Results of Operations

Revenues

Total revenues for the quarter ended September 30, 2008 increased by $4,500,000, or 21.4% to $25,527,000, as compared to $21,027,000 for the quarter ended September 30, 2007. Total revenues for the nine months ended September 30, 2008 increased by $9,678,000, or 16.6%, to $68,016,000, as compared to $58,338,000 for the nine months ended September 30, 2007. This increase in revenues was a result of the Company's performance on new work as well as work in its backlog.

As of September 30, 2008, the Company had backlog of approximately $117,200,000. This backlog amount at September 30, 2008 does not include the contract value for projects obtained in October 2008 which would include the 55 story residential tower in Downtown Manhattan, valued in excess of $24,000,000, as well as revenues from preconstruction trade management services currently being provided on two new hospital projects. Approximately $92,000,000 of the September 30, 2008 backlog is not reasonably expected to be completed within the year ended December 31, 2008. New contracts secured during the remainder of 2008 could also increase 2008 revenues. The amount of backlog not reasonably expected to be completed in the next fiscal year is subject to various uncertainties and risks. The Company continues to actively seek new projects to add to its backlog.

Cost of Revenues

Costs of revenues for the quarter ended September 30, 2008 increased by $3,636,000, or 20.0% to $21,818,000, as compared to $18,182,000 for the quarter ended September 30, 2007. Costs of revenues for the nine months ended September 30, 2008 increased by $8,633,000, or 17.2% to $58,828,000, as compared to $50,195,000 for the nine months ended September 30, 2007. The increase in costs of revenues for the quarter and nine months ended September 30, 2008, as compared to the same periods in 2007, is primarily associated with the increased revenues.

Gross Profit

Gross profit for the quarter ended September 30, 2008 was $3,709,000, or 14.5% of revenues, as compared to a gross profit of $2,845,000, or 13.5% of revenues, for the quarter ended September 30, 2007.

Gross profit for the nine months ended September 30, 2008 was $9,188,000, or 13.5% of revenues, as compared to gross profit of $8,143,000, or 14.0% of revenues, for the nine months ended September 30, 2007.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the quarter ended September 30, 2008 increased by $284,000, or 23.4% to $1,496,000, as compared to $1,212,000 for the quarter ended September 30, 2007. SG&A for the nine months ended September 30, 2008, increased by $610,000, or 17.2% to $4,147,000, as compared to $3,537,000 for the nine months ended September 30, 2007.

The increase in SG&A for the three and nine months ended September 30, 2008, as compared to the three and nine months ended September 30, 2007, was primarily related to an increase in employment costs, auto expenses, professional fees, costs associated with the public filings, and expenses related to the hiring of an investor relations firm.

Other Income

Other income, which is primarily interest income, for the quarter ended September 30, 2008 was $94,000, as compared to $160,000 for the quarter ended September 30, 2007. Other income for the nine months ended September 30, 2008 was $300,000, as compared to $394,000 for the nine months ended September 30, 2007. The decreases in other income for the three and nine month periods ended September 30, 2008, as compared to the three and nine month periods ended September 30, 2007, was primarily due to a reduction in the interest rates that investment accounts were able to earn.

Provision for Income Taxes

The provision for income taxes for the three months ended September 30, 2008 was $986,000, as compared to the provision for income taxes of $829,000 for the three months ended September 30, 2007. The provision for income taxes for the nine months ended September 30, 2008 was $2,106,000, as compared to a provision for income taxes of $2,278,000 for the nine months ended September 30, 2007.

The tax expense for the three and nine months ended September 30, 2008 was lowered by the Company's ability to utilize the Domestic Production Activities Deduction, a credit available to qualifying entities in construction and other industries.

Net Income

As a result of the above mentioned items, the Company reported net income of $1,321,000, or $.21 per share-basic and diluted, for the quarter ended September 30, 2008 as compared to reported net income of $964,000, or $.16 per share-basic and $.15 diluted for the quarter ended September 30, 2007.

For the nine months ended September 30, 2008, the Company reported net income of $3,235,000, or $.52 per share-basic and $.51 per share-diluted, as compared to reported net income of $2,722,000 or $.44 per share-basic and diluted for the nine months ended September 30, 2007.

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 operation since July 2003.

As of September 30, 2008, total cash and cash equivalents was $17,395,000, an increase from the $16,581,000 reported as of September 30, 2007. In addition, at September 30, 2008 the Company held marketable equity securities totaling $1,561,000 as compared to marketable equity securities totaling $1,716,000 held at September 30, 2007.

Cash provided by operations

Net cash  provided  by  operations  was  $2,401,000  for the nine  months  ended
September  30,  2008,  as  compared  to  $2,983,000  for the nine  months  ended

Cash used in investing activities

Net cash used in investing activities was $110,000 for the nine months ended September 30, 2008, as compared to $1,022,000 for the nine months ended September 30, 2007. The Company purchased property and equipment of $108,000 and $27,000 during the nine months ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008 the Company sold fixed assets which contributed cash proceeds of $11,000.

During the nine months ended September 30, 2008 and 2007, the Company purchased marketable securities totaling $31,000 and $1,001,000, respectively. During the nine months ended September 30, 2008 and 2007, the Company sold marketable securities which contributed cash proceeds of $18,000 and $6,000, respectively.

Cash used in / provided by financing activities

Net cash used in financing activities for the nine months ended September 30, 2008, which includes the dividend paid on June 17, 2008, was $1,128,000 as compared to net cash provided by financing activities, totaling $535,000, for the nine months ended September 30, 2007.

During the nine months ended September 30, 2008, two executives, an employee and a director exercised options to purchase an aggregate of 43,501 shares of the Company's common stock, contributing cash proceeds of $68,000 to the Company.

During the nine months ended September 30, 2007, two company executives, an employee, a director and a former director exercised options to purchase an aggregate of 140,416 shares of the Company's common stock, contributing cash proceeds of $230,000 to the Company.

Prior to adopting SFAS 123-R, the Company presented all tax benefits resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123-R requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities. Excess tax benefits represent tax benefits related to exercised options in excess of the associated deferred tax asset for such options. As a result of adopting SFAS 123-R, $62,000 and $305,000 of excess tax benefits for the nine months ended September 30, 2008 and 2007, respectively, have been classified as an operating cash outflow and a financing cash inflow.

On April 30, 2008, the Company's Board of Directors declared a cash dividend of $.20 per share. The aggregate amount of the dividend was $1,258,000, and was paid on June 17, 2008 to shareholders of record as of May 26, 2008.

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 April 1, 2009, 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 plus one percent per annum (6.0% at September 30, 2008) or the London Inter-Bank Offered Rate ("LIBOR") plus two and one-half percent per annum (6.2% at September 30, 2008).

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.

Other than the Company's contract to purchase a pipe fabrication shop in Bronx, New York that the Company is currently renting (see Item 5 of Part II, Other Information in this Form 10-Q), 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 September 30, 2008, approximately $56,000,000 of the Company's backlog of $117,200,000 is anticipated to be 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, 2007.

Recently Issued Accounting Pronouncements

See Note (6) 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, the inability of developers to secure credit, reliance on certain customers, competition, inflation, the adverse effect of terrorism 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 "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in Part II, Item 1A. "Risk Factors" in this report. 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.