- --------------------------------------------------------------------------------
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 MARCH 31, 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 MARCH 31, 1999
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 MARCH 31, 1999
TABLE OF CONTENTS
PAGE NO.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 3
March 31, 1999 and December 31, 1998
Condensed Consolidated Statements of Operation 4
Three months ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
Three months ended March 31, 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
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PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Change in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matter to a Vote of Security Holders 11
Item 5 Exhibits and Reports on Form 8-K. 11
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SIGNATURES 12
INDEXES TO EXHIBITS 13
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<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, 1999 DEC. 31, 1998
-------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,626 $ 2,404
Accounts receivable, less allowance
for doubtful accounts of $160 at
March 31, 1999 and December 31, 1998 9,863 9,212
Retainage receivable 3,735 3,747
Costs and estimated earnings in excess of
billings on uncompleted contracts 222 392
Prepaid expenses and other 899 827
-------- --------
Total current assets 16,345 16,582
Property and equipment, net of accumulated
depreciation of $1,274 and $1,320 at March 31,
1999 and December 31, 1998 respectively 368 410
Other Assets:
Goodwill, net of accumulated amortization
of $979 and $1,017 at March 31, 1999 and
December 31, 1998, respectively 3,934 3,973
Other 308 308
------- --------
TOTAL ASSETS $20,955 $21,273
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $ 5,425 $ 5,464
Retainage payable 1,942 2,242
Accrued payroll and related benefits 462 426
Accrued expenses 185 189
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,979 3,067
-------- --------
Total current liabilities 10,993 11,388
Long-term liabilities 47 57
-------- --------
Total liabilities 11,040 11,445
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000
shares authorized; 5,468,644 shares
issued and outstanding at March 31, 1999 and
December 31, 1998 54 54
Additional paid-in capital 9,726 9,726
Retained earnings 135 48
------- ------
Total stockholders' equity 9,915 9,828
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,955 $21,273
======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months Three Months
ENDED MARCH 31, 1999 ENDED MARCH 31, 1998
Revenues:
<S> <C> <C>
Contracts $ 8,904 $ 9,723
Fees 12 7
Interest 12 18
------------ -----------
8,928 9,748
Direct costs 7,874 9,244
------------ -----------
Gross profit 1,054 504
Selling, general and administrative expenses 920 1,143
Interest 7 12
------------ -----------
Profit/(Loss) before provision for income taxes 127 (651)
Provision for income taxes 40 (320)
------------ -----------
Net profit/(loss) $ 87 $ (331)
============ ===========
Net profit/(loss) per common share - basic $ .02 $ (.06)
============ ===========
Weighted average common
shares outstanding - basic 5,468,644 5,457,422
============ ===========
Net profit/(loss) per common
share - diluted $ .02 $ (.06)
============ ===========
Weighted average common
shares - diluted 5,468,644 5,615,142
============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Three Months
Ended Ended
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 87 $ (331)
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 84 105
Changes in operating assets
and liabilities:
Accounts and retainage receivable (639) 2,267
Costs and estimated earnings in
excess of billings on uncompleted
contracts 170 111
Prepaid expenses and other ( 72) (143)
Accounts and retainage payable (339) (3,435)
Accrued salaries and related benefits 36 (71)
Accrued expenses (4) ( 8)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (88) 1,216
----------- ------------
Net cash used in
operating activities (765) (289)
------------ -------------
Cash flows from investing activities:
Purchase of property and equipment (3) (39)
Other Assets - 57
Other Liabilities (10) 8
------------ --------------
Net cash provided by (used in) investing
activities (13) 26
------------ --------------
Cash flows from financing activities:
Exercise of stock options - 20
Repurchase of stock - (99)
----------- --------------
Net cash provided by financing activities 0 (79)
----------- --------------
Net decrease in cash and cash
equivalents (778) (342)
Cash and cash equivalents, beginning of period 2,404 2,184
---------- --------------
Cash and cash equivalents, end of period $ 1,626 $ 1,842
========== ==============
</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 March 31, 1999 and December 31, 1998 and the results of
operations and cash flows for the three month periods ended March 31, 1999 and
1998. Because of the nature of the construction business, 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 first quarter of 1999 decreased 8% or $820,000 to
$8,928,000 compared to $9,748,000 for the first quarter of 1998. During the
first quarter of 1999 the major projects from 1998 were in the final completion
stages and generated little revenue while most of the new projects had not as
yet started. Backlog increased 33% to $47,300,000 on March 31, 1999 compared to
$35,600,000 on December 31, 1998.
COST OF SALES
Cost of sales for the first quarter of 1999 decreased by $1,370,000 or 15% to
$7,874,000 from $9,244,000 for the first quarter of 1998 as a result of the
decrease in sales revenue noted above and the increase in gross profit
percentage noted below.
GROSS PROFIT
Gross profit increased by 109% or $550,000 to $1,054,000 in the first quarter of
1999 from $504,000 in the first quarter of 1998, primarily due to an increase in
the profit margins on new projects. In addition, the first quarter of 1998 had
$493,000 of additional costs on a project which experienced a significant
construction delay and subsequent acceleration of work to meet the contract
schedule. The Company has filed a mechanics lien, which has been bonded, to
recover excess costs of this project.
The gross profit percentage for the first quarter of 1999 was 11.8% compared to
5.2% for the first quarter of 1998. Had the additional costs for 1998 not been
incurred or if the company had recorded an offsetting claim the gross profit
percentage for the first quarter of 1998 would have been 10.2%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased 20% or $223,000
to $920,000 in the first quarter of 1999 from $1,143,000 for the first quarter
of 1998. The decrease was partially due to cost saving measures undertaken by
the Company during the fourth quarter of 1998, including closing one of its two
fabrication facilities.
PROVISION FOR TAXES
The income tax provision for the three months ended March 31, 1999 was $40,000
as compared to a $320,000 benefit for the same period in 1998, due to profits or
losses for the respective periods. The Company also had an $18,000 benefit in
the first quarter of 1999 due to the over accrual of tax provisions in 1998.
NET GAIN
The net profit for the first quarter of 1999 was $87,000 compared to a net loss
of $331,000 for the first quarter of 1998 due to the items mentioned above.
LIQUIDITY AND CASH FLOW
For the first three months of 1999 cash used in operations was $765,000. For the
same period in 1998 the cash used by operations was $289,000. The cash flow for
the first quarter for 1999 was affected by an increase in accounts and retainage
receivable which was a result of a delay in payment on the project in which the
company filed a mechanics lien.
While no significant capital improvements are projected over the next year, cash
will be needed to fund the start-up costs for new projects. The Company has not
used any portion of its revolving credit of $2,000,000 in 1998 and believes the
credit facility will be adequate to fund any expansion in the remainder 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 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 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The following are the material lawsuits in which the Company is a
party:
a. CO-OP CITY. The Company has filed a mechanic's lien in the amount of
$5,362,290 to recover its contract balance and unpaid change order
proposals submitted to the General Contractor, KSW's lien has been
bonded. KSW has also asserted a claim against the General Contractor's
bonding company on its payment bond seeking to recover KSW's contract
balance and unpaid proposals. Management believes that its claims have
merit and on February 23, 1999 instituted a lawsuit to recover the
Company's contract balance and unpaid proposals, which action will be
vigorously pursued.
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 25, 1995 distribution of stock was
made pursuant to a Form 10 Registration Statement filed with and
declared effective by the Securities of Exchange Commission. The
Company believes that the lawsuit is totally without merit and will
aggressively defend the case.
<PAGE>
ITEM 2. CHANGE IN SECURITIES
On August 5, 1997, the Board of Directors approved a resolution authorizing the
Company to repurchase up to 10% of the Company's common stock over the next two
years. In the first quarter of 1999, the Company did not repurchase any shares
of common stock.
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 first
quarter of 1999.
<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: May 14, 1999 /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 14
27 Financial Data Schedule 15
- --------------------------------------------------------------------------------
EXHIBIT 11
<TABLE>
<CAPTION>
KSW, INC.
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
Three Months Three Months
ENDED 3/31/99 ENDED 3/31/98
<S> <C> <C>
Net earnings/(loss) $ 87,000 $ (331,000)
================= =============
EARNINGS/(LOSS) PER SHARE - PRIMARY
Weighted average shares outstanding
during the period 5,468,644 5,457,422
================ =============
Earnings/(loss) per common share -
Primary $ .02 $ (.06)
================ =============
EARNINGS/(LOSS) PER SHARE - DILUTED
Weighted average shares outstanding
during the period 5,468,644 5,457,422
Common and Common Stock equivalent
shares using the treasury stock method 0 157,720
--------------- --------------
Total shares outstanding for purposes of
calculating diluted earnings/(loss) 5,468,644 5,615,142
================ =============
Earnings/(Loss) per common and
common Equivalent share - Diluted $ .02 $ (.06)
================ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,626
<SECURITIES> 0
<RECEIVABLES> 10,023
<ALLOWANCES> 160
<INVENTORY> 0
<CURRENT-ASSETS> 16,345
<PP&E> 1,689
<DEPRECIATION> 1,321
<TOTAL-ASSETS> 20,955
<CURRENT-LIABILITIES> 10,933
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 9,861
<TOTAL-LIABILITY-AND-EQUITY> 20,955
<SALES> 0
<TOTAL-REVENUES> 8,928
<CGS> 7,874
<TOTAL-COSTS> 8,794
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 127
<INCOME-TAX> 40
<INCOME-CONTINUING> 87
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
