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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NUMBER 0-27290
KSW, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3191686
------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
37-16 23RD STREET, LONG ISLAND CITY, NEW YORK 11101
--------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
718-361-6500
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER
(AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES NO X
--- ---
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 AUGUST 12, 2004
------ -----------------
COMMON STOCK, $.01 PAR VALUE 5,470,311
KSW, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2004
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TABLE OF CONTENTS
PAGE NO.
________________________________________________________________________________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - 3
June 30, 2004 and December 31, 2003
Consolidated Statements of Operations - 4
Three and six months ended June 30, 2004
and 2003
Consolidated Statements of Comprehensive Loss -
Three and six months ended June 30, 2004 and 2003 5
Consolidated Statements of Cash Flows
Six months ended June 30, 2004 and 2003 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 14
Market Risk
Item 4. Controls and Procedures 14
________________________________________________________________________________
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchase
of Equity Securities 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
________________________________________________________________________________
SIGNATURE 16
INDEX TO EXHIBITS 17
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, 2004 December 31, 2003
------------- -----------------
ASSETS (unaudited)
- ------
Current assets:
Cash $ 1,553 $ 3,156
Marketable securities 651 621
Accounts receivable, less allowance
for doubtful accounts of $200 at
6/30/04 and 12/31/03 5,667 6,303
Retainage receivable 1,319 2,159
Costs and estimated earnings in excess of
billings on uncompleted contracts 331 622
Prepaid expenses and other receivables 480 420
---------- ----------
Total current assets 10,001 13,281
Property and equipment, net of accumulated
depreciation and amortization of $1,874 and $1,840
at 6/30/04 and 12/31/03, respectively 112 146
Accounts receivable 2,137 1,937
Deferred income taxes and other 1,470 1,470
---------- ----------
TOTAL ASSETS $ 13,720 $ 16,834
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 4,163 $ 4,978
Retainage payable 609 1,141
Accrued payroll and benefits 400 477
Accrued expenses 101 182
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,093 2,007
---------- ----------
Total current liabilities 6,366 8,785
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.01 par value; 25,000,000 shares
authorized; 5,470,311 shares issued
and outstanding at 6/30/04 and 12/31/03 54 54
Additional paid-in capital 9,729 9,729
Accumulated deficit (2,473) (1,778)
Accumulated other comprehensive gain :
Net unrealized holding gain on available
for sale securities 44 44
---------- ----------
Total stockholders' equity 7,354 8,049
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,720 $ 16,834
========== ==========
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)
Three Months Three Months Six Months Six Months
Ended June 30, 2004 Ended June 30, 2003 Ended June 30, 2004 Ended June 30, 2003
------------------- ------------------- ------------------- -------------------
(restated) (restated)
Revenues $ 6,407 $ 8,478 $ 12,838 $ 14,619
Cost of revenues 5,502 7,896 11,426 13,600
----------- ----------- ----------- -----------
Gross profit 905 582 1,412 1,019
Selling, general and administrative
expenses 955 714 2,122 1,182
----------- ----------- ----------- -----------
Operating loss (50) (132) (710) (163)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net - (25) - (24)
Gain (loss) on sale of marketable
securities 9 (16) 26 (39)
----------- ----------- ----------- -----------
Total other income (expense), net 9 (41) 26 (63)
----------- ----------- ----------- -----------
Loss before provision (benefit) for
income taxes (41) (173) (684) (226)
Provision (benefit) for income taxes 10 (28) 11 (23)
----------- ----------- ----------- -----------
Net loss $ (51) $ (145) $ (695) $ (203)
=========== =========== =========== ===========
Loss per common share:
Basic $ (.01) $ (.03) $ (.13) $ (.04)
Diluted $ (.01) $ (.03) $ (.13) $ (.04)
Weighted average common shares outstanding:
Basic 5,470,311 5,470,311 5,470,311 5,470,311
Diluted 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 LOSS
(IN THOUSANDS)
(unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Net loss $ (51) $ (145) $ (695) $ (203)
------------ ------------ ------------- ------------
Other comprehensive loss before tax:
Net unrealized holding gains arising
during the period 9 73 26 62
Less: reclassification adjustment for
(gains) losses included in net loss (9) 16 (26) 39
------------ ------------ ------------- ------------
Other comprehensive income
before tax - 89 - 101
Income tax related to items of
other comprehensive income - 41 - 46
------------ ------------ ------------- ------------
Other comprehensive income,
net of tax - 48 - 55
------------ ------------ ------------- ------------
Total comprehensive loss $ (51) $ (97) $ (695) $ (148)
------------ ------------ ------------- ------------
See accompanying notes to consolidated financial statements
5
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Six Months Six Months
Ended June 30, 2004 Ended June 30,2003
------------------- ------------------
Cash flows from operating activities:
Net loss $ (695) $ (203)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 34 46
Deferred income taxes - (46)
Realized (gain) loss on sale of
marketable securities (26) 39
Changes in operating assets and liabilities:
Accounts receivable 436 206
Retainage receivable 840 70
Costs and estimated earnings in
excess of billings on uncompleted
contracts 291 (150)
Prepaid expenses and other receivables (60) (153)
Other - 8
Accounts payable (815) (1,187)
Retainage payable (532) (103)
Accrued payroll and related benefits (77) 14
Accrued expenses (81) 205
Billings in excess of costs and
estimated earnings on uncompleted
contracts (914) (98)
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES
(1,599) (1,352)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment - (5)
Proceeds from sale or marketable securities 336 204
Purchase of marketable securities (340) (208)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (4) (9)
------------- -------------
Cash flows from financing activities:
Increase in loan payable - 127
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 127
------------- -------------
NET DECREASE IN CASH (1,234)
(1,603)
Cash, beginning of period 3,156 2,516
------------- -------------
Cash, end of period $ 1,553 $ 1,282
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 7 $ 26
Income taxes $ 11 $ 23
See accompanying notes to consolidated financial statements.
6
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Nature of Operations, Basis of Presentation and Liquidity
---------------------------------------------------------
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. The Company considers itself to be one operating segment.
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 consolidated 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, 2003.
The Company currently has a $2,000,000 line of credit with Merrill Lynch, which
expires on August 31, 2004. The line of credit calls for borrowing at 3% over
the 30-Day Dealer Commercial Paper Rate (4.33 % at June 30, 2004). At June 30,
2004 the Company had no outstanding borrowings against the facility. Merrill
Lynch has indicated that it will not renew this line of credit. The Company is
actively seeking other credit providers and is exploring alternative facilities,
but has not yet been able to obtain a replacement facility. The Company has not
utilized this credit facility since July 2003. Based upon the Company's current
cash position and the cash expected to be generated by projects already under
contract, the Company believes its current cash resources are adequate to fund
its current operating requirements. If in the future the Company is not able to
fund its activities without borrowing and this line of credit has not been
replaced, the loss of this facility could have a material adverse effect on the
Company's ability to obtain bonding and take on new projects and fund then
current projects.
At the end of January 2004, the Company's management identified and determined
that reported revenues and costs of revenues during the year ended 2002 and the
nine months ended September 30, 2003, including their respective interim
periods, were materially overstated. This overstatement was a result of an
accounting error attributable to the failure to eliminate certain intra-company
accounts as disclosed by the Company on February 2, 2004, in a press release, a
copy of which was attached as an exhibit to the Current Report on Form 8-K of
the same date. This overstatement did not change previously reported gross
profit, operating income, net income (loss) or earning (loss) per share for the
affected periods. The Company's previously issued statements of operations for
the year ended 2002 and nine months ended September 30, 2003, including for
their respective interim periods, should not be relied upon as to the revenues
and costs of revenues reported in such statements as a result of these
accounting errors. The Form 10-K for 2003 and the Form 10-K/A for 2002 restated
the amounts to correct the accounting error. The amounts for the quarter and
period ended June 30, 2003 included in this Form 10-Q have been restated to
reflect the correction of the accounting error.
7
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, necessary for a fair presentation of the
financial position of the Company as of June 30, 2004 and December 31, 2003, and
the results of operations, comprehensive loss for the three and six months ended
June 30, 2004 and 2003 and cash flows for the six months ended June 30, 2004 and
2003. Because of the possible fluctuations in the market place 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, 2003. The Company has made no significant changes to these policies
during 2004.
3. Contingencies - Legal
-----------------------
a. Co-op City. In February 1999, the Company sued the general contractor
and the general contractor's 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 amount has not been reflected as a claim receivable
in the Company's financial statements because it is the policy of the
Company not to record income from claims until the claims have been
received or awarded. 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 of
a favorable outcome. This case was tried for 32 days and adjourned by
the Court to September 2004 for further trial proceedings. The
financial statements at June 30, 2004 and December 31, 2003, include
accounts receivable of approximately $1,937,000 related to this
project which is classified as long-term.
b. Other Proposals and Claims. During the ordinary and routine 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 include the amounts the
Company believes it will ultimately receive on these authorized
proposals. Also 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 no acknowledgment of liability
exists from the owner or general contractor for such 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 for the
construction industry, until written acknowledgment of the validity of
the claims are received, they are not recognized 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.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
REVENUES
Total revenues for the quarter ended June 30, 2004, decreased by $2,071,000 or
24.4%, to $6,407,000 as compared to $8,478,000 (restated) for the quarter ended
June 30, 2003. During the six months ended June 30, 2004, revenues decreased by
$1,781,000 or 12.2% to $12,838,000 compared to $14,619,000 (restated) for the
six months ended June 30, 2003. These declines were primarily a result of market
conditions, as well as the Company focusing on smaller contracts with shorter
durations, which the Company is able to monitor more closely. In addition,
during the first six months of 2004, the Company did not have a significant
amount of trade management contracts underway which contributed to this revenue
decline. As of June 30, 2004, the Company had backlog of approximately
$34,500,000 as compared to approximately $27,200,000 (restated) as of June 30,
2003.
COST OF REVENUES
Cost of revenues for the quarter ended June 30, 2004, decreased by $2,394,000 or
30.3%, to $5,502,000 as compared to $7,896,000 for the quarter ended June 30,
2003. Costs of revenues for the six months ended June 30, 2004 decreased by
$2,174,000 or 16.0%, to $11,426,000 as compared to $13,600,000 for the six
months ended June 30, 2003 as a result of the decrease in revenues noted above.
GROSS PROFIT
For the quarter ended June 30, 2004, there was a gross profit of $905,000 or
14.1% of revenues as compared to a gross profit of $582,000 or 6.8% of revenues
(restated) for the quarter ended June 30, 2003. For the six months ended June
30, 2004, there was a gross profit of $1,412,000 or 11.0% of revenues as
compared to $1,019,000 or 7.0% of revenues (restated) for the quarter ended June
30, 2003 A larger portion of the gross profit earned during the three and six
months ended June 30, 2003 was attributed to trade management contracts, as
compared to the same periods in 2004. Trade management contracts historically
have a lower gross profit margin than the Company's typical mechanical trade
contract.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the quarter ended June
30, 2004, increased by $241,000 or 33.8%, to $955,000 as compared to $714,000
for the quarter ended June 30, 2003. SG&A expenses for the six months ended June
30, 2004, increased by $940,000 or 79.5%, to $2,122,000 as compared to
$1,182,000 for the six months ended June 30, 2003. These SG&A increases were
primarily due to a legal settlement recorded in the first quarter of 2003 and a
reduction in trade management contract revenues in 2004.
During the first quarter of 2003 SG&A was reduced by a settlement the Company
reached in its legal action against Stroock & Stroock and Lavan, LLP, whereby
they agreed to pay the Company $850,000 and dismiss their claim for payment of
additional fees. During the three and six months ended June 30, 2003, the
Company was able to reduce SG&A by utilizing a portion of its office staff on
its trade management contracts, on which SG&A costs are reimbursed as part of
the Company's general condition costs. These trade management contracts were
substantially completed during the fourth quarter of 2003, resulting in an
increase of costs carried in SG&A during the three and six months ended June 30,
2004. The Company has taken steps to reduce its SG&A expense by eliminating
certain home office positions.
OTHER INCOME (EXPENSES)
Other income for the quarter ended June 30, 2004 was $9,000, as compared to
other expenses of $41,000 for the quarter ended June 30, 2003. Other income for
the six months ended June 30, 2004 was $26,000, as compared to other expenses of
$63,000 for the six months ended June 30, 2003. The Company had realized gains
on sales of marketable securities totaling $9,000 and $26,000, during the three
and six months ended June 30, 2004, compared to a loss on such sales of $16,000
and $39,000 for the three and six months ended June 30, 2003. In addition, the
remaining other expenses during 2003, is attributed to the Company incurring
interest charges related to its utilization of its line of credit.
PROVISION FOR TAXES
The income tax provision for the quarter ended June 30, 2004 was $10,000, as
compared to an income tax benefit of $28,000 for the quarter ended June 30,
2003. For the six months ended June 30, 2004, the income tax provision was
$11,000, as compared to an income tax benefit of $23,000 for the six months
ended June 30, 2003. The provision for both periods differs from the Company's
effective income tax rate primarily due to a deferred income tax valuation
allowance against the tax (benefit) expense applicable to period losses. In
addition, the tax rates in all periods were affected by certain state and local
taxes which are based on net worth.
NET LOSS
As a result of all the items mentioned above, the Company incurred a net loss of
$51,000 for the quarter ended June 30, 2004 as compared to a net loss of
$145,000 for the quarter ended June 30, 2003. For the six months ended June 30,
2004, the net loss was $695,000 as compared to a net loss of $203,000 for the
six months ended June 30, 2003.
10
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
GENERAL
The Company's principal capital requirement is to fund its work on construction
projects. Projects are billed on a monthly basis based on the work performed to
date. These project billings, less a withholding of retention, which is received
as the project nears completion, are collectible based on their respective
contract terms. The Company has historically relied primarily on internally
generated funds and bank borrowings to finance its operations.
As of June 30, 2004, total cash was $1,553,000, a $271,000 increase over the
$1,282,000 reported as of June 30, 2003. At June 30, 2004 and 2003, the Company
had outstanding borrowings totaling $0 and $514,000 respectively, against its
line of credit facility described below.
CASH USED IN OPERATIONS
Net cash used in operations was $1,599,000 and $1,352,000 for the six months
ended June 30, 2004 and 2003, respectively.
The cash used in operations during the six months ended June 30, 2004 and 2003
was largely a result of operating losses incurred during the periods as well as
reductions in accounts and retainage payable in excess of reductions in accounts
and retainage receivable. The Company's backlog at June 30, 2004 was
approximately $34,500,000 as compared to approximately $27,200,000 (restated) at
June 30, 2003. The Company is actively seeking new contracts of shorter duration
where labor and materials costs can be more easily controlled. The Company
believes its current cash resources may not be adequate to compensate for a
decrease in revenue volume during the next year unless overhead costs are
proportionately reduced.
CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was $4,000 and $9,000 during the six
months ended June 30, 2004 and 2003, respectively.
The Company received proceeds on the sale of marketable securities of $336,000
and $204,000 during the six months ended June 30, 2004 and 2003, respectively.
The Company purchased marketable securities of $340,000 and $208,000 during the
six months ended June 30, 2004 and 2003, respectively. In addition, the Company
purchased property and equipment totaling $5,000 during the six months ended
June 30, 2003.
11
CASH PROVIDED BY FINANCING ACTIVITIES
No net cash was provided by financing activities during the six months ended
June 30, 2004, as the Company did not utilize its line of credit facility during
the period. Net cash provided by financing activities was $127,000 for the six
months ended June 30, 2003 as a result of the Company utilizing its line of
credit during the period.
CREDIT FACILITY
The Company currently has a $2,000,000 line of credit with Merrill Lynch, which
expires on August 31, 2004. The line of credit calls for borrowing at 3% over
the 30-Day Dealer Commercial Paper Rate (4.33 % at June 30, 2004). At June 30,
2004 the Company had no outstanding borrowings against the facility. Merrill
Lynch has indicated that it will not renew this line of credit. The Company is
actively seeking other credit providers and is exploring alternative facilities,
but has not yet been able to obtain a replacement facility.
The Company has not utilized this credit facility since July 2003. Based upon
the Company's current cash position and the cash expected to be generated by
projects already under contract, the Company believes its current cash resources
are adequate to fund its current operating requirements. If in the future the
Company is not able to fund its activities without borrowing and this line of
credit has not been replaced, the loss of this facility could have a material
adverse effect on the Company's ability to obtain bonding and take on new
projects and fund then current projects, the effects of which are more fully
described below. The Company's capital resources may not be adequate to
compensate for a decrease in revenue volume during the next year unless the
Company is able to proportionally reduce its overhead costs.
The Company currently has no significant capital expenditure commitments.
SURETY
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
solely at the discretion of the surety and is primarily based upon the Company's
net worth, working capital, the number and size of projects under construction
and the surety's relationship with management. The Company is contingently
liable to the surety under a general indemnity agreement. The Company agrees to
indemnify the surety for any payments made on contracts of suretyship, guaranty
or indemnity as a result of the Company not having the financial capacity to
complete projects. Management believes the likelihood of the surety having to
complete projects is remote. The contingent liability is the cost of completing
all bonded projects, subject to bidding by third parties which is an
undeterminable amount. Management believes that all contingent liabilities will
be satisfied by performance on the specific bonded contracts involved.
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. At June 30,
2004, approximately $26,000,000 of the Company's backlog of $34,500,000 required
bonds.
12
While the Company has a longstanding relationship with its surety, the surety
provides bonding solely at its discretion, and the arrangement with the surety
is an at-will arrangement subject to termination. In addition, the Company's
failure to replace the existing credit line, as described above, could result in
the surety's unwillingness to provide bonds in the future. If the surety was
unwilling to provide bonds in the future, the Company would seek an alternate
surety. If the Company was unable to secure a replacement surety, it would be
unable to bid on certain public projects and certain privately financed projects
which require performance bonds. This would have a material adverse effect on
the Company.
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 to 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:
inability to obtain bonding, inability to retain senior management, inability to
maintain a line of credit facility, low labor productivity and shortages of
skilled labor, recent federal government tariff increases on foreign steel
imports, economic downturn, reliance on certain customers, competition,
inflation, the adverse effect of terrorist concerns and activities on public
budgets and insurance costs, the unavailability 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, 2003. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK
-----------
The Company does not utilize futures, options or other derivative instruments.
As of June 30, 2004, the Company has invested $651,000 in managed stock funds
selected by Merrill Lynch.
13
The Company's market risk exposure with respect to financial instruments depends
upon changes in the "30-Day Dealer Commercial Paper Rate" which at June 30, 2004
was 1.33%. The Company may borrow up to $2,000,000 under its credit facility,
which expires on August 31, 2004. The lender under this facility has indicated
that this line of credit facility will not be renewed. Amounts outstanding under
the credit facility bear interest at 3% over the 30-day dealer commercial paper
rate (4.33% at June 30, 2004). The Company currently does not use interest rate
derivative instruments to manage exposure to interest rate changes. There were
no outstanding borrowings against this facility at June 30, 2004.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
The Company carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of June 30, 2004. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, our disclosure controls and procedures
were effective as of June 30, 2004.
There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the Company's fiscal quarter ended June 30, 2004, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
See Note 3a to the Consolidated Financial Statements, which in incorporated
herein by reference.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 11, 2004, in
Queens, New York, for the purpose of (i) electing two Class II Directors to
serve until the annual meeting of stockholders in the year 2006 and electing two
Class III Directors to serve until the annual meeting of stockholders in the
year 2007 and (ii) ratifying the appointment of Marden, Harrison & Kreuter CPAs,
P.C., as independent auditors for the fiscal year ending December 31, 2004.
Proxies were solicited from holders of 5,470,311 outstanding shares of Common
Stock as of the close of business on April 5, 2004, as described in the
Company's Proxy Statement dated April 9, 2004. Russell Molina and Innis O'Rourke
14
were elected as Class II Directors, Floyd Warkol and Burton Reyer were elected
as Class III Directors, and the appointment of Marden, Harrison & Kreuter CPAs,
P.C. was ratified by the following votes:
(1) To elect two Class II Directors to serve until the annual meeting of
stockholders in the year 2006 and to elect two Class III Directors to
serve until the annual meeting of stockholders in the year 2007.
Votes Votes Broker
Name FOR WITHHELD Non-votes
---- --- -------- ---------
Russell Molina (Class II) 3,782,453 857,805 0
Innis O'Rourke (Class II) 4,626,431 13,827 0
Floyd Warkol (Class III) 4,626,453 13,805 0
Burton Reyer (Class III) 4,626,431 13,827 0
John Cavanagh and Stanley Kreitman continue to serve as directors of
the Company after the Annual Meeting of Stockholders.
(2) To ratify the appointment of Marden, Harrison & Kreuter CPAs, P.C. as
the Company's independent auditors for the fiscal year ending December
31, 2004.
Votes Votes Votes Broker
FOR AGAINST ABSTAINED Non-votes
--- ------- --------- ---------
4,634,221 1,403 4,634 0
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.14 - WCMA Line of Credit Extension Letter, dated June 30,
2004.
Exhibit 11 - Statement regarding Computation of Loss per Share
Exhibit 31.1 - Certification of Chief Executive Officer required by
Rule 13a-14(a).
Exhibit 31.2 - Certification of Chief Financial Officer required by
Rule 13a-14(a).
Exhibit 32.1 - Certification of Chief Executive Officer required by
Rule 13a-14(b) and 18 U.S.C. Section 1350 (furnished
herewith).
Exhibit 32.2 - Certification of Chief Financial Officer required by
Rule 13a-14(b) and 18 U.S.C. Section 1350 (furnished
herewith).
(b) Reports on Form 8-K:
None
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KSW, INC.
Date: August 13, 2004
/s/Richard W. Lucas
-------------------------------------------
Richard W. Lucas
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
16
KSW, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.14 WCMA Line of Credit Extension Letter, dated June 30, 2004.
11 Statements Regarding Computation of Loss per Share
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a).
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a).
32.1 Certification of Chief Executive Officer required by Rule 13a-14(b)
and 18 U.S.C.ss.1350 (furnished herewith)
32.2 Certification of Chief Financial Officer required by Rule 13a-14 (b)
and 18 U.S.C.ss.1350 (furnished herewith)
17