KSW INC - FORM 10-Q - August 12, 2011

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EX-32.2 - SECTION 1350 CERTIFICATIONS - KSW INC	k228712_ex32-2.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATIONS - KSW INC	k228712_ex31-1.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATIONS - KSW INC	k228712_ex31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - KSW INC	Financial_Report.xls
EX-32.1 - SECTION 1350 CERTIFICATIONS - KSW INC	k228712_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 - Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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 001-32865

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of 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, 2011
Common stock, $.01 par value		6,366,625

KSW, INC.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2011

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets – June 30, 2011 (unaudited) and December 31, 2010		3

	Consolidated Statements of Income – Three and six months ended June 30, 2011 and 2010 (unaudited)		4

	Consolidated Statements of Comprehensive Income – Six months ended June 30, 2011 and 2010 (unaudited)		5

	Consolidated Statement of Stockholders’ Equity – Six months ended June 30, 2011(unaudited)		6

	Consolidated Statements of Cash Flows – Six months ended June 30, 2011 and 2010 (unaudited)		7

	Notes to Consolidated Financial Statements		8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results o f Operations		15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		21

Item 4.	Controls and Procedures		21

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3.	Defaults Upon Senior Securities		22
Item 4.	[Removed and Reserved]		22
Item 5.	Other Information		22
Item 6.	Exhibits		22

SIGNATURE			23
INDEX TO EXHIBITS			24

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

KSW, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,037		$	14,945
Marketable securities		2,201			1,625
Accounts receivable		12,120			13,700
Retainage receivable		3,291			4,081
Costs and estimated earnings in excess of billings on uncompleted contracts		3,196			3,714
Prepaid income taxes		81			165
Prepaid expenses and other receivables		264			191
Advances to and earnings from joint venture (Note 5)		709			281
Deferred income taxes		104			124
Total current assets		38,003			38,826
Property and equipment, net of accumulated depreciation and amortization of $2,516 and $2,439 at 6/30/11 and 12/31/10, respectively		2,538			2,614
Deferred income taxes		115			85
Other		34			36
Total assets	$	40,690		$	41,561

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of mortgage payable	$	58		$	58
Accounts payable		12,083			10,641
Retainage payable		2,472			2,349
Accrued payroll and benefits		722			957
Accrued expenses		183			489
Billings in excess of costs and estimated earnings on uncompleted contracts		1,352			3,985
Total current liabilities		16,870			18,479
Mortgage payable, net of current portion		965			994
Total liabilities		17,835			19,473

Commitments and contingencies (Note 8)

Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value, 25,000,000 shares authorized; 6,419,325 shares issued and 6,366,625 shares outstanding		64			64
Additional paid-in capital		13,638			13,634
Retained earnings		9,419			8,683
Accumulated other comprehensive loss:
Net unrealized holding losses on available - for-sale securities		(126	)		(153	)
Less treasury stock at cost, 52,700 shares		(140	)		(140	)
Total stockholders' equity		22,855			22,088
Total liabilities and stockholders' equity	$	40,690		$	41,561

See accompanying notes to consolidated financial statements.

KSW, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010

Revenues	$	17,432		$	24,439		$	33,980		$	37,899
Cost of revenues		15,365			21,755			30,191			33,808

Gross profit		2,067			2,684			3,789			4,091

Selling, general and administrative expenses		1,318			1,405			2,620			2,641

Operating income		749			1,279			1,169			1,450

Other income:		21			24			43			58
Interest income
Interest expense		(14	)		(15	)		(29	)		(28	)
Total other income		7			9			14			30

Income before provision for income taxes		756			1,288			1,183			1,480

Provision for income taxes		331			567			447			672

Net income	$	425		$	721		$	736		$	808

Earnings per common share:
Basic	$	.07		$	.11		$	.12		$	.13

Diluted	$	.07		$	.11		$	.12		$	.13

Weighted average common shares outstanding:
Basic		6,366,625			6,288,774			6,366,625			6,266,567
Diluted		6,374,579			6,307,756			6,374,437			6,286,364

See accompanying notes to consolidated financial statements.

KSW, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010			Six Months Ended June 30, 2011		Six Months Ended June 30, 2010

Net income	$	425	$	721		$	736	$	808

Other comprehensive income (loss) before income tax (benefit):

Unrealized holding gains (losses) arising during the period		26		(89	)		48		(53	)

Less: reclassification adjustment for gains included in net income		-		-			-		-

Other comprehensive income (loss) before income tax provision (benefit)		26		(89	)		48		(53	)
Income tax provision (benefit) related to items of other comprehensive income (loss)		12		(40	)		21		(24	)

Other comprehensive income (loss), net of income tax provision (benefit)		14		(49	)		27		(29	)
Total comprehensive income	$	439	$	672		$	763	$	779

See accompanying notes to consolidated financial statements.

KSW, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2011

(in thousands, except share data)

(unaudited)

	Common Stock				Additional Paid-In		Retained		Accumulated Other Comprehensive			Treasury
	Shares		Amount		Capital		Earnings		Loss			Stock			Total
Balances, December 31, 2010		6,419,325	$	64	$	13,634	$	8,683	$	(153	)	$	(140	)	$	22,088

Net income		-		-		-		736		-			-			736

Amortization of share-based compensation		-		-		4		-		-			-			4

Net unrealized gains on available-for-sale securities		-		-		-		-		27			-			27

Balances, June 30, 2011		6,419,325	$	64	$	13,638	$	9,419	$	(126	)	$	(140	)	$	22,855

See accompanying notes to consolidated financial statements.

KSW, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Cash flows from operating activities:
Net income	$	736		$	808
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		79			85
Deferred income taxes		(31	)		5
Tax benefits from exercise of stock options		-			(71	)
Stock-based compensation expense related to stock option plan		4			12
Earnings from joint venture		(215	)		(37	)
Changes in operating assets and liabilities:
Accounts receivable		1,580			(8,686	)
Retainage receivable		790			(658	)
Costs and estimated earnings in excess of billings on uncompleted contracts		518			(917	)
Prepaid income taxes		84			-
Prepaid expenses and other receivables		(73	)		(327	)
Accounts payable		1,442			5,518
Retainage payable		123			698
Accrued payroll and benefits		(235	)		201
Accrued expenses		(306	)		167
Billings in excess of costs and estimated earnings on uncompleted contracts		(2,633	)		2,823
Income taxes payable		-			164
Net cash provided by (used in) operating activities		1,863			(215	)

Cash flows from investing activities:
Purchases of property and equipment		(1	)		(85	)
Proceeds from sale of marketable securities		-			1,045
Purchases of marketable securities		(528	)		(527	)
Repayment by / (Advances to) Joint Venture		(213	)		17
Net cash provided by (used in) investing activities		(742	)		450

Cash flows from financing activities:
Proceeds from employee stock options exercised		-			143
Dividends paid		-			(628	)
Repayment of mortgage payable		(29	)		(31	)
Tax benefits from employee stock options exercised		-			71
Net cash used in financing activities		(29	)		(445	)

Net increase (decrease) in cash and cash equivalents		1,092			(210	)
Cash and cash equivalents, beginning of period		14,945			13,738
Cash and cash equivalents, end of period	$	16,037		$	13,528

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	29		$	28
Income taxes	$	374		$	497

See accompanying notes to consolidated financial statements.

KSW, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.	Nature of Operations and Basis of Presentation

KSW, Inc. and its subsidiary, KSW Mechanical Services, Inc., together the “Company”, furnishes and installs heating, ventilating and air conditioning systems and process 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. The Company considers itself to operate as 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 disclosures required by accounting principles generally accepted in the United States of America. These consolidated statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments of normal recurring nature necessary for a fair presentation of the consolidated financial position of the Company as of June 30, 2011, and its results of operations and comprehensive income for the three and six month periods ended June 30, 2011 and 2010, and cash flows for the six month periods ended June 30, 2011 and 2010. 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 ending December 31, 2011.

2.	Significant Accounting Policies

The significant accounting policies followed by the Company in preparing its consolidated financial statements are set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company has made no significant changes to these policies during 2011.

The Company follows accounting standards set by the Financial Accounting Standards Board, commonly referred to as the “FASB.” The FASB sets generally accepted accounting principles (“GAAP”) that the Company follows to ensure its consistent reporting of financial condition, results of operations, and cash flows.

3.	Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash equivalents, marketable securities, receivables, payables and other amounts arising out of normal contract activities, including retentions, which may be settled beyond one year, reasonably approximate their fair values.

The fair value of the Company’s mortgage payable, which is not traded in the market, is estimated by considering the Company’s credit rating, current rates available to the Company for debt of the same remaining maturity and the terms of the debt.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2011.

4.	Marketable Securities

FASB ASC 820-10, “Fair Value Measurements”, established a broad three level fair value hierarchy that prioritizes observable and unobservable inputs which are used to measure fair value.

The Company values short-term investments, mutual funds and marketable equity securities using market prices on active markets, which is Level 1 of the FASB ASC 820-10 fair value hierarchy. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Financial assets carried at fair value at June 30, 2011 and December 31, 2010 are classified in the tables below in one of three broad categories.

June 30, 2011:

	Level 1		Level 2		Level 3		Total
Mutual funds and marketable equity securities	$	1,682,000	$	-	$	-	$	1,682,000

Six month Canadian time deposit		519,000		-		-		519,000

Total	$	2,201,000	$	-	$	-	$	2,201,000

December 31, 2010:

	Level 1		Level 2		Level 3		Total

Mutual funds and marketable equity securities	$	1,625,000	$	-	$	-	$	1,625,000

5.	Joint Venture

During the third quarter of 2009, a Joint Venture in which the Company and Five Star

Electric Corporation each have a 50 percent ownership interest was awarded a $46 million contract for the construction of a chiller plant at the World Trade Center site.

The work covered by the Joint Venture is made up of three components, (1) a mechanical segment performed by the Company, (2) an electrical segment performed by the Company’s joint venture partner and (3) a general construction segment. The Joint Venture has issued three contracts, (1) to the Company to perform the mechanical work, (2) to the Company’s partner to perform the electrical work and (3) to a construction manager to perform the general construction work as an agent for the Joint Venture, on a reimbursable cost plus fee basis.

The Company has provided a guaranteed maximum price for the mechanical segment of the contract, and its joint venture partner has provided a guaranteed maximum price for the electrical segment of the contract. The Company shares joint venture profits/losses derived from the general construction segment equally with its joint venture partner.

If the other partner is unable to complete its contractual obligations, the Company would be fully liable to do so under the Joint Venture’s contract with the Port Authority of New York and New Jersey. The Company and its partner are also jointly and severally liable to the bonding company that issued the payment and performance bond for the Joint Venture. Circumstances that could lead to a loss under the joint venture agreement beyond the Company’s stated ownership interest include the other partner’s inability to contribute additional funds to the Joint Venture in the event the project incurs a loss, additional costs that the Company could incur should the partner fail to provide the services and resources toward project completion that it committed to provide in the joint venture agreement, and the partner’s failure to pay its subcontractors and suppliers.

The Company uses a combination of the proportionate consolidation method and the equity method to account for its interest in the Joint Venture. The Company records the assets, liabilities, revenues and costs of revenues associated with the mechanical segment of the contract as gross amounts, in the financial statements (i.e. using the proportionate consolidation method), as it would any other contract with a third party. The Company records its 50% share of the revenues and costs of revenues associated with the general construction segment of the contract as gross amounts in the consolidated statement of income and records its portion of the assets and liabilities as a net amount in the consolidated balance sheet (i.e. using the equity method), under the caption “Advances to and earnings from joint venture”. The joint venture partner is responsible for the electrical portion of the contract, and the Company is not recognizing any portion of that part of the joint venture contract in its financial statements.

In order to ensure that the Company’s unconsolidated Joint Venture was properly capitalized, the Company and its partner were billing the Joint Venture only for the costs incurred on their respective portions of the joint venture contract. The decision to bill the Joint Venture only for the costs incurred on the project did not have a significant impact on the Company’s liquidity.

As the job progresses, and the Joint Venture determines that it will not incur any unaccounted for costs, and is not subject to any significant adjustments between the Joint Venture and the Port Authority of New York and New Jersey for additional or deleted

work, the Joint Venture will make additional distributions to each partner of a portion of the difference between each partner’s adjusted subcontract and the amounts paid to each partner. During the six months ended June 30, 2011, the Company and its joint venture partner have each received distributions of $900,000 in excess of their costs. At final completion, any balance remaining will be distributed.

Since the Company is currently billing the Joint Venture for its costs related to the performance of the mechanical portion of the Joint Venture contract, and the agreed upon profit distribution, this transaction increases amounts the Company records in its consolidated balance sheets under the caption “Costs and estimated earnings in excess of billings on uncompleted contracts”.

During the quarter ended June 30, 2011, the Joint Venture terminated the contract with the construction manager which had been responsible for the general construction segment. The Company hired certain employees of this construction manager to continue to perform certain of the general construction tasks. The Company is also funding other general construction costs on behalf of the Joint Venture. These costs are included in the Company’s consolidated financial statements as advances to the Joint Venture. All outstanding advances to the Joint Venture as of June 30, 2011 were repaid during July 2011.

The Company does not believe that the termination of its construction manager will have any effect on the ability of the Company to complete its contract obligations, and will not have a material effect on the overall profitability of the project.

As of June 30, 2011, the Joint Venture had cash totaling approximately $6,000,000 no portion of which was included in the Company’s cash balance in the consolidated balance sheet as of June 30, 2011.

The following schedule summarizes for the six months ended June 30, 2011, the amounts the Company has recorded in its consolidated balance sheets under the caption “Advances to and earnings from joint venture”:

	Balance at December 31, 2010		Activity for the six months ended June 30, 2011		Balance at June 30, 2011
Advances to joint venture	$	-	$	213,000	$	213,000
Earnings from joint venture		281,000		215,000		496,000
Total	$	281,000	$	428,000	$	709,000

6.	Stockholders’ Equity

(A) Stock Option Plans:

The Company has outstanding stock options issued under two plans, the KSW, Inc. 1995 Stock Option Plan (“1995 plan”) and the KSW, Inc. 2007 Stock Option Plan (“2007 plan”).

The 1995 plan expired December 2005. Therefore, no new options can be granted under that plan. At June 30, 2011, there were 14,001 outstanding exercisable options, which were previously issued under the 1995 plan, expiring on various dates through 2015.

The 2007 plan was adopted and approved by the Company’s Board of Directors on May 8, 2007 and was approved by the shareholders at the May 2008 Annual Meeting of Stockholders. Pursuant to the 2007 plan, 300,000 shares of common stock of the Company are reserved for issuance to employees, consultants and directors of the Company. The primary purpose of the 2007 plan is to reward and retain key employees and to compensate directors. No options have been issued to officers or employees under the 2007 plan. At June 30, 2011, there were 40,000 options outstanding of which 33,333 were vested under the 2007 plan.

During the three and six months ended June 30, 2011, the Company incurred compensation expense related to the vesting of stock options totaling approximately $2,000 and $4,000, respectively. There were no stock options exercised during the six months ended June 30, 2011.

During the three and six months ended June 30, 2010, the Company incurred compensation expense related to the vesting of stock options totaling approximately $6,000 and $12,000, respectively. During the three months ended June 30, 2010, an executive exercised an aggregate of 82,238 options. In addition, an executive and the estate of a former director, exercised an aggregate of 8,000 options during the three months ended March 31, 2010.

As of June 30, 2011, there is approximately $8,000 of unrecognized compensation expense related to unvested stock-based compensation awards. That cost is expected to be recognized over the next year.

Under both plans, options were granted to certain employees, executives and directors at prices equal to the market value of the stock on the dates the options were issued. The options granted generally have a term of 10 years from the grant date and granted options vest ratably over a three year period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. The Company estimates the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes pricing valuation model. The application of this valuation model involves assumptions that are judgmental and sensitive in the determination of compensation expense which would include the expected stock price volatility, risk-free interest rate, weighted-average expected life of the options and the dividend yield.

Historical information is the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of options. The risk free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. Stock option activity for the six months ended June 30, 2011 was as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value

Outstanding at January 1, 2011		54,001	$	3.95

Expired/canceled		-	$	-

Granted		-	$	-

Exercised		-	$	-

Outstanding at June 30, 2011		54,001	$	3.95		6.2	$	59,000

Exercisable at June 30, 2011		47,334	$	4.39		6.0	$	50,000

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised during the three and six months ended June 30, 2011 and 2010 are as follows:

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Proceeds from stock options exercised	$	-	$	131,000	$	-	$	143,000
Tax benefits related to stock options exercised	$	-	$	64,000	$	-	$	71,000
Intrinsic value of stock options exercised	$	-	$	143,000	$	-	$	159,000

(B)

Dividend

On March 9, 2010, the Company’s Board of Directors declared a cash dividend of $.10 per share. The aggregate amount of the dividend was $628,000, and was paid on May 24, 2010 to stockholders of record as of April 26, 2010. On November 29, 2010, the Company’s Board of Directors declared a cash dividend of $.07 per share. The aggregate amount on the dividend was $445,000, and was paid on December 20, 2010 to stockholders of record as of December 14, 2010.

On August 9, 2011, the Company’s Board of Directors declared a cash dividend of $.15 per share, to be paid on August 29, 2011 to shareholder of record on August 23, 2011.

(C)	Treasury Stock

During December 2008, the Company’s Board of Directors authorized the purchase, through June 2009, of up to $1,000,000 of the Company’s common stock on the open market. As of June 30, 2011, the Company purchased 52,700 shares of the Company’s common stock at a total cost of $140,000.

7.	Earnings per Share

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010

Net income	$	425,000	$	721,000	$	736,000	$	808,000

Earnings per share – basic:
Weighted average shares outstanding during the period		6,366,625		6,288,774		6,366,625		6,266,567

Earnings per share - basic	$	.07	$	.11	$	.12	$	.13

Earnings per share – diluted:
Weighted average shares outstanding during the period		6,366,625		6,288,774		6,366,625		6,266,567

Effect of stock option dilution		7,954		18,982		7,812		19,797

Total shares outstanding for purposes of calculating diluted earnings per share		6,374,579		6,307,756		6,374,437		6,286,364

Earnings per share – diluted	$	.07	$	.11	$	.12	$	.13

8.	Commitment and Contingencies

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 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 acknowledgments of the validity of the claims are received, the claims are not recognized in the accompanying consolidated 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.

9.	Recently Issued Accounting Pronouncements

There are no recently issued accounting pronouncements which will affect the Company.

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, 2011 decreased by $7,007,000, or (28.7) %, to $17,432,000, as compared to $24,439,000 for the quarter ended June 30, 2010. Total revenues for the six months ended June 30, 2011 decreased by $3,919,000, or (10.3)%, to $33,980,000, as compared to $37,899,000 for the six months ended June 30, 2010.

The decrease in revenue was the result of the completion of older projects and the slow start of some of the newer projects. Those projects, such as the chiller plant at the United Nations, are now underway. In addition, during the quarter ended June 30, 2011, the Company was awarded new private sector contracts totaling approximately $36,000,000. These projects included three residential buildings at Gotham West in Manhattan, a 41 story apartment building in Long Island City, New York and a Manhattan hotel. These projects are currently in the preliminary planning stages and are anticipated to begin their construction phases during the second half of 2011, at which time they will contribute to the Company’s revenue. The Company is actively seeking both private and public sector contracts to add to its backlog.

As of June 30, 2011 the Company had backlog of approximately $90,200,000.

Approximately $54,000,000 of the June 30, 2011 backlog is not reasonably expected to be completed within the year ending December 31, 2011. New contracts secured during 2011 will increase 2011 revenues. The amount of backlog not reasonably expected to be completed in the current fiscal year is subject to various uncertainties and risks.

Cost of Revenues

Cost of revenues for the quarter ended June 30, 2011 decreased by $6,390,000, or (29.4)%, to $15,365,000, as compared to $21,755,000 for the quarter ended June 30, 2010. Cost of revenues for the six months ended June 30, 2011 decreased by $3,617,000, or (10.7)%, to $30,191,000, as compared to $33,808,000 for the six months ended June 30, 2010. The decrease in cost of revenues for the quarter and six months ended June 30, 2011, as compared to the same periods in 2010, were primarily associated with the decreased revenues.

Costs of revenues include subcontractor costs, field labor, material, equipment and overhead expenses. Overhead costs include project supervision and drafting salaries as well as insurance costs. Higher revenues generally require higher expenditures of costs, but high revenues allow the Company to allocate the cost of project supervision and drafting salaries over multiple projects and more effectively utilize its experienced field labor personnel.

One component of the cost of revenues is steel products such as pipe, valves and fittings which the Company typically installs on its projects. The Company purchases steel products from local, national and international distributors. The Company includes allowances in its estimates for future escalations in steel prices due to market conditions. When market conditions indicated a price rise, the Company has in the past entered into agreements locking in prices with its suppliers to purchase steel products at fixed dollar amounts for extended time periods. When steel product prices do not fluctuate, the Company purchases these products on a price in effect basis. Currently, steel product prices are not fluctuating significantly.

Gross Profit

Gross profit for the quarter ended June 30, 2011, was $ 2,067,000, or 11.9 % of revenues, as compared to gross profit of $ 2,684,000, or 11.0 % of revenues for the quarter ended June 30, 2010.

Gross profit for the six months ended June 30, 2011 was $3,789,000, or 11.2% of revenues, as compared to gross profit of $4,091,000, or 10.8% of revenues for the six months ended June 30, 2010.

The decrease in gross profit for the quarter and six months ended June 30, 2011, as compared to the same periods in 2010, was primarily a result of the decrease in revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the quarter ended June 30, 2011 decreased by $ 87,000, or (6.2)%, to $1,318,000, as compared to $1,405,000 for the quarter ended June 30, 2010. SG&A for the six months ended June 30, 2011 decreased by $21,000, or (.8)%, to $2,620,000, as compared to $2,641,000 for the six months ended June 30, 2010.

The decrease in SG&A during the quarter ended June 30, 2011, as compared to the same period in 2010, was primarily related to a decrease in employment costs as well as the Company’s ability to charge a portion of its overhead costs to trade management contracts.

The decrease in SG&A during six months ended June 30, 2011, as compared to the same period in 2010, was primarily related to the Company’s ability to charge a portion of its overhead costs to trade management contracts.

Other Income

Other income for the quarter ended June 30, 2011 was $7,000, as compared to $9,000 for the quarter ended June 30, 2010. Other income for the six months ended June 30, 2011 was $14,000, as compared to $30,000 for the six months ended June 30, 2010. The decreases in other income for the quarter and six months ended June 30, 2011, as compared to the same periods in 2010, were primarily due to a decrease in the interest rates that our investments were able to earn.

Provision for Income Taxes

The provision for income taxes for the quarter ended June 30, 2011 was $331,000, as compared to the provision for income taxes of $567,000 for the quarter ended June 30, 2010. The provision for income taxes for the six months ended June 30, 2011 was $447,000, as compared to a provision for income taxes of $672,000 for the six months ended June 30, 2010.

The effective tax rate during the three and six months ended June 30, 2011, as compared to the same periods in 2010, was lower than the Company’s statutory tax rate as a result of a reversal during 2011 of a prior year over accrual of taxes.

Net Income

As a result of the above mentioned items, the Company reported net income of $425,000, or $.07 per share, basic and diluted, for the quarter ended June 30, 2011, as compared to reported net income of $721,000, or $.11 per share, basic and diluted, for the quarter ended June 30, 2010.

For the six months ended June 30, 2011, the Company reported net income of $736,000, or $.12 per share, basic and diluted, as compared to reported net income of $808,000, or $.13 per share, basic and diluted, for the six months ended June 30, 2010.

Liquidity and Capital Resources

General

The Company’s principal capital requirement is to fund its work on construction projects. Projects are billed monthly 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. The Company has a line of credit which is subject to certain conditions. The Company has not relied on bank borrowings to finance its operations since July 2003.

As of June 30, 2011, total cash and cash equivalents was $16,037,000, a $2,509,000 increase from the $13,528,000 reported as of June 30, 2010. As of June 30, 2011, the Company’s Joint Venture had cash totaling approximately $6,000,000, which is not included in the Company’s consolidated balance sheet as of June 30, 2011. As of June 30, 2011, marketable securities were $2,201,000, as compared to $2,033,000 reported as of June 30, 2010.

Cash provided by (used in) operations

Net cash provided by operations was $1,863,000 for the six months ended June 30, 2011.

Net cash used in operations was $215,000 for the six months ended June 30, 2010.

Cash received from customers includes contract revenues plus the changes in accounts receivable, retainage receivable, costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of estimated earnings on uncompleted contracts less unconsolidated joint venture billings. Cash received from customers for the six months ended June 30, 2011 increased 7.3% as compared to the same period in 2010. This increase is primarily a result of the collection of receivables related to projects which were ongoing in 2010 and were completed during 2011. These increased receipts, as well as interest income, were offset by amounts paid to fund project and selling, general and administrative costs, which include executive bonuses, interest expense and the payment of corporate income taxes. These items contributed to the increase in cash provided by operations in 2011 as compared to cash used in operations in 2010.

In order to ensure that the Company’s unconsolidated Joint Venture was properly capitalized, the Company and its partner had been billing the Joint Venture only for the costs incurred on their respective portions of the joint venture contract. The Company believes that this arrangement did not have a significant impact on the Company’s liquidity. During the six months ended June 30, 2011, the Company and its joint venture partner have each received distributions of $900,000 in excess of their costs.

As the project reaches substantial completion, which is anticipated to occur in the fourth quarter of 2011, and the Joint Venture determines that it will not incur any unaccounted for costs, and is not subject to any significant adjustments between the Joint Venture and the Port Authority of New York and New Jersey for additional or deleted work, the Joint Venture will make additional distributions to each partner of a portion of the difference between each partner’s adjusted subcontract and the amounts paid to each partner. At final completion, any balance remaining will be distributed.

Cash (used in) provided by investing activities

Net cash used in investing activities was $742,000 for the six months ended June 30, 2011.

Net cash provided by investing activities was $450,000 for the six months ended June 30, 2010.

The Company purchased property and equipment totaling $1,000 and $85,000 and marketable securities totaling $528,000 and $527,000 during the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2010, the Company had proceeds from the maturing of short-term investments totaling $1,045,000. In addition, the Company’s unconsolidated joint venture has repaid advances totaling $17,000 during the six months ended June 30, 2010. During the six months ended June 30, 2011, the Company has advanced its unconsolidated joint venture for general construction costs totaling $213,000, which was repaid during July 2011.

Cash used in financing activities

Net cash used in financing activities during the six months ended June 30, 2011 and 2010 was $29,000 and $445,000, respectively.

On March 9, 2010, the Company’s Board of Directors declared a cash dividend of $.10 per share. The aggregate amount of the dividend was $628,000 and was paid on May 24, 2010 to stockholders of record as of April 26, 2010.

During the six months ended June 30, 2010, an executive and the estate of a former director exercised options to purchase an aggregate of 90,238 shares contributing cash proceeds of $143,000 to the Company.

The Company presents excess tax benefits resulting from the exercise of stock options as part of cash flows from financing activities. Excess tax benefits represent tax benefits related to exercised options in excess of the associated deferred tax assets for such options. For the six months ended June 30, 2010, $71,000 of excess tax benefits have been classified as an operating cash outflow and a financing cash inflow.

In addition, the Company repaid principal payments on its mortgage payable totaling $29,000 and $31,000 during the six months ended June 30, 2011 and 2010, respectively.

Credit Facility

The Company has a line of credit facility from Bank of America, N.A., which provides borrowings for working capital purposes up to $2,000,000. This facility expires on March 31, 2012, is secured by the Company’s assets, and is guaranteed by the Company’s subsidiary, KSW Mechanical Services, Inc. There have been no borrowings against this line of credit.

Advances bear interest, at the Company’s option, at either the bank’s prime lending rate (3.25 % at June 30, 2011) or the London Inter-Bank Offered Rate (“LIBOR”) (.17% at June 30, 2011) plus two percent per annum.

Payment may be accelerated by certain events of default such as unfavorable credit factors, the occurrence of a material adverse change in the Company’s business, properties or financial condition, a default in payment on the line, impairment of security, bankruptcy, or the Company ceasing operations or being unable to pay its debts. The line of credit must be paid in full at the end of the term.

Commitments

The Company currently has no significant capital expenditure commitments.

Surety

On some of its projects, the Company is required to provide a surety bond. The Company obtains its surety bonds from Federal Insurance Company, a member of Chubb Group of Insurance Companies. 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 that might result from 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, which is an undeterminable amount because it is subject to bidding by third parties. Management believes that all contingent liabilities will be satisfied by the Company’s performance on the specific bonded contracts involved. The surety provides bonding solely at its discretion and the arrangement with the surety is an at-will arrangement subject to termination.

The Company’s bonding limits have been 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, 2011, approximately $24,000,000 of the Company’s backlog of $90,200,000 was bonded.

Critical Accounting Policies and Estimates

There have been no material changes in the accounting policies and estimates that the Company considers to be “critical” from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued Accounting Pronouncements

See Note (9) to the consolidated financial statements for a summary of recently issued accounting pronouncements and their impact on the Company.

Forward-Looking Statements

Certain statements contained in this report are not historical facts and 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 words 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 expectations 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, low labor productivity and shortages of skilled labor, a rise in the price of steel products, economic downturn, cancellation, suspension or delay of projects by customers, 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 in “ Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Forward-looking statements speak only as of the date of the document in which they are made. Other than required by applicable law, the Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements to reflect any changes in the Company’s expectations or any changes in events, conditions or circumstances on which the forward-looking statements are based.

ITEM 3.

QUANTITITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not utilize futures, options or other derivative instruments other than a completed interest rate swap on its mortgage payable with Bank of America, N.A. Because the mortgage is a variable rate mortgage, the Company used an interest rate swap instrument to fix the interest rate that the Company pays at 5% over the term of the mortgage.

In addition, as of June 30, 2011, the Company had $2,201,000 of marketable securities.

ITEM 4.

CONTROLS AND PROCEDURES

As of June 30, 2011, our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this assessment, management determined that, as of June 30, 2011, the Company’s disclosure controls and procedures were effective.

There have been no changes 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 quarter ended June 30, 2011, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party, except the case of KSW Mechanical Services, Inc. v. Pavarini McGovern, LLC, et. al.,(PMG), Supreme Court, N.Y. County, which is an action to recover KSW’s contract balance of $529,000, plus delay and impact costs of $160,032, from PMG, the construction manager on the 45th Street Hotel project. PMG and the owner of the project (“Owner”) have been in litigation and in alternative dispute resolution proceedings over monetary issues

unrelated to the Company’s work. The Construction Manager has cited these disputes with the Owner as the basis for failing to pay the Company’s contract balance. There are two companion mechanic’s lien foreclosure actions instituted by other subcontractors. The Company is a party to these actions because it has also filed a lien. The actions are entering the discovery stage. On April 5, 2011, the Owner filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The Owner has filed a Plan of Reorganization which does not impair the rights of mechanic’s lienors such as the Company. Under the Plan, which was approved by the Bankruptcy Court, $11,000,000 is set aside for the payment of mechanics lienors such as the Company. The Company believes that the receivable recorded on its books should be collected.

ITEM 1A.

RISK FACTORS

There have been no material changes in or additions to the risk factors disclosed in the Company’s December 31, 2010 Annual Report on Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

[REMOVED AND RESERVED]

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit 11 – Statement Regarding Computation of Earnings per Share (see Note 7 to the Consolidated Financial Statements included elsewhere in this Report)

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

Exhibit 32.2 – Certification of Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350

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 12, 2011
	/s/Richard W. Lucas
	Richard W. Lucas
	Chief Financial Officer

	(Principal Financial and Accounting Officer
	and Duly Authorized Officer)

KSW, INC.

INDEX TO EXHIBITS

Exhibit Number		Description

11		Statement Regarding Computation of Earnings per Share(see Note 7 to the Consolidated Financial Statements included elsewhere in this Report)

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. §1350

32.2		Certification of Chief Financial Officer required by Rule 13a-14 (b) and 18 U.S.C. §1350

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