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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
COMMISSION FILE NUMBER 0-27290
KSW, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
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(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
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(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 AT
CLASS NOVEMBER 11, 2002
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COMMON STOCK, $.01 PAR VALUE 5,470,311
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THIS IS PAGE 1 OF 25 PAGES.
INDEX TO EXHIBITS IS ON PAGE 22
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
--------------------------------
TABLE OF CONTENTS
PAGE NO. 2
_______________________________________________________________________________________________
PART 1 FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - 3
September 30, 2002 and December 31, 2001
Consolidated Statements of Operations - 4
Nine and three months ended September 30, 2002
and 2001
Consolidated Statement of Comprehensive Income
(Loss) -
Nine and three months ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Independent Accountants' Review Report 11
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Item 4. Controls and Procedures 15
_______________________________________________________________________________________________
PART II OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
_______________________________________________________________________________________________
SIGNATURE 17
CERTIFICATIONS 18
INDEX TO EXHIBITS 22
2
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, 2002 Dec. 31, 2001
------------------ -------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 2,229 $ 715
Marketable securities 449 641
Accounts receivable, less allowance
for doubtful accounts of $200 at
9/30/02 and 12/31/01 11,692 17,639
Retainage receivable 2,834 2,549
Costs and estimated earnings in excess of
billings on uncompleted contracts 685 26
Deferred income taxes 692 1,067
Prepaid expenses and other receivables 790 725
----------- ----------
Total current assets 19,371 23,362
Property and equipment, net of accumulated
depreciation of $1,890 and $1,795 at 9/30/02
and 12/31/01, respectively 297 333
Other Assets:
Goodwill, net of accumulated amortization of $4,990
and $1,476 at 9/30/02 and 12/31/01 respectively - 3,514
Deferred income taxes 2,217 402
Other 8 9
----------- ----------
TOTAL ASSETS $ 21,893 $ 27,620
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable - current $ 0 $ 190
Accounts payable 8,007 11,375
Retainage payable 1,607 1,774
Accrued payroll and related benefits 349 747
Accrued expenses 455 374
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,654 3,689
----------- ----------
Total current liabilities 14,072 18,149
Long-term liabilities 10 19
----------- ----------
Total liabilities 14,082 18,168
----------- ----------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 5,470,311 shares issued
and outstanding at 9/30/02 and 12/31/01 54 54
Additional paid-in capital 9,729 9,729
Deficit (1,902) (328)
Net unrealized holding loss on available
for sale securities (70) (3)
----------- ----------
Total stockholders' equity 7,811 9,452
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,893 $ 27,620
=========== ==========
See accompanying notes to consolidated financial statements.
3
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(unaudited)
Nine Months Nine Months Three Months Three Months
Ended 9/30/02 Ended 9/30/01 Ended 9/30/02 Ended 9/30/01
------------- ------------- ------------- -------------
Revenues:
Contracts $38,494 $ 36,854 $ 10,600 $16,498
Loss on Sale of Marketable
Securities (70) (82) (23) (58)
Interest 20 78 3 8
------------- ------------- ------------- -------------
Total Revenues 38,444 36,850 10,580 16,448
Direct costs 34,373 36,246 9,348 14,766
------------- ------------- ------------- -------------
Gross profit 4,071 604 1,232 1,682
Expense:
Selling, general and administrative 3,453 3,549 980 1,160
Interest 22 40 4 8
------------- ------------- ------------- -------------
Total Expense 3,475 3,589 984 1,168
------------- ------------- ------------- -------------
Income (loss) before provision for income
taxes (benefit) 596 (2,985) 248 514
Provision for income taxes (benefit) 315 (1,345) 128 247
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of
change in accounting principle 281 (1,640) 120 267
Cumulative effect of change in accounting for
goodwill, net of tax benefit of $1,659 (1,855) - - -
------------- ------------- ------------- -------------
Net income (loss) $(1,574) $ (1,640) $ 120 $267
============= ============= ============= =============
Earnings (loss) per common share- basic & diluted
before cumulative effect of
change in accounting principle $ .05 $ (.30) $ .02 $ .05
Cumulative effect of change in accounting
principle (.34) - - -
------------- ------------- ------------- -------------
Basic and diluted earnings (loss) per common
share $ (.29) $ (.30) $ .02 $ .05
============= ============= ============= =============
Basic and diluted weighted average shares
outstanding 5,470,311 5,470,311 5,470,311 5,470,311
See accompanying notes to consolidated financial statements.
4
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(unaudited)
Nine Months Nine Months Three Months Three Months
Ended 9/30/02 Ended 9/30/01 Ended 9/30/02 Ended 9/30/01
------------- ------------- ------------- -------------
Net income (loss) $(1,574) $ (1,640) $ 120 $ 267
Other comprehensive loss:
Net unrealized holding losses
on available for sale securities
during period (67) (73) (38) (37)
------------- ------------- ------------- -------------
Total Comprehensive income (loss) $(1,641) $ (1,713) $ 82 $ 230
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
5
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Nine Months Nine Months
Ended 9/30/02 Ended 9/30/01
------------- -------------
Cash flows from operating activities:
Net loss $ (1,574) $ (1,640)
Adjustments to reconcile net loss
to cash provided by (used in) operating
activities:
Depreciation and amortization 95 218
Write off of goodwill 3,514 -
Deferred income taxes (1,380) (1,412)
Realized loss on sale of marketable securities 70 -
Changes in operating assets and liabilities:
Accounts and retainage receivables 5,662 (2,687)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (659) (190)
Prepaid expenses and other receivables (65) 407
Accounts and retainage payable (3,535) 2,099
Accrued payroll and related benefits (398) (108)
Accrued expenses 81 (172)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (35) 552
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,776 (2,933)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (59) (134)
Sale (purchase) of marketable securities,net ( 4) 1,895
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (63) 1,761
----------- -----------
Cash flows from financing activities:
Decrease in loan payable (190) 0
Other liabilities ( 9) (29)
----------- -----------
NET CASH (USED IN) FINANCING
ACTIVITIES (199) (29)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,514 (1,201)
Cash and cash equivalents, beginning of period 715 3,499
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,229 $ 2,298
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 22 $ 40
Taxes $ 27 $ 10
See accompanying notes to consolidated financial statements.
6
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and note disclosures required by accounting principles
generally accepted in the United States. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2001. In the opinion of
management, the accompanying unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 30, 2002
and December 31, 2001, and the results of operations, comprehensive income
(loss) for the nine and three month periods ended September 30, 2002 and 2001
and cash flows for the nine months ended September 30, 2002 and 2001. Because of
the possible fluctuations in the marketplace in the construction industry,
operating results of the Company on a quarterly basis may not be indicative of
operating results for the full year.
2. Significant Accounting Policies
The significant accounting policies followed by the Company and its subsidiary
in preparing its consolidated financial statements are set forth in Note (2) to
such consolidated financial statements included in Form 10-K for the year ended
December 31, 2001. The Company has made no significant change in these policies
during 2002, except for the following change in accounting principle.
During 2001, the Financial Accounting Standards Board issued SFAS 142 "Goodwill
and Other Intangible Assets" which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under SFAS 142, the
amortization of goodwill ceased as of January 1, 2002 and a test for impairment
was established whereby the fair market value of goodwill was compared to its
carrying value.
Since the goodwill was attributable to the entire Company and the fair market
value of the Company as reflected in the market value of its stock was below its
tangible net worth, the entire goodwill was written off during the first
quarter.
Amortization expense for the third quarter of 2002 would have been $38,000 and
the annual amortization for 2002 and the next five years would have been
$153,000 per year.
Actual results for the nine and three month periods ended September 30, 2002 and
2001 and pro forma results had we applied the non-amortization provisions of
SFAS 142 in those periods are as follows (in thousands, except per share
amounts):
7
Nine Months Nine Months Three Months Three Months
Ended 9/30/02 Ended 9/30/01 Ended 9/30/02 Ended 9/30/01
------------- ------------- ------------- -------------
Reported net income (loss) $ (1,574) $ (1,640) $ 120 $ 267
Add: Goodwill amortization, net of taxes 1,855 114 - 38
---------- ---------- ----------- ------------
Adjusted net income (loss) $ 281 $ (1,526) $ 120 $ 305
========== ========== =========== ============
Basic and diluted earnings (loss) per share:
Reported net income (loss) per share $ (.29) $ (.30) $ .02 $ .05
Goodwill amortization per share, net of
taxes .34 .02 - .01
---------- ---------- ----------- ------------
Adjusted earnings income (loss) per share $ .05 $ (.28) $ .02 $ .06
========== ========== =========== ============
3. Contingencies
Except as listed below, 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. In February 1999, the Company sued the general
contractor and its bonding company in New York State
Supreme Court, Queens County, to recover its contract
balance and unpaid proposals in the sum of $5,770,919.
Included in that sum is a claim for unanticipated costs
incurred through 1998 in the sum of $3,662,734, which this
claim is not reflected in the Company's Financial
Statements. The defendant has asserted counterclaims
totaling $6,269,000, which the Company believes lack
merit. While the Company and its counsel believe its
lawsuit has merit, there is no guaranty the claim for
unanticipated costs will ultimately be successful. This
case was tried for 9 days in September 2002 and adjourned
by the Court to January 2003 for further trial
proceedings.
b. Stroock & Stroock & Lavan, LLP. On February 13, 2001, the
Company commenced an action in the Superior Court of the
State of California, County of Los Angeles against its
former counsel, Stroock & Stroock & Lavan, LLP ("Stroock")
for malpractice in connection with Stroock's
representation of the Company in connection with the
transactions which form the basis for the now settled
Helionetics Creditors Committee Action. That action had
claimed that Helionetics' distribution of the Company's
stock to Helionetics' shareholders was a fraudulent
conveyance. The Company's Complaint also alleges
malpractice in connection with Stroock's representation of
the Company and three of its Directors and Officers in the
Helionetics Creditors Committee Action. The Company seeks
to recoup its legal fees paid for the distribution, the
fees spent in defense of the Helionetics Creditors
Committee Action, and the settlement payment made by the
Company and its Directors to settle that action (a total
of approximately $ 1,800,000.), plus punitive damages.
Subsequent to the filing of this malpractice action in
California, Stroock sued the Company and three of its
directors in New York State Supreme Court seeking "not
less than $300,000" for legal fees allegedly due in
8
connection with Stroock's representation of the Company in
the Helionetics Creditors Committee Action. The Company
moved to dismiss this case on the grounds that California
is the proper venue for the parties' disputes and that any
claims for legal fees relate to the Company's malpractice
action in California. On October 24, 2001, the New York
Court granted the Company's motion to the extent of
staying the New York action pending the determination of
the California Action, on condition that the Company does
not object to Stroock's assertion of a counterclaim for
legal fees in the California malpractice action. Discovery
is underway in this California action. Trial is scheduled
for March 2003.
c. Other Proposals and Claims. During the course of its work
on construction projects, the Company may incur expenses
for work outside the scope of its contractual obligations,
for which the owner or general contractor agrees that the
Company will be entitled to additional compensation, but
where there is not yet an agreement on price. The
Company's financial statements reflect the amounts the
Company believes it is probable it will receive on
these proposals. During the course of its work on
construction projects, the Company may also incur expenses
for work outside the scope of its contractual obligations,
for which no acknowledgment of liability exists from the
owner or general contractor for the additional work. These
claims may include change proposals for extra work or
requests for an equitable adjustment to the Company's
contract price due to unforeseen disruptions to its work.
In accordance with accounting principles generally
accepted in the United States of America, until written
acknowledgment of the validity of the claims are received,
they are not reflected in the accompanying financial
statements. No accruals have been made in the accompanying
consolidated financial statements related to these
proposals for which no acknowledgment of liability exists.
While the Company has been generally successful in
obtaining a favorable resolution of such claims, there is
no assurance that the Company will be successful in the
future.
d. World Trade Center (WTC) Business Recovery Grant Program
The WTC Business Recovery Grant Program (the "Program") is
a program established by the New York State Urban
Development Corporation d/b/a the Empire State Development
Corporation to provide assistance to certain businesses
that have been adversely impacted as a result of the
events of September 11, 2001. The Program was amended
during August 2002 to include businesses working in the
area designated as the Restricted Zone as of September 11,
2001 under a contractual agreement if they meet certain
qualifying criteria of the Program. The maximum relief a
company can receive from this section of the Program is
$300,000.
Pursuant to the above mentioned program, the Company is
seeking reimbursement of its economic losses which exceed
the maximum relief amount of $300,000 relating to two
projects that the Company believes would meet the
9
eligibility criteria. The Company is still pursuing
previously submitted insurance claims pertaining to these
two projects. No amounts have been recorded in the
accompanying consolidated financial statements for these
potential grant or insurance proceeds.
The Company is in the process of submitting its grant
application for this program.
4. New Accounting Standards
In July 2002, the Financial Accounting Standards Board
issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which changes the accounting
for costs such as lease termination costs and certain
employee severance costs that are associated with a
restructuring, discontinued operation, plant closing, or
other exit or disposal activity initiated after December
31, 2002. The standard requires companies to recognize the
fair value of costs associated with exit or disposal
activities when they are incurred rather than at the date
of commitment to an exit or disposal plan. The Company is
currently evaluating the impact of SFAS No. 146 on the
Company's financial position and results of operations.
10
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders
KSW, Inc.:
We have reviewed the accompanying consolidated balance sheet of KSW, Inc. and
subsidiary (the "Company") as of September 30, 2002, and the related
consolidated statements of operations and comprehensive income (loss) for the
three-month and nine-month periods ended September 30, 2002 and the statement of
cash flows for the nine months ended September 30, 2002. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
statements consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we were not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with accounting principles generally accepted in the United
States of America.
The 2001 consolidated financial statements of KSW, Inc. and subsidiary were
audited or reviewed by other accountants, whose reports dated February 1, 2002
and October 25, 2000, on those consolidated financial statements.
/s/ Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Total revenues for the third quarter of 2002 decreased by 35.7% or $5,868,000 to
$10,580,000 compared to $16,448,000 for the third quarter of 2001. During the
first nine months of 2002, total revenues increased 4.3% or $1,594,000 to
$38,444,000 compared to $36,850,000 for the first nine months of 2001. During
the third quarter of 2002, revenue decreased as a result of market conditions as
well as ongoing contracts nearing completion and new projects not yet commenced.
For the nine months ended September 30, 2002, new projects which started during
the latter part of 2001 and continued through the first nine months of 2002
resulted in the increase in revenue for the period. As of September 30, 2002,
the Company had backlog of $25,000,000 as compared to $52,000,000 as of
September 30, 2001. The Company is actively seeking new contracts to add to its
backlog.
COST OF SALES
Cost of sales for the third quarter of 2002 decreased by $5,418,000, or 36.7%,
to $9,348,000 from $14,766,000 in the third quarter of 2001 as a result of the
decrease in sales revenue noted above. Cost of sales for the first nine months
of 2002 decreased by $1,873,000, or 5.2%, to $34,373,000 from $36,246,000 for
the same period of 2001 due to more profitable contracts performed during 2002.
GROSS PROFIT
For the third quarter of 2002, there was a gross profit of $1,232,000 or 11.6%
as compared to a gross profit of $1,682,000 or 10.2% for the third quarter of
2001. For the nine months ended September 30, 2002, there was a gross profit of
$4,071,000 or 10.6% as compared to a gross profit of $ 604,000 or 1.6% for the
same period in 2001. The increased gross profit during 2002 was due to higher
productivity on the Company's new projects and finalization of contract prices
related to proposals on completed contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased from $1,160,000
for the third quarter of 2001 to $980,000 for the third quarter of 2002, which
represents a decrease of $180,000 or 15.5%. For the nine months ended September
30, 2002, SG&A expenses decreased $96,000, or 2.7%, for the same period in 2001,
from $3,549,000 for the same period during 2001 to $ 3,453,000. During the nine
months ended September 30, 2002, the Company had legal expenses of $262,000
($58,000 in the third quarter) and settlement costs of $450,000 (all in the
first quarter), compared to legal expenses of $373,000 ($139,000 in the third
quarter) for the same period in 2001. These costs were in connection with the
Helionetics Creditors Committee lawsuit and the Co-op City lawsuit described in
Notes 3a and 3b to the consolidated financial statements. Without these costs
the SG & A for the first nine months of 2002 would have been $2,741,000 or 7.1%
of revenue as compared to $3,176,000 or 8.6% of revenue for the same period for
2001. In the third quarter of 2002 the SG&A would have been $922,000 or 8.7% of
revenue compared to $1,021,000 or 6.2% of revenue for the third quarter of 2001.
12
PROVISION FOR TAXES
The tax provision for the three months ended September 30, 2002 was $128,000 as
compared to $247,000 for the same period in 2001. For the nine months ended
September 30, 2002, the tax provision was $315,000 compared to a tax benefit of
$1,345,000 for the same period in 2001. The tax provision (benefit) for each
period is based on approximately 46% of pretax income (loss). However, because
of the utilization of carryover losses in 2002 the state and local taxes were
based on net worth, which resulted in a higher effective tax rate.
CHANGE IN ACCOUNTING FOR GOODWILL
The Financial Accounting Standards Board issued SFAS 142 "Goodwill and Other
Intangible Assets" which became effective on January 1, 2002. In accordance with
this pronouncement goodwill would no longer be amortized, but tested each year
as to the "fair market value" verses the carrying value. Since the goodwill
applied to the entire Company as a whole and the fair market value of the
Company as represented by its market capitalization was below its tangible net
worth, the goodwill of $3,514,000 ($1,855,000 net of taxes), was written off
during the first quarter 2002 due to the one time change in accounting
principles (see Note 2 to the consolidated financial statements).
NET INCOME
The net income for the third quarter of 2002 was $120,000 compared to a net
income of $267,000 for the third quarter of 2001 due to the items mentioned
above. For the nine months ended September 30, 2002, there was a net loss of
$1,574,000 compared to a net loss of $1,640,000 for the same period in 2001,
also due to the items mentioned above. Without the Helionetics settlement, legal
fees and write off of goodwill the net income for the nine months ended
September 30, 2002 would have been $665,000 or $.12 per share. Without the
additional legal fees of $58,000 in the third quarter of 2002, the net income
would have been $151,000 or $.03 per share. Both calculations assume a 46% tax
provision.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 2002, cash provided by operations was $1,776,000.
For the same period in 2001 the cash used by operations was $2,933,000. The
improved cash flow was a result of profits generated before the effect of the
change in accounting for goodwill and utilization of carry forward losses, as
well as improved collections of receivables.
The Company has a line of credit facility with Merrill Lynch for $2,000,000
which was scheduled to expire on December 31, 2002. The Company and the
financial institution have agreed to extend the term of this agreement through
December 31, 2003. The line calls for borrowing at 3% over the 30-day dealer
Commercial Paper Rate that approximates the prime-lending rate of 4.25% at
November 7, 2002, and is subject to certain financial covenants.
The Company has no significant capital improvements projected over the next
year; however, any substantial increases in revenue may require additional funds
for start-up costs.
13
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are not historical facts, constitute
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995). These forward looking statements generally can
be identified as statements that include phrases such as "believe", "expect",
"anticipate", "intend", "plan", "foresee", "likely", "will" or other similar
words or phrases. Such forward-looking statements concerning management's
expectations, strategic objectives, business prospects, anticipated economic
performance and financial condition, and other similar matters involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements discussed or implied by such
forward-looking statements. This document describes factors that could cause
actual results to differ materially from expectation of the Company. All written
and oral forward-looking statements attributable of the Company or persons
acting on behalf of the Company are qualified in their entirety by such factors.
Such risks, uncertainties, and other important factors include, among others:
low labor productivity and shortages of skilled labor, recent federal government
tariff increases on foreign steel imports, economic downturn, reliance on
certain customers, competition, ability to obtain bonding, inflation, the
adverse effect of the attack of September 11, 2001 on public budgets and
insurance costs, the availability of private funds for construction, and other
various matters, many of which are beyond the Company's control and other
factors as are described at the end of "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's Form
10-K for the fiscal year ended December 31, 2001. Forward-looking statements
speak only as of the date of the document in which they are made. The Company
disclaims any obligation or undertaking to provide any updates or revisions to
any forward-looking statement to reflect any change in the Company's
expectations or any change in events, conditions or circumstances on which the
forward-looking statement is based.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure with respect to financial instruments depends
upon changes in the "30-Day Dealer Commercial Paper Rate" which at November 7,
2002 was 1.28%. The Company may borrow up to $2,000,000 under its credit
facility. Amounts outstanding under the credit facility bear interest at 3% over
the 30-day dealer commercial paper rate that at November 7, 2002 was
approximately equal to prime (4.25%). The Company currently does not use
interest rate derivative instruments to manage exposure to interest rate
changes. There was no outstanding debt under this facility at September 30,
2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the periods
specified in the rules and forms of the Securities and Exchange
Commission. Such information is accumulated and communicated to the
Company's management, including its principal executive officer and
principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to
apply judgment in evaluating disclosure controls and procedures.
Within 90 days prior to the filing date of this quarterly report on
Form 10-Q, the Company has carried out an evaluation, under the
supervision and with the participation of the Company's management,
including the Company's principal executive officer and the Company's
principal financial officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based
on such evaluation, the Company's principal executive officer and
principal financial officer concluded that the Company's disclosure
controls and procedures are effective.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the
internal controls in connection with the preparation of this
quarterly report on Form 10-Q.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3 to Consolidated Financial Statements.
15
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Statement Regarding Computation of per Share Earnings
Exhibit 99.1 - Certification by the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99.2 - Certification by the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) The Company filed the following Current Report on Form 8-K during the
third quarter of 2002:
(i) Current report on Form 8-K, dated September 30, 2002, reporting
the retirement of the Company's Chief Financial Officer and
Board Member, Robert Brussel, and the appointment of Richard W.
Lucas as his successor as Chief Financial Officer. This form
also reported that to insure auditor independence, the Company
had replaced the Company's former outside auditor for whom Mr.
Lucas had previously worked, and engaged the firm of Rosen
Seymour Shapss Martin and Company, LLP as the Company's new
independent auditor for 2002.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KSW, INC.
Date: November 11, 2002
/s/Richard W. Lucas
-------------------------------------------
Richard W. Lucas
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
17
CERTIFICATIONS
I, Floyd Warkol, certify that:
1. I have reviewed this quarterly report on Form 10-Q of KSW, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
18
including any corrective actions to significant deficiencies and material
weaknesses.
Date: November 11, 2002
By: /s/ Floyd Warkol
--------------------------------------
Floyd Warkol, Chief Executive Officer
19
CERTIFICATIONS
I, Richard W. Lucas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of KSW, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
20
including any corrective actions to significant deficiencies and material
weaknesses.
Date: November 11, 2002
By: /s/ Richard W. Lucas
------------------------------------------
Richard W. Lucas, Chief Financial Officer
21
KSW, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
11 Statement Regarding Computation of Per Share Earnings 23
99.1 Certification by the Chief Executive Officer pursuant to
18 U.S.C.ss.1350, as adopted byss.906 of the Sarbanes-Oxley
Act of 2002. 24
99.2 Certification by the Chief Financial Officer pursuant to
18 U.S.C.ss.1350, as adopted byss.906 of the Sarbanes-Oxley
Act of 2002. 25
22