UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-27290
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KSW, INC.
(Exact name of the Registrant as specified in its charter)
DELAWARE 11-3191686
---------------- --------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
37-16 23RD STREET, LONG ISLAND CITY, NEW YORK 11101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 361-6500
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 ___
As of March 24, 2000, there were 5,468,644 shares of Common Stock, $.01 par
value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The estimated aggregate market value of the voting stock held by non-affiliates
of the registrant on March 24, 2000 was $12,129,794 (based on a price of $3.00
per share).
<PAGE>
KSW, INC
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business...........................................................4
Item 2. Properties.........................................................9
Item 3. Legal Proceedings..................................................9
Item 4. Submission of Matters to a Vote of Security Holders...............11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.........................................................12
Item 6. Selected Financial Data...........................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................14
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.........18
Item 8. Financial Statements and Supplementary Data.......................18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................18
PART III
Item 10. Directors and Executive Officers of the Registrant................19
Item 11. Executive Compensation............................................20
Item 12. Security Ownership of Certain Beneficial Owners and Management....24
Item 13. Certain Relationships and Related Transactions....................25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...26
SIGNATURES..................................................................47
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL. KSW, Inc., a Delaware corporation (the "Company" or "KSW"),
furnishes and installs heating, ventilating and air conditioning ("HVAC")
systems and process piping systems for institutional, industrial, commercial,
high-rise residential and public works projects. The Company does not pursue
projects under $500,000. Directly or indirectly through separate subsidiaries,
the Company also serves as a mechanical trade manager, performing project
management services relating to the mechanical trades. The Company operates its
contracting business through its wholly-owned subsidiary, KSW Mechanical
Services, Inc. ("KSW Mechanical").
Total revenues for 1999 were $44,847,000. The Company believes that it is
most competitive on large projects, where its skill sets are most valued. Some
of the Company's ongoing projects include the following: Bear Stearns World
Headquarters, New Federal Court House, U.S. Post Office/Courthouse, Brooklyn
College Chiller Plant, and The Pfizer Training Center at Doral Arrowwood. The
construction industry in the New York City metropolitan area is experiencing an
upturn and the Company believes that it is well positioned to continue obtaining
a substantial number of new contracts. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company's primary strategic objectives are to increase its revenues and
to become more competitive in its present business. The Company may use any
additional funds to expand its business into new geographic areas in the
Northeastern United States or into areas which would be complementary to its
current lines of business through possible joint ventures or acquisitions. By
acquiring complementary businesses, the Company would also be able to realize
significant economies of scale and minimize the effect of economic downturns.
The Company may also pursue acquisitions outside its current lines of business
for greater diversification. The Company's common stock is traded on the NASDAQ
Electronic Bulletin Board under the symbol "KSWW."
The Company provides heating, ventilation and air conditioning ("HVAC")
systems and process piping systems under direct contracts with owners of
buildings or subcontracts with general contractors or construction managers.
These contracts sometimes are awarded by competitive bids, since many of the
owners are public entities. Other contracts are obtained through negotiation
with private parties.
Traditionally, the Company's mechanical contracting and subcontracting work
made up as much as 90% of its total revenues. Because mechanical contracting and
subcontracting is a substantial portion of its business, the Company intends to
continue its concentration in this area.
The Company's management pioneered the concept of managing the mechanical
trade portion of construction. On larger complex projects (generally those
having a mechanical portion valued over $20 million), it is often beneficial for
a general contractor or construction manager to lock in the costs of the
mechanical portion of the contract prior to completion of the contract
documents. By engaging the services of a trade manager, general contractors can
more accurately evaluate design alternatives so that the completed construction
documents balance costs and project objectives. As a mechanical trade manager,
the Company or its subsidiary performs a construction manager function for the
mechanical trade portion of a project. The Company divides the mechanical
portion of the contract into bid packages for subcontractors, calculates
subcontractor bids, negotiates subcontracts and coordinates the work. Trade
management helps to remove gaps between contractual responsibilities, reduce
disputes and claims between trades, and simplify the bonding process. This
coordination makes a significant difference in keeping a project on schedule and
within budget.
As a mechanical trade manager, the Company may subcontract parts of a large
project to different subcontractors, thereby increasing competition on projects
and lowering bids by allowing smaller contractors to compete for the subcontract
work. Customers benefit by having a single source with the responsibility for
the cost, coordination and construction progress of the mechanical portion of
the projects.
The Company provides a guaranteed maximum price ("GMP") to the owners for
its scope of responsibility. The Company controls the GMP by obtaining accurate
maximum price quotes from potential suppliers and subcontractors, requiring
payment and performance bonds from major subcontractors and adding contingency
allowance to these before quoting the GMP. The Company also controls the costs
because it is a mechanical contractor and can perform the guaranteed work on its
own. On non-governmental projects, the Company may be able to split the benefit
of cost reductions it achieves on a project, but this is prohibited in certain
government contracts.
Although trade management is typically available only on large jobs, the
Company believes there is opportunity for expanding this line of business. While
trade management projects provide a net profit margin similar to that for
contracting projects, there is generally less risk associated with trade
management projects because there is a contingency fund which can be drawn from
if necessary. A contingency fund is a line item which the Company includes in
the GMP to account for any contingencies the Company may not have anticipated in
estimating the GMP. In the event the Company's costs exceed the relevant line
items quoted in the GMP, the Company may draw from the contingency fund to cover
such expenses.
OPERATIONS. The Company obtains projects primarily through negotiations
with private Owners, Construction Managers and General Contractors, and by
competitive bidding and negotiations in response to advertisements by federal,
state and local government agencies. The Company submits bids after a detailed
review of the project specifications, an internal review of the Company's
capabilities, equipment, personnel availability, and an assessment of whether
the project is likely to meet the targeted profit margins. After computing the
estimated costs of the project to be bid, the Company adds its desired profit
margin before submitting a bid.
The Company believes it has been successful in the competitive bidding
process because it is selective in the projects it bids and has highly skilled
personnel familiar with the local market. The Company has been able to avoid
costly bidding errors by becoming thoroughly familiar with all aspects of a
project and developing a comprehensive project budget using its proven cost
estimation system. Projects are divided into phases and line items indicating
separate labor, equipment, material, subcontractor and overhead cost estimates.
As a project progresses, the Company's project managers are responsible for
planning, scheduling and overseeing operations and reviewing project costs
against the estimates.
The Company has received letters of approval as an authorized bidder by
various government agencies, including the New York City Transit Authority, the
New York City Health and Hospitals Corporation, the New York City School
Construction Authority, the New York City Housing Authority and the New York
State Dormitory Authority.
MARKETS. The Company competes for business primarily in the New York City
metropolitan area. However, the Company has performed work outside of that area
in the past.
BACKLOG. The Company has a backlog (anticipated revenue from the
uncompleted portions of awarded projects) of orders totaling approximately
$60,000,000. as of December 31, 1999. Since then, the Company has been awarded
projects in excess of $12,000,000.
A portion of the Company's anticipated revenue in any year is not reflected
in its backlog at the start of the year because some projects are started and
completed the same year. The Company believes that its backlog is firm,
notwithstanding provisions contained in some contracts which allow customers to
modify or cancel the contracts at any time, subject to certain conditions,
including reimbursement of costs incurred in connection with the contracts and
the possible payment of cancellation fees.
COMPETITION. The mechanical contracting market is highly competitive. There
are many larger regional and national companies with resources greater than
those of the Company. However, many of these large competitors are unfamiliar
with the New York City metropolitan area. The Company competes favorably in New
York City with respect to such companies because of its reputation in the area
and its knowledge of the local labor force. There are many smaller contractors
and subcontractors in the New York City metropolitan area. The Company believes
it has a competitive advantage over smaller competitors due to the barriers to
entry for smaller competitors, including bonding requirements, relationships
with subcontractors, suppliers and union workers.
REGULATION. The construction industry is subject to various governmental
regulations from local, state and federal authorities. The Company is impacted
by state and federal requirements regarding the handling and disposal of lead
paint, but the impact cannot be predicted at this time since it varies from
project to project. The Company must also comply with regulations as to the use
and disposal of solvents and hazardous wastes, compliance with which are a
normal part of its operations. The Company does not perform asbestos abatement
but has occasionally subcontracted that part of a contract to duly licensed
asbestos companies with the Company being named as an additional insured on the
asbestos company's liability insurance policy. The Company has not incurred any
liability for violation of environmental laws. The Company must also comply with
rules and regulations promulgated by the Occupational Safety and Health
Administration.
EMPLOYEES. At December 31, 1999, the Company had 48 permanent, full time
employees. The Company also employs field employees who are union workers. The
number of union workers employed varies at any given time, depending on the
number and types of ongoing projects and the scope of construction work under
contract. The Company hires union labor for specific work assignments and can
reduce the number of union workers hired at will with no penalties.
The Company pays for benefits payable to union employees through the
payment of funds to a trust established by the union. The Company's obligation
is to pay a percentage of the wages of union workers to the trust fund. Thus,
the Company does not accrue liabilities for pension and medical benefits to
union retirees. The Company provides its full time permanent employees with
medical insurance benefits and a discretionary matching 401(k) plan. The Company
has in the past matched 25% of the employees' 401(k) contributions.
DEPENDENCE UPON CUSTOMERS. The Company seeks large, multi-year contracts.
At any given time, a material portion of the Company's contracting business may
be for one large contract for one customer.
For the year ended December 31, 1999, work under contracts with three
customers: Lehrer McGovern Bovis, Inc., Con Edison Solutions and J.A. Jones-GMO,
LLC. amounted to 20%, 18% and 23% of the Company's total revenues, respectively.
Historically, a considerable portion of the Company's revenue has been
generated from contracts with federal, state and local governmental authorities.
Consequently, a reduction in public sector contracts for any reason, including
an economic downturn or a reduction in government spending, could have a
material adverse effect on the Company's results of operations. At any one time,
the Company's contracts with federal, state and local governmental authorities
may or may not represent a material portion of its revenues. The Company's
current backlog does not include any material contracts with federal, state or
local governmental authorities.
On most of its projects, the Company is required to provide a surety bond.
The Company's ability to obtain bonding, and the amount of bonding required, is
primarily based upon the Company's net worth, working capital and the number and
size of projects under construction. The larger the project and/or the number of
projects under contract, the greater the requirements are for bonding, net worth
and working capital. The Company generally pays a fee to the bonding company of
an amount less than 1% of the amount of the contract to be performed. Since
inception, the Company has not encountered difficulties in obtaining Payment and
Performance Bonds nor has the bonding company been required to make a payment on
any bonds issued for the Company.
OTHER MATTERS. The Company does not own any patents, patent rights, or
similar intellectual property, and none are material to its business. The
Company's business is not subject to large seasonal variations. The Company
expended no funds for research and development in 1997, 1998, or 1999, and no
research and development costs are anticipated.
<PAGE>
ITEM 2. PROPERTIES
Pursuant to a Modification of Lease Agreement, dated as of May 1, 1998, the
Company leases an office and warehouse space in Long Island City, consisting of
18,433 square feet. The lease has an annual rent of $169,000. The lease has two
five year options with yearly rent increases of approximately 2%. The lease is a
triple net lease and thus the Company will pay any increases on real estate
taxes over the base year taxes, maintenance, insurance and utilities. The
Company has exercised the first five year option under the Modification of Lease
Agreement, which extends the lease term through June 2004.
The Company also leases a building and a storage yard in Bronx, New York,
consisting of a 14,000 square foot building, including 4,000 square feet of
offices, 10,000 square foot of shop space and an adjacent 5,000 square foot
storage yard. This lease is a triple net lease. The Company pays rent of
$103,000 per year, plus taxes (currently $20,500 per year), maintenance,
insurance and utilities. The lease will expire on December 31, 2000. See
"Certain Relationships and Related Transactions."
ITEM 3. 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
operations. The following are the material lawsuits in which the Company is a
party:
a. MARCUS GARVEY NURSING HOME. The Company filed a mechanic's lien in the
amount of $294,397 to recover its contract balance on the above
project. The general contractor, and most of the other subcontractors
have also liened the project. All liens have been bonded. In 1997, the
general contractor, Morse Diesel, International, instituted a
mechanic's lien foreclosure action in the Supreme Court of the State
of New York, Kings County, against the owner, and the case is
currently in discovery. KSW has cross-claimed in that action to
foreclose its mechanic's lien, and has asserted a contract claim
against the general contractor, and a claim against the general
contractor's surety, Seaboard Surety Company, on its Payment Bond.
There is no dispute between the Company and the general contractor as
to the amount of the Company's subcontract balance. KSW is aware of no
information which would reduce the amount of its ultimate recovery.
KSW intends to vigorously pursue this action, which should proceed to
trial within twelve (12) months.
b. 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 $5,362,290. Included is a claim for unanticipated costs
incurred through 1998 in the sum of $3,252,122. The action is in the
discovery stage and the Company has filed an application requesting
the court to set a discovery cut-off date. While the Company and its
counsel believes this lawsuit has merit, there is no guaranty the
claim will ultimately be successful.
c. 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 28, 1995 Distribution of stock was
described in a Form 10 Registration filed with the Securities and
Exchange Commission. This action is in the discovery stage, and no
trial date has been set. The Company believes that the lawsuit is
totally without merit, has accrued costs for litigation expenses, and
is aggressively defending the case.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of the shareholders at the
Company's Annual Meeting held on May 18, 1999:
a. ELECTION OF DIRECTORS. The following persons were elected as Class III
directors to serve for a term of three years:
NUMBER OF SHARES
Voted against
NAME VOTED FOR OR WITHHELD
Stanley Kreitman 4,593,729 13,949
Daniel Speigel 4,593,729 13,949
Of the remaining three directors, one will stand for election in 2000 and the
remaining two will stand for election in the year 2001.
b. APPOINTMENT OF INDEPENDENT AUDITORS. The stockholders ratified the
appointment of Marden Harrison & Kreuter, CPA's, P.C. as independent auditors
for the Company for 1999. There were 4,596,581 shares voted for approval, 6,630
shares voted against and 3,634 abstentions.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ's Electronic
Bulletin Board under the symbol "KSWW."
At March 24, 2000, the Company had 5,468,644 shares of KSW Common Stock
issued and outstanding held by approximately 5,800 shareholders of record.
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 1999, the Company did not repurchase any shares of common stock.
Currently, the Company intends to retain earnings for future growth, and
does not anticipate paying dividends on its Common Stock in the foreseeable
future. The Company did not pay dividends in 1998 or 1999.
The following information on high and low trading ranges is provided for
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First............................... 1.06 .81 3.43 2.87
Second.............................. 1.12 1.03 2.87 2.25
Third............................... 1.12 1.00 2.31 1.50
Fourth.............................. 1.50 1.00 1.50 1.01
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the
Company for the years ended December 31, 1999, 1998, 1997 and 1996 is derived
from, and is qualified by reference to, the financial statements for those
years, audited by Marden, Harrison & Kreuter CPA's, P.C. each of which is
included herein, and should be read in conjunction with such financial
information. The financial information for 1995 is derived from the financial
statements audited by Corbin & Wertz, CPA's.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1999 1998 1997 1996 1995
INCOME STATEMENT:
<S> <C> <C> <C> <C> <C>
Revenues............................. $44,847 $39,631 $66,184 $46,374 $44,176
Direct costs......................... 38,029 36,434 62,005 42,600 38,990
Gross profit......................... 6,818 3,197 4,179 3,794 5,186
Operating expenses................... 4,308 4,397 4,030 3,970 4,115
Selling, general, administration,
depreciation, interest and
income tax expenses............... 5,451 3,831 4,020 3,898 4,615
Income (loss) before income taxes.... 2,510 (1,200) 149 (176) 1,071
Net (loss) income.................... 1,367 (634) 159 (104) 571
Net (loss) income per share - Basic.. .25 (.12) .03 (.02) .07
Net (loss) income per share -
Diluted...................... .25 (.11) .03 (.02) .07
Number of shares used in computation
Basic................................ 5,468,644 5,463,505 5,528,311 5,440,008 7,785,754
Diluted.............................. 5,468,644 5,655,195 5,796,893 5,568,429 7,785,754
BASIC SHEET DATA:
Total assets......................... 26,147 21,273 26,269 28,734 20,431
Working capital...................... 7,023 5,194 5,809 5,582 4,928
Current liabilities.................. 14,912 11,388 15,700 18,195 10,302
Long-term liabilities................ 40 57 70 0 0
Stockholders' equity................. 11,195 9,828 10,499 10,539 10,129
OTHER DATA:
Current ratio........................ 1:47:1 1:46:1 1:37:1 1:31:1 1:48:1
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1999, 1998 and 1997.
OVERVIEW
The Company's contracts most often involve work periods in excess of
one year. Revenue on uncompleted fixed price contracts is recorded under the
"percentage of completion" method of accounting. The Company begins to recognize
profit on its contracts when it first incurs direct costs. Contract costs
include all direct material and labor costs and those other direct costs related
to contract performance including, but not limited to, subcontractor's costs and
supplies. General and administrative costs are charged to expense as incurred.
Pursuant to construction industry practice, a portion of billings, generally not
exceeding 10%, may be retained by the customer until the project is completed
and all obligations of the contractor are paid. The Company has not been subject
to a material loss in connection with any such retentions, although at times
legal procedures have been required to collect retentions due the Company.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
items of the Company's statement of operations for the periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(DOLLARS IN THOUSANDS)
NET SALES:
<S> <C> <C> <C> <C> <C> <C>
Contracts........................ $44,506 99.2 $39,587 99.9 $65,671 99.2
Fees............................. 341 .8 44 .1 513 .8
---------- ---------- ---------- ---------- ---------- ----------
Total............................ 44,847 100.0 39,631 100.0 66,184 100.0
COSTS OF SALES................... 38,029 84.8 36,434 91.9 62,005 93.7
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT..................... 6,818 15.2 3,197 8.1 4,179 6.3
EXPENSES
Selling, general, administrative
and interest expenses....... 4,308 9.6 4,397 11.1 4,030 6.1
---------- ---------- ---------- ---------- ---------- ----------
INCOME/(LOSS) BEFORE PROVISION FOR
INCOME TAXES..................... 2,510 5.6 (1,200) (3.0) 149 .2
PROVISION FOR INCOME TAXES....... 1,143 2.6 (566) (1.4) (10) 0
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME/(LOSS)................ $1,367 3.0 $(634) (1.6) $159 .2
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
KSW, INC
COMPUTATION OF NET INCOME PER SHARE
(000'S EXCEPT NET INCOME PER SHARE)
<TABLE>
<CAPTION>
BASIC DILUTED BASIC DILUTED BASIC DILUTED
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average common shares........ 5,469 5,469 5,464 5,464 5,528 5,528
Common stock & common stock equivalents
using the Treasury stock method..... 0 0 0 191 0 269
-------- -------- -------- -------- -------- --------
Total shares outstanding for purposes of
Calculating basic & diluted
earnings/(loss) per share........... 5,469 5,469 5,464 5,655 5,528 5,797
-------- -------- -------- -------- -------- --------
Net income (loss) as reported......... $1,367 $1,367 $(634) $(634) $ 159 $ 159
======== ======== ======== ======== ======== ========
Net income (loss) per share-basic and
diluted........................... $.25 $.25 $ (.12) $ (.11) $ .03 $ .03
======== ======== ======== ======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total revenue increased by $5,216,000 or 13.2% to $44,847,000 for the
year ended December 31, 1999, compared to $39,631,000 for the same period in
1998. The increase in revenue was due to an increase in the value of jobs booked
which is reflected in the increase in backlog at the beginning of 1999
$36,000,000 as compared to the backlog at the beginning of 1998, $31,000,000,
and the additional work booked during 1999 which resulted in a backlog of
$60,000,000 at December 31, 1999 an increase of 67%. In addition, the Company
received additional projects in January 2000 in excess of $12,000,000. The
continued increase in backlog should result in continued increased volume during
the year 2000.
Cost of sales increased by $1,595,000 or 4.4% to $38,029,000 for the
year ended December 31, 1999 compared to $36,434,000 for the comparable period
in 1998 primarily as a result of the increase in contract revenues.
The gross margin increased to 15.2% for the year ended December 31,
1999 compared to 8.1% for the year 1998 due to an increase in labor efficiency
and purchasing efficiencies as well as a better profit margin mix on new
projects. In addition the 1998 gross profit was affected by the cost overruns of
the Co-op City project described in the 1998 comparison to 1997. Without these
overruns the 1998 gross margin would have been 10.1%
Selling, general and administrative expenses decreased by $89,000 or
2.0% to $4,308,000 for the year ended December 31, 1999 compared to $4,397,000
for the year ended December 31, 1998 even though sales increased by 13.2%. This
was due to certain cost saving measures that were initiated at the end of 1998.
The income tax provision for 1999 was $1,143,000 as compared to a tax
benefit of $566,000 in 1998. Both years were based on an effective rate of 46%
of income (loss) before taxes. During 1999 the Company utilized all of its tax
carryover losses of approximately $1,900,000 from prior years.
As a result of all the items previously mentioned, there was a
$1,367,000 profit for 1999 as compared to a loss of ($634,000) for 1998.
During 1999 the Company earned 23%, 20% and 18% of its revenue from
its three largest customers. The Company bids on large multi-year contracts
which can account for more over 10% of contract revenue in any given year.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenue decreased by $26,553,000 or 40.1% to $39,631,000 for the
year ended December 31, 1998, compared to $66,184,000 for the same period in
1997. The decrease in revenue for 1998 was due to a decrease in backlog of
construction projects from $31,000,000 at December 31, 1997 compared to
$65,000,000 at December 31, 1996. Backlog increased 16% from $31,000,000 at
December 31, 1997 to $36,000,000 at December 31, 1998. Since then the Company
had been awarded projects totaling approximately $20,000,000.
Cost of sales decreased by $25,571,000 or 41.2% to $36,434,000 for the
year ended December 31, 1998, compared to $62,005,000 for the comparable period
in 1997 primarily as a result of the decrease in contract revenues.
The gross margin increased to 8.1% for the year ended December 31,
1998 compared to 6.3% for the same period in 1997. The Company experienced a
delay and consequently incurred unexpected costs on one of its projects which
resulted in a subsequent acceleration of work to meet the contract schedule. In
addition, working out of sequence resulted in additional unanticipated costs of
$2,000,000 in 1997 and $800,000 in 1998. The Company has submitted a proposal in
the sum of $3,252,000 seeking an equitable adjustment for unanticipated
additional costs. In addition, the Company has filed a mechanic's lien to
recover its contract balance and unpaid change order proposals, which the
general contractor has bonded. The Company has elected not to record claims
until the amount of the claim has been settled. Had the Company not incurred the
additional costs, or had it recorded the offsetting claims, the gross margin for
1998 and 1997 would have been 10.1% and 9.3%, respectively.
Selling, general and administrative expenses increased by $367,000 or
9.1% to $4,397,000 for the year ended December 31, 1998, compared to $4,030,000
for the comparable period in 1997. During the fourth quarter of 1998, the
Company spent $98,000 in costs in order to close down one of its two fabrication
facilities. It is anticipated that this measure in conjunction with other
reductions will result in overhead savings in excess of $500,000 per year.
The income tax benefit for 1998 was $566,000 as opposed to a benefit
of $10,000 for 1997. The credits were a result of the taxable income/(loss) of
the related periods.
As a result of all the items previously mentioned, there was a
($634,000) loss for 1998 compared to a net profit of $159,000 in 1997.
During 1998 the Company earned 29%, 18% and 15% of its revenues from
its three largest customers. In 1997 it earned 42%, 29% and 13% from its 3
largest customers. The Company bids on large multi-year contracts which account
for over 10% of contract revenue in any given year.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it is well positioned to obtain new
contracts and generate increased revenues over the next year. Developers have
announced many new bids for multi-million dollar projects in which the Company
would have a strong competitive advantage. The Company is currently providing
value engineering assistance to owners and developers on several important
projects now in development.
The Company's current bonding limits are also sufficient given the
volume and size of the Company's contracts. The Company's surety may require
that the Company maintain certain tangible net worth levels and may require
additional guarantees if the Company should desire increased bonding limits.
The Company believes its current cash resources are adequate to fund a
moderate increase in sales volume in the next year. However, the Company's
capital resources will not be sufficient to sustain the Company's long-term
plans for growth. In addition to seeking new contracts, the Company is
investigating expansion into new geographic areas. The Company's management has
had experience in expanding into new geographic areas with the Company's
predecessors; however, to date the Company has conducted its operations
exclusively in the New York City metropolitan area.
The Company currently has a $2,000,000 revolving credit facility with
Fleet Bank, which is at 1% over prime, subject to certain covenants and expires
June 2000. The Company did not utilize the facility during 1999. As of December
31, 1999, there were no outstanding loans against the facility.
The Company currently has no significant capital expenditure
commitments.
During the construction period, owners or general contractors may
request that KSW perform certain work which is a change to or in addition to the
original contract. Such work often requires months to obtain formal change
orders (including dollar amounts). Change orders are often the subject of
dispute and, sometimes litigation. Slow receipt on collections may also result
from general contractor or Owner financial difficulties. KSW tries to limit its
financial exposure by refusing, whenever possible, to do work without a signed
formal change order.
YEAR 2000 COMPLIANCE
Due to normal upgrading of the Company's computer systems during the
two years preceding January 1, 2000, the Company's software programs and
operating systems used in its internal operation, including applications used in
billing and various administrative functions were Year 2000 compliant prior to
January 1, 2000. The Company incurred no extraordinary expenses as a result of
the Year 2000 issue and none of its subcontractors and suppliers have reported
any problems relating thereto.
IMPACT OF INFLATION
Although the Company's operations are not directly affected by
inflation, both New York City and New York State have large debt service
burdens. Inflationary pressures have tended to result in a reduction in capital
spending by both state and local agencies; such capital expenditure reductions
in turn could have a negative impact on the Company's revenues.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained under "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other statements contained herein regarding matters that are
not historical facts, are forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995). Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not utilize futures, options or other derivative
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements are submitted in Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors of the Company is divided into three classes,
with each class serving for three years or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company and the
proposed directors is as follows:
NAME AGE TITLE
Floyd Warkol 52 Chief Executive Officer, President,
Secretary and Chairman of the
Board of Directors
Burton Reyer 65 Vice President and Director
Robert Brussel 57 Chief Financial Officer and Director
Stanley Kreitman 66 Director
Daniel Spiegel 74 Director
Mr. Floyd Warkol has been principally employed as Chairman of the
Board since December 15, 1995 and as President, Secretary and Chief Executive
Officer of KSW and as Chairman and Chief Executive Officer of its subsidiary KSW
Mechanical Services, Inc. since January 1994. Mr. Warkol's term expires on the
date of the 2001 Annual Meeting.
Mr. Burton Reyer has been principally employed as Vice President and
Director of KSW and as President and Chief Operating Officer of its subsidiary
KSW Mechanical Services, Inc. since January 1994. Mr. Reyer's term expires on
the date of the 2001 Annual Meeting.
Mr. Robert Brussel has been principally employed as Chief Financial
Officer and Director of KSW and Chief Financial Officer of its subsidiary KSW
Mechanical Services, Inc. since January 1994. Mr. Brussel's term expires on May
11, 2000. He has been re-nominated to serve for an additional 3 year term.
Mr. Daniel Spiegel has been a Director of KSW since January 1996. He
had been principally employed as Senior Vice President of Tishman Realty &
Construction Company, Inc. from 1970 until March 1995. He is presently a
consultant to various construction-related companies. Mr. Spiegel's term expires
on the date of the 2002 Annual Meeting.
Mr. Stanley Kreitman was elected to the Board of Directors on May 18,
1999 to replace Armand D'Amato who resigned effective December 10, 1998 for
personal reasons unrelated to the Company or its operations. Effective February
18, 1999, Mr. Kreitman had been appointed as an interim Director. Since 1994,
Mr. Kreitman has been Chairman of Manhattan Associates, an investment firm and
is a Board member of the N.Y.C. Department of Corrections. He is a published
author and lecturer on business investment matters. He is a member of the Board
of Directors of Medallion Funding Corp. (NASDAQ), Ports Systems Corp. (AMEX) and
CCA Industries, Inc. (NASDAQ). Mr. Kreitman's term expires on the date of the
2002 Annual Meeting.
COMMITTEES OF THE BOARD OF DIRECTORS. A Compensation Committee
approves the salary, incentives and benefit plans for directors, officers and
other employees, and the granting of options and other compensation matters. The
Compensation Committee consists of nonemployee Directors, Stanley Kreitman and
Daniel Spiegel. An Audit Committee, also composed of nonemployee Directors,
oversees actions taken by the Company's independent auditors and reviews the
Company's financial controls.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is
divided into three classes of Directors serving staggered three-year terms.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of the Company's common stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers, directors and holders of more than ten percent are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company and written representations from the Company's
executive officers and directors, the Company believes that during the year
ended December 31, 1999, its executive officers, directors and holders of more
than ten percent complied with all applicable Section 16(a) filings
requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth remuneration paid to executive officers
of the Company for the years ended December 31, 1999, 1998 and 1997.
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION
YEAR SALARY BONUS
Floyd Warkol 1999 $420,000 $252,605
Chairman of the Board, President, 1998 $600,000 $0
Secretary and Chief Executive Officer 1997 $575,000 $0
Burton Reyer 1999 $240,000 $146,245
Vice President 1998 $350,000 $0
1997 $325,000 $0
Robert Brussel 1999 $135,000 $37,500
Chief Financial Officer 1998 $135,000 $0
1997 $135,000 $19,635
James Oliviero 1999 $150,000 $37,500
General Counsel and Director of Investor 1998 $150,000 $0
Relations 1997 $150,000 $19,635
The Company and KSW Mechanical entered into a two-year employment
contract and a noncompetition agreement with Mr. Warkol as of January 1, 1999.
The employment contract provides for base annual compensation of $420,000. In
addition, Mr. Warkol shall be entitled to receive, each year, an amount equal to
9.5% of the Company's annual profits, before taxes, which are in excess of
$250,000. For the purposes of computing the amount due Mr. Warkol, annual pretax
profits shall exclude the effect of any income or expense on the Co-op City
project, and shall exclude any bonuses due to Mr. Warkol or Mr. Reyer. Mr.
Warkol is entitled to medical insurance, disability insurance with payments
equal to 60% of base compensation, a $1 million policy of life insurance payable
as directed by the employee (at a cost of $3,595 per year) and a car with a
chauffeur. Mr. Warkol is entitled to terminate his employment for "good reason,"
i.e., a substantial change in the nature or status of his responsibilities or
the person to whom he reports, in which event he is entitled to receive full pay
and benefits for the remainder of the term of the contract. The Company is not
entitled to discharge Mr. Warkol for disability until he has been disabled for
180 consecutive days. Mr. Warkol's estate is entitled to two months pay in the
event of his death. Mr. Warkol has agreed that he will not compete in the
mechanical contracting business in the New York City metropolitan area for the
term of his employment contract and for two years thereafter.
The Company and KSW Mechanical entered into a two-year employment
contract and a noncompetition agreement with Mr. Reyer as of January 1, 1999.
The employment contract provides for base annual compensation of $240,000. In
addition, Mr. Reyer shall be entitled to receive an amount each year, equal to
5.5% of the Company's annual profits, before taxes, which are in excess of
$250,000. For the purposes of computing the amount due Mr. Reyer, annual pretax
profits shall exclude the effect of any income or expense on the Co-op City
project and shall exclude any bonuses due Mr. Reyer and Mr. Warkol. Mr. Reyer is
entitled to medical insurance, disability insurance with payments equal to 60%
of base compensation and a $500,000 policy of life insurance payable as directed
by the employee. Mr. Reyer is entitled to terminate his employment for good
reason, i.e., a substantial change in the nature or status of his
responsibilities or the person to whom he reports, in which event he is entitled
to receive full pay and benefits for the remainder of the term of the contract.
The Company is not entitled to discharge Mr. Reyer for disability until he has
been disabled for 180 consecutive days. Mr. Reyer's estate is entitled to two
months pay in the event of his death. Mr. Reyer has agreed that he will not
compete in the mechanical contracting business in the New York City metropolitan
area for the term of his employment contract and for two years thereafter.
OPTIONS GRANTED. The Company adopted the 1995 Stock Option Plan of
KSW, Inc. (the "Stock Option Plan") on December 15, 1995, and the Stock Option
Plan was approved by the KSW stockholders by unanimous written consent on
December 15, 1995. The Stock Option Plan is administered by a Committee
appointed by the Board of Directors (each herein called the "Compensation
Committee"). All key employees of, consultants to, and certain nonemployee
Directors of the Company, as may be determined by the Compensation Committee
from time to time, are eligible to receive options under the Stock Option Plan.
In 1999, the Company issued a total of 55,000 stock options to three key
employees and to a Director, Stanley Kreitman, exercisable at $1.50 per share.
A total of 750,000 shares were originally authorized for issuance
under the Stock Option Plan. Prior to 1997, the Company had granted options with
respect to 610,000 shares at an exercise price of $1.50 per share to certain
eligible participants under the Stock Option Plan (of which 535,000 were issued
to officers and directors of the Company and its subsidiaries). At the Company's
Annual Meeting held on June 27, 1996 the shareholders approved an amendment to
the Stock Option Plan to increase by 350,000 shares the aggregate number of
shares of Common Stock available for future options to 490,000 shares.
The exercise price of an incentive stock option and a nonqualified
stock option is fixed by the Compensation Committee on the date of grant;
however, the exercise price under an incentive stock option must be at least
equal to the fair market value of the KSW Common Stock on the date of grant.
Stock options are exercisable for a duration determined by the
Compensation Committee, but in no event more than ten years after the date of
grant. Options shall be exercisable at such rate and times as may be fixed by
the Compensation Committee on the date of grant. The aggregate fair market value
(determined at the time the option is granted) of the KSW Common Stock with
respect to which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all stock option plans of the
Company and its subsidiaries) shall not exceed $100,000. To the extent that this
limitation is exceeded, such excess options shall be treated as non qualified
stock options for purposes of the Stock Option Plan and the Internal Revenue
Code of 1986, as amended (the "Code").
At the time a stock option is granted, the Compensation Committee may,
in its sole discretion, designate whether the stock option is to be considered
an incentive stock option or nonqualified stock option plan. Stock options with
no such designation shall be deemed an incentive stock option to the extent that
the $100,000 limit described above is met.
Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of KSW Common Stock already owned by
the option holder, or by such other method as the Compensation Committee may
permit from time to time. However, a holder may not use previously owned shares
of KSW Common Stock that were acquired pursuant to the Stock Option Plan, or any
other stock plan that may be maintained by the Company or its subsidiaries, to
pay the purchase price under an option, unless the holder has beneficially owned
such shares for at least six months.
Stock options become immediately exercisable in full upon the
retirement of the holder after reaching the age of 65, upon the disability or
death of the holder while in the employ of or service with the Company, upon a
Change of Control (as defined in the Stock Option Plan), or upon the occurrence
of such special circumstances as in the opinion of the Compensation Committee
merit special consideration. However, no options may be exercised earlier than
six months following the date of grant.
Stock options terminate at the end of the tenth business day following
the holder's termination of employment or service. This period is extended to
one year in the case of the disability or death of the holder, and in the case
of death, the stock option is exercisable by the holder's estate.
The options granted under the Stock Option Plan contain anti-dilution
provisions which will automatically adjust the number of shares subject to the
option in the event of a stock dividend, split-up, conversion, exchange,
re-classification or substitution. In the event of any other change in the
corporate structure or outstanding shares of KSW Common Stock, the Compensation
Committee may make such equitable adjustments to the number of shares and the
class of shares available under the Stock Option Plan or to any outstanding
option as it shall deem appropriate to prevent dilution or enlargement of
rights.
The Company shall obtain such consideration for granting options under
the Stock Option Plan as the Compensation Committee in its discretion may
request. Each option may be subject to provisions to assure that any exercise or
disposition of KSW Common Stock will not violate the securities laws. No option
may be granted under the Stock Option Plan after December 15, 2005.
The Board of Directors or the Compensation Committee may at any time
withdraw or amend the Stock Option Plan and may, with the consent of the
affected holder of an outstanding options at any time withdraw or amend the
terms and conditions of outstanding options. Any amendment which would increase
the number of shares issuable pursuant to the Stock Option Plan or change the
class of individuals to whom options may be granted shall be subject to the
approval of the stockholders of the Company within one year of such amendment.
The following table shows the number of shares as to which options
were granted immediately before the Distribution on December 29, 1995 to the
Company's executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
YEAR END (#) OPTIONS/SARS AT YEAR
SHARES ACQUIRED VALUE EXERCISABLE/ END ($) EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------------- ------------ ------------- -----------------------
<S> <C> <C> <C> <C>
Floyd Warkol 0 0 300,000/0 N/A
Burton Reyer 0 0 150,000/0 N/A
Robert Brussel 0 0 25,000/0 N/A
James Oliviero 0 0 20,000/0 N/A
Daniel Spiegel 0 0 20,000/0 N/A
Stanley Kreitman 0 0 0/20,000 N/A
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial
ownership of KSW Common Stock by (i) those persons known to the Company to
beneficially own 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, proposed directors and executive officers and (iii) all of
the Company's directors, proposed directors and executive officers as a group.
As used in this table, "beneficial ownership" means the sole or shared power to
vote, or to direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct the
disposition of a security). Accordingly, the number of shares may include shares
owned by or for, among others, the wife, minor children or certain other
relatives of such individual, as well as other shares as to which the individual
has the right to acquire within 60 days after such date.
NUMBER OF PERCENTAGE
SHARES OWNERSHIP
NAME OF BENEFICIAL OWNER
Floyd Warkol 844,000 (1) 15.4%
Meadow Lane
Purchase, NY 10577
Burton Reyer 380,080 (2) 7%
17 Foxwood Road
Kings Point, NY 11024
Allen & Company 312,500 5.7%
711 Fifth Avenue
New York, NY
Robert Brussel 33,500 *
365 Woodmere Blvd.
Woodmere, NY 11598
Stanley Kreitman 0 *
375 Park Avenue (Suite 1606)
New York, NY 10022
Daniel Spiegel 5,000 *
351 Twin Lakes Road
Teconic, CT 06079
All executive officers 1,262,580 22.4%
and directors as a group (5 persons)
- -------------------------
* Less than one percent.
(1) Does not include 78,000 shares owned by Mr. Warkol's daughter or 75,000
shares owned by Mr. Warkol's son both of whom do not reside in his household and
over which Mr. Warkol denies beneficial ownership. Includes 50,000 shares owned
by the Floyd and Barbara Warkol Charitable Foundation, of which Mr. Warkol is a
Trustee.
(2) Includes 1,540 shares which Mr. Reyer gave to his wife. Does not include
8,000 shares which Mr. Reyer gave to his daughter who does not reside in his
household and over which Mr. Reyer denies beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Floyd Warkol, President of the Company, and a charitable foundation he
controls are the shareholders of a corporation which is the landlord on the
Company's lease in Bronx, New York. The lease payments on such property were
$103,000 for 1999. See "Properties."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements required to be filed by Item 8 herewith are as
follows:
(b) EXHIBITS
Reference is made to the Exhibit Index found in this Form 10-K.
(c) Financial data schedule is filed herewith as Exhibit 27.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent auditors' report F-1
Consolidated financial statements:
Consolidated balance sheets F-2
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
KSW, Inc. and Subsidiary
37-16 23rd Street
Long Island City, New York 11101
We have audited the accompanying consolidated balance sheets of KSW, Inc. and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1999, 1998 and 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of KSW,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999, 1998 and
1997 in conformity with generally accepted accounting principles.
Marden, Harrison & Kreuter
Certified Public Accountants, P.C.
White Plains, New York
February 4, 2000
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
----------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ---------
A S S E T S
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,651 $ 2,404
Accounts receivable, net 10,606 9,212
Retainage receivable 4,122 3,747
Costs and estimated earnings in excess
of billings on uncompleted contracts 338 392
Deferred income taxes - 600
Prepaid expenses and other receivables 218 227
-------- ---------
Total current assets 21,935 16,582
Property and equipment, net 384 410
Other assets:
Goodwill, net 3,820 3,973
Deferred income taxes - 300
Other 8 8
-------- ---------
Total assets $ 26,147 $ 21,273
======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable $ 6,270 $ 5,464
Retainage payable 1,774 2,242
Accrued payroll and benefits 1,165 426
Accrued expenses 369 189
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,334 3,067
-------- ---------
Total current liabilities 14,912 11,388
Long-term liabilities 40 57
-------- ---------
Total liabilities 14,952 11,445
-------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock 54 54
Additional paid-in capital 9,726 9,726
Retained earnings 1,415 48
-------- ---------
Total stockholders' equity 11,195 9,828
-------- ---------
Total liabilities and stockholders' equity $ 26,147 $ 21,273
======== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
-----------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ----------
Revenues:
<S> <C> <C> <C>
Contracts $ 44,379 $ 39,491 $ 65,549
Fees 341 44 513
Interest 127 96 122
----------- ---------- -----------
Total revenues 44,847 39,631 66,184
Direct costs 38,029 36,434 62,005
----------- ---------- -----------
Gross profit 6,818 3,197 4,179
Selling, general and administrative expenses 4,279 4,364 3,987
Interest expense 29 33 43
----------- ---------- -----------
Income (loss) before income taxes 2,510 (1,200) 149
Income tax expense (benefit) 1,143 (566) (10)
----------- ---------- -----------
Net income (loss) $ 1,367 $ (634) $ 159
=========== =========== ===========
Net income (loss) per common share - basic $ .25 $ (.12) $ .03
========== =========== ===========
Net income (loss) per common share - diluted $ .25 $ (.11) $ .03
========== =========== ===========
Weighted average common shares outstanding -
basic 5,468,644 5,463,505 5,528,311
Weighted average common shares outstanding -
diluted 5,468,644 5,655,195 5,796,893
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------
<TABLE>
<CAPTION>
COMMON STOCK, $.01 PAR, ADDITIONAL
25,000,000 SHARES AUTHORIZED PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 5,542,978 $ 55 $ 9,961 $ 523 $ 10,539
Repurchase of common stock (71,667) (1) (198) - (199)
Net income - - - 159 159
---------- ----- ------- ------- ---------
Balances, December 31, 1997 5,471,311 54 9,763 682 10,499
Repurchase of common stock (58,000) (1) (169) - (170)
Issuance of common stock to executives
and consultant 42,000 1 112 - 113
Exercise of stock options 13,333 - 20 - 20
Net loss - - - (634) (634)
------------ ----- ------- ------- ---------
Balances, December 31, 1998 5,468,644 54 9,726 48 9,828
Net income - - - 1,367 1,367
----------- ----- ------- ------- ---------
Balances, December 31, 1999 5,468,644 $ 54 $ 9,726 $ 1,415 $ 11,195
========= ===== ======= ======= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
<S> <C> <C> <C>
Net income (loss) $ 1,367 $ (634) $ 159
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Compensation expense paid through issuance
of common stock - 113 -
Depreciation and amortization 326 398 476
Deferred income taxes 900 (615) (145)
Increase (reduction) in allowance for
doubtful accounts 40 38 (49)
Changes in assets (increase) decrease:
Accounts receivable (1,434) 3,936 (1,432)
Retainage receivable (375) 1,237 568
Costs and estimated earnings in excess
of billings on uncompleted contracts 54 (183) 1,431
Prepaid expenses and other receivables 9 491 (428)
Other assets - - 6
Changes in liabilities increase (decrease):
Accounts payable 806 (3,044) (94)
Retainage payable (468) (1,788) 558
Accrued payroll and benefits 739 (380) (110)
Accrued expenses 180 (544) 388
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,267 1,444 (3,237)
Long-term liabilities (17) (13) 70
--------- ------- -------
Net cash provided by (used in)
operating activities 4,394 456 (1,839)
--------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (147) (86) (242)
--------- ------- -------
Net cash used in investing activities (147) (86) (242)
--------- ------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------
Cash flows from financing activities:
<S> <C> <C> <C>
Exercise of stock options - 20 -
Repurchase of common stock - (170) (199)
-------- ------ -------
Net cash used in financing activities - (150) (199)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 4,247 220 (2,280)
Cash and cash equivalents, beginning of year 2,404 2,184 4,464
-------- ------ -------
Cash and cash equivalents, end of year $ 6,651 $2,404 $ 2,184
======== ====== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 29 $ 33 $ 43
======== ====== =======
Income taxes $ 35 $ 8 $ 226
======== ====== =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During 1998, the Company issued 42,000 shares of common stock of which 17,000
shares of stock were allocated to Company executives and 25,000 shares of stock
were allocated as payments to a consultant. The fair market value of the
additional 42,000 shares issued was approximately $113 at the date of issuance.
See Note 11 for other noncash financing activities.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS:
The consolidated financial statements for the years ended December 31,
1999, 1998 and 1997 include the accounts of KSW, Inc. and its
wholly-owned subsidiary, KSW Mechanical Services, Inc., collectively
"the Company." All material intercompany accounts and transactions have
been eliminated in consolidation.
The Company furnishes and installs heating, ventilating and air
conditioning systems and processes piping systems for institutional,
industrial, commercial, high-rise residential and public works projects,
primarily in the State of New York. The Company also serves as a
mechanical trade manager, performing project management services
relating to the mechanical trades and as a constructability consultant.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) CASH AND CASH EQUIVALENTS:
The Company considers highly liquid instruments with remaining
maturities of 90 days or less when purchased to be cash
equivalents. At December 31, 1999 and 1998, cash equivalents
consisted of investments in Euro-dollars with original maturities
of one week or less.
(B) REVENUE AND COST RECOGNITION:
Revenue is primarily recognized on the "percentage of completion"
method for reporting revenue on long-term construction contracts
not yet completed, measured by the percentage of total costs
incurred-to-date to estimated total costs at completion for each
contract. This method is utilized because management considers
the cost-to-cost method the best method available to measure
progress on these contracts. Revenues and estimated total costs
at completion are adjusted monthly as additional information
becomes available and based upon the Company's internal tracking
systems. Because of the inherent uncertainties in estimating
revenue and costs, it is reasonably possible that the estimates
used will change within the near term.
Contract costs include all direct material and labor costs and
those other indirect costs related to contract performance
including, but not limited to, indirect labor, subcontract costs
and supplies. General and administrative costs are charged to
expense as incurred.
The Company has contracts that may extend over more than one
year, therefore, revisions in cost and profit estimates during
the course of the work are reflected in the accounting period in
which the facts, which require the revisions, become known.
Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
Revenues recognized in excess of amounts billed are recorded as a
current asset under the caption "Costs and estimated earnings in
excess of billings on uncompleted contracts." Billings in excess
of revenues recognized are recorded as a current liability under
the caption "Billings in excess of costs and estimated earnings
on uncompleted contracts."
In accordance with construction industry practice, the Company
reports in current assets and liabilities those amounts relating
to construction contracts realizable and payable over a period in
excess of one year.
Fees for the management of certain contracts are recognized when
services are provided.
(C) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company establishes an allowance for uncollectible trade
accounts received based on historical collection experience and
management's evaluation of collectibility of outstanding accounts
receivable. The allowance for doubtful accounts was $200 and $160
as of December 31, 1999 and 1998, respectively.
(D) PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is
computed over the estimated useful lives, generally five years,
of the assets using the straight-line method. Leasehold
improvements are amortized over the lesser of the estimated
useful lives of the assets to which they apply or the related
lease term. Repairs and maintenance are charged to operations in
the period incurred.
(E) GOODWILL:
Goodwill, which represents the excess of cost over the fair value
of net assets acquired, is amortized using the straight-line
method over 30 years.
The Company assesses the recoverability of goodwill periodically
by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through projected
undiscounted cash flows. The amount of goodwill impairment, if
any, is charged to operations in the period in which goodwill
impairment is determined by management. At December 31, 1999,
1998 and 1997, no impairment of goodwill was determined by
management.
Goodwill at December 31, 1999 and 1998 is as follows:
1999 1998
----------- ---------
Goodwill $ 4,990 $ 4,990
Less: accumulated amortization 1,170 1,017
------- -------
Net goodwill $ 3,820 $ 3,973
======= =======
Amortization expense for the years ended December 31, 1999, 1998
and 1997 amounted to approximately $153 per year.
(F) INCOME TAXES:
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under Statement No. 109, the asset and liability method
is used in accounting for income taxes. Deferred taxes are
recognized for temporary differences between the bases of assets
and liabilities for financial statement and income tax purposes.
The temporary differences relate primarily to different
accounting methods used for depreciation and amortization of
property and equipment, goodwill, allowance for doubtful accounts
and net operating loss carryforwards. A valuation allowance is
recorded for deferred tax assets when it is more likely than not
that some or all of the deferred tax assets will not be realized
through future operations.
(G) NET INCOME (LOSS) PER SHARE:
During the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings
per share" (SFAS 128), which establishes new standards for
computing and presenting earnings per share.
Under SFAS No. 128, net income (loss) per share-basic is computed
based on the weighted average number of shares of common stock
outstanding. Net income (loss) per share-dilutive reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or otherwise resulted in the issuance of common
stock and is computed similarly to "fully diluted" net income
(loss) per share that was reported under previous accounting
standards. Dilutive potential common shares do not have a
significant dilutive effect.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(I) STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). Under SFAS 123,
companies are encouraged, but not required, to adopt a fair value
based method of accounting for stock compensation awards. As
permitted by SFAS 123, the Company has elected to continue to
measure compensation cost using the intrinsic value based method
as prescribed in Accounting Principles Board opinion No. 25,"
Accounting for Stock Issued to Employees" and to provide the
disclosures required by SFAS 123 (see Note 11(C)).
(3) RETAINAGE RECEIVABLE:
At December 31, 1999, approximately $607 of the retainage receivable is
not collectible within one year.
(4) CONSTRUCTION CONTRACTS:
Information with respect to contracts in progress at December 31, 1999
and 1998 is as follows:
1999 1998
------------ -------
Expenditures on uncompleted contracts $ 32,644 $25,057
Estimated earnings thereon 5,972 2,844
-------- --------
38,616 27,901
Less billings applicable thereto 43,612 30,576
-------- --------
$ (4,996) $(2,675)
========= =======
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 338 $ 392
Billings in excess of costs and estimated
earnings on uncompleted contracts (5,334) (3,067)
-------- -------
$ (4,996) $(2,675)
========= ========
The Company experienced a delay and consequently incurred unexpected
costs on one of its projects which resulted in a subsequent acceleration
of work to meet the contract schedule. In addition, working out of
sequence resulted in additional unanticipated costs of $800 in 1998 and
$2,000 in 1997. The effect of the additional costs incurred was to
decrease net income for the year ended December 31, 1998 by $471 ($.09
per share-basic and $.08 per share-diluted) and December 31, 1997 by
$1,051 ($.19 per share-basic and $.18 per share-diluted). The Company
has submitted a proposal in the sum of $3,252 seeking an equitable
adjustment for KSW's unanticipated additional costs on February 5, 1999.
In addition, the Company has filed a mechanic's lien to recover its
contract balance and unpaid change order proposals, which the General
Contractor has bonded. This action is currently in the discovery phase.
The Company has elected not to record claims until the amount of the
claim has been settled (see Note 7(F)). At December 31, 1999 and 1998,
approximately $1,937 and $2,246, respectively for billings applicable to
the base contract, is included in accounts and retainage receivable
relating to this contract.
(5) PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1999 and 1998 consist of the
following:
1999 1998
------------- -------
Machinery and equipment $ 550 $ 524
Furniture and fixtures 523 453
Leasehold improvements 805 754
------- --------
1,878 1,731
Less accumulated depreciation
and amortization 1,494 1,321
------- --------
Net property and equipment $ 384 $ 410
======= ========
Depreciation and amortization expense relating to property and equipment
was approximately $173, $245 and $324 for the years ended December 31,
1999, 1998 and 1997, respectively.
(6) INCOME TAXES:
The components of income tax expense (benefit) are as follows:
1999 1998 1997
----------- ------------ -------
Current
Federal $ 119 $ - $ -
State and local 124 49 135
-------- ------ -----
243 49 135
-------- ------ -----
Deferred
Federal 565 (373) (94)
State and local 335 (242) (51)
-------- ------ -----
900 (615) (145)
-------- ------ -----
Total $ 1,143 $ (566) $ (10)
======== ======= ======
A reconciliation of the statutory Federal income tax rate to the
provision for income taxes is as follows:
1999 1998 1997
------ ------ ----
Statutory Federal income tax rate (benefit) 34% (34)% 34%
State and local taxes, net of Federal tax benefit 12 (12) 13
Adjustment of prior year over accrual - (1) (54)
---- ------ ----
46% (47)% (7)%
===== ===== ====
The tax provision for 1997 includes an adjustment of deferred taxes for
prior years over accruals.
The details of deferred tax assets and liabilities are as follows:
1999 1998
------------- ---------
Deferred income tax assets:
Property and equipment $ 313 $ 301
Allowance for doubtful accounts 92 77
Net operating loss carryforward - 835
------ -------
Total deferred income tax assets 405 1,213
Deferred income tax liabilities:
Amortization of goodwill 405 313
------ -------
Net deferred income tax asset $ - $ 900
====== =======
During 1999, the Company utilized its net operating loss carryforward of
approximately $1,800.
(7) COMMITMENTS AND CONTINGENCIES:
(A) PERFORMANCE BONDS:
The Company is contingently liable to a surety under a general
indemnity agreement. The Company agrees to indemnify the surety
for any payments made on contracts of suretyship, guaranty or
indemnity. Management believes that all contingent liabilities
will be satisfied by performance on the specific bonded contracts
involved.
(B) OPERATING LEASES:
The Company is obligated under noncancelable operating leases,
including a lease with its chief executive officer, for office
space with future rental payments at December 31, 1999 as
follows:
YEAR ENDING NON-AFFILIATED RELATED PARTY TOTAL
DECEMBER 31,
2000 $ 169 $ 103 $ 272
2001 173 - 173
2002 176 - 176
2003 180 - 180
2004 91 - 91
----- ----- ------
$ 789 $ 103 $ 892
===== ===== ======
In accordance with the lease agreement, the Company has the
option to extend its non affiliated lease an additional five
years from June 2004 through June 2009.
Rent expense for the years ended December 31, 1999, 1998 and 1997
amounted to approximately $282, $381 and $357, respectively,
including $103 to a related party in each year.
(C) EMPLOYMENT AGREEMENTS:
KSW Mechanical Services, Inc. has entered into employment
agreements with two of its officers for the period January 1999
through December 2000. These agreements provide for aggregate
base annual compensation of $660 each year plus 15% of income
before taxes in excess of $250. The officers are also entitled to
medical insurance, disability insurance and life insurance.
Future minimum payments required by the Company in accordance
with these agreements are $660 during the year ending December
31, 2000.
(D) ENVIRONMENTAL REGULATION:
The Company must comply with certain Federal, state and local
regulations involving contract compliance as well as the disposal
of certain toxins. In management's opinion, there have been no
violations of laws, which could have a material adverse impact on
the financial condition of the Company.
(E) CONSULTING AGREEMENTS:
The Company entered into two agreements for independent advisory
and consulting services. The term of the first agreement was from
June 1994 through December 1997 with annual payments totaling
$95. The second agreement was from January 1, 1996 through
December 31, 1998 with annual payments totaling $75. This
agreement also provided the consultant with 15,000 options to
purchase shares of the Company's common stock at $1.50 per share.
The options were issued pursuant to the 1995 Stock Option Plan
(see Note 11(C)). Neither agreement was extended after its
expiration date.
During 1998, the Company approved the issuance of 42,000 shares
of common stock of which 25,000 shares were issued to these
consultants in lieu of cash payments with a fair market value of
approximately $67. These transactions have been reflected in the
Company's consolidated financial statements for the year ended
December 31, 1998 (see Note 11(B)).
(F) LEGAL:
CO-OP CITY. In February 1999, the Company has 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 $5,362. Included is a claim for
unanticipated costs incurred through 1998 in the sum of $3,252.
The action is in the discovery stage and the Company has filed an
application requesting the court to set a discovery cut-off date.
While the Company and its counsel believes this lawsuit has
merit, there is no guarantee the claim will ultimately be
successful.
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, 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. This action is in the
discovery stage, and no trial date has been set. The Company
believes that the lawsuit is totally without merit, has accrued
costs for estimated litigation expenses totaling $200 at December
31, 1999, and is aggressively defending the case. In management's
opinion, the resolution of this matter will not have a material
adverse effect on the Company's financial statements.
MARCUS GARVEY NURSING HOME. The Company filed a mechanic's lien
in the amount of $294 to recover its contract balance on the
above project. This amount is included in accounts receivable at
both December 31, 1999 and 1998. The general contractor, and most
of the other subcontractors have also liened the project. All
liens have been bonded. In 1997, the general contractor
instituted a mechanics foreclosure action in the Supreme Court of
the State of New York, Kings County, against the owner, and the
case is currently in discovery. KSW has cross-claimed in that
action to foreclose its mechanic's lien, and has asserted a
contract claim against the general contractor, and a claim
against the general contractor's surety on its Payment Bond.
There is no dispute between the Company and the general
contractor as to the amount of the Company's subcontract balance.
KSW is aware of no information which would reduce the amount of
its ultimate recovery. KSW intends to vigorously pursue this
action, which should proceed to trial within twelve months.
(8) CONCENTRATION RISKS:
(A) CREDIT RISK:
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and cash
equivalents and trade accounts and retainage receivables.
The Company maintains its cash and cash equivalents accounts at
balances which exceed Federally insured limits for such accounts.
The Company limits its credit risk by selecting financial
institutions considered to be highly creditworthy. At December
31, 1999 and 1998, amounts in excess of federally insured limits
totaled approximately $6,436 and $2,177, respectively.
Trade accounts and retainage receivables are due from government
agencies, municipalities and private owners located in the New
York metropolitan area. The Company does not require collateral
in most cases, but may file claims or statutory liens against the
construction projects if a default in payment occurs. Accounts
and retainage receivables from the Company's three largest
customers totaled approximately $7,611 and $5,945, respectively
at December 31, 1999 and 1998.
(B) LABOR CONCENTRATIONS:
The Company's direct labor is supplied primarily by unions
through collective bargaining agreements expiring through June
2001. Although the Company's past experience was favorable with
respect to resolving conflicting demands with these unions, it is
always possible that a protracted conflict may occur which will
impact the renewal of the collective bargaining agreements.
(C) CONTRACT REVENUE/SIGNIFICANT CUSTOMERS:
The Company earned approximately 23%, 20% and 18% of its contract
revenue in 1999, 29%, 18% and 15% of its contract revenue in 1998
and 42%, 29% and 13% of its contract revenue in 1997 from its
three largest customers.
(9) RETIREMENT PLANS:
(A) PROFIT-SHARING/401(K) PLAN:
The Company sponsors a profit-sharing/401(k) plan covering
employees not covered under collective bargaining agreements who
meet the age and length of service requirements of the plan. The
Company may make discretionary contributions to the plan. The
total of employee contributions may not exceed Federal government
limits. The Company expensed approximately $51, $51 and $57, as a
25% matching contribution for the years ended December 31, 1999,
1998 and 1997, respectively.
(B) MULTIEMPLOYER PENSION PLANS:
The Company has made contributions to multiemployer pension plans
that cover its various union employees. These plans provide
benefits based on union members' earnings and periods of coverage
under the respective plans. It is not cost effective to
accumulate information regarding the pension expense under these
plans.
(10) LINE OF CREDIT - BANK
On May 29, 1997, the Company established a credit facility in the amount
of $3,000 with Fleet Bank which provided a $2,000 revolving credit
agreement and $1,000 line of credit with interest at the bank's prime
lending rate, plus 1%. The $1,000 line of credit expired in June 1998
and was not renewed. The $2,000 revolving credit agreement expires in
June 2000 and requires the Company to meet certain financial covenants.
At December 31, 1999 and 1998, there were no outstanding borrowings on
this credit facility.
(11) STOCKHOLDERS' EQUITY:
(A) REPURCHASE OF COMMON STOCK:
During 1998 and 1997, the Company purchased 58,000 and 71,667
shares, respectively, of its common stock under a Board of
Directors resolution authorizing the Company to purchase up to
10% of its outstanding shares.
(B) ISSUANCE OF COMMON STOCK - EXECUTIVES AND CONSULTANTS:
During 1998, the Company issued 25,000 shares of common stock to
a consultant in lieu of cash payments (see Note 7(E)) and 17,000
shares to executives as bonuses. The consolidated financial
statements reflect the effect of 42,000 shares issued per this
resolution. The fair market value of these shares at December 31,
1998 was approximately $42.
(C) STOCK OPTION PLAN:
The Board of Directors of the Company adopted the 1995 Stock
Option Plan (the Plan). The Plan enabled the Company to offer an
incentive-based compensation system to its employees, officers,
directors and consultants.
A total of 750,000 shares were authorized for issuance under the
Plan. Options to purchase 610,000 shares of common stock at $1.50
per share were issued (of which, 535,000 shares were issued to
officers and directors of the Company and its subsidiary). The
Plan requires that the exercise price of options be set at not
less than the fair market value of the common stock on the date
of grants. In the case of the initial options, the price of $1.50
was determined to be in excess of the fair market value in light
of the contingencies facing the Company prior to completion of
this Distribution. Options awarded vest one-third on each
anniversary of the date of grant and are fully vested three years
after grant and expire ten years from the date of the grant.
Additional credit towards vesting is given in the event of death
(six months) or disability (three months). Any shares which are
subject to an award but are not used because the terms and
conditions of the award are not met, or any shares which are used
by participants to pay all or part of the purchase price of any
option may again be used for awards under the Plan. The Plan
provides that no shares may be issued to officers or directors in
excess of the 750,000 shares originally planned to be authorized
unless the Company's stockholders approve an increase in the
number of shares which may be used for that purpose. At the
Company's annual meeting held on June 27, 1996, the stockholders
approved an amendment to the plan to increase by 350,000 shares
the aggregate number of shares of common stock available for
future options to 490,000 shares of common stock.
Holders of shares issued pursuant to the Plan are entitled to
registration of such shares annually, subject to restrictions in
any underwriting agreement. During 1998, 13,333 options under the
Plan were exercised. During 1999 and 1997, no options under the
Plan were exercised and during 1998 and 1997 no new options were
granted. During 1999, 55,000 options were issued to employees and
a director. At December 31, 1999, there were 651,667 exercisable
options outstanding, all of which have an exercise price of $1.50
per share.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plan. Had compensation
cost for the Company's stock option plan been determined based on
the fair value at the grant date consistent with the provisions
of SFAS No. 123, the Company's pro forma net income would have
been $1,338 and the pro forma net income per share - basic and
diluted would remain at .25, unchanged.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1999:
dividend yield of 0%; expected volatility of 54.67%; risk-free
interest rate of 7.00%; and expected lives of six years.
(D) PREFERRED STOCK:
The Company is authorized to issue 1,000,000 shares of preferred
stock. Through December 31, 1999, no shares of preferred stock
have been issued by the Company.
(12) BACKLOG:
Backlog represents the amount of revenue the Company expects to realize
from work to be performed on uncompleted contracts in progress at year
end and from contractual agreements on work which has not commenced.
Backlog consists of the following:
Estimated revenue to be recognized from:
Uncompleted contracts in progress $ 59,821
Letters of intent 12,655
--------
$ 72,476
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
March 27, 2000 its behalf by the undersigned, thereunto duly authorized.
KSW, INC.
By: /S/ FLOYD WARKOL
------------------------
Floyd Warkol
President, Chief Executive Officer,
Secretary and Chairman of the Board of
Directors
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ FLOYD WARKOL
-----------------------
Floyd Warkol
President, Chief Executive Officer,
Secretary and Chairman of the Board of
Directors
March 27, 2000
/S/ BURTON REYER
-------------------------
Burton Reyer
Vice President and Director
March 27, 2000
/S/ ROBERT BRUSSEL
--------------------------
Robert Brussel
Chief Financial Officer and Director
March 27, 2000
/S/ STANLEY KREITMAN
---------------------------
Stanley Kreitman
Director
March 27, 2000
/S/ DANIEL SPIEGEL
----------------------------
Daniel Spiegel
Director
March 27, 2000
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
2.1+ Form of Modification of Lease Agreement dated as of May 1, 1998
3.i.2+ Amended and Restated Articles of Incorporation of the Registrant
3.ii.2+ Amended and Restated By-Laws of the Registrant
10.1+ Employment Agreement, dated as of January 1, 1994, by and among
KSW Mechanical Services, Inc., Floyd Warkol and the Registrant
10.2+ Employment Agreement, dated as of January 1, 1994, by and among
KSW Mechanical Services, Inc., Burton Reyer and the Registrant
10.3+ Amendatory Employment Agreement, dated as of December 15, 1995, by
and among KSW Mechanical Services, Inc., the Registrant and Floyd
Warkol
10.4+ Amendatory Employment Agreement, dated as of December 15, 1995, by
and among KSW Mechanical Services, Inc., the Registrant and Burton
Reyer
10.5+ Form of Second Amendatory Employment Agreement dated as of December
31, 1998 by and among KSW Mechanical Services, Inc. the Registrant
and Floyd Warkol
10.6+ Form of Second Amendatory Employment Agreement dated as of December
31, 1998 by and among KSW Mechanical Services, Inc. the Registrant
and Burton Reyer
21.1+ List of Subsidiaries
27* Financial Data Schedule
- ---------------------------
* Filed herewith.
+ Previously Filed.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,651
<SECURITIES> 0
<RECEIVABLES> 10,806
<ALLOWANCES> 200
<INVENTORY> 0
<CURRENT-ASSETS> 21,935
<PP&E> 1,878
<DEPRECIATION> 1,494
<TOTAL-ASSETS> 26,147
<CURRENT-LIABILITIES> 14,912
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 11,141
<TOTAL-LIABILITY-AND-EQUITY> 26,147
<SALES> 0
<TOTAL-REVENUES> 44,847
<CGS> 38,029
<TOTAL-COSTS> 42,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 2,510
<INCOME-TAX> 1,143
<INCOME-CONTINUING> 1,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,367
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
