,000 for the same period in 1997.
LIQUIDITY AND CASH FLOW
For the first nine months of 1998 cash provided by operations was $499,000. For
the same period in 1997 the cash used in operations was $3,793,000. The positive
cash flow for the first nine months of 1998 was a result of lower sales volume
and improved billings and collections.
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 has not
used any portion of its revolving credit facility of $2,000,000 in 1998 and
believes the credit facility will be adequate to fund any expansion in 1998 and
1999.
<PAGE>
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 its 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 is in the process of contacting its
subcontractors and material suppliers to determine, to the extent that they
utilize computers, their Year 2000 compliance status. 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 effect on
the Company's business, results of operations or financial condition. However,
there can be no assurance that these estimates will occur and 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no 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.
On a substantially completed construction project, the Company has filed a
mechanic's lien in the sum of $5,534,084 to secure its claim for proposals to
recover unforeseen impact costs in the amount of $3,676,823, together with the
Company's unpaid contract balance and retention. The Company is attempting to
recover the lien amount through negotiations with the general contractor in the
first instance, but may be compelled to institute a lawsuit if negotiations
prove unsuccessful.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIE
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
<PAGE>
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 13, 1998 /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
- ------ ----------- ------------
11 Statement Regarding Computation of Per Share Earnings 13
27 Financial DatA Schedule 14
- -------------------------------------------------------------------------------
EXHIBIT 11
KSW, INC.
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
NINE MONTHS
ENDED 9/30/98 NINE MONTHS
- -------------------------
ENDED 9/30/97 THREE MONTHS
- --------------------------
ENDED 9/30/98 THREE MONTHS
- --------------------------
ENDED 9/30/97
- -------------
Net earnings/(loss)
$ (639,000)
- --------------
$ 577,000.
- --------------
$ 17,000
- -------------
$ 63,000 EARNINGS/(LOSS) PER SHARE - PRIMARY
- -------------------------------------------------
Weighted average shares outstanding
during the period
5,461,792
===============
5,542,061
===============
5,461,792
================
5,542,061 Earnings/(loss) per common share - Primary
===========================================================
$ (.12)
=================
$ .10
================
$ 0
================
$ .01 EARNINGS/(LOSS) PER SHARE - DILUTED
====================================================
Weighted average shares outstanding
during the period
5,461,792
5,542,061
=
5,461,792
5,542,061 Common and Common Stock equivalent shares using the
treasury stock method
238,667
- ------------
348,571
- ------------
93,858
- ------------
277,273 Total shares outstanding for purposes of
- ------------ calculating fully diluted earnings/(loss)
5,700,459
==============
5,890,632
==============
5,555,650
==============
5,819,334 Earnings/(Loss) per common and common Equivalent share - Diluted
==============
$ (.11
==============
$ .10
==============
$ 0
==============
$ .01
==============
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,632
<SECURITIES> 0
<RECEIVABLES> 10,211
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 18,465
<PP&E> 1,701
<DEPRECIATION> 1,274
<TOTAL-ASSETS> 22,911
<CURRENT-LIABILITIES> 13,033
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 9,769
<TOTAL-LIABILITY-AND-EQUITY> 22,911
<SALES> 0
<TOTAL-REVENUES> 30,525
<CGS> 28,409
<TOTAL-COSTS> 31,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (1,220)
<INCOME-TAX> (581)
<INCOME-CONTINUING> (639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (639)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.11)
</TABLE>
